Act. No.

2137, Warehouse Receipt Law

Sec. 58. Definitions. — (a) In this Act, unless the content or subject matter otherwise requires:

"Action" includes counterclaim, set-off, and suits in equity as provided by law in these islands.

"Delivery" means voluntary transfer of possession from one person to another.

"Fungible goods" means goods of which any unit is, from its nature by mercantile custom, treated as the equivalent of
any other unit.

"Goods" means chattels or merchandise in storage or which has been or is about to be stored.

"Holder" of a receipt means a person who has both actual possession of such receipt and a right of property therein.

"Order" means an order by indorsement on the receipt.

"Owner" does not include mortgagee.

"Person" includes a corporation or partnership or two or more persons having a joint or common interest.

To "purchase" includes to take as mortgagee or as pledgee.

"Receipt" means a warehouse receipt.

"Value" is any consideration sufficient to support a simple contract. An antecedent or pre-existing obligation, whether
for money or not, constitutes value where a receipt is taken either in satisfaction thereof or as security therefor.

"Warehouseman" means a person lawfully engaged in the business of storing goods for profit.

(b) A thing is done "in good faith" within the meaning of this Act when it is in fact done honestly, whether it be done
negligently or not.

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. 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.

PRESIDENTIAL DECREE NO. 1684

PRESIDENTIAL DECREE NO. 1684 - AMENDING FURTHER ACT NUMBERED TWO THOUSAND SIX HUNDRED
FIFTY-FIVE, AS AMENDED, OTHERWISE KNOWN AS "THE USURY LAW"

Sec. 7-a. Parties to an agreement pertaining to a loan or forbearance of money, goods or credits may stipulate that the
rate of interest agreed upon may be increased in the event that the applicable maximum rate of interest is increased
by law or by the Monetary Board: Provided, That such stipulation shall be valid only if there is also a stipulation in the
agreement that the rate of interest agreed upon shall be reduced in the event that the applicable maximum rate of
interest is reduced by law or by the Monetary Board: Provided, further, That the adjustment in the rate of interest agreed
upon shall take effect on or after the effectivity of the increase or decrease in the maximum rate of interest.

July 29, 1974CBP CIRCULAR NO. 416-74

By virtue of the authority granted to it under Section 1 of Act No. 2655, as amended, otherwise known as the"Usury
Law", the Monetary Board, in its Resolution No. 1622 dated July 29, 1974, has prescribed that therate of interest for
the loan or forbearance of any money, goods or credits and the rate allowed in judgments,in the absence of express
contract as to such rate of interest, shall be twelve per cent (12%) per annum

BSP CIRCULAR NO. 799 (June 21, 2013)

In the absence of a contract expressly providing for a different rate, the rate of interest for the loan or forbearance of
any money, goods or credits and the rate allowed in judgments has been reduced from twelve percent (12%) to six
percent (6%) per annum.

Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially
demands from them the fulfillment of their obligation.

However, the demand by the creditor shall not be necessary in order that delay may exist:

(1) When the obligation or the law expressly so declare; or

(2) When from the nature and the circumstances of the obligation it appears that the designation of the time when the
thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the
contract; or
(3) When demand would be useless, as when the obligor has rendered it beyond his power to perform.

In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper
manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by
the other begins. (1100a)

Art. 1226. In obligations with a penal clause, the penalty shall substitute the indemnity for damages and the payment
of interests in case of noncompliance, 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. (1152a)

Art. 1249. The payment of debts in money shall be made in the currency stipulated, and if it is not possible to deliver
such currency, then in the currency which is legal tender in the Philippines.

The delivery of promissory notes payable to order, or bills of exchange or other mercantile documents shall produce
the effect of payment only when they have been cashed, or when through the fault of the creditor they have been
impaired.

In the meantime, the action derived from the original obligation shall be held in the abeyance. (1170)

Art. 1250. In case an extraordinary inflation or deflation of the currency stipulated should supervene, the value of the
currency at the time of the establishment of the obligation shall be the basis of payment, unless there is an agreement
to the contrary. (n)

Art. 1253. If the debt produces interest, payment of the principal shall not be deemed to have been made until the
interests have been covered. (1173)

Art. 1423. Obligations are civil or natural. Civil obligations give a right of action to compel their performance. Natural
obligations, not being based on positive law but on equity and natural law, do not grant a right of action to enforce their
performance, but after voluntary fulfillment by the obligor, they authorize the retention of what has been delivered or
rendered by reason thereof. Some natural obligations are set forth in the following articles.

Art. 1933. By the contract of loan, one of the parties delivers to another, either something not consumable so that the
latter may use the same for a certain time and return it, in which case the contract is called a commodatum; or money
or other consumable thing, upon the condition that the same amount of the same kind and quality shall be paid, in
which case the contract is simply called a loan or mutuum.
Commodatum is essentially gratuitous.

Simple loan may be gratuitous or with a stipulation to pay interest.

In commodatum the bailor retains the ownership of the thing loaned, while in simple loan, ownership passes to the
borrower. (1740a)

COMMODATUM
SECTION 1 - Nature of Commodatum

Art. 1935. The bailee in commodatum acquires the used of the thing loaned but not its fruits; if any compensation is to
be paid by him who acquires the use, the contract ceases to be a commodatum. (1941a)
Art. 1936. Consumable goods may be the subject of commodatum if the purpose of the contract is not the consumption
of the object, as when it is merely for exhibition. (n)

Art. 1937. Movable or immovable property may be the object of commodatum. (n)

Art. 1938. The bailor in commodatum need not be the owner of the thing loaned. (n)

Art. 1939. Commodatum is purely personal in character. Consequently:

(1) The death of either the bailor or the bailee extinguishes the contract;

(2) The bailee can neither lend nor lease the object of the contract to a third person. However, the members of the
bailee's household may make use of the thing loaned, unless there is a stipulation to the contrary, or unless the nature
of the thing forbids such use. (n)

Art. 1940. A stipulation that the bailee may make use of the fruits of the thing loaned is valid. (n)

SECTION 2. - Obligations of the Bailee

Art. 1941. The bailee is obliged to pay for the ordinary expenses for the use and preservation of the thing loaned.
(1743a)
Art. 1942. The bailee is liable for the loss of the thing, even if it should be through a fortuitous event:

(1) If he devotes the thing to any purpose different from that for which it has been loaned;

(2) If he keeps it longer than the period stipulated, or after the accomplishment of the use for which the commodatum
has been constituted;

(3) If the thing loaned has been delivered with appraisal of its value, unless there is a stipulation exemption the bailee
from responsibility in case of a fortuitous event;

(4) If he lends or leases the thing to a third person, who is not a member of his household;

(5) If, being able to save either the thing borrowed or his own thing, he chose to save the latter. (1744a and 1745)

Art. 1943. The bailee does not answer for the deterioration of the thing loaned due only to the use thereof and without
his fault. (1746)
Art. 1944. The bailee cannot retain the thing loaned on the ground that the bailor owes him something, even though it
may be by reason of expenses. However, the bailee has a right of retention for damages mentioned in Article 1951.
(1747a)

Art. 1945. When there are two or more bailees to whom a thing is loaned in the same contract, they are liable solidarily.
(1748a)

SECTION 3. - Obligations of the Bailor

Art. 1946. The bailor cannot demand the return of the thing loaned till after the expiration of the period stipulated, or
after the accomplishment of the use for which the commodatum has been constituted. However, if in the meantime, he
should have urgent need of the thing, he may demand its return or temporary use.
In case of temporary use by the bailor, the contract of commodatum is suspended while the thing is in the possession
of the bailor. (1749a)

Art. 1947. The bailor may demand the thing at will, and the contractual relation is called a precarium, in the following
cases:

(1) If neither the duration of the contract nor the use to which the thing loaned should be devoted, has been stipulated;
or

(2) If the use of the thing is merely tolerated by the owner. (1750a)

Art. 1948. The bailor may demand the immediate return of the thing if the bailee commits any act of ingratitude specified
in Article 765. (n)
Art. 1949. The bailor shall refund the extraordinary expenses during the contract for the preservation of the thing loaned,
provided the bailee brings the same to the knowledge of the bailor before incurring them, except when they are so
urgent that the reply to the notification cannot be awaited without danger.

If the extraordinary expenses arise on the occasion of the actual use of the thing by the bailee, even though he acted
without fault, they shall be borne equally by both the bailor and the bailee, unless there is a stipulation to the contrary.
(1751a)

Art. 1950. If, for the purpose of making use of the thing, the bailee incurs expenses other than those referred to in
Articles 1941 and 1949, he is not entitled to reimbursement. (n)

Art. 1951. The bailor who, knowing the flaws of the thing loaned, does not advise the bailee of the same, shall be liable
to the latter for the damages which he may suffer by reason thereof. (1752)

Art. 1952. The bailor cannot exempt himself from the payment of expenses or damages by abandoning the thing to the
bailee. (n)

CHAPTER 2
SIMPLE LOAN OR MUTUUM

Art. 1953. A person who receives a loan of money or any other fungible thing acquires the ownership thereof, and is
bound to pay to the creditor an equal amount of the same kind and quality. (1753a)
Art. 1954. A contract whereby one person transfers the ownership of non-fungible things to another with the obligation
on the part of the latter to give things of the same kind, quantity, and quality shall be considered a barter. (n)

Art. 1955. The obligation of a person who borrows money shall be governed by the provisions of Articles 1249 and
1250 of this Code.

If what was loaned is a fungible thing other than money, the debtor owes another thing of the same kind, quantity and
quality, even if it should change in value. In case it is impossible to deliver the same kind, its value at the time of the
perfection of the loan shall be paid. (1754a)

Art. 1956. No interest shall be due unless it has been expressly stipulated in writing. (1755a)

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. (n)
Art. 1958. In the determination of the interest, if it is payable in kind, its value shall be appraised at the current price of
the products or goods at the time and place of payment. (n)

Art. 1959. 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. (n)

Art. 1960. If the borrower pays interest when there has been no stipulation therefor, the provisions of this Code
concerning solutio indebiti, or natural obligations, shall be applied, as the case may be. (n)

Art. 1961. Usurious contracts shall be governed by the Usury Law and other special laws, so far as they are not
inconsistent with this Code. (n)

Art. 1980. Fixed, savings, and current deposits of money in banks and similar institutions shall be governed by the
provisions concerning simple loan. (n)

Art. 2154. 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. (1895)

Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity
for damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the
absence of stipulation, the legal interest, which is six per cent per annum. (1108)

Art. 2212. Interest due shall earn legal interest from the time it is judicially demanded, although the obligation may be
silent upon this point. (1109a)

Art. 2213. Interest cannot be recovered upon unliquidated claims or damages, except when the demand can be
established with reasonably certainty.

SECTION 4. - Liquidated Damages

Art. 2226. Liquidated damages are those agreed upon by the parties to a contract, to be paid in case of breach thereof.
Art. 2227. Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably reduced if they are
iniquitous or unconscionable.

REPUBLIC ACT No. 3765

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

CREDIT.

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 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.

[G.R. No. 116285. October 19, 2001]

ANTONIO TAN, petitioner, vs. COURT OF APPEALS and the CULTURAL CENTER OF THE PHILIPPINES,
respondents.
DECISION
DE LEON, JR., J.:

Before us is a petition for review of the Decision[1] dated August 31, 1993 and Resolution[2] dated July 13, 1994 of the
Court of Appeals affirming the Decision[3] dated May 8, 1991 of the Regional Trial Court (RTC) of Manila, Branch 27.

The facts are as follows:

On May 14, 1978 and July 6, 1978, petitioner Antonio Tan obtained two (2) loans each in the principal amount of Two
Million Pesos (P2,000,000.00), or in the total principal amount of Four Million Pesos (P4,000,000.00) from respondent
Cultural Center of the Philippines (CCP, for brevity) evidenced by two (2) promissory notes with maturity dates on May
14, 1979 and July 6, 1979, respectively. Petitioner defaulted but after a few partial payments he had the loans
restructured by respondent CCP, and petitioner accordingly executed a promissory note (Exhibit A) on August 31, 1979
in the amount of Three Million Four Hundred Eleven Thousand Four Hundred Twenty-One Pesos and Thirty-Two
Centavos (P3,411,421.32) payable in five (5) installments. Petitioner Tan failed to pay any installment on the said
restructured loan of Three Million Four Hundred Eleven Thousand Four Hundred Twenty-One Pesos and Thirty-Two
Centavos (P3,411,421.32), the last installment falling due on December 31, 1980. In a letter dated January 26, 1982,
petitioner requested and proposed to respondent CCP a mode of paying the restructured loan, i.e., (a) twenty percent
(20%) of the principal amount of the loan upon the respondent giving its conformity to his proposal; and (b) the balance
on the principal obligation payable in thirty-six (36) equal monthly installments until fully paid. On October 20, 1983,
petitioner again sent a letter to respondent CCP requesting for a moratorium on his loan obligation until the following
year allegedly due to a substantial deduction in the volume of his business and on account of the peso devaluation.
No favorable response was made to said letters. Instead, respondent CCP, through counsel, wrote a letter dated May
30, 1984 to the petitioner demanding full payment, within ten (10) days from receipt of said letter, of the petitioners
restructured loan which as of April 30, 1984 amounted to Six Million Eighty-Eight Thousand Seven Hundred Thirty-Five
Pesos and Three Centavos (P6,088,735.03).

On August 29, 1984, respondent CCP filed in the RTC of Manila a complaint for collection of a sum of money, docketed
as Civil Case No. 84-26363, against the petitioner after the latter failed to settle his said restructured loan obligation.
The petitioner interposed the defense that he merely accommodated a friend, Wilson Lucmen, who allegedly asked for
his help to obtain a loan from respondent CCP. Petitioner claimed that he has not been able to locate Wilson Lucmen.
While the case was pending in the trial court, the petitioner filed a Manifestation wherein he proposed to settle his
indebtedness to respondent CCP by proposing to make a down payment of One Hundred Forty Thousand Pesos
(P140,000.00) and to issue twelve (12) checks every beginning of the year to cover installment payments for one year,
and every year thereafter until the balance is fully paid. However, respondent CCP did not agree to the petitioners
proposals and so the trial of the case ensued.

On May 8, 1991, the trial court rendered a decision, the dispositive portion of which reads:

WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendant, ordering defendant to pay
plaintiff, the amount of P7,996,314.67, representing defendants outstanding account as of August 28, 1986, with the
corresponding stipulated interest and charges thereof, until fully paid, plus attorneys fees in an amount equivalent to
25% of said outstanding account, plus P50,000.00, as exemplary damages, plus costs.

Defendants counterclaims are ordered dismissed, for lack of merit.

SO ORDERED.[4]

The trial court gave five (5) reasons in ruling in favor of respondent CCP. First, it gave little weight to the petitioners
contention that the loan was merely for the accommodation of Wilson Lucmen for the reason that the defense
propounded was not credible in itself. Second, assuming, arguendo, that the petitioner did not personally benefit from
the said loan, he should have filed a third party complaint against Wilson Lucmen, the alleged accommodated party
but he did not. Third, for three (3) times the petitioner offered to settle his loan obligation with respondent CCP. Fourth,
petitioner may not avoid his liability to pay his obligation under the promissory note (Exh. A) which he must comply with
in good faith pursuant to Article 1159 of the New Civil Code. Fifth, petitioner is estopped from denying his liability or
loan obligation to the private respondent.

The petitioner appealed the decision of the trial court to the Court of Appeals insofar as it charged interest, surcharges,
attorneys fees and exemplary damages against the petitioner. In his appeal, the petitioner asked for the reduction of
the penalties and charges on his loan obligation. He abandoned his alleged defense in the trial court that he merely
accommodated his friend, Wilson Lucmen, in obtaining the loan, and instead admitted the validity of the same. On
August 31, 1993, the appellate court rendered a decision, the dispositive portion of which reads:

WHEREFORE, with the foregoing modification, the judgment appealed from is hereby AFFIRMED.

SO ORDERED.[5]
In affirming the decision of the trial court imposing surcharges and interest, the appellate court held that:

We are unable to accept appellants (petitioners) claim for modification on the basis of alleged partial or irregular
performance, there being none. Appellants offer or tender of payment cannot be deemed as a partial or irregular
performance of the contract, not a single centavo appears to have been paid by the defendant.

However, the appellate court modified the decision of the trial court by deleting the award for exemplary damages and
reducing the amount of awarded attorneys fees to five percent (5%), by ratiocinating as follows:

Given the circumstances of the case, plus the fact that plaintiff was represented by a government lawyer, We believe
the award of 25% as attorneys fees and P500,000.00 as exemplary damages is out of proportion to the actual damage
caused by the non-performance of the contract and is excessive, unconscionable and iniquitous.

In a Resolution dated July 13, 1994, the appellate court denied the petitioners motion for reconsideration of the said
decision.

Hence, this petition anchored on the following assigned errors:

THE HONORABLE COURT OF APPEALS COMMITTED A MISTAKE IN GIVING ITS IMPRIMATUR TO THE
DECISION OF THE TRIAL COURT WHICH COMPOUNDED INTEREST ON SURCHARGES.

II

THE HONORABLE COURT OF APPEALS ERRED IN NOT SUSPENDING IMPOSITION OF INTEREST FOR THE
PERIOD OF TIME THAT PRIVATE RESPONDENT HAS FAILED TO ASSIST PETITIONER IN APPLYING FOR
RELIEF OF LIABILITY THROUGH THE COMMISSION ON AUDIT AND THE OFFICE OF THE PRESIDENT.

III

THE HONORABLE COURT OF APPEALS ERRED IN NOT DELETING AWARD OF ATTORNEYS FEES AND IN
REDUCING PENALTIES.

Significantly, the petitioner does not question his liability for his restructured loan under the promissory note marked
Exhibit A. The first question to be resolved in the case at bar is whether there are contractual and legal bases for the
imposition of the penalty, interest on the penalty and attorneys fees.

The petitioner imputes error on the part of the appellate court in not totally eliminating the award of attorneys fees and
in not reducing the penalties considering that the petitioner, contrary to the appellate courts findings, has allegedly
made partial payments on the loan. And if penalty is to be awarded, the petitioner is asking for the non-imposition of
interest on the surcharges inasmuch as the compounding of interest on surcharges is not provided in the promissory
note marked Exhibit A. The petitioner takes exception to the computation of the private respondent whereby the
interest, surcharge and the principal were added together and that on the total sum interest was imposed. Petitioner
also claims that there is no basis in law for the charging of interest on the surcharges for the reason that the New Civil
Code is devoid of any provision allowing the imposition of interest on surcharges.

We find no merit in the petitioners 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. The pertinent[6] portion
of the promissory note (Exhibit A) imposing interest and penalties provides that:

For value received, I/We jointly and severally promise to pay to the CULTURAL CENTER OF THE PHILIPPINES at its
office in Manila, the sum of THREE MILLION FOUR HUNDRED ELEVEN THOUSAND FOUR HUNDRED + PESOS
(P3,411,421.32) Philippine Currency, xxx.

xxx xxx xxx

With interest at the rate of FOURTEEN per cent (14%) per annum from the date hereof until paid. PLUS THREE
PERCENT (3%) SERVICE CHARGE.

In case of non-payment of this note at maturity/on demand or upon default of payment of any portion of it when due,
I/We jointly and severally agree to pay additional penalty charges at the rate of TWO per cent (2%) per month on the
total amount due until paid, payable and computed monthly. Default of payment of this note or any portion thereof when
due shall render all other installments and all existing promissory notes made by us in favor of the CULTURAL CENTER
OF THE PHILIPPINES immediately due and demandable. (Underscoring supplied)

xxx xxx xxx

The stipulated fourteen percent (14%) per annum interest charge until full payment of the loan constitutes the monetary
interest on the note and is allowed under Article 1956 of the New Civil Code.[7] On the other hand, the stipulated two
percent (2%) per month penalty is in the form of penalty charge which is separate and distinct from the monetary
interest on the principal of the loan.

Penalty on delinquent loans may take different forms. In Government Service Insurance System v. Court of Appeals,[8]
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,[9] 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. 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 considering that:

First, there is an express stipulation in the promissory note (Exhibit A) permitting the compounding of interest. The fifth
paragraph of the said promissory note provides that: Any interest which may be due if not paid shall be added to the
total amount when due and shall become part thereof, the whole amount to bear interest at the maximum rate allowed
by law.[10] Therefore, any penalty interest not paid, when due, shall earn the legal interest of twelve percent (12%) per
annum,[11] in the absence of express stipulation on the specific rate of interest, as in the case at bar.

Second, Article 2212 of the New Civil Code provides that Interest due shall earn legal interest from the time it is judicially
demanded, although the obligation may be silent upon this point. In the instant case, interest likewise began to run on
the penalty interest upon the filing of the complaint in court by respondent CCP on August 29, 1984. Hence, the courts
a quo did not err in ruling that the petitioner is bound to pay the interest on the total amount of the principal, the monetary
interest and the penalty interest.

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,[12] 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 to 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.

The private respondents Statement of Account (marked Exhibits C to C-2)[13] shows the following breakdown of the
petitioners indebtedness as of August 28, 1986:

Principal P2,838,454.68

Interest P 576,167.89

Surcharge P4,581,692.10

P7,996,314.67

The said statement of account also shows that the above amounts stated therein are net of the partial payments
amounting to a total of Four Hundred Fifty-Two Thousand Five Hundred Sixty-One Pesos and Forty-Three Centavos
(P452,561.43) which were made during the period from May 13, 1983 to September 30, 1983.[14] The petitioner now
seeks the reduction of the penalty due to the said partial payments. The principal amount of the promissory note (Exhibit
A) was Three Million Four Hundred Eleven Thousand Four Hundred Twenty-One Pesos and Thirty-Two Centavos
(P3,411,421.32) when the loan was restructured on August 31, 1979. As of August 28, 1986, the principal amount of
the said restructured loan has been reduced to Two Million Eight Hundred Thirty-Eight Thousand Four Hundred Fifty-
Four Pesos and Sixty-Eight Centavos (P2,838,454.68). Thus, petitioner contends that reduction of the penalty is
justifiable pursuant to Article 1229 of the New Civil Code which provides that: The judge shall equitably reduce the
penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been
no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable. Petitioner insists
that the penalty should be reduced to ten percent (10%) of the unpaid debt in accordance with Bachrach Motor
Company v. Espiritu.[15]

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 petitioners 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
respondents long overdue deprivation of the use of its money collectible from the petitioner.

The petitioner also imputes error on the part of the appellate court for not declaring the suspension of the running of
the interest during that period when the respondent allegedly failed to assist the petitioner in applying for relief from
liability. In this connection, the petitioner referred to the private respondents letter[16] dated September 28, 1988
addressed to petitioner which partially reads:

Dear Mr. Tan:

xxx xxx xxx

With reference to your appeal for condonation of interest and surcharge, we wish to inform you that the center will
assist you in applying for relief of liability through the Commission on Audit and Office of the President xxx.

While your application is being processed and awaiting approval, the center will be accepting your proposed payment
scheme with the downpayment of P160,000.00 and monthly remittances of P60,000.00 xxx.

xxx xxx xxx

The petitioner alleges that his obligation to pay the interest and surcharge should have been suspended because the
obligation to pay such interest and surcharge has become conditional, that is dependent on a future and uncertain
event which consists of whether the petitioners request for condonation of interest and surcharge would be
recommended by the Commission on Audit and the Office of the President to the House of Representatives for approval
as required under Section 36 of Presidential Decree No. 1445. Since the condition has not happened allegedly due to
the private respondents reneging on its promise, his liability to pay the interest and surcharge on the loan has not
arisen. This is the petitioners contention.
It is our view, however, that the running of the interest and surcharge was not suspended by the private respondents
promise to assist the petitioners in applying for relief therefrom through the Commission on Audit and the Office of the
President.

First, 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 xxx. 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.

Second, the private respondent correctly asserted that it was the primary responsibility of petitioner to inform the
Commission on Audit and the Office of the President of his application for condonation of interest and surcharge. It
was incumbent upon the petitioner to bring his administrative appeal for condonation of interest and penalty charges
to the attention of the said government offices.

On the issue of attorneys fees, the appellate court ruled correctly and justly in reducing the trial courts award of twenty-
five percent (25%) attorneys fees to five percent (5%) of the total amount due.

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.

SO ORDERED.

[G.R. No. 142277. December 11, 2002]

ARWOOD INDUSTRIES, INC., petitioner, vs. D.M. CONSUNJI, INC., respondent.

DECISION
CORONA, J .:

This is a petition for review of the decision[1] dated November 12, 1999 of the Court of Appeals, which affirmed, with
modification, the decision[2] dated April 1, 1997 of the Regional Trial Court, Branch 153, Pasig City in Civil Case No.
63489.

The core issue of this petition is the propriety of the imposition of two percent (2%) interest on the amount adjudged by
the trial court and later affirmed by the Court of Appeals in favor of respondent D.M. Consunji, Inc. and against petitioner
Arwood Industries, Inc.

The factual backdrop of this case is as follows:

Petitioner and respondent, as owner and contractor, respectively, entered into a Civil, Structural and Architectural
Works Agreement[3] (Agreement) dated February 6, 1989 for the construction of petitioner's Westwood Condominium
at No. 23 Eisenhower St., Greenhills, San Juan, Metro Manila. The contract price for the condominium project
aggregated P20,800,000.00.

Despite the completion of the condominium project, the amount of P962,434.78 remained unpaid by petitioner.
Repeated demands by respondent for petitioner to pay went unheeded.

Thus, on August 13, 1993, respondent, as plaintiff in Civil Case No. 63489 filed its complaint[4] for the recovery of the
balance of the contract price and for damages against petitioner.
Respondent specifically prayed for the payment of the (a) amount of P962,434.78 with interest of 2% per month or a
fraction thereof, from November 1990 up to the time of payment; (b) the amount of P250,000 as attorney's fees and
litigation expenses; (c) amount of P150,000 as exemplary damages and (d) costs of suit.[5]

After trial, the court below resolved to grant the relief prayed for by respondent, thus:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against defendant ordering the latter to pay
the former the following:

(1) the sum of P962,434.78 representing the balance of contract price with interest at 2% per month from November
1990 up to the time of payment;

(2) the amount of P150,000.00 as attorney's fees; and

(3) Cost(s) of suit.

SO ORDERED.[6]

Petitioner appealed to the Court of Appeals, particularly opposing the finding of the trial court with regard to the
imposition of the monetary interest of 2% per month on the adjudicated amount.

The Court of Appeals upheld the trial court despite dauntless demurring by petitioner. Respondent court found basis
in Article 6.03 of the Agreement concerning the imposition of the 2% interest, which reads:

Payment shall be made by the OWNER to the CONTRACTOR within fifteen (15) calendar days after receipt of the
Construction Manager's Certificate. In the event OWNER delays the payments (i.e. beyond the stipulated time) to the
CONTRACTOR of monthly progress billings, the CONTRACTOR shall have the option to either suspend the works on
the Project until such payments have been remitted by the OWNER or continue the work but the OWNER shall be
required to pay the interest at a rate of two (2%) percent per month or the fraction thereof in days of the amount due
for payment by the OWNER. The same interest shall be added to the billing of the following month. Furthermore, the
progress payments shall be reduced by a portion of the downpayment made by the OWNER corresponding to the
value of the work completed.[7]

Respondent court, however, modified the decision of the trial court by deleting the award of attorney's fees for the
following reasons:

Finally, defendant-appellant argues that the court a quo erred in awarding attorneys fees because the same was not
mentioned in the body of the decision.

On this ultimate point, We agree.

In the case of Del Rosario vs. Court of Appeals (267 SCRA 158, 175), the Supreme Court held that:

Finally, like the adjudication of actual or compensatory damages, the award of attorneys fees must be deleted. The
matter was dealt with only in the dispositive portion of the Trial Courts decision. Since the judgment does not say why
attorneys fees were awarded, there is no basis for such award, which should consequently be removed. So did this
Court rule, for instance, in Scott Consultants and Resource Development Corp., Inc. et al. (242 SCRA 393, 406):

It is settled that the award of attorneys fees is the exception rather than the rule and counsels fees are not to be
awarded every time a party wins. The power of the court to award attorneys fees under Article 2208 of the Civil Code
demands factual, legal, and equitable justification; its basis cannot be left to speculation or conjecture. Where granted,
the court must explicitly state in the body of the decision, and not only in the dispositive portion thereof, the legal reason
for the award of attorneys fees.[8]

Petitioner moved to reconsider, unsuccessfully.

Hence, this petition for review. The only issue is the correctness of imposing a 2% per month interest on the award of
P962,434.78.

Petitioner argues that the trial court's decision has no basis in imposing the 2% interest per month. Although the
Agreement contained a provision with regard to the interest, this provision was not mentioned by the trial court in
awarding interest in the dispositive portion. This provision of the Agreement does not apply to the claim of respondent
but refers to the monthly progress billings. The amount of P962,434.78 is not a monthly progress billing and should not
therefore be subject to interest.

Furthermore, the pre-trial order of the trial court dated February 4, 1994 did not include interest as one of the issues to
be resolved and determined during the trial; the parties agreed that the main issue was

x x x whether or not defendant is liable to pay the balance of P964,434.78 as stated in the Complaint.[9]

Thus, the trial court erroneously disposed of the issue on payment of interest.

Petitioner points to the error of the Court of Appeals in basing its decision (on the issue of interest) on Article 6.03 of
the Agreement. It reasons that while there was a formal offer of the Agreement and its sub-markings, the provision on
interest was neither sub-marked nor formally offered in evidence.[10] Hence, the imposition of interest is wanting in
basis as it is not even explicitly alleged in the complaint before the trial court.

Petitioner's stance hardly deserves this Court's attention.

The Agreement or the contract between the parties is the formal expression of the parties rights, duties and obligations.
It is the best evidence of the intention of the parties. Thus, when the terms of an agreement have been reduced to
writing, it is considered as containing all the terms agreed upon and there can be, between the parties and their
successors in interest, no evidence of such terms other than the contents of the written agreement.[11]

Consequently, upon the fulfillment by respondent of its obligation to complete the construction project, petitioner had
the correlative duty to pay for respondents services. However, petitioner refused to pay the balance of the contract
price. From the moment respondent completed the construction of the condominium project and petitioner refused to
pay in full, there was delay on the part of petitioner. This delay was never disputed.

Delay in the performance of an obligation is looked upon with disfavor because, when a party to a contract incurs delay,
the other party who performs his part of the contract suffers damages thereby. Dilationes in lege sunt idiosae.[12]
Obviously, respondent suffered damages brought about by the failure of petitioner to comply with its obligation on time.
And, sans elaboration of the matter at hand, damages take the form of interest. Accordingly, the appropriate measure
of damages in this case is the payment of interest at the rate agreed upon, which is 2% interest for every month of
delay.

It must be noted that the Agreement provided the contractor, respondent in this case, two options in case of delay in
monthly payments, to wit: a) suspend work on the project until payment is remitted by the owner or b) continue the
work but the owner shall be required to pay interest at a rate of two percent (2%) per month or a fraction thereof.
Evidently, respondent chose the latter option, as the condominium project was in fact already completed. The payment
of the 2% monthly interest, therefore, cannot be jettisoned overboard.
Since the Agreement stands as the law between the parties,[13] this Court cannot ignore the existence of such
provision providing for a penalty for every months delay. Facta legem facunt inter partes.[14] Neither can petitioner
impugn the Agreement to which it willingly gave its consent. From the moment petitioner gave its consent, it was bound
not only to fulfill what was expressly stipulated in the Agreement but also all the consequences which, according to
their nature, may be in keeping with good faith, usage and law.[15] Petitioners attempt to mitigate its liability to
respondent should thus fail.

As a last-ditch effort to evade liability, petitioner argues that the amount of P962,434.78 claimed by respondent and
later awarded by the lower courts does not refer to monthly progress billings, the delayed payment of which would earn
interest at 2% per month.

We disagree.

Petitioner appears confused by a semantics problem. Monthly progress billings certainly form part of the contract price.
If the amount claimed by respondent is not the monthly progress billings provided in the contract, what then does such
amount represent? Petitioner has not in point of fact convincingly supplied an answer to this query. Neither has
petitioner shown any effort to clarify the meaning of monthly progress billings to support its position. This leaves us no
choice but to agree with respondent that the phrase monthly progress billings refers to a portion of the contract price
payable by the owner (petitioner) of the project to the contractor (respondent) based on the percentage of completion
of the project or on work accomplished at a particular stage. It refers to that portion of the contract price still to be paid
as work progresses, after the downpayment is made.[16]

This definition is, indeed, not without basis. Articles 6.02 and 6.03 of the Agreement, which respectively provides that
the (b)alance shall be paid in monthly progress payments based on actual value of the work accomplished[17] and that
the progress payments shall be reduced by a portion of the downpayment made by the OWNER corresponding to the
value of the work completed give sense to respondents interpretation of monthly progress billings.

Even supposing that petitioner has a different definition of monthly progress billings, it must nonetheless be interpreted
in favor of herein respondent because Article 6.03 of the Agreement, which gives respondent the options in case of
petitioners default in payment, was obviously stipulated for respondents benefit.[18]

Thus, respondent correctly contends that the amount claimed, which is part of the contract price, would not have
accumulated had petitioner been diligent in the monthly payment of the work accomplished by respondent.

Respondents claim, it must be noted, includes payment of the sum of P962,474.78, exclusive of damages. The
Complaint of plaintiff-respondent prayed for the amount of P962,474.78 exclusive of damages. Petitioner had all the
opportunity to squarely meet the issue on interest at the pre-trial as it was deemed included in the phrase exclusive of
damages. The appeal to the respondent court on the matter of interest was, therefore, a belated effort to object to the
contents of the Agreement. Petitioner cannot resort to this sneaky scheme. Objection to evidence cannot be raised for
the first time on appeal; when a party desires the court to reject the evidence offered, he must so state in the form of
objection. Without such objection, he cannot raise the question for the first time on appeal.[19] And, since there was
no timely objection to the contents of the Agreement, the Agreement and its contents form part of the evidence of the
case. All the parties to the case, therefore, are considered bound by any favorable or unfavorable effects resulting from
the evidence.[20]

Needless to state, it is not indispensable that Article 6.03 of the Agreement be sub-marked and formally offered in
evidence during the pre-trial before said provision may take effect. For one, the provision on the payment of monthly
interest is included in the Agreement, the existence and validity of which, to reiterate, were not objected to by petitioner.
For another, the payment of interest as penalty is a necessary consequence of petitioners failure to exercise diligence
in the discharge of its obligation under the contract.
Moreover, even assuming that there was a default of stipulation or agreement on interest, respondent may still recover
on the basis of the general provision of law, which is Article 2209 of the Civil Code, thus:

Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for
damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the
absence of stipulation, the legal interest, which is six percent per annum.

Article 2209 of the Civil Code, as abovementioned, specifies the appropriate measure of damages where the obligation
breached consisted of the payment of sum of money. Article 2209 was, in extent, explicated by the Court in State
Investment House, Inc. vs. Court of Appeals, [21] which provides:

The appropriate measure for damages in case of delay in discharging an obligation consisting of the payment of a sum
of money, is the payment of penalty interest at the rate agreed upon; and in the absence of a stipulation of a particular
rate of penalty interest, then the payment of additional interest at a rate equal to the regular monetary interest; and if
no regular interest had been agreed upon, then payment of legal interest or six percent (6%) per annum.[22]

Hence, even in the absence of a stipulation on interest, under Article 2209 of the Civil Code, respondent would still be
entitled to recover the balance of the contract price with interest. Respondent court, therefore, correctly interpreted the
terms of the agreement which provides that the OWNER shall be required to pay the interest at a rate of two percent
(2%) per month or the fraction thereof in days of the amount due for payment by the OWNER.

We, therefore, find no basis to alter the findings of the Court of Appeals affirming the decision of the trial court.

WHEREFORE, the petition is hereby DENIED.

SO ORDERED.

[G.R. NO. 155223 : April 4, 2007]

BOBIE ROSE V. FRIAS, represented by her Attorney-in-fact, MARIE F. FUJITA, Petitioner, v. FLORA SAN
DIEGO-SISON, Respondent.

DECISION

AUSTRIA-MARTINEZ, J.:

Before us is a Petition for Review on Certiorari filed by Bobie Rose V. Frias represented by her Attorney-in-fact, Marie
Regine F. Fujita (petitioner) seeking to annul the Decision1 dated June 18, 2002 and the Resolution2 dated September
11, 2002 of the Court of Appeals (CA) in CA-G.R. CV No. 52839.

Petitioner is the owner of a house and lot located at No. 589 Batangas East, Ayala Alabang, Muntinlupa, Metro Manila,
which she acquired from Island Masters Realty and Development Corporation (IMRDC) by virtue of a Deed of Sale
dated Nov. 16, 1990.3 The property is covered by TCT No. 168173 of the Register of Deeds of Makati in the name of
IMRDC.4

On December 7, 1990, petitioner, as the FIRST PARTY, and Dra. Flora San Diego-Sison (respondent), as the
SECOND PARTY, entered into a Memorandum of Agreement5 over the property with the following terms:

NOW, THEREFORE, for and in consideration of the sum of THREE MILLION PESOS (P3,000,000.00) receipt of which
is hereby acknowledged by the FIRST PARTY from the SECOND PARTY, the parties have agreed as follows:
1. That the SECOND PARTY has a period of Six (6) months from the date of the execution of this contract within which
to notify the FIRST PARTY of her intention to purchase the aforementioned parcel of land together within (sic) the
improvements thereon at the price of SIX MILLION FOUR HUNDRED THOUSAND PESOS (P6,400,000.00). Upon
notice to the FIRST PARTY of the SECOND PARTY's intention to purchase the same, the latter has a period of another
six months within which to pay the remaining balance of P3.4 million.

2. That prior to the six months period given to the SECOND PARTY within which to decide whether or not to purchase
the above-mentioned property, the FIRST PARTY may still offer the said property to other persons who may be
interested to buy the same provided that the amount of P3,000,000.00 given to the FIRST PARTY BY THE SECOND
PARTY shall be paid to the latter including interest based on prevailing compounded bank interest plus the amount of
the sale in excess of P7,000,000.00 should the property be sold at a price more than P7 million.

3. That in case the FIRST PARTY has no other buyer within the first six months from the execution of this contract, no
interest shall be charged by the SECOND PARTY on the P3 million however, in the event that on the sixth month the
SECOND PARTY would decide not to purchase the aforementioned property, the FIRST PARTY has a period of
another six months within which to pay the sum of P3 million pesos provided that the said amount shall earn
compounded bank interest for the last six months only. Under this circumstance, the amount of P3 million given by the
SECOND PARTY shall be treated as [a] loan and the property shall be considered as the security for the mortgage
which can be enforced in accordance with law.

x x x x.6

Petitioner received from respondent two million pesos in cash and one million pesos in a post-dated check dated
February 28, 1990, instead of 1991, which rendered said check stale.7 Petitioner then gave respondent TCT No.
168173 in the name of IMRDC and the Deed of Absolute Sale over the property between petitioner and IMRDC.

Respondent decided not to purchase the property and notified petitioner through a letter8 dated March 20, 1991, which
petitioner received only on June 11, 1991,9 reminding petitioner of their agreement that the amount of two million pesos
which petitioner received from respondent should be considered as a loan payable within six months. Petitioner
subsequently failed to pay respondent the amount of two million pesos.

On April 1, 1993, respondent filed with the Regional Trial Court (RTC) of Manila, a complaint10 for sum of money with
preliminary attachment against petitioner. The case was docketed as Civil Case No. 93-65367 and raffled to Branch
30. Respondent alleged the foregoing facts and in addition thereto averred that petitioner tried to deprive her of the
security for the loan by making a false report11 of the loss of her owner's copy of TCT No. 168173 to the Tagig Police
Station on June 3, 1991, executing an affidavit of loss and by filing a petition12 for the issuance of a new owner's
duplicate copy of said title with the RTC of Makati, Branch 142; that the petition was granted in an Order13 dated
August 31, 1991; that said Order was subsequently set aside in an Order dated April 10, 199214 where the RTC Makati
granted respondent's petition for relief from judgment due to the fact that respondent is in possession of the owner's
duplicate copy of TCT No. 168173, and ordered the provincial public prosecutor to conduct an investigation of petitioner
for perjury and false testimony. Respondent prayed for the ex-parte issuance of a writ of preliminary attachment and
payment of two million pesos with interest at 36% per annum from December 7, 1991, P100,000.00 moral, corrective
and exemplary damages and P200,000.00 for attorney's fees.

In an Order dated April 6, 1993, the Executive Judge of the RTC of Manila issued a writ of preliminary attachment upon
the filing of a bond in the amount of two million pesos.15

Petitioner filed an Amended Answer16 alleging that the Memorandum of Agreement was conceived and arranged by
her lawyer, Atty. Carmelita Lozada, who is also respondent's lawyer; that she was asked to sign the agreement without
being given the chance to read the same; that the title to the property and the Deed of Sale between her and the
IMRDC were entrusted to Atty. Lozada for safekeeping and were never turned over to respondent as there was no
consummated sale yet; that out of the two million pesos cash paid, Atty. Lozada took the one million pesos which has
not been returned, thus petitioner had filed a civil case against her; that she was never informed of respondent's
decision not to purchase the property within the six month period fixed in the agreement; that when she demanded the
return of TCT No. 168173 and the Deed of Sale between her and the IMRDC from Atty. Lozada, the latter gave her
these documents in a brown envelope on May 5, 1991 which her secretary placed in her attache case; that the envelope
together with her other personal things were lost when her car was forcibly opened the following day; that she sought
the help of Atty. Lozada who advised her to secure a police report, to execute an affidavit of loss and to get the services
of another lawyer to file a petition for the issuance of an owner's duplicate copy; that the petition for the issuance of a
new owner's duplicate copy was filed on her behalf without her knowledge and neither did she sign the petition nor
testify in court as falsely claimed for she was abroad; that she was a victim of the manipulations of Atty. Lozada and
respondent as shown by the filing of criminal charges for perjury and false testimony against her; that no interest could
be due as there was no valid mortgage over the property as the principal obligation is vitiated with fraud and deception.
She prayed for the dismissal of the complaint, counter-claim for damages and attorney's fees.

Trial on the merits ensued. On January 31, 1996, the RTC issued a decision,17 the dispositive portion of which reads:

WHEREFORE, judgment is hereby RENDERED:

1) Ordering defendant to pay plaintiff the sum of P2 Million plus interest thereon at the rate of thirty two (32%) per cent
per annum beginning December 7, 1991 until fully paid.

2) Ordering defendant to pay plaintiff the sum of P70,000.00 representing premiums paid by plaintiff on the attachment
bond with legal interest thereon counted from the date of this decision until fully paid.

3) Ordering defendant to pay plaintiff the sum of P100,000.00 by way of moral, corrective and exemplary damages.

4) Ordering defendant to pay plaintiff attorney's fees of P100,000.00 plus cost of litigation.18

The RTC found that petitioner was under obligation to pay respondent the amount of two million pesos with
compounded interest pursuant to their Memorandum of Agreement; that the fraudulent scheme employed by petitioner
to deprive respondent of her only security to her loaned money when petitioner executed an affidavit of loss and
instituted a petition for the issuance of an owner's duplicate title knowing the same was in respondent's possession,
entitled respondent to moral damages; and that petitioner's bare denial cannot be accorded credence because her
testimony and that of her witness did not appear to be credible.

The RTC further found that petitioner admitted that she received from respondent the two million pesos in cash but the
fact that petitioner gave the one million pesos to Atty. Lozada was without respondent's knowledge thus it is not binding
on respondent; that respondent had also proven that in 1993, she initially paid the sum of P30,000.00 as premium for
the issuance of the attachment bond, P20,000.00 for its renewal in 1994, and P20,000.00 for the renewal in 1995, thus
plaintiff should be reimbursed considering that she was compelled to go to court and ask for a writ of preliminary
attachment to protect her rights under the agreement.

Petitioner filed her appeal with the CA. In a Decision dated June 18, 2002, the CA affirmed the RTC decision with
modification, the dispositive portion of which reads:

WHEREFORE, premises considered, the decision appealed from is MODIFIED in the sense that the rate of interest is
reduced from 32% to 25% per annum, effective June 7, 1991 until fully paid.19

The CA found that: petitioner gave the one million pesos to Atty. Lozada partly as her commission and partly as a loan;
respondent did not replace the mistakenly dated check of one million pesos because she had decided not to buy the
property and petitioner knew of her decision as early as April 1991; the award of moral damages was warranted since
even granting petitioner had no hand in the filing of the petition for the issuance of an owner's copy, she executed an
affidavit of loss of TCT No. 168173 when she knew all along that said title was in respondent's possession; petitioner's
claim that she thought the title was lost when the brown envelope given to her by Atty. Lozada was stolen from her car
was hollow; that such deceitful conduct caused respondent serious anxiety and emotional distress.

The CA concluded that there was no basis for petitioner to say that the interest should be charged for six months only
and no more; that a loan always bears interest otherwise it is not a loan; that interest should commence on June 7,
199120 with compounded bank interest prevailing at the time the two million was considered as a loan which was in
June 1991; that the bank interest rate for loans secured by a real estate mortgage in 1991 ranged from 25% to 32%
per annum as certified to by Prudential Bank,21 that in fairness to petitioner, the rate to be charged should be 25%
only.

Petitioner's motion for reconsideration was denied by the CA in a Resolution dated September 11, 2002.

Hence the instant Petition for Review on Certiorari filed by petitioner raising the following issues:

(A) WHETHER OR NOT THE COMPOUNDED BANK INTEREST SHOULD BE LIMITED TO SIX (6) MONTHS AS
CONTAINED IN THE MEMORANDUM OF AGREEMENT.

(B) WHETHER OR NOT THE RESPONDENT IS ENTITLED TO MORAL DAMAGES.

(C) WHETHER OR NOT THE GRANT OF CORRECTIVE AND EXEMPLARY DAMAGES AND ATTORNEY'S FEES
IS PROPER EVEN IF NOT MENTIONED IN THE TEXT OF THE DECISION.22

Petitioner contends that the interest, whether at 32% per annum awarded by the trial court or at 25% per annum as
modified by the CA which should run from June 7, 1991 until fully paid, is contrary to the parties' Memorandum of
Agreement; that the agreement provides that if respondent would decide not to purchase the property, petitioner has
the period of another six months to pay the loan with compounded bank interest for the last six months only; that the
CA's ruling that a loan always bears interest otherwise it is not a loan is contrary to Art. 1956 of the New Civil Code
which provides that no interest shall be due unless it has been expressly stipulated in writing.

We are not persuaded.

While the CA's conclusion, that a loan always bears interest otherwise it is not a loan, is flawed since a simple loan
may be gratuitous or with a stipulation to pay interest,23 we find no error committed by the CA in awarding a 25%
interest per annum on the two-million peso loan even beyond the second six months stipulated period.

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.24 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.25 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.26

In this case, the phrase "for the last six months only" should be taken in the context of the entire agreement. We agree
with and adopt the CA's interpretation of the phrase in this wise:

Their agreement speaks of two (2) periods of six months each. The first six-month period was given to plaintiff-appellee
(respondent) to make up her mind whether or not to purchase defendant-appellant's (petitioner's) property. The second
six-month period was given to defendant-appellant to pay the P2 million loan in the event that plaintiff-appellee decided
not to buy the subject property in which case interest will be charged "for the last six months only", referring to the
second six-month period. This means that no interest will be charged for the first six-month period while appellee was
making up her mind whether to buy the property, but only for the second period of six months after appellee had
decided not to buy the property. This is the meaning of the phrase "for the last six months only". Certainly, there is
nothing in their agreement that suggests that interest will be charged for six months only even if it takes defendant-
appellant an eternity to pay the loan.27

The agreement that the amount given shall bear compounded bank interest for the last six months only, i.e., referring
to the second six-month period, does not mean that interest will no longer be charged after the second six-month period
since such stipulation was made on the logical and reasonable expectation that such amount would be paid within the
date stipulated. Considering that petitioner failed to pay the amount given which under the Memorandum of Agreement
shall be considered as a loan, the monetary interest for the last six months continued to accrue until actual payment of
the loaned 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.28 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.29

Petitioner and respondent stipulated that the loaned amount shall earn compounded bank interests, and per the
certification issued by Prudential Bank, the interest rate for loans in 1991 ranged from 25% to 32% per annum. The CA
reduced the interest rate to 25% instead of the 32% awarded by the trial court which petitioner no longer
assailed.ςηαñrοblεš νιr†υαl lαω lιbrαrÿ

In Bautista v. Pilar Development Corp.,30 we upheld the validity of a 21% per annum interest on a P142,326.43 loan.
In Garcia v. Court of Appeals,31 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.

Petitioner next claims that moral damages were awarded on the erroneous finding that she used a fraudulent scheme
to deprive respondent of her security for the loan; that such finding is baseless since petitioner was acquitted in the
case for perjury and false testimony filed by respondent against her.

We are not persuaded.

Article 31 of the Civil Code provides that when the civil action is based on an obligation not arising from the act or
omission complained of as a felony, such civil action may proceed independently of the criminal proceedings and
regardless of the result of the latter.32

While petitioner was acquitted in the false testimony and perjury cases filed by respondent against her, those actions
are entirely distinct from the collection of sum of money with damages filed by respondent against petitioner.

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.ςηαñrοblεš νιr†υαl lαω
lιbrαrÿ

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.33
The Memorandum of Agreement provides that in the event that respondent opts not to buy the property, the money
given by respondent to petitioner shall be treated as a loan and the property shall be considered as the security for the
mortgage. It was testified to by respondent that after they executed the agreement on December 7, 1990, petitioner
gave her the owner's copy of the title to the property, the Deed of Sale between petitioner and IMRDC, the certificate
of occupancy, and the certificate of the Secretary of the IMRDC who signed the Deed of Sale.34 However,
notwithstanding that all those documents were in respondent's possession, petitioner executed an affidavit of loss that
the owner's copy of the title and the Deed of Sale were lost.

Although petitioner testified that her execution of the affidavit of loss was due to the fact that she was of the belief that
since she had demanded from Atty. Lozada the return of the title, she thought that the brown envelope with markings
which Atty. Lozada gave her on May 5, 1991 already contained the title and the Deed of Sale as those documents
were in the same brown envelope which she gave to Atty. Lozada prior to the transaction with respondent.35 Such
statement remained a bare statement. It was not proven at all since Atty. Lozada had not taken the stand to corroborate
her claim. In fact, even petitioner's own witness, Benilda Ynfante (Ynfante), was not able to establish petitioner's claim
that the title was returned by Atty. Lozada in view of Ynfante's testimony that after the brown envelope was given to
petitioner, the latter passed it on to her and she placed it in petitioner's attaché case36 and did not bother to look at
the envelope.37

It is clear therefrom that petitioner's execution of the affidavit of loss became the basis of the filing of the petition with
the RTC for the issuance of new owner's duplicate copy of TCT No. 168173. Petitioner's actuation would have deprived
respondent of the security for her loan were it not for respondent's timely filing of a petition for relief whereby the RTC
set aside its previous order granting the issuance of new title. Thus, the award of moral damages is in order.

The entitlement to moral damages having been established, the award of exemplary damages is proper.38 Exemplary
damages may be imposed upon petitioner by way of example or correction for the public good.39 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,40 no error has been committed by CA.
There is no question that respondent is entitled to moral and exemplary damages.

Petitioner argues that the CA erred in awarding attorney's fees because the trial court's decision did not explain the
findings of facts and law to justify the award of attorney's fees as the same was mentioned only in the dispositive portion
of the RTC decision.

We agree.

Article 220841 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.42 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.43 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.44 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.

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.
No pronouncement as to costs.

SO ORDERED.

G.R. No. 123498 November 23, 2007

BPI FAMILY BANK, Petitioner,

vs.
AMADO FRANCO and COURT OF APPEALS, Respondents.

DECISION

NACHURA, J.:

Banks are exhorted to treat the accounts of their depositors with meticulous care and utmost fidelity. We reiterate this
exhortation in the case at bench.

Before us is a Petition for Review on Certiorari seeking the reversal of the Court of Appeals (CA) Decision1 in CA-G.R.
CV No. 43424 which affirmed with modification the judgment2 of the Regional Trial Court, Branch 55, Manila (Manila
RTC), in Civil Case No. 90-53295.

This case has its genesis in an ostensible fraud perpetrated on the petitioner BPI Family Bank (BPI-FB) allegedly by
respondent Amado Franco (Franco) in conspiracy with other individuals,3 some of whom opened and maintained
separate accounts with BPI-FB, San Francisco del Monte (SFDM) branch, in a series of transactions.

On August 15, 1989, Tevesteco Arrastre-Stevedoring Co., Inc. (Tevesteco) opened a savings and current account with
BPI-FB. Soon thereafter, or on August 25, 1989, First Metro Investment Corporation (FMIC) also opened a time deposit
account with the same branch of BPI-FB with a deposit of ₱100,000,000.00, to mature one year thence.

Subsequently, on August 31, 1989, Franco opened three accounts, namely, a current,4 savings,5 and time deposit,6
with BPI-FB. The current and savings accounts were respectively funded with an initial deposit of ₱500,000.00 each,
while the time deposit account had ₱1,000,000.00 with a maturity date of August 31, 1990. The total amount of
₱2,000,000.00 used to open these accounts is traceable to a check issued by Tevesteco allegedly in consideration of
Franco’s introduction of Eladio Teves,7 who was looking for a conduit bank to facilitate Tevesteco’s business
transactions, to Jaime Sebastian, who was then BPI-FB SFDM’s Branch Manager. In turn, the funding for the
₱2,000,000.00 check was part of the ₱80,000,000.00 debited by BPI-FB from FMIC’s time deposit account and
credited to Tevesteco’s current account pursuant to an Authority to Debit purportedly signed by FMIC’s officers.

It appears, however, that the signatures of FMIC’s officers on the Authority to Debit were forged.8 On September 4,
1989, Antonio Ong,9 upon being shown the Authority to Debit, personally declared his signature therein to be a forgery.
Unfortunately, Tevesteco had already effected several withdrawals from its current account (to which had been credited
the ₱80,000,000.00 covered by the forged Authority to Debit) amounting to ₱37,455,410.54, including the
₱2,000,000.00 paid to Franco.

On September 8, 1989, impelled by the need to protect its interests in light of FMIC’s forgery claim, BPI-FB, thru its
Senior Vice-President, Severino Coronacion, instructed Jesus Arangorin10 to debit Franco’s savings and current
accounts for the amounts remaining therein.11 However, Franco’s time deposit account could not be debited due to
the capacity limitations of BPI-FB’s computer.12

In the meantime, two checks13 drawn by Franco against his BPI-FB current account were dishonored upon
presentment for payment, and stamped with a notation "account under garnishment." Apparently, Franco’s current
account was garnished by virtue of an Order of Attachment issued by the Regional Trial Court of Makati (Makati RTC)
in Civil Case No. 89-4996 (Makati Case), which had been filed by BPI-FB against Franco et al.,14 to recover the
₱37,455,410.54 representing Tevesteco’s total withdrawals from its account.

Notably, the dishonored checks were issued by Franco and presented for payment at BPI-FB prior to Franco’s receipt
of notice that his accounts were under garnishment.15 In fact, at the time the Notice of Garnishment dated September
27, 1989 was served on BPI-FB, Franco had yet to be impleaded in the Makati case where the writ of attachment was
issued.

It was only on May 15, 1990, through the service of a copy of the Second Amended Complaint in Civil Case No. 89-
4996, that Franco was impleaded in the Makati case.16 Immediately, upon receipt of such copy, Franco filed a Motion
to Discharge Attachment which the Makati RTC granted on May 16, 1990. The Order Lifting the Order of Attachment
was served on BPI-FB on even date, with Franco demanding the release to him of the funds in his savings and current
accounts. Jesus Arangorin, BPI-FB’s new manager, could not forthwith comply with the demand as the funds, as
previously stated, had already been debited because of FMIC’s forgery claim. As such, BPI-FB’s computer at the SFDM
Branch indicated that the current account record was "not on file."

With respect to Franco’s savings account, it appears that Franco agreed to an arrangement, as a favor to Sebastian,
whereby ₱400,000.00 from his savings account was temporarily transferred to Domingo Quiaoit’s savings account,
subject to its immediate return upon issuance of a certificate of deposit which Quiaoit needed in connection with his
visa application at the Taiwan Embassy. As part of the arrangement, Sebastian retained custody of Quiaoit’s savings
account passbook to ensure that no withdrawal would be effected therefrom, and to preserve Franco’s deposits.

On May 17, 1990, Franco pre-terminated his time deposit account. BPI-FB deducted the amount of ₱63,189.00 from
the remaining balance of the time deposit account representing advance interest paid to him.

These transactions spawned a number of cases, some of which we had already resolved.

FMIC filed a complaint against BPI-FB for the recovery of the amount of ₱80,000,000.00 debited from its account.17
The case eventually reached this Court, and in BPI Family Savings Bank, Inc. v. First Metro Investment Corporation,18
we upheld the finding of the courts below that BPI-FB failed to exercise the degree of diligence required by the nature
of its obligation to treat the accounts of its depositors with meticulous care. Thus, BPI-FB was found liable to FMIC for
the debited amount in its time deposit. It was ordered to pay ₱65,332,321.99 plus interest at 17% per annum from
August 29, 1989 until fully restored. In turn, the 17% shall itself earn interest at 12% from October 4, 1989 until fully
paid.

In a related case, Edgardo Buenaventura, Myrna Lizardo and Yolanda Tica (Buenaventura, et al.),19 recipients of a
₱500,000.00 check proceeding from the ₱80,000,000.00 mistakenly credited to Tevesteco, likewise filed suit.
Buenaventura et al., as in the case of Franco, were also prevented from effecting withdrawals20 from their current
account with BPI-FB, Bonifacio Market, Edsa, Caloocan City Branch. Likewise, when the case was elevated to this
Court docketed as BPI Family Bank v. Buenaventura,21 we ruled that BPI-FB had no right to freeze Buenaventura, et
al.’s accounts and adjudged BPI-FB liable therefor, in addition to damages.

Meanwhile, BPI-FB filed separate civil and criminal cases against those believed to be the perpetrators of the multi-
million peso scam.22 In the criminal case, Franco, along with the other accused, except for Manuel Bienvenida who
was still at large, were acquitted of the crime of Estafa as defined and penalized under Article 351, par. 2(a) of the
Revised Penal Code.23 However, the civil case24 remains under litigation and the respective rights and liabilities of
the parties have yet to be adjudicated.

Consequently, in light of BPI-FB’s refusal to heed Franco’s demands to unfreeze his accounts and release his deposits
therein, the latter filed on June 4, 1990 with the Manila RTC the subject suit. In his complaint, Franco prayed for the
following reliefs: (1) the interest on the remaining balance25 of his current account which was eventually released to
him on October 31, 1991; (2) the balance26 on his savings account, plus interest thereon; (3) the advance interest27
paid to him which had been deducted when he pre-terminated his time deposit account; and (4) the payment of actual,
moral and exemplary damages, as well as attorney’s fees.

BPI-FB traversed this complaint, insisting that it was correct in freezing the accounts of Franco and refusing to release
his deposits, claiming that it had a better right to the amounts which consisted of part of the money allegedly fraudulently
withdrawn from it by Tevesteco and ending up in Franco’s accounts. BPI-FB asseverated that the claimed consideration
of ₱2,000,000.00 for the introduction facilitated by Franco between George Daantos and Eladio Teves, on the one
hand, and Jaime Sebastian, on the other, spoke volumes of Franco’s participation in the fraudulent transaction.

On August 4, 1993, the Manila RTC rendered judgment, the dispositive portion of which reads as follows:

WHEREFORE, in view of all the foregoing, judgment is hereby rendered in favor of [Franco] and against [BPI-FB],
ordering the latter to pay to the former the following sums:

1. ₱76,500.00 representing the legal rate of interest on the amount of ₱450,000.00 from May 18, 1990 to October 31,
1991;

2. ₱498,973.23 representing the balance on [Franco’s] savings account as of May 18, 1990, together with the interest
thereon in accordance with the bank’s guidelines on the payment therefor;

3. ₱30,000.00 by way of attorney’s fees; and

4. ₱10,000.00 as nominal damages.

The counterclaim of the defendant is DISMISSED for lack of factual and legal anchor.

Costs against [BPI-FB].

SO ORDERED.28

Unsatisfied with the decision, both parties filed their respective appeals before the CA. Franco confined his appeal to
the Manila RTC’s denial of his claim for moral and exemplary damages, and the diminutive award of attorney’s fees.
In affirming with modification the lower court’s decision, the appellate court decreed, to wit:

WHEREFORE, foregoing considered, the appealed decision is hereby AFFIRMED with modification ordering [BPI-FB]
to pay [Franco] ₱63,189.00 representing the interest deducted from the time deposit of plaintiff-appellant. ₱200,000.00
as moral damages and ₱100,000.00 as exemplary damages, deleting the award of nominal damages (in view of the
award of moral and exemplary damages) and increasing the award of attorney’s fees from ₱30,000.00 to ₱75,000.00.

Cost against [BPI-FB].

SO ORDERED.29

In this recourse, BPI-FB ascribes error to the CA when it ruled that: (1) Franco had a better right to the deposits in the
subject accounts which are part of the proceeds of a forged Authority to Debit; (2) Franco is entitled to interest on his
current account; (3) Franco can recover the ₱400,000.00 deposit in Quiaoit’s savings account; (4) the dishonor of
Franco’s checks was not legally in order; (5) BPI-FB is liable for interest on Franco’s time deposit, and for moral and
exemplary damages; and (6) BPI-FB’s counter-claim has no factual and legal anchor.
The petition is partly meritorious.

We are in full accord with the common ruling of the lower courts that BPI-FB cannot unilaterally freeze Franco’s
accounts and preclude him from withdrawing his deposits. However, contrary to the appellate court’s ruling, we hold
that Franco is not entitled to unearned interest on the time deposit as well as to moral and exemplary damages.

First. On the issue of who has a better right to the deposits in Franco’s accounts, BPI-FB urges us that the legal
consequence of FMIC’s forgery claim is that the money transferred by BPI-FB to Tevesteco is its own, and considering
that it was able to recover possession of the same when the money was redeposited by Franco, it had the right to set
up its ownership thereon and freeze Franco’s accounts.

BPI-FB contends that its position is not unlike that of an owner of personal property who regains possession after it is
stolen, and to illustrate this point, BPI-FB gives the following example: where X’s television set is stolen by Y who
thereafter sells it to Z, and where Z unwittingly entrusts possession of the TV set to X, the latter would have the right
to keep possession of the property and preclude Z from recovering possession thereof. To bolster its position, BPI-FB
cites Article 559 of the Civil Code, which provides:

Article 559. The possession of movable property acquired in good faith is equivalent to a title. Nevertheless, one who
has lost any movable or has been unlawfully deprived thereof, may recover it from the person in possession of the
same.

If the possessor of a movable lost or of which the owner has been unlawfully deprived, has acquired it in good faith at
a public sale, the owner cannot obtain its return without reimbursing the price paid therefor.

BPI-FB’s argument is unsound. To begin with, the movable property mentioned in Article 559 of the Civil Code pertains
to a specific or determinate thing.30 A determinate or specific thing is one that is individualized and can be identified
or distinguished from others of the same kind.31

In this case, the deposit in Franco’s accounts consists of money which, albeit characterized as a movable, is generic
and fungible.32 The quality of being fungible depends upon the possibility of the property, because of its nature or the
will of the parties, being substituted by others of the same kind, not having a distinct individuality.33

Significantly, while Article 559 permits an owner who has lost or has been unlawfully deprived of a movable to recover
the exact same thing from the current possessor, BPI-FB simply claims ownership of the equivalent amount of money,
i.e., the value thereof, which it had mistakenly debited from FMIC’s account and credited to Tevesteco’s, and
subsequently traced to Franco’s account. In fact, this is what BPI-FB did in filing the Makati Case against Franco, et
al. It staked its claim on the money itself which passed from one account to another, commencing with the forged
Authority to Debit.

It bears emphasizing that money bears no earmarks of peculiar ownership,34 and this characteristic is all the more
manifest in the instant case which involves money in a banking transaction gone awry. Its primary function is to pass
from hand to hand as a medium of exchange, without other evidence of its title.35 Money, which had passed through
various transactions in the general course of banking business, even if of traceable origin, is no exception.

Thus, inasmuch as what is involved is not a specific or determinate personal property, BPI-FB’s illustrative example,
ostensibly based on Article 559, is inapplicable to the instant case.

There is no doubt that BPI-FB owns the deposited monies in the accounts of Franco, but not as a legal consequence
of its unauthorized transfer of FMIC’s deposits to Tevesteco’s account. BPI-FB conveniently forgets that the deposit of
money in banks is governed by the Civil Code provisions on simple loan or mutuum.36 As there is a debtor-creditor
relationship between a bank and its depositor, BPI-FB ultimately acquired ownership of Franco’s deposits, but such
ownership is coupled with a corresponding obligation to pay him an equal amount on demand.37 Although BPI-FB
owns the deposits in Franco’s accounts, it cannot prevent him from demanding payment of BPI-FB’s obligation by
drawing checks against his current account, or asking for the release of the funds in his savings account. Thus, when
Franco issued checks drawn against his current account, he had every right as creditor to expect that those checks
would be honored by BPI-FB as debtor.

More importantly, BPI-FB does not have a unilateral right to freeze the accounts of Franco based on its mere suspicion
that the funds therein were proceeds of the multi-million peso scam Franco was allegedly involved in. To grant BPI-
FB, or any bank for that matter, the right to take whatever action it pleases on deposits which it supposes are derived
from shady transactions, would open the floodgates of public distrust in the banking industry.

Our pronouncement in Simex International (Manila), Inc. v. Court of Appeals38 continues to resonate, thus:

The banking system is an indispensable institution in the modern world and plays a vital role in the economic life of
every civilized nation. Whether as mere passive entities for the safekeeping and saving of money or as active
instruments of business and commerce, banks have become an ubiquitous presence among the people, who have
come to regard them with respect and even gratitude and, most of all, confidence. Thus, even the humble wage-earner
has not hesitated to entrust his life’s savings to the bank of his choice, knowing that they will be safe in its custody and
will even earn some interest for him. The ordinary person, with equal faith, usually maintains a modest checking account
for security and convenience in the settling of his monthly bills and the payment of ordinary expenses. x x x.

In every case, the depositor expects the bank to treat his account with the utmost fidelity, whether such account consists
only of a few hundred pesos or of millions. The bank must record every single transaction accurately, down to the last
centavo, and as promptly as possible. This has to be done if the account is to reflect at any given time the amount of
money the depositor can dispose of as he sees fit, confident that the bank will deliver it as and to whomever directs. A
blunder on the part of the bank, such as the dishonor of the check without good reason, can cause the depositor not a
little embarrassment if not also financial loss and perhaps even civil and criminal litigation.

The point is that as a business affected with public interest and because of the nature of its functions, the bank is under
obligation to treat the accounts of its depositors with meticulous care, always having in mind the fiduciary nature of
their relationship. x x x.

Ineluctably, BPI-FB, as the trustee in the fiduciary relationship, is duty bound to know the signatures of its customers.
Having failed to detect the forgery in the Authority to Debit and in the process inadvertently facilitate the FMIC-
Tevesteco transfer, BPI-FB cannot now shift liability thereon to Franco and the other payees of checks issued by
Tevesteco, or prevent withdrawals from their respective accounts without the appropriate court writ or a favorable final
judgment.

Further, it boggles the mind why BPI-FB, even without delving into the authenticity of the signature in the Authority to
Debit, effected the transfer of ₱80,000,000.00 from FMIC’s to Tevesteco’s account, when FMIC’s account was a time
deposit and it had already paid advance interest to FMIC. Considering that there is as yet no indubitable evidence
establishing Franco’s participation in the forgery, he remains an innocent party. As between him and BPI-FB, the latter,
which made possible the present predicament, must bear the resulting loss or inconvenience.

Second. With respect to its liability for interest on Franco’s current account, BPI-FB argues that its non-compliance with
the Makati RTC’s Order Lifting the Order of Attachment and the legal consequences thereof, is a matter that ought to
be taken up in that court.

The argument is tenuous. We agree with the succinct holding of the appellate court in this respect. The Manila RTC’s
order to pay interests on Franco’s current account arose from BPI-FB’s unjustified refusal to comply with its obligation
to pay Franco pursuant to their contract of mutuum. In other words, from the time BPI-FB refused Franco’s demand for
the release of the deposits in his current account, specifically, from May 17, 1990, interest at the rate of 12% began to
accrue thereon.39

Undeniably, the Makati RTC is vested with the authority to determine the legal consequences of BPI-FB’s non-
compliance with the Order Lifting the Order of Attachment. However, such authority does not preclude the Manila RTC
from ruling on BPI-FB’s liability to Franco for payment of interest based on its continued and unjustified refusal to
perform a contractual obligation upon demand. After all, this was the core issue raised by Franco in his complaint
before the Manila RTC.

Third. As to the award to Franco of the deposits in Quiaoit’s account, we find no reason to depart from the factual
findings of both the Manila RTC and the CA.

Noteworthy is the fact that Quiaoit himself testified that the deposits in his account are actually owned by Franco who
simply accommodated Jaime Sebastian’s request to temporarily transfer ₱400,000.00 from Franco’s savings account
to Quiaoit’s account.40 His testimony cannot be characterized as hearsay as the records reveal that he had personal
knowledge of the arrangement made between Franco, Sebastian and himself.41

BPI-FB makes capital of Franco’s belated allegation relative to this particular arrangement. It insists that the transaction
with Quiaoit was not specifically alleged in Franco’s complaint before the Manila RTC. However, it appears that BPI-
FB had impliedly consented to the trial of this issue given its extensive cross-examination of Quiaoit.

Section 5, Rule 10 of the Rules of Court provides:

Section 5. Amendment to conform to or authorize presentation of evidence.— When issues not raised by the pleadings
are tried with the express or implied consent of the parties, they shall be treated in all respects as if they had been
raised in the pleadings. Such amendment of the pleadings as may be necessary to cause them to conform to the
evidence and to raise these issues may be made upon motion of any party at any time, even after judgment; but failure
to amend does not affect the result of the trial of these issues. If evidence is objected to at the trial on the ground that
it is now within the issues made by the pleadings, the court may allow the pleadings to be amended and shall do so
with liberality if the presentation of the merits of the action and the ends of substantial justice will be subserved thereby.
The court may grant a continuance to enable the amendment to be made. (Emphasis supplied)

In all, BPI-FB’s argument that this case is not the right forum for Franco to recover the ₱400,000.00 begs the issue.
To reiterate, Quiaoit, testifying during the trial, unequivocally disclaimed ownership of the funds in his account, and
pointed to Franco as the actual owner thereof. Clearly, Franco’s action for the recovery of his deposits appropriately
covers the deposits in Quiaoit’s account.

Fourth. Notwithstanding all the foregoing, BPI-FB continues to insist that the dishonor of Franco’s checks respectively
dated September 11 and 18, 1989 was legally in order in view of the Makati RTC’s supplemental writ of attachment
issued on September 14, 1989. It posits that as the party that applied for the writ of attachment before the Makati RTC,
it need not be served with the Notice of Garnishment before it could place Franco’s accounts under garnishment.

The argument is specious. In this argument, we perceive BPI-FB’s clever but transparent ploy to circumvent Section
4,42 Rule 13 of the Rules of Court. It should be noted that the strict requirement on service of court papers upon the
parties affected is designed to comply with the elementary requisites of due process. Franco was entitled, as a matter
of right, to notice, if the requirements of due process are to be observed. Yet, he received a copy of the Notice of
Garnishment only on September 27, 1989, several days after the two checks he issued were dishonored by BPI-FB
on September 20 and 21, 1989. Verily, it was premature for BPI-FB to freeze Franco’s accounts without even awaiting
service of the Makati RTC’s Notice of Garnishment on Franco.
Additionally, it should be remembered that the enforcement of a writ of attachment cannot be made without including
in the main suit the owner of the property attached by virtue thereof. Section 5, Rule 13 of the Rules of Court specifically
provides that "no levy or attachment pursuant to the writ issued x x x shall be enforced unless it is preceded, or
contemporaneously accompanied, by service of summons, together with a copy of the complaint, the application for
attachment, on the defendant within the Philippines."

Franco was impleaded as party-defendant only on May 15, 1990. The Makati RTC had yet to acquire jurisdiction over
the person of Franco when BPI-FB garnished his accounts.43 Effectively, therefore, the Makati RTC had no authority
yet to bind the deposits of Franco through the writ of attachment, and consequently, there was no legal basis for BPI-
FB to dishonor the checks issued by Franco.

Fifth. Anent the CA’s finding that BPI-FB was in bad faith and as such liable for the advance interest it deducted from
Franco’s time deposit account, and for moral as well as exemplary damages, we find it proper to reinstate the ruling of
the trial court, and allow only the recovery of nominal damages in the amount of ₱10,000.00. However, we retain the
CA’s award of ₱75,000.00 as attorney’s fees.

In granting Franco’s prayer for interest on his time deposit account and for moral and exemplary damages, the CA
attributed bad faith to BPI-FB because it (1) completely disregarded its obligation to Franco; (2) misleadingly claimed
that Franco’s deposits were under garnishment; (3) misrepresented that Franco’s current account was not on file; and
(4) refused to return the ₱400,000.00 despite the fact that the ostensible owner, Quiaoit, wanted the amount returned
to Franco.

In this regard, we are guided by Article 2201 of the Civil Code which provides:

Article 2201. In contracts and quasi-contracts, the damages for which the obligor who acted in good faith is liable shall
be those that are the natural and probable consequences of the breach of the obligation, and which the parties have
foreseen or could have reasonable foreseen at the time the obligation was constituted.

In case of fraud, bad faith, malice or wanton attitude, the obligor shall be responsible for all damages which may be
reasonably attributed to the non-performance of the obligation. (Emphasis supplied.)

We find, as the trial court did, that BPI-FB acted out of the impetus of self-protection and not out of malevolence or ill
will. BPI-FB was not in the corrupt state of mind contemplated in Article 2201 and should not be held liable for all
damages now being imputed to it for its breach of obligation. For the same reason, it is not liable for the unearned
interest on the time deposit.

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.44 We have held that it is a breach of a known duty
through some motive of interest or ill will.45 In the instant case, we cannot attribute to BPI-FB fraud or even a motive
of self-enrichment. As the trial court found, there was no denial whatsoever by BPI-FB of the existence of the accounts.
The computer-generated document which indicated that the current account was "not on file" resulted from the prior
debit by BPI-FB of the deposits. The remedy of freezing the account, or the garnishment, or even the outright refusal
to honor any transaction thereon was resorted to solely for the purpose of holding on to the funds as a security for its
intended court action,46 and with no other goal but to ensure the integrity of the accounts.

We have had occasion to hold that in the absence of fraud or bad faith,47 moral damages cannot be awarded; and
that the adverse result of an action does not per se make the action wrongful, or the party liable for it. One may err, but
error alone is not a ground for granting such damages.48

An award of moral damages contemplates the existence of the following requisites: (1) there must be an injury clearly
sustained by the claimant, whether physical, mental or psychological; (2) there must be a culpable act or omission
factually established; (3) the wrongful act or omission of the defendant is the proximate cause of the injury sustained
by the claimant; and (4) the award for damages is predicated on any of the cases stated in Article 2219 of the Civil
Code.49

Franco could not point to, or identify any particular circumstance in Article 2219 of the Civil Code,50 upon which to
base his claim for moral damages.1âwphi1

Thus, not having acted in bad faith, BPI-FB cannot be held liable for moral damages under Article 2220 of the Civil
Code for breach of contract.51

We also deny the claim for exemplary damages. Franco should show that he is entitled to moral, temperate, or
compensatory damages before the court may even consider the question of whether exemplary damages should be
awarded to him.52 As there is no basis for the award of moral damages, neither can exemplary damages be granted.

While it is a sound policy not to set a premium on the right to litigate,53 we, however, find that Franco is entitled to
reasonable attorney’s fees for having been compelled to go to court in order to assert his right. Thus, we affirm the
CA’s grant of ₱75,000.00 as attorney’s fees.

Attorney’s fees may be awarded when a party is compelled to litigate or incur expenses to protect his interest,54 or
when the court deems it just and equitable.55 In the case at bench, BPI-FB refused to unfreeze the deposits of Franco
despite the Makati RTC’s Order Lifting the Order of Attachment and Quiaoit’s unwavering assertion that the
₱400,000.00 was part of Franco’s savings account. This refusal constrained Franco to incur expenses and litigate for
almost two (2) decades in order to protect his interests and recover his deposits. Therefore, this Court deems it just
and equitable to grant Franco ₱75,000.00 as attorney’s fees. The award is reasonable in view of the complexity of the
issues and the time it has taken for this case to be resolved.56

Sixth. As for the dismissal of BPI-FB’s counter-claim, we uphold the Manila RTC’s ruling, as affirmed by the CA, that
BPI-FB is not entitled to recover ₱3,800,000.00 as actual damages. BPI-FB’s alleged loss of profit as a result of
Franco’s suit is, as already pointed out, of its own making. Accordingly, the denial of its counter-claim is in order.

WHEREFORE, the petition is PARTIALLY GRANTED. The Court of Appeals Decision dated November 29, 1995 is
AFFIRMED with the MODIFICATION that the award of unearned interest on the time deposit and of moral and
exemplary damages is DELETED.

No pronouncement as to costs.

SO ORDERED.

G.R. No. L-32644 October 4, 1930

CU UNJIENG E HIJOS, plaintiff-appelle,

vs.
THE MABALACAT SUGAR CO., ET AL., defendants.
THE MABALACAT SUGAR CO., appellant.

Romeo Mercado for appellant.

Araneta and Zaragoza for plaintiff-appellee.
Duran and Lim for defendant-appellee Siuliong and Co.

STREET, J.:
This action was instituted in the Court of First Instance of Pampanga by Cu Unjieng e Hijos, for the purpose of
recovering from the Mabalacat Sugar Company an indebtedness amounting to more than P163,00, with interest, and
to foreclose a mortgage given by the debtor to secure the same, as well as to recover stipulated attorney's fee and the
sum of P1,206, paid by the plaintiff for insurance upon the mortgaged property, with incidental relief. In the complaint
Siuliong & Co., Inc., was joined as defendant, as a surety of the Mabalacat Sugar Company, and as having a third
mortgage on the mortgaged property. The Philippine National Bank was also joined by reason of its interest as second
mortgagee of the land covered by the mortgage to the plaintiff. After the cause had been brought to issue by the
answers of the several defendants, the cause was heard and judgment rendered, the dispositive portion of the decision
being as follows:

Por las consideraciones expuestas, el Juzgado condena a The Mabalacat Sugar Company a pagar a la demandante
la suma de P163,534.73, con sus intereses de 12 por ciento al ano, compuestos mensualmente desde el 1. de mayo
de 1929. Tambien se le condena a pagar a dicha demandante la suma de P2,412 por las primas de seguros abonadas
por esta, con sus intereses de 12 por ciento al ano, compuestos tambien mensualmente desde el 15 de mayo de 1928,
mas la de P7,500 por honorarios de abogados y las costas del juicio. Y si esta deuda no se pagare dentro del plazo
de tres meses, se ejecutaran los bienes hipotecados de acuerdo con la ley.

Si del producto de la venta hubiese algun remanente, este se destinara al pago del credito del Banco Nacional, o sea
de P32,704.69, con sus intereses de 9 por ciento al ano desde el 7 de junio de 1929, sin perjuicio de la orden de
ejecucion que pudiera expedirse en el asundo No. 26435 del Juzgado de Primera Instancia de Manila.

Se condena ademas a The Mabalacat Sugar Company al pago de la suma de P3,205.78 reclamada por Siuliong &
Co., con sus intereses de 9 por ciento al ano desde el 29 de julio de 1926 hasta su completo pago, ordenandola que
rinda cuentas del azucar por ella producido y pague la comision correspondiente bajo la base de 5 por ciento de su
valor, descontandose, desde luego, las cantidades ya pagadas.

Se absuelve de la demanda de Cu Unjieng e Hijos a Siuliong & Co., Inc.1awph!l.net

From this judgment the defendant, the Mabalacat Sugar Company, appealed.

The first point assigned as error has relation to the question whether the action was prematurely stated. In this
connection we note that the mortgage executed by the Mabalacat Sugar Company contains, in paragraph 5, a provision
to the effect that non-compliance on the part of the mortgage debtor with any of the obligations assumed in virtue of
this contract will cause the entire debt to become due and give occasion for the foreclosure of the mortgage. The debtor
party failed to comply with the obligation, imposed upon it in the mortgage, to pay the mortgage debt in the stipulated
installments at the time specified in the contract. It results that the creditor was justified in treating the entire mortgage
debt as having been accelerated by such failure of the debtor in paying the installments.

It appears, however, that on or about October 20, 1928, the mortgage creditor, Cu Unjieng e Hijos, agreed to extend
the time for payment of the mortgage indebtedness until June 30, 1929, with certain interim payments to be made upon
specified dates prior to the contemplated final liquidation of the whole indebtedness. But the debtor party failed to make
the interim payments due on February 25, 1929, March 25, 1929, and April 25, 1929, and failed altogether to pay the
balance due, according to the terms of this extension, on June 30, 1929. Notwithstanding the failure of the debtor to
comply with the terms of this extension, it is insisted for the appellant that this agreement for the extension of the time
of payment had the effect of abrogating the stipulation of the original contract with respect to the acceleration of the
maturity of the debt by non-compliance with the terms of the mortgage. As the trial court pointed out, this contention is
untenable. The agreement to extend the time of payment was voluntary and without consideration so far as the creditor
is concerned; and the failure of the debtor to comply with the terms of the extension justified the creditor in treating it
as of no effect. The first error is therefore without merit.
The second error is directed to the propriety of the interest charges made by the plaintiff in estimating the amount of
the indebtedness. In this connection we note that, under the second clause of the mortgage, interest should be
calculated upon the indebtedness at the rate of 12 per cent per annum. In the same clause, but in a separate paragraph,
there is another provision with respect to the payment of interest expressed in Spanish in the following words:

Los intereses seran pagados mensualmente a fin de cada mes, computados teniendo en cuenta el capital del prestamo
aun no pagado.

Translated into English this provision reads substantially as follows: "Interest, to be computed upon the still unpaid
capital of the loan, shall be paid monthly, at the end of each month."

It is well settled that, under article 1109 of the Civil Code, as well as under section 5 of the Usury Law (Act No. 2655),
the parties may stipulate that interest shall be compounded; and rests for the computation of compound interest can
certainly be made monthly, as well as quarterly, semiannually, or annually. But in the absence of express stipulation
for the accumulation of compound interest, no interest can be collected upon interest until the debt is judicially claimed,
and then the rate at which interest upon accrued interest must be computed is fixed at 6 per cent per annum.

In the present case, however, the language which we have quoted above does not justify the charging of interest upon
interest, so far as interest on the capital is concerned. The provision quoted merely requires the debtor to pay interest
monthly at the end of each month, such interest to be computed upon the capital of the loan not already paid. Clearly
this provision does not justify the charging of compound interest upon the interest accruing upon the capital monthly.
It is true that in subsections (a), (b) and (c) of article IV of the mortgage, it is stipulated that the interest can be thus
computed upon sums which the creditor would have to pay out (a) to maintain insurance upon the mortgaged property,
(b) to pay the land tax upon the same property, and (c) upon disbursements that might be made by the mortgagee to
maintain the property in good condition. But the chief thing is that interest cannot be thus accumulated on unpaid
interest accruing upon the capital of the debt.

The trial court was of the opinion that interest could be so charged, because of the Exhibit 1 of the Mabalacat Sugar
Company, which the court considered as an interpretation by the parties to the contract and a recognition by the debtor
of the propriety of compounding the interest earned by the capital. But the exhibit referred to is merely a receipt showing
that the sum of P256.28 was, on March 19, 1928, paid by the debtor to the plaintiff as interest upon interest. But where
interest is improperly charged, at an unlawful rate, the mere voluntary payment of it to the creditor by the debtor is not
binding. Such payment, in the case before us, was usurious, being in excess of 12 per cent which is allowed to be
charged, under section 2 of the Usury Law, when a debt is secured by mortgage upon real property. The Exhibit 1
therefore adds no support to the contention of the plaintiff that interest upon interest can be accumulated in the manner
adopter by the creditor in this case. The point here ruled is in exact conformity with the decision of this court in Bachrach
Garage and Taxicab Co. vs. Golingco (39 Phil., 192), where this court held that interest cannot be allowed in the
absence of stipulation, or in default thereof, except when the debt is judicially claimed; and when the debt is judicially
claimed, the interest upon the interest can only be computed at the rate of 6 per cent per annum.

It results that the appellant's second assignment of error is well taken, and the compound interest must be eliminated
from the judgment. With respect to the amount improperly charged, we accept the estimate submitted by the president
and manager of the Mabalacat Sugar Company, who says that the amount improperly included in the computation
made by the plaintiff's bookkeeper is P879.84, in addition to the amount of P256.28 covered by Exhibit 1 of the
Mabalacat Sugar Company. But the plaintiff creditor had the right to charge interest, in the manner adopted by it, upon
insurance premiums which it had paid out; and if any discrepancy of importance is discoverable by the plaintiff in the
result here reached, it will be at liberty to submit a revised computation in this court, upon motion for reconsideration,
wherein interest shall be computed in accordance with this opinion, that is to say, that no accumulation of interest will
be permitted at monthly intervals, as regards the capital of the debt, but such unpaid interest shall draw interest at the
rate of 6 per cent from the date of the institution of the action.
In the third assignment of error the appellant complains, as excessive, of the attorney's fees allowed by the court in
accordance with stipulation in the mortgage. The allowance made on the principal debt was around 4 per cent, and
about the same upon the fee allowed to the bank. Under the circumstances we think the debtor has no just cause for
complaint upon this score.

The fourth assignment of error complains of the failure of the trial court to permit an amendment to be filed by the
debtor to its answer, the application therefore having been made on the day when the cause had been set for trial, with
notice that the period was non-extendible. The point was a matter in the discretion of the court, and no abuse of
discretion is shown.

From what has been stated, it follows that the appealed judgment must be modified by deducting the sum of P1,136.12
from the principal debt, so that the amount of said indebtedness shall be P162,398.61, with interest at 12 per cent per
annum, from May 1, 1929. In other respects the judgment will be affirmed, and it is so ordered, with cost against the
appellant.

G.R. No. 189871 August 13, 2013

DARIO NACAR, PETITIONER,

vs.
GALLERY FRAMES AND/OR FELIPE BORDEY, JR., RESPONDENTS.

DECISION

PERALTA, J.:

This is a petition for review on certiorari assailing the Decision1 dated September 23, 2008 of the Court of Appeals
(CA) in CA-G.R. SP No. 98591, and the Resolution2 dated October 9, 2009 denying petitioner’s motion for
reconsideration.

The factual antecedents are undisputed.

Petitioner Dario Nacar filed a complaint for constructive dismissal before the Arbitration Branch of the National Labor
Relations Commission (NLRC) against respondents Gallery Frames (GF) and/or Felipe Bordey, Jr., docketed as NLRC
NCR Case No. 01-00519-97.

On October 15, 1998, the Labor Arbiter rendered a Decision3 in favor of petitioner and found that he was dismissed
from employment without a valid or just cause. Thus, petitioner was awarded backwages and separation pay in lieu of
reinstatement in the amount of ₱158,919.92. The dispositive portion of the decision, reads:

With the foregoing, we find and so rule that respondents failed to discharge the burden of showing that complainant
was dismissed from employment for a just or valid cause. All the more, it is clear from the records that complainant
was never afforded due process before he was terminated. As such, we are perforce constrained to grant complainant’s
prayer for the payments of separation pay in lieu of reinstatement to his former position, considering the strained
relationship between the parties, and his apparent reluctance to be reinstated, computed only up to promulgation of
this decision as follows:

SEPARATION PAY
Date Hired = August 1990
Rate = ₱198/day
Date of Decision = Aug. 18, 1998
Length of Service = 8 yrs. & 1 month
₱198.00 x 26 days x 8 months = ₱41,184.00
BACKWAGES
Date Dismissed = January 24, 1997
Rate per day = ₱196.00
Date of Decisions = Aug. 18, 1998
a) 1/24/97 to 2/5/98 = 12.36 mos.
₱196.00/day x 12.36 mos. = ₱62,986.56
b) 2/6/98 to 8/18/98 = 6.4 months
Prevailing Rate per day = ₱62,986.00
₱198.00 x 26 days x 6.4 mos. = ₱32,947.20
TOTAL = ₱95.933.76
xxxx

WHEREFORE, premises considered, judgment is hereby rendered finding respondents guilty of constructive dismissal
and are therefore, ordered:

To pay jointly and severally the complainant the amount of sixty-two thousand nine hundred eighty-six pesos and
56/100 (₱62,986.56) Pesos representing his separation pay;

To pay jointly and severally the complainant the amount of nine (sic) five thousand nine hundred thirty-three and 36/100
(₱95,933.36) representing his backwages; and

All other claims are hereby dismissed for lack of merit.

SO ORDERED.4

Respondents appealed to the NLRC, but it was dismissed for lack of merit in the Resolution5 dated February 29, 2000.
Accordingly, the NLRC sustained the decision of the Labor Arbiter. Respondents filed a motion for reconsideration, but
it was denied.6

Dissatisfied, respondents filed a Petition for Review on Certiorari before the CA. On August 24, 2000, the CA issued a
Resolution dismissing the petition. Respondents filed a Motion for Reconsideration, but it was likewise denied in a
Resolution dated May 8, 2001.7

Respondents then sought relief before the Supreme Court, docketed as G.R. No. 151332. Finding no reversible error
on the part of the CA, this Court denied the petition in the Resolution dated April 17, 2002.8

An Entry of Judgment was later issued certifying that the resolution became final and executory on May 27, 2002.9
The case was, thereafter, referred back to the Labor Arbiter. A pre-execution conference was consequently scheduled,
but respondents failed to appear.10

On November 5, 2002, petitioner filed a Motion for Correct Computation, praying that his backwages be computed from
the date of his dismissal on January 24, 1997 up to the finality of the Resolution of the Supreme Court on May 27,
2002.11 Upon recomputation, the Computation and Examination Unit of the NLRC arrived at an updated amount in the
sum of ₱471,320.31.12

On December 2, 2002, a Writ of Execution13 was issued by the Labor Arbiter ordering the Sheriff to collect from
respondents the total amount of ₱471,320.31. Respondents filed a Motion to Quash Writ of Execution, arguing, among
other things, that since the Labor Arbiter awarded separation pay of ₱62,986.56 and limited backwages of ₱95,933.36,
no more recomputation is required to be made of the said awards. They claimed that after the decision becomes final
and executory, the same cannot be altered or amended anymore.14 On January 13, 2003, the Labor Arbiter issued an
Order15 denying the motion. Thus, an Alias Writ of Execution16 was issued on January 14, 2003.

Respondents again appealed before the NLRC, which on June 30, 2003 issued a Resolution17 granting the appeal in
favor of the respondents and ordered the recomputation of the judgment award.

On August 20, 2003, an Entry of Judgment was issued declaring the Resolution of the NLRC to be final and executory.
Consequently, another pre-execution conference was held, but respondents failed to appear on time. Meanwhile,
petitioner moved that an Alias Writ of Execution be issued to enforce the earlier recomputed judgment award in the
sum of ₱471,320.31.18

The records of the case were again forwarded to the Computation and Examination Unit for recomputation, where the
judgment award of petitioner was reassessed to be in the total amount of only ₱147,560.19.

Petitioner then moved that a writ of execution be issued ordering respondents to pay him the original amount as
determined by the Labor Arbiter in his Decision dated October 15, 1998, pending the final computation of his
backwages and separation pay.

On January 14, 2003, the Labor Arbiter issued an Alias Writ of Execution to satisfy the judgment award that was due
to petitioner in the amount of ₱147,560.19, which petitioner eventually received.

Petitioner then filed a Manifestation and Motion praying for the re-computation of the monetary award to include the
appropriate interests.19

On May 10, 2005, the Labor Arbiter issued an Order20 granting the motion, but only up to the amount of ₱11,459.73.
The Labor Arbiter reasoned that it is the October 15, 1998 Decision that should be enforced considering that it was the
one that became final and executory. However, the Labor Arbiter reasoned that since the decision states that the
separation pay and backwages are computed only up to the promulgation of the said decision, it is the amount of
₱158,919.92 that should be executed. Thus, since petitioner already received ₱147,560.19, he is only entitled to the
balance of ₱11,459.73.

Petitioner then appealed before the NLRC,21 which appeal was denied by the NLRC in its Resolution22 dated
September 27, 2006. Petitioner filed a Motion for Reconsideration, but it was likewise denied in the Resolution23 dated
January 31, 2007.

Aggrieved, petitioner then sought recourse before the CA, docketed as CA-G.R. SP No. 98591.

On September 23, 2008, the CA rendered a Decision24 denying the petition. The CA opined that since petitioner no
longer appealed the October 15, 1998 Decision of the Labor Arbiter, which already became final and executory, a
belated correction thereof is no longer allowed. The CA stated that there is nothing left to be done except to enforce
the said judgment. Consequently, it can no longer be modified in any respect, except to correct clerical errors or
mistakes.

Petitioner filed a Motion for Reconsideration, but it was denied in the Resolution25 dated October 9, 2009.

Hence, the petition assigning the lone error:

WITH DUE RESPECT, THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED, COMMITTED GRAVE
ABUSE OF DISCRETION AND DECIDED CONTRARY TO LAW IN UPHOLDING THE QUESTIONED
RESOLUTIONS OF THE NLRC WHICH, IN TURN, SUSTAINED THE MAY 10, 2005 ORDER OF LABOR ARBITER
MAGAT MAKING THE DISPOSITIVE PORTION OF THE OCTOBER 15, 1998 DECISION OF LABOR ARBITER
LUSTRIA SUBSERVIENT TO AN OPINION EXPRESSED IN THE BODY OF THE SAME DECISION.26

Petitioner argues that notwithstanding the fact that there was a computation of backwages in the Labor Arbiter’s
decision, the same is not final until reinstatement is made or until finality of the decision, in case of an award of
separation pay. Petitioner maintains that considering that the October 15, 1998 decision of the Labor Arbiter did not
become final and executory until the April 17, 2002 Resolution of the Supreme Court in G.R. No. 151332 was entered
in the Book of Entries on May 27, 2002, the reckoning point for the computation of the backwages and separation pay
should be on May 27, 2002 and not when the decision of the Labor Arbiter was rendered on October 15, 1998. Further,
petitioner posits that he is also entitled to the payment of interest from the finality of the decision until full payment by
the respondents.

On their part, respondents assert that since only separation pay and limited backwages were awarded to petitioner by
the October 15, 1998 decision of the Labor Arbiter, no more recomputation is required to be made of said awards.
Respondents insist that since the decision clearly stated that the separation pay and backwages are "computed only
up to [the] promulgation of this decision," and considering that petitioner no longer appealed the decision, petitioner is
only entitled to the award as computed by the Labor Arbiter in the total amount of ₱158,919.92. Respondents added
that it was only during the execution proceedings that the petitioner questioned the award, long after the decision had
become final and executory. Respondents contend that to allow the further recomputation of the backwages to be
awarded to petitioner at this point of the proceedings would substantially vary the decision of the Labor Arbiter as it
violates the rule on immutability of judgments.

The petition is meritorious.

The instant case is similar to the case of Session Delights Ice Cream and Fast Foods v. Court of Appeals (Sixth
Division),27 wherein the issue submitted to the Court for resolution was the propriety of the computation of the awards
made, and whether this violated the principle of immutability of judgment. Like in the present case, it was a distinct
feature of the judgment of the Labor Arbiter in the above-cited case that the decision already provided for the
computation of the payable separation pay and backwages due and did not further order the computation of the
monetary awards up to the time of the finality of the judgment. Also in Session Delights, the dismissed employee failed
to appeal the decision of the labor arbiter. The Court clarified, thus:

In concrete terms, the question is whether a re-computation in the course of execution of the labor arbiter's original
computation of the awards made, pegged as of the time the decision was rendered and confirmed with modification by
a final CA decision, is legally proper. The question is posed, given that the petitioner did not immediately pay the
awards stated in the original labor arbiter's decision; it delayed payment because it continued with the litigation until
final judgment at the CA level.

A source of misunderstanding in implementing the final decision in this case proceeds from the way the original labor
arbiter framed his decision. The decision consists essentially of two parts.

The first is that part of the decision that cannot now be disputed because it has been confirmed with finality. This is the
finding of the illegality of the dismissal and the awards of separation pay in lieu of reinstatement, backwages, attorney's
fees, and legal interests.

The second part is the computation of the awards made. On its face, the computation the labor arbiter made shows
that it was time-bound as can be seen from the figures used in the computation. This part, being merely a computation
of what the first part of the decision established and declared, can, by its nature, be re-computed. This is the part, too,
that the petitioner now posits should no longer be re-computed because the computation is already in the labor arbiter's
decision that the CA had affirmed. The public and private respondents, on the other hand, posit that a re-computation
is necessary because the relief in an illegal dismissal decision goes all the way up to reinstatement if reinstatement is
to be made, or up to the finality of the decision, if separation pay is to be given in lieu reinstatement.

That the labor arbiter's decision, at the same time that it found that an illegal dismissal had taken place, also made a
computation of the award, is understandable in light of Section 3, Rule VIII of the then NLRC Rules of Procedure which
requires that a computation be made. This Section in part states:

[T]he Labor Arbiter of origin, in cases involving monetary awards and at all events, as far as practicable, shall embody
in any such decision or order the detailed and full amount awarded.

Clearly implied from this original computation is its currency up to the finality of the labor arbiter's decision. As we noted
above, this implication is apparent from the terms of the computation itself, and no question would have arisen had the
parties terminated the case and implemented the decision at that point.

However, the petitioner disagreed with the labor arbiter's findings on all counts - i.e., on the finding of illegality as well
as on all the consequent awards made. Hence, the petitioner appealed the case to the NLRC which, in turn, affirmed
the labor arbiter's decision. By law, the NLRC decision is final, reviewable only by the CA on jurisdictional grounds.

The petitioner appropriately sought to nullify the NLRC decision on jurisdictional grounds through a timely filed Rule 65
petition for certiorari. The CA decision, finding that NLRC exceeded its authority in affirming the payment of 13th month
pay and indemnity, lapsed to finality and was subsequently returned to the labor arbiter of origin for execution.

It was at this point that the present case arose. Focusing on the core illegal dismissal portion of the original labor
arbiter's decision, the implementing labor arbiter ordered the award re-computed; he apparently read the figures
originally ordered to be paid to be the computation due had the case been terminated and implemented at the labor
arbiter's level. Thus, the labor arbiter re-computed the award to include the separation pay and the backwages due up
to the finality of the CA decision that fully terminated the case on the merits. Unfortunately, the labor arbiter's approved
computation went beyond the finality of the CA decision (July 29, 2003) and included as well the payment for awards
the final CA decision had deleted - specifically, the proportionate 13th month pay and the indemnity awards. Hence,
the CA issued the decision now questioned in the present petition.

We see no error in the CA decision confirming that a re-computation is necessary as it essentially considered the labor
arbiter's original decision in accordance with its basic component parts as we discussed above. To reiterate, the first
part contains the finding of illegality and its monetary consequences; the second part is the computation of the awards
or monetary consequences of the illegal dismissal, computed as of the time of the labor arbiter's original decision.28

Consequently, from the above disquisitions, under the terms of the decision which is sought to be executed by the
petitioner, no essential change is made by a recomputation as this step is a necessary consequence that flows from
the nature of the illegality of dismissal declared by the Labor Arbiter in that decision.29 A recomputation (or an original
computation, if no previous computation has been made) is a part of the law – specifically, Article 279 of the Labor
Code and the established jurisprudence on this provision – that is read into the decision. By the nature of an illegal
dismissal case, the reliefs continue to add up until full satisfaction, as expressed under Article 279 of the Labor Code.
The recomputation of the consequences of illegal dismissal upon execution of the decision does not constitute an
alteration or amendment of the final decision being implemented. The illegal dismissal ruling stands; only the
computation of monetary consequences of this dismissal is affected, and this is not a violation of the principle of
immutability of final judgments.30

That the amount respondents shall now pay has greatly increased is a consequence that it cannot avoid as it is the
risk that it ran when it continued to seek recourses against the Labor Arbiter's decision. Article 279 provides for the
consequences of illegal dismissal in no uncertain terms, qualified only by jurisprudence in its interpretation of when
separation pay in lieu of reinstatement is allowed. When that happens, the finality of the illegal dismissal decision
becomes the reckoning point instead of the reinstatement that the law decrees. In allowing separation pay, the final
decision effectively declares that the employment relationship ended so that separation pay and backwages are to be
computed up to that point.31

Finally, anent the payment of legal interest. In the landmark case of Eastern Shipping Lines, Inc. v. Court of Appeals,32
the Court laid down the guidelines regarding the manner of computing legal interest, to wit:

II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of
interest, as well as the accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of
money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall
itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall
be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of
damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however,
shall be adjudged on unliquidated claims or damages except when or until the demand can be established with
reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin
to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot
be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the
judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably
ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest,
whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its
satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.33

Recently, however, the Bangko Sentral ng Pilipinas Monetary Board (BSP-MB), in its Resolution No. 796 dated May
16, 2013, approved the amendment of Section 234 of Circular No. 905, Series of 1982 and, accordingly, issued Circular
No. 799,35 Series of 2013, effective July 1, 2013, the pertinent portion of which reads:

The Monetary Board, in its Resolution No. 796 dated 16 May 2013, approved the following revisions governing the rate
of interest in the absence of stipulation in loan contracts, thereby amending Section 2 of Circular No. 905, Series of
1982:

Section 1. The rate of interest for the loan or forbearance of any money, goods or credits and the rate allowed in
judgments, in the absence of an express contract as to such rate of interest, shall be six percent (6%) per annum.

Section 2. In view of the above, Subsection X305.136 of the Manual of Regulations for Banks and Sections 4305Q.1,37
4305S.338 and 4303P.139 of the Manual of Regulations for Non-Bank Financial Institutions are hereby amended
accordingly.

This Circular shall take effect on 1 July 2013.

Thus, from the foregoing, in the absence of an express stipulation as to the rate of interest that would govern the
parties, the rate of legal interest for loans or forbearance of any money, goods or credits and the rate allowed in
judgments shall no longer be twelve percent (12%) per annum - as reflected in the case of Eastern Shipping Lines40
and Subsection X305.1 of the Manual of Regulations for Banks and Sections 4305Q.1, 4305S.3 and 4303P.1 of the
Manual of Regulations for Non-Bank Financial Institutions, before its amendment by BSP-MB Circular No. 799 - but
will now be six percent (6%) per annum effective July 1, 2013. It should be noted, nonetheless, that the new rate could
only be applied prospectively and not retroactively. Consequently, the twelve percent (12%) per annum legal interest
shall apply only until June 30, 2013. Come July 1, 2013 the new rate of six percent (6%) per annum shall be the
prevailing rate of interest when applicable.

Corollarily, in the recent case of Advocates for Truth in Lending, Inc. and Eduardo B. Olaguer v. Bangko Sentral
Monetary Board,41 this Court affirmed the authority of the BSP-MB to set interest rates and to issue and enforce
Circulars when it ruled that "the BSP-MB may prescribe the maximum rate or rates of interest for all loans or renewals
thereof or the forbearance of any money, goods or credits, including those for loans of low priority such as consumer
loans, as well as such loans made by pawnshops, finance companies and similar credit institutions. It even authorizes
the BSP-MB to prescribe different maximum rate or rates for different types of borrowings, including deposits and
deposit substitutes, or loans of financial intermediaries."

Nonetheless, with regard to those judgments that have become final and executory prior to July 1, 2013, said judgments
shall not be disturbed and shall continue to be implemented applying the rate of interest fixed therein.1awp++i1

To recapitulate and for future guidance, the guidelines laid down in the case of Eastern Shipping Lines42 are
accordingly modified to embody BSP-MB Circular No. 799, as follows:

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached,
the contravenor can be held liable for damages. The provisions under Title XVIII on "Damages" of the Civil Code govern
in determining the measure of recoverable damages.1âwphi1

II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of
interest, as well as the accrual thereof, is imposed, as follows:

When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of
money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall
itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall
be 6% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.

When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages
awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be
adjudged on unliquidated claims or damages, except when or until the demand can be established with reasonable
certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from
the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code), but when such certainty cannot be so
reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment
of the court is made (at which time the quantification of damages may be deemed to have been reasonably
ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged.

When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest,
whether the case falls under paragraph 1 or paragraph 2, above, shall be 6% per annum from such finality until its
satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.

And, in addition to the above, judgments that have become final and executory prior to July 1, 2013, shall not be
disturbed and shall continue to be implemented applying the rate of interest fixed therein.

WHEREFORE, premises considered, the Decision dated September 23, 2008 of the Court of Appeals in CA-G.R. SP
No. 98591, and the Resolution dated October 9, 2009 are REVERSED and SET ASIDE. Respondents are Ordered to
Pay petitioner:
(1) backwages computed from the time petitioner was illegally dismissed on January 24, 1997 up to May 27, 2002,
when the Resolution of this Court in G.R. No. 151332 became final and executory;

(2) separation pay computed from August 1990 up to May 27, 2002 at the rate of one month pay per year of service;
and

(3) interest of twelve percent (12%) per annum of the total monetary awards, computed from May 27, 2002 to June 30,
2013 and six percent (6%) per annum from July 1, 2013 until their full satisfaction.

The Labor Arbiter is hereby ORDERED to make another recomputation of the total monetary benefits awarded and
due to petitioner in accordance with this Decision.

SO ORDERED.

G.R. No. 97412 July 12, 1994

EASTERN SHIPPING LINES, INC., petitioner,

vs.
HON. COURT OF APPEALS AND MERCANTILE INSURANCE COMPANY, INC., respondents.

Alojada & Garcia and Jimenea, Dala & Zaragoza for petitoner.

Zapa Law Office for private respondent.

VITUG, J.:

The issues, albeit not completely novel, are: (a) whether or not a claim for damage sustained on a shipment of goods
can be a solidary, or joint and several, liability of the common carrier, the arrastre operator and the customs broker; (b)
whether the payment of legal interest on an award for loss or damage is to be computed from the time the complaint
is filed or from the date the decision appealed from is rendered; and (c) whether the applicable rate of interest, referred
to above, is twelve percent (12%) or six percent (6%).

The findings of the court a quo, adopted by the Court of Appeals, on the antecedent and undisputed facts that have
led to the controversy are hereunder reproduced:

This is an action against defendants shipping company, arrastre operator and broker-forwarder for damages sustained
by a shipment while in defendants' custody, filed by the insurer-subrogee who paid the consignee the value of such
losses/damages.

On December 4, 1981, two fiber drums of riboflavin were shipped from Yokohama, Japan for delivery vessel "SS
EASTERN COMET" owned by defendant Eastern Shipping Lines under Bill of Lading
No. YMA-8 (Exh. B). The shipment was insured under plaintiff's Marine Insurance Policy No. 81/01177 for
P36,382,466.38.

Upon arrival of the shipment in Manila on December 12, 1981, it was discharged unto the custody of defendant Metro
Port Service, Inc. The latter excepted to one drum, said to be in bad order, which damage was unknown to plaintiff.

On January 7, 1982 defendant Allied Brokerage Corporation received the shipment from defendant Metro Port Service,
Inc., one drum opened and without seal (per "Request for Bad Order Survey." Exh. D).
On January 8 and 14, 1982, defendant Allied Brokerage Corporation made deliveries of the shipment to the consignee's
warehouse. The latter excepted to one drum which contained spillages, while the rest of the contents was
adulterated/fake (per "Bad Order Waybill" No. 10649, Exh. E).

Plaintiff contended that due to the losses/damage sustained by said drum, the consignee suffered losses totaling
P19,032.95, due to the fault and negligence of defendants. Claims were presented against defendants who failed and
refused to pay the same (Exhs. H, I, J, K, L).

As a consequence of the losses sustained, plaintiff was compelled to pay the consignee P19,032.95 under the
aforestated marine insurance policy, so that it became subrogated to all the rights of action of said consignee against
defendants (per "Form of Subrogation", "Release" and Philbanking check, Exhs. M, N, and O). (pp. 85-86, Rollo.)

There were, to be sure, other factual issues that confronted both courts. Here, the appellate court said:

Defendants filed their respective answers, traversing the material allegations of the complaint contending that: As for
defendant Eastern Shipping it alleged that the shipment was discharged in good order from the vessel unto the custody
of Metro Port Service so that any damage/losses incurred after the shipment was incurred after the shipment was
turned over to the latter, is no longer its liability (p. 17, Record); Metroport averred that although subject shipment was
discharged unto its custody, portion of the same was already in bad order (p. 11, Record); Allied Brokerage alleged
that plaintiff has no cause of action against it, not having negligent or at fault for the shipment was already in damage
and bad order condition when received by it, but nonetheless, it still exercised extra ordinary care and diligence in the
handling/delivery of the cargo to consignee in the same condition shipment was received by it.

From the evidence the court found the following:

The issues are:

1. Whether or not the shipment sustained losses/damages;

2. Whether or not these losses/damages were sustained while in the custody of defendants (in whose respective
custody, if determinable);

3. Whether or not defendant(s) should be held liable for the losses/damages (see plaintiff's pre-Trial Brief,
Records, p. 34; Allied's pre-Trial Brief, adopting plaintiff's Records, p. 38).

As to the first issue, there can be no doubt that the shipment sustained losses/damages. The two drums were shipped
in good order and condition, as clearly shown by the Bill of Lading and Commercial Invoice which do not indicate any
damages drum that was shipped (Exhs. B and C). But when on December 12, 1981 the shipment was delivered to
defendant Metro Port Service, Inc., it excepted to one drum in bad order.

Correspondingly, as to the second issue, it follows that the losses/damages were sustained while in the respective
and/or successive custody and possession of defendants carrier (Eastern), arrastre operator (Metro Port) and broker
(Allied Brokerage). This becomes evident when the Marine Cargo Survey Report (Exh. G), with its "Additional Survey
Notes", are considered. In the latter notes, it is stated that when the shipment was "landed on vessel" to dock of Pier #
15, South Harbor, Manila on December 12, 1981, it was observed that "one (1) fiber drum (was) in damaged condition,
covered by the vessel's Agent's Bad Order Tally Sheet No. 86427." The report further states that when defendant Allied
Brokerage withdrew the shipment from defendant arrastre operator's custody on January 7, 1982, one drum was found
opened without seal, cello bag partly torn but contents intact. Net unrecovered spillages was
15 kgs. The report went on to state that when the drums reached the consignee, one drum was found with
adulterated/faked contents. It is obvious, therefore, that these losses/damages occurred before the shipment reached
the consignee while under the successive custodies of defendants. Under Art. 1737 of the New Civil Code, the common
carrier's duty to observe extraordinary diligence in the vigilance of goods remains in full force and effect even if the
goods are temporarily unloaded and stored in transit in the warehouse of the carrier at the place of destination, until
the consignee has been advised and has had reasonable opportunity to remove or dispose of the goods (Art. 1738,
NCC). Defendant Eastern Shipping's own exhibit, the "Turn-Over Survey of Bad Order Cargoes" (Exhs. 3-Eastern)
states that on December 12, 1981 one drum was found "open".

and thus held:

WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered:

A. Ordering defendants to pay plaintiff, jointly and severally:

1. The amount of P19,032.95, with the present legal interest of 12% per annum from October 1, 1982, the date
of filing of this complaints, until fully paid (the liability of defendant Eastern Shipping, Inc. shall not exceed US$500 per
case or the CIF value of the loss, whichever is lesser, while the liability of defendant Metro Port Service, Inc. shall be
to the extent of the actual invoice value of each package, crate box or container in no case to exceed P5,000.00 each,
pursuant to Section 6.01 of the Management Contract);

2. P3,000.00 as attorney's fees, and

3. Costs.

B. Dismissing the counterclaims and crossclaim of defendant/cross-claimant Allied Brokerage Corporation.

SO ORDERED. (p. 207, Record).

Dissatisfied, defendant's recourse to US.

The appeal is devoid of merit.

After a careful scrutiny of the evidence on record. We find that the conclusion drawn therefrom is correct. As there is
sufficient evidence that the shipment sustained damage while in the successive possession of appellants, and therefore
they are liable to the appellee, as subrogee for the amount it paid to the consignee. (pp. 87-89, Rollo.)

The Court of Appeals thus affirmed in toto the judgment of the court
a quo.

In this petition, Eastern Shipping Lines, Inc., the common carrier, attributes error and grave abuse of discretion on the
part of the appellate court when —

I. IT HELD PETITIONER CARRIER JOINTLY AND SEVERALLY LIABLE WITH THE ARRASTRE OPERATOR
AND CUSTOMS BROKER FOR THE CLAIM OF PRIVATE RESPONDENT AS GRANTED IN THE QUESTIONED
DECISION;

II. IT HELD THAT THE GRANT OF INTEREST ON THE CLAIM OF PRIVATE RESPONDENT SHOULD
COMMENCE FROM THE DATE OF THE FILING OF THE COMPLAINT AT THE RATE OF TWELVE PERCENT PER
ANNUM INSTEAD OF FROM THE DATE OF THE DECISION OF THE TRIAL COURT AND ONLY AT THE RATE OF
SIX PERCENT PER ANNUM, PRIVATE RESPONDENT'S CLAIM BEING INDISPUTABLY UNLIQUIDATED.

The petition is, in part, granted.

In this decision, we have begun by saying that the questions raised by petitioner carrier are not all that novel. Indeed,
we do have a fairly good number of previous decisions this Court can merely tack to.

The common carrier's duty to observe the requisite diligence in the shipment of goods lasts from the time the articles
are surrendered to or unconditionally placed in the possession of, and received by, the carrier for transportation until
delivered to, or until the lapse of a reasonable time for their acceptance by, the person entitled to receive them (Arts.
1736-1738, Civil Code; Ganzon vs. Court of Appeals, 161 SCRA 646; Kui Bai vs. Dollar Steamship Lines, 52 Phil. 863).
When the goods shipped either are lost or arrive in damaged condition, a presumption arises against the carrier of its
failure to observe that diligence, and there need not be an express finding of negligence to hold it liable (Art. 1735, Civil
Code; Philippine National Railways vs. Court of Appeals, 139 SCRA 87; Metro Port Service vs. Court of Appeals, 131
SCRA 365). There are, of course, exceptional cases when such presumption of fault is not observed but these cases,
enumerated in Article 17341 of the Civil Code, are exclusive, not one of which can be applied to this case.

The question of charging both the carrier and the arrastre operator with the obligation of properly delivering the goods
to the consignee has, too, been passed upon by the Court. In Fireman's Fund Insurance vs. Metro Port Services (182
SCRA 455), we have explained, in holding the carrier and the arrastre operator liable in solidum, thus:

The legal relationship between the consignee and the arrastre operator is akin to that of a depositor and warehouseman
(Lua Kian v. Manila Railroad Co., 19 SCRA 5 [1967]. The relationship between the consignee and the common carrier
is similar to that of the consignee and the arrastre operator (Northern Motors, Inc. v. Prince Line, et al., 107 Phil. 253
[1960]). Since it is the duty of the ARRASTRE to take good care of the goods that are in its custody and to deliver them
in good condition to the consignee, such responsibility also devolves upon the CARRIER. Both the ARRASTRE and
the CARRIER are therefore charged with the obligation to deliver the goods in good condition to the consignee.

We do not, of course, imply by the above pronouncement that the arrastre operator and the customs broker are
themselves always and necessarily liable solidarily with the carrier, or vice-versa, nor that attendant facts in a given
case may not vary the rule. The instant petition has been brought solely by Eastern Shipping Lines, which, being the
carrier and not having been able to rebut the presumption of fault, is, in any event, to be held liable in this particular
case. A factual finding of both the court a quo and the appellate court, we take note, is that "there is sufficient evidence
that the shipment sustained damage while in the successive possession of appellants" (the herein petitioner among
them). Accordingly, the liability imposed on Eastern Shipping Lines, Inc., the sole petitioner in this case, is inevitable
regardless of whether there are others solidarily liable with it.

It is over the issue of legal interest adjudged by the appellate court that deserves more than just a passing remark.

Let us first see a chronological recitation of the major rulings of this Court:

The early case of Malayan Insurance Co., Inc., vs. Manila Port
Service,2 decided3 on 15 May 1969, involved a suit for recovery of money arising out of short deliveries and pilferage
of goods. In this case, appellee Malayan Insurance (the plaintiff in the lower court) averred in its complaint that the total
amount of its claim for the value of the undelivered goods amounted to P3,947.20. This demand, however, was neither
established in its totality nor definitely ascertained. In the stipulation of facts later entered into by the parties, in lieu of
proof, the amount of P1,447.51 was agreed upon. The trial court rendered judgment ordering the appellants
(defendants) Manila Port Service and Manila Railroad Company to pay appellee Malayan Insurance the sum of
P1,447.51 with legal interest thereon from the date the complaint was filed on 28 December 1962 until full payment
thereof. The appellants then assailed, inter alia, the award of legal interest. In sustaining the appellants, this Court
ruled:
Interest upon an obligation which calls for the payment of money, absent a stipulation, is the legal rate. Such interest
normally is allowable from the date of demand, judicial or extrajudicial. The trial court opted for judicial demand as the
starting point.

But then upon the provisions of Article 2213 of the Civil Code, interest "cannot be recovered upon unliquidated claims
or damages, except when the demand can be established with reasonable certainty." And as was held by this Court in
Rivera vs. Perez,4 L-6998, February 29, 1956, if the suit were for damages, "unliquidated and not known until definitely
ascertained, assessed and determined by the courts after proof (Montilla c. Corporacion de P.P. Agustinos, 25 Phil.
447; Lichauco v. Guzman,
38 Phil. 302)," then, interest "should be from the date of the decision." (Emphasis supplied)

The case of Reformina vs. Tomol,5 rendered on 11 October 1985, was for "Recovery of Damages for Injury to Person
and Loss of Property." After trial, the lower court decreed:

WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and third party defendants and against the
defendants and third party plaintiffs as follows:

Ordering defendants and third party plaintiffs Shell and Michael, Incorporated to pay jointly and severally the following
persons:

xxx xxx xxx

(g) Plaintiffs Pacita F. Reformina and Francisco Reformina the sum of P131,084.00 which is the value of the boat
F B Pacita III together with its accessories, fishing gear and equipment minus P80,000.00 which is the value of the
insurance recovered and the amount of P10,000.00 a month as the estimated monthly loss suffered by them as a result
of the fire of May 6, 1969 up to the time they are actually paid or already the total sum of P370,000.00 as of June 4,
1972 with legal interest from the filing of the complaint until paid and to pay attorney's fees of P5,000.00 with costs
against defendants and third party plaintiffs. (Emphasis supplied.)

On appeal to the Court of Appeals, the latter modified the amount of damages awarded but sustained the trial court in
adjudging legal interest from the filing of the complaint until fully paid. When the appellate court's decision became
final, the case was remanded to the lower court for execution, and this was when the trial court issued its assailed
resolution which applied the 6% interest per annum prescribed in Article 2209 of the Civil Code. In their petition for
review on certiorari, the petitioners contended that Central Bank Circular
No. 416, providing thus —

By virtue of the authority granted to it under Section 1 of Act 2655, as amended, Monetary Board in its Resolution No.
1622 dated July 29, 1974, has prescribed that the rate of interest for the loan, or forbearance of any money, goods, or
credits and the rate allowed in judgments, in the absence of express contract as to such rate of interest, shall be twelve
(12%) percent per annum. This Circular shall take effect immediately. (Emphasis found in the text) —

should have, instead, been applied. This Court6 ruled:

The judgments spoken of and referred to are judgments in litigations involving loans or forbearance of any money,
goods or credits. Any other kind of monetary judgment which has nothing to do with, nor involving loans or forbearance
of any money, goods or credits does not fall within the coverage of the said law for it is not within the ambit of the
authority granted to the Central Bank.

xxx xxx xxx

Coming to the case at bar, the decision herein sought to be executed is one rendered in an Action for Damages for
injury to persons and loss of property and does not involve any loan, much less forbearances of any money, goods or
credits. As correctly argued by the private respondents, the law applicable to the said case is Article 2209 of the New
Civil Code which reads —

Art. 2209. — If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity
for damages, there being no stipulation to the contrary, shall be the payment of interest agreed upon, and in the
absence of stipulation, the legal interest which is six percent per annum.

The above rule was reiterated in Philippine Rabbit Bus Lines, Inc., v. Cruz,7 promulgated on 28 July 1986. The case
was for damages occasioned by an injury to person and loss of property. The trial court awarded private respondent
Pedro Manabat actual and compensatory damages in the amount of P72,500.00 with legal interest thereon from the
filing of the complaint until fully paid. Relying on the Reformina v. Tomol case, this Court8 modified the interest award
from 12% to 6% interest per annum but sustained the time computation thereof, i.e., from the filing of the complaint
until fully paid.

In Nakpil and Sons vs. Court of Appeals,9 the trial court, in an action for the recovery of damages arising from the
collapse of a building, ordered,
inter alia, the "defendant United Construction Co., Inc. (one of the petitioners)
. . . to pay the plaintiff, . . . , the sum of P989,335.68 with interest at the legal rate from November 29, 1968, the date
of the filing of the complaint until full payment . . . ." Save from the modification of the amount granted by the lower
court, the Court of Appeals sustained the trial court's decision. When taken to this Court for review, the case, on 03
October 1986, was decided, thus:

WHEREFORE, the decision appealed from is hereby MODIFIED and considering the special and environmental
circumstances of this case, we deem it reasonable to render a decision imposing, as We do hereby impose, upon the
defendant and the third-party defendants (with the exception of Roman Ozaeta) a solidary (Art. 1723, Civil Code, Supra.
p. 10) indemnity in favor of the Philippine Bar Association of FIVE MILLION (P5,000,000.00) Pesos to cover all
damages (with the exception to attorney's fees) occasioned by the loss of the building (including interest charges and
lost rentals) and an additional ONE HUNDRED THOUSAND (P100,000.00) Pesos as and for attorney's fees, the total
sum being payable upon the finality of this decision. Upon failure to pay on such finality, twelve (12%) per cent interest
per annum shall be imposed upon aforementioned amounts from finality until paid. Solidary costs against the defendant
and third-party defendants (Except Roman Ozaeta). (Emphasis supplied)

A motion for reconsideration was filed by United Construction, contending that "the interest of twelve (12%) per cent
per annum imposed on the total amount of the monetary award was in contravention of law." The Court10 ruled out
the applicability of the Reformina and Philippine Rabbit Bus Lines cases and, in its resolution of 15 April 1988, it
explained:

There should be no dispute that the imposition of 12% interest pursuant to Central Bank Circular No. 416 . . . is
applicable only in the following: (1) loans; (2) forbearance of any money, goods or credit; and
(3) rate allowed in judgments (judgments spoken of refer to judgments involving loans or forbearance of any money,
goods or credits. (Philippine Rabbit Bus Lines Inc. v. Cruz, 143 SCRA 160-161 [1986]; Reformina v. Tomol, Jr., 139
SCRA 260 [1985]). It is true that in the instant case, there is neither a loan or a forbearance, but then no interest is
actually imposed provided the sums referred to in the judgment are paid upon the finality of the judgment. It is delay in
the payment of such final judgment, that will cause the imposition of the interest.

It will be noted that in the cases already adverted to, the rate of interest is imposed on the total sum, from the filing of
the complaint until paid; in other words, as part of the judgment for damages. Clearly, they are not applicable to the
instant case. (Emphasis supplied.)
The subsequent case of American Express International, Inc., vs. Intermediate Appellate Court11 was a petition for
review on certiorari from the decision, dated 27 February 1985, of the then Intermediate Appellate Court reducing the
amount of moral and exemplary damages awarded by the trial court, to P240,000.00 and P100,000.00, respectively,
and its resolution, dated 29 April 1985, restoring the amount of damages awarded by the trial court, i.e., P2,000,000.00
as moral damages and P400,000.00 as exemplary damages with interest thereon at 12% per annum from notice of
judgment, plus costs of suit. In a decision of 09 November 1988, this Court, while recognizing the right of the private
respondent to recover damages, held the award, however, for moral damages by the trial court, later sustained by the
IAC, to be inconceivably large. The Court12 thus set aside the decision of the appellate court and rendered a new one,
"ordering the petitioner to pay private respondent the sum of One Hundred Thousand (P100,000.00) Pesos as moral
damages, with
six (6%) percent interest thereon computed from the finality of this decision until paid. (Emphasis supplied)

Reformina came into fore again in the 21 February 1989 case of Florendo v. Ruiz13 which arose from a breach of
employment contract. For having been illegally dismissed, the petitioner was awarded by the trial court moral and
exemplary damages without, however, providing any legal interest thereon. When the decision was appealed to the
Court of Appeals, the latter held:

WHEREFORE, except as modified hereinabove the decision of the CFI of Negros Oriental dated October 31, 1972 is
affirmed in all respects, with the modification that defendants-appellants, except defendant-appellant Merton Munn, are
ordered to pay, jointly and severally, the amounts stated in the dispositive portion of the decision, including the sum of
P1,400.00 in concept of compensatory damages, with interest at the legal rate from the date of the filing of the complaint
until fully paid (Emphasis supplied.)

The petition for review to this Court was denied. The records were thereupon transmitted to the trial court, and an entry
of judgment was made. The writ of execution issued by the trial court directed that only compensatory damages should
earn interest at 6% per annum from the date of the filing of the complaint. Ascribing grave abuse of discretion on the
part of the trial judge, a petition for certiorari assailed the said order. This Court said:

. . . , it is to be noted that the Court of Appeals ordered the payment of interest "at the legal rate" from the time of the
filing of the complaint. . . Said circular [Central Bank Circular No. 416] does not apply to actions based on a breach of
employment contract like the case at bar. (Emphasis supplied)

The Court reiterated that the 6% interest per annum on the damages should be computed from the time the complaint
was filed until the amount is fully paid.

Quite recently, the Court had another occasion to rule on the matter. National Power Corporation vs. Angas,14 decided
on 08 May 1992, involved the expropriation of certain parcels of land. After conducting a hearing on the complaints for
eminent domain, the trial court ordered the petitioner to pay the private respondents certain sums of money as just
compensation for their lands so expropriated "with legal interest thereon . . . until fully paid." Again, in applying the 6%
legal interest per annum under the Civil Code, the Court15 declared:

. . . , (T)he transaction involved is clearly not a loan or forbearance of money, goods or credits but expropriation of
certain parcels of land for a public purpose, the payment of which is without stipulation regarding interest, and the
interest adjudged by the trial court is in the nature of indemnity for damages. The legal interest required to be paid on
the amount of just compensation for the properties expropriated is manifestly in the form of indemnity for damages for
the delay in the payment thereof. Therefore, since the kind of interest involved in the joint judgment of the lower court
sought to be enforced in this case is interest by way of damages, and not by way of earnings from loans, etc. Art. 2209
of the Civil Code shall apply.

Concededly, there have been seeming variances in the above holdings. The cases can perhaps be classified into two
groups according to the similarity of the issues involved and the corresponding rulings rendered by the court. The "first
group" would consist of the cases of Reformina v. Tomol (1985), Philippine Rabbit Bus Lines v. Cruz (1986), Florendo
v. Ruiz (1989)
and National Power Corporation v. Angas (1992). In the "second group" would be Malayan Insurance Company v.
Manila Port Service (1969), Nakpil and Sons v. Court of Appeals (1988), and American Express International v.
Intermediate Appellate Court (1988).

In the "first group", the basic issue focuses on the application of either the 6% (under the Civil Code) or 12% (under
the Central Bank Circular) interest per annum. It is easily discernible in these cases that there has been a consistent
holding that the Central Bank Circular imposing the 12% interest per annum applies only to loans or forbearance16 of
money, goods or credits, as well as to judgments involving such loan or forbearance of money, goods or credits, and
that the 6% interest under the Civil Code governs when the transaction involves the payment of indemnities in the
concept of damage arising from the breach or a delay in the performance of obligations in general. Observe, too, that
in these cases, a common time frame in the computation of the 6% interest per annum has been applied, i.e., from the
time the complaint is filed until the adjudged amount is fully paid.

The "second group", did not alter the pronounced rule on the application of the 6% or 12% interest per annum,17
depending on whether or not the amount involved is a loan or forbearance, on the one hand, or one of indemnity for
damage, on the other hand. Unlike, however, the "first group" which remained consistent in holding that the running of
the legal interest should be from the time of the filing of the complaint until fully paid, the "second group" varied on the
commencement of the running of the legal interest.

Malayan held that the amount awarded should bear legal interest from the date of the decision of the court a quo,
explaining that "if the suit were for damages, 'unliquidated and not known until definitely ascertained, assessed and
determined by the courts after proof,' then, interest 'should be from the date of the decision.'" American Express
International v. IAC, introduced a different time frame for reckoning the 6% interest by ordering it to be "computed from
the finality of (the) decision until paid." The Nakpil and Sons case ruled that 12% interest per annum should be imposed
from the finality of the decision until the judgment amount is paid.

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

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts18 is
breached, the contravenor can be held liable for damages.19 The provisions under Title XVIII on "Damages" of the
Civil Code govern in determining the measure of recoverable damages.20

II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate
of interest, as well as the accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance
of money, the interest due should be that which may have been stipulated in writing.21 Furthermore, the interest due
shall itself earn legal interest from the time it is judicially demanded.22 In the absence of stipulation, the rate of interest
shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to
the provisions of Article 116923 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount
of damages awarded may be imposed at the discretion of the court24 at the rate of 6% per annum.25 No interest,
however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established
with reasonable certainty.26 Accordingly, where the demand is established with reasonable certainty, the interest shall
begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty
cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date
the judgment of the court is made (at which time the quantification of damages may be deemed to have been
reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount
finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal
interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality
until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.

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

SO ORDERED.

G.R. No. L-29352July 22, 1985

EMERITO M. RAMOS, et al., petitioners,

vs.
CENTRAL BANK OF THE PHILIPPINES, respondents; COMMERCIAL BANK OF MANILA, intervenor.

RESOLUTION

TEEHANKEE, J.:

Pending final determination is respondent Central Bank's motion for reconsideration dated December 28, 1982 of the
Court's Resolution of October 19, 1982 which ruled "applying the Tapia ruling as reaffirmed by the Court in the
subsequent cases cited above OBM vs. Vicente Cordero, 113 SCRA 303 (March 30, 1982), per Escolin, J.; OBM vs.
Julian Cordero, 113 SCRA 778 (April 27, 1982), per Barredo, J.) that the bank is not liable for interest on the Central
Bank loans and advances during the period of its closure from August 21 1968 to January 8, 1981."

In the Tapia ruling (105 SCRA 49, June 11, 1981), the Court held 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," and that "for the guidance of those who might be concerned, and so that unnecessary litigations may be avoided
from further clogging the dockets of the courts, that in the light of the considerations expounded in the above opinion,
the same formula that exempts petitioner from the payment of interest to its depositors during the whole period of
factual stoppage of its operations by orders of the Central Bank, modified in effect by the decision as well as the
approval of a formula of rehabilitation by this Court, should be, as a matter of consistency, applicable or followed in
respect to all other obligations of petitioner which could not be paid during the period of its actual complete closure."

The parties have been extensively heard on the pending incident through their various pleadings and in oral argument
on October 23, 1984 as well as in their memoranda in amplification of oral argument.

Respondents have failed to adduce any cogent argument to persuade the Court to reconsider its Resolution at bar that
the Tapia ruling as reaffirmed by the aforecited cases is fully applicable to the non-payment of interest, during the
period of the bank's forcible closure, on loans and advances made by respondent Central Bank. Respondent Central
Bank itself when it was then managing the Overseas Bank of Manila (now Commercial Bank of Manila) under a holding
trust agreement, held the same position in Idelfonso D. Yap vs. OBM and CB (CA-G.R. No. 48887-R) wherein it argued
in its brief that "(I)n a suit against the receiver of a national bank for money loaned to the Bank while it was a going
concern, it was error to permit plaintiff to recover interest on the loan after the bank's suspension" (citing Zollman Banks
and Banking). In Pablo R. Roman et al vs. Central Bank (CA-G.R. No. 49144-R, October 18, 1973, per then Court of
Appeals Justice Hermogenes Concepcion, Jr.), the appellate court by final judgment affirmed the trial court's judgment
ordering appellant Central Bank to condone all interests on Central Bank loans to the Republic Bank, as well as
penalties imposed on it which would be tantamount "to force the Republic Bank to liquidate as an insolvent." It should
be further noted that the respondent Central Bank when called upon to deal with commercial banks and extend to them
emergency loans and advances, deals with them not as an ordinary creditor engaged in business, but as the ultimate
monetary authority of government charged with the supervision and preservation of the banking system.

A significant development of the case also is set forth in the manifestation dated October 19, 1984 of Government
Corporate Counsel and general counsel of the COMBANK Manuel M. Lazaro confirming inter alia that "(T)he
Government Service Insurance System (GSIS) has acquired ownership of 99.93% of the outstanding capital stock of
COMBANK," and urging resolution at the earliest time possible of the sole issue raised in respondent Central Bank's
motion for reconsideration of the Resolution of October 19, 1982 that "applying the Tapia ruling as reaffirmed by the
Court in subsequent cases, COMBANK is not liable for interest on CB loans and advances during the period of its
closure from August 2, 1968 to January 8, 1981 " (Record, Vol. V, p. 2261). In his earlier petition for early resolution,
Government Corporate Counsel Manuel M. Lazaro had likewise urged that "(T)he raison d' etre of the Honorable
Court's Resolution of October 19, 1982 is but a re- affirmation of the ruling laid down and firmly established in previous
decisions that have long become final, notably OBM vs. Tapia, 105 SCRA 49 (June 11, 1981), OBM vs. Vicente Cordero
and Court of Appeals, 113 SCRA 303 (Mar. 30, 1982), and OBM vs. Court of Appeals and Julian R. Cordero, 113
SCRA 778 (April 27, 1982)" (idem, p. 2242). Government Corporate Counsel Lazaro in his aforecited manifestation
removes any and all doubts as to the propriety of the Court having rendered its Resolution of October 19, 1982 pursuant
to the bank's motion for a clarificatory ruling in the present case made pursuant to the express agreement between the
bank and the respondent Central Bank then under Governor Jaime Laya. As stated in the Resolution itself, "the bank's
letter of July 1, 1981 invoking the Tapia ruling was precisely the subject of the Central Bank's reply of November 12,
1981 above quoted, agreeing anew that the Central Bank and the Combank seek a clarificatory ruling from the Supreme
Court on the applicability of the Tapia ruling to the case at bar with both parties ultimately agreeing to 'abide by any
clarificatory ruling which the Supreme Court may render on the matter" (Record, Vol. IV, pp. 1993-1994). The
COMBANK in its said manifestation makes of record that it has likewise entered into an agreement with its sister
government banking institution, the Philippine National Bank, that "both banks have agreed to abide by the final
resolution of this Honorable Court on the CB's pending Motion for Reconsideration," and that "COMBANK is
represented in the above-captioned case by its General Counsel, the Government Corporate Counsel who is also the
legal counsel for the PNB and whose services were recently retained by CB in connection with the controversy involving
Banco Filipino and Governor Jose B. Fernandez, Jr." This certainly makes moot any previous doubts raised during the
oral argument that then Central Bank Governor Jaime Laya may not have had the authority to enter into such
agreement.

The Court's Resolution of October 19, 1982 manifestly redounds to the benefit of another government institution, the
GSIS, which has acquired 99.93% of the outstanding capital stock of the COMBANK and to the preservation of the
banking system. It is time to write finis to this case which had its beginnings long ago when the original judgment of
October 4, 1971 was rendered against the Central Bank, as succinctly stated by the now Chief Justice in his
"[concurrence] in the result primarily on the ground that respondent's arbitrary and improvident exercise of its asserted
power in the premises is violative of due process" (Ramos vs. Central Bank, 41 SCRA 565).

ACCORDINGLY, the Court Resolved to DENY with finality respondent Central Bank's motion for reconsideration, for
lack of necessary votes.

G.R. No. L-47878 July 24, 1942

GIL JARDENIL, plaintiff-appellant,

vs.
HEFTI SOLAS (alias HEPTI SOLAS, JEPTI SOLAS), defendant-appellee.
Eleuterio J. Gustilo for appellant.
Jose C. Robles for appellee.

MORAN, J.:

This is an action for foreclosure of mortgage. The only question raised in this appeal is: Is defendant-appellee bound
to pay the stipulated interest only up to the date of maturity as fixed in the promissory note, or up to the date payment
is effected? This question is, in our opinion controlled by the express stipulation of the parties.

Paragraph 4 of the mortgage deed recites:

Que en consideracion a dicha suma aun por pagar de DOS MIL CUATROCIENTOS PESOS (P2,4000.00), moneda
filipina, que el Sr. Hepti Solas se compromete a pagar al Sr. Jardenil en o antes del dia treintaiuno (31) de marzo de
mil novecientos treintaicuarto (1934), con los intereses de dicha suma al tipo de doce por ciento (12%) anual a partir
desde fecha hasta el dia de su vencimiento o sea treintaiuno (31) de marzo de mil novecientos treintaicuatro (1934),
por la presente, el Sr. Hepti Solas cede y traspasa, por via de primera hipoteca, a favor del Sr. Jardenil, sus herederos
y causahabientes, la parcela de terreno descrita en el parrafo primero (1.º) de esta escritura.

Defendant-appellee has, therefore, clearly agreed to pay interest only up to the date of maturity, or until March 31,
1934. As the contract is silent as to whether after that date, in the event of non-payment, the debtor would continue to
pay interest, we cannot in law, indulge in any presumption as to such interest; otherwise, we would be imposing upon
the debtor an obligation that the parties have not chosen to agree upon. Article 1755 of the Civil Code provides that
"interest shall be due only when it has been expressly stipulated." (Emphasis supplied.)

A writing must be interpreted according to the legal meaning of its language (section 286, Act No. 190, now section 58,
Rule 123), and only when the wording of the written instrument appears to be contrary to the evident intention of the
parties that such intention must prevail. (Article 1281, Civil Code.) There is nothing in the mortgage deed to show that
the terms employed by the parties thereto are at war with their evident intent. On the contrary the act of the mortgage
of granting to the mortgagor on the same date of execution of the deed of mortgage, an extension of one year from the
date of maturity within which to make payment, without making any mention of any interest which the mortgagor should
pay during the additional period (see Exhibit B attached to the complaint), indicates that the true intention of the parties
was that no interest should be paid during the period of grace. What reason the parties may have therefor, we need
not here seek to explore.

Neither has either of the parties shown that, by mutual mistake, the deed of mortgage fails to express their agreement,
for if such mistake existed, plaintiff would have undoubtedly adduced evidence to establish it and asked that the deed
be reformed accordingly, under the parcel-evidence rule.

We hold therefore, that as the contract is clear and unmistakable and the terms employed therein have not been shown
to belie or otherwise fail to express the true intention of the parties and that the deed has not been assailed on the
ground of mutual mistake which would require its reformation, same should be given its full force and effect. When a
party sues on a written contract and no attempt is made to show any vice therein, he cannot be allowed to lay any
claim more than what its clear stipulations accord. His omission, to which the law attaches a definite warning as an in
the instant case, cannot by the courts be arbitrarily supplied by what their own notions of justice or equity may dictate.

Plaintiff is, therefore, entitled only to the stipulated interest of 12 per cent on the loan of P2, 400 from November 8,
1932 to March 31, 1934. And it being a fact that extra judicial demands have been made which we may assume to
have been so made on the expiration of the year of grace, he shall be entitled to legal interest upon the principal and
the accrued interest from April 1, 1935, until full payment
Thus modified judgment is affirmed, with costs against appellant.

Yulo, C.J., Ozaeta and Bocobo, JJ., concur.

HERMOJINA ESTORES,

G.R. No. 175139

Petitioner,

CORONA, C.J., Chairperson,

- versus -

LEONARDO-DE CASTRO,

BERSAMIN,

DEL CASTILLO, and

VILLARAMA, JR., JJ.

SPOUSES ARTURO and

LAURA SUPANGAN,

Promulgated:
Respondents.

April 18, 2012

x-------------------------------------------------------------------x

DECISION

DEL CASTILLO, J.:

The only issue posed before us is the propriety of the imposition of interest and attorneys fees.

Assailed in this Petition for Review[1] filed under Rule 45 of the Rules of Court is the May 12, 2006 Decision[2] of the
Court of Appeals (CA) in CA-G.R. CV No. 83123, the dispositive portion of which reads:

WHEREFORE, the appealed decision is MODIFIED. The rate of interest shall be six percent (6%) per annum,
computed from September 27, 2000 until its full payment before finality of the judgment. If the adjudged principal and
the interest (or any part thereof) remain unpaid thereafter, the interest rate shall be adjusted to twelve percent (12%)
per annum, computed from the time the judgment becomes final and executory until it is fully satisfied. The award of
attorneys fees is hereby reduced to P100,000.00. Costs against the defendants-appellants.

SO ORDERED.[3]
Also assailed is the August 31, 2006 Resolution[4] denying the motion for reconsideration.

Factual Antecedents
On October 3, 1993, petitioner Hermojina Estores and respondent-spouses Arturo and Laura Supangan entered into
a Conditional Deed of Sale[5] whereby petitioner offered to sell, and respondent-spouses offered to buy, a parcel of
land covered by Transfer Certificate of Title No. TCT No. 98720 located at Naic, Cavite for the sum of P4.7 million. The
parties likewise stipulated, among others, to wit:

xxxx

1. Vendor will secure approved clearance from DAR requirements of which are (sic):
a) Letter request
b) Title
c) Tax Declaration
d) Affidavit of Aggregate Landholding Vendor/Vendee
e) Certification from the Provl. Assessors as to Landholdings of Vendor/Vendee
f) Affidavit of Non-Tenancy
g) Deed of Absolute Sale

xxxx

4. Vendee shall be informed as to the status of DAR clearance within 10 days upon signing of the documents.

xxxx

6. Regarding the house located within the perimeter of the subject [lot] owned by spouses [Magbago], said house shall
be moved outside the perimeter of this subject property to the 300 sq. m. area allocated for [it]. Vendor hereby accepts
the responsibility of seeing to it that such agreement is carried out before full payment of the sale is made by vendee.

7. If and after the vendor has completed all necessary documents for registration of the title and the vendee fails to
complete payment as per agreement, a forfeiture fee of 25% or downpayment, shall be applied. However, if the vendor
fails to complete necessary documents within thirty days without any sufficient reason, or without informing the vendee
of its status, vendee has the right to demand return of full amount of down payment.

xxxx

9. As to the boundaries and partition of the lots (15,018 sq. m. and 300 sq. m.) Vendee shall be informed immediately
of its approval by the LRC.

10. The vendor assures the vendee of a peaceful transfer of ownership.

x x x x [6]

After almost seven years from the time of the execution of the contract and notwithstanding payment of P3.5 million on
the part of respondent-spouses, petitioner still failed to comply with her obligation as expressly provided in paragraphs
4, 6, 7, 9 and 10 of the contract. Hence, in a letter[7] dated September 27, 2000, respondent-spouses demanded the
return of the amount of P3.5 million within 15 days from receipt of the letter. In reply,[8] petitioner acknowledged receipt
of the P3.5 million and promised to return the same within 120 days. Respondent-spouses were amenable to the
proposal provided an interest of 12% compounded annually shall be imposed on the P3.5 million.[9] When petitioner
still failed to return the amount despite demand, respondent-spouses were constrained to file a Complaint[10] for sum
of money before the Regional Trial Court (RTC) of Malabon against herein petitioner as well as Roberto U. Arias (Arias)
who allegedly acted as petitioners agent. The case was docketed as Civil Case No. 3201-MN and raffled off to Branch
170. In their complaint, respondent-spouses prayed that petitioner and Arias be ordered to:

1. Pay the principal amount of P3,500,000.00 plus interest of 12% compounded annually starting October 1,
1993 or an estimated amount of P8,558,591.65;

2. Pay the following items of damages:

a) Moral damages in the amount of P100,000.00;

b) Actual damages in the amount of P100,000.00;

c) Exemplary damages in the amount of P100,000.00;

d) [Attorneys] fee in the amount of P50,000.00 plus 20% of recoverable amount from the [petitioner].

e) [C]ost of suit.[11]

In their Answer with Counterclaim,[12] petitioner and Arias averred that they are willing to return the principal amount
of P3.5 million but without any interest as the same was not agreed upon. In their Pre-Trial Brief,[13] they reiterated
that the only remaining issue between the parties is the imposition of interest. They argued that since the Conditional
Deed of Sale provided only for the return of the downpayment in case of breach, they cannot be held liable to pay legal
interest as well.[14]

In its Pre-Trial Order[15] dated June 29, 2001, the RTC noted that the parties agreed that the principal amount of 3.5
million pesos should be returned to the [respondent-spouses] by the [petitioner] and the issue remaining [is] whether x
x x [respondent-spouses] are entitled to legal interest thereon, damages and attorneys fees.[16]

Trial ensued thereafter. After the presentation of the respondent-spouses evidence, the trial court set the presentation
of Arias and petitioners evidence on September 3, 2003.[17] However, despite several postponements, petitioner and
Arias failed to appear hence they were deemed to have waived the presentation of their evidence. Consequently, the
case was deemed submitted for decision.[18]

Ruling of the Regional Trial Court

On May 7, 2004, the RTC rendered its Decision[19] finding respondent-spouses entitled to interest but only at the rate
of 6% per annum and not 12% as prayed by them.[20] It also found respondent-spouses entitled to attorneys fees as
they were compelled to litigate to protect their interest.[21]

The dispositive portion of the RTC Decision reads:

WHEREFORE, premises considered, judgment is hereby rendered in favor of the [respondent-spouses] and ordering
the [petitioner and Roberto Arias] to jointly and severally:

1. Pay [respondent-spouses] the principal amount of Three Million Five Hundred Thousand pesos
(P3,500,000.00) with an interest of 6% compounded annually starting October 1, 1993 and attorneys fee in the amount
of Fifty Thousand pesos (P50,000.00) plus 20% of the recoverable amount from the defendants and cost of the suit.

The Compulsory Counter Claim is hereby dismissed for lack of factual evidence.
SO ORDERED.[22]

Ruling of the Court of Appeals

Aggrieved, petitioner and Arias filed their notice of appeal.[23] The CA noted that the only issue submitted for its
resolution is whether it is proper to impose interest for an obligation that does not involve a loan or forbearance of
money in the absence of stipulation of the parties.[24]

On May 12, 2006, the CA rendered the assailed Decision affirming the ruling of the RTC finding the imposition of 6%
interest proper.[25] However, the same shall start to run only from September 27, 2000 when respondent-spouses
formally demanded the return of their money and not from October 1993 when the contract was executed as held by
the RTC. The CA also modified the RTCs ruling as regards the liability of Arias. It held that Arias could not be held
solidarily liable with petitioner because he merely acted as agent of the latter. Moreover, there was no showing that he
expressly bound himself to be personally liable or that he exceeded the limits of his authority. More importantly, there
was even no showing that Arias was authorized to act as agent of petitioner.[26] Anent the award of attorneys fees,
the CA found the award by the trial court (P50,000.00 plus 20% of the recoverable amount) excessive[27] and thus
reduced the same to P100,000.00.[28]
The dispositive portion of the CA Decision reads:

WHEREFORE, the appealed decision is MODIFIED. The rate of interest shall be six percent (6%) per annum,
computed from September 27, 2000 until its full payment before finality of the judgment. If the adjudged principal and
the interest (or any part thereof) remain[s] unpaid thereafter, the interest rate shall be adjusted to twelve percent (12%)
per annum, computed from the time the judgment becomes final and executory until it is fully satisfied. The award of
attorneys fees is hereby reduced to P100,000.00. Costs against the [petitioner].

SO ORDERED.[29]

Petitioner moved for reconsideration which was denied in the August 31, 2006 Resolution of the CA.

Hence, this petition raising the sole issue of whether the imposition of interest and attorneys fees is proper.

Petitioners Arguments

Petitioner insists that she is not bound to pay interest on the P3.5 million because the Conditional Deed of Sale only
provided for the return of the downpayment in case of failure to comply with her obligations. Petitioner also argues that
the award of attorneys fees in favor of the respondent-spouses is unwarranted because it cannot be said that the latter
won over the former since the CA even sustained her contention that the imposition of 12% interest compounded
annually is totally uncalled for.

Respondent-spouses Arguments

Respondent-spouses aver that it is only fair that interest be imposed on the amount they paid considering that petitioner
failed to return the amount upon demand and had been using the P3.5 million for her benefit. Moreover, it is undisputed
that petitioner failed to perform her obligations to relocate the house outside the perimeter of the subject property and
to complete the necessary documents. As regards the attorneys fees, they claim that they are entitled to the same
because they were forced to litigate when petitioner unjustly withheld the amount. Besides, the amount awarded by
the CA is even smaller compared to the filing fees they paid.
Our Ruling

The petition lacks merit.

Interest may be imposed even in the absence of stipulation in the contract.

We sustain the ruling of both the RTC and the CA that it is proper to impose interest notwithstanding the absence of
stipulation in the contract. Article 2210 of the Civil Code expressly provides that [i]nterest may, in the discretion of the
court, be allowed upon damages awarded for breach of contract. In this case, there is no question that petitioner is
legally obligated to return the P3.5 million because of her failure to fulfill the obligation under the Conditional Deed of
Sale, despite demand. She has in fact admitted that the conditions were not fulfilled and that she was willing to return
the full amount of P3.5 million but has not actually done so. Petitioner enjoyed the use of the money from the time it
was given to her[30] until now. Thus, she is already in default of her obligation from the date of demand, i.e., on
September 27, 2000.

The interest at the rate of 12% is applicable in the instant case.

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.[31] 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%).[32] 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.

The contract involved in this case is admittedly not a loan but a Conditional Deed of Sale. However, the contract
provides that the seller (petitioner) must return the payment made by the buyer (respondent-spouses) if the conditions
are not fulfilled. There is no question that they have in fact, not been fulfilled as the seller (petitioner) has admitted this.
Notwithstanding demand by the buyer (respondent-spouses), the seller (petitioner) has failed to return the money and

should be considered in default from the time that demand was made on September 27, 2000.

Even if the transaction involved a Conditional Deed of Sale, can the stipulation governing the return of the money be
considered as a forbearance of money which required payment of interest at the rate of 12%? We believe so.

In Crismina Garments, Inc. v. Court of Appeals,[33] 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.[34]
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.
Petitioners unwarranted withholding of the money which rightfully pertains to respondent-spouses amounts to
forbearance of money which can be considered as an involuntary loan. Thus, the applicable rate of interest is 12% per
annum. In Eastern Shipping Lines, Inc. v. Court of Appeals,[35]cited in Crismina Garments, Inc. v. Court of Appeals,[36]
the Court suggested the following guidelines:

I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is
breached, the contravenor can be held liable for damages. The provisions under Title XVIII on Damages of the Civil
Code govern in determining the measure of recoverable damages.

II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate
of interest, as well as the accrual thereof, is imposed, as follows:

1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance
of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due
shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest
shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to
the provisions of Article 1169 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount
of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however,
shall be adjudged on unliquidated claims or damages except when or until the demand can be established with
reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin
to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot
be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the
judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably
ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal
interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality
until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.[37]

Eastern Shipping Lines, Inc. v. Court of Appeals[38]and its predecessor case, Reformina v. Tongol[39] both involved
torts cases and hence, there was no forbearance of money, goods, or credits. Further, the amount claimed (i.e.,
damages) could not be established with reasonable certainty at the time the claim was made. Hence, we arrived at a
different ruling in those cases.

Since the date of demand which is September 27, 2000 was satisfactorily established during trial, then the interest rate
of 12% should be reckoned from said date of demand until the principal amount and the interest thereon is fully satisfied.

The award of attorneys fees is warranted.

Under Article 2208 of the Civil Code, attorneys fees may be recovered:

xxxx

(2) When the defendants act or omission has compelled the plaintiff to litigate with third persons or to incur expenses
to protect his interest;
xxxx

(11) In any other case where the court deems it just and equitable that attorneys fees and expenses of litigation
should be recovered.

In all cases, the attorneys fees and expenses of litigation must be reasonable.
Considering the circumstances of the instant case, we find respondent-spouses entitled to recover attorneys fees.
There is no doubt that they were forced to litigate to protect their interest, i.e., to recover their money. However, we find
the amount of P50,000.00 more appropriate in line with the policy enunciated in Article 2208 of the Civil Code that the
award of attorneys fees must always be reasonable.

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 attorneys fees is further reduced to P50,000.00.

SO ORDERED.

[G.R. No. 115821. October 13, 1999]

JESUS T. DAVID, petitioner, vs. THE COURT OF APPEALS, HON. EDGARDO P. CRUZ, MELCHOR P. PEA, and
VALENTIN AFABLE, JR., respondents.
DECISION
QUISUMBING, J.:

This is a petition for review, under Rule 45 of the Rules of Court, seeking the reversal of the Decision dated May 30,
1994, of the Court of Appeals, Ninth Division, in CA-G.R. SP No. 32782.

The parties do not dispute the facts in this case. The dispute concerns only the execution of the Decision of the Regional
Trial Court of Manila, Branch 27, in Civil Case No. 94781, dated October 31, 1979, as amended by an Order dated
June 20, 1980.

The Regional Trial Court of Manila, Branch 27, with Judge Ricardo Diaz, then presiding, issued a writ of attachment
over real properties covered by TCT Nos. 80718 and 10289 of private respondents. In his Decision dated October 31,
1979, Judge Diaz ordered private respondent Afable to pay petitioner P66,500.00 plus interest from July 24, 1974, until
fully paid, plus P5,000.00 as attorneys fees, and to pay the costs of suit.

On June 20, 1980, however, Judge Diaz issued an Order amending said Decision, so that the legal rate of interest
should be computed from January 4, 1966, instead of from July 24, 1974. The amended Decision in the decretal portion
reads:

WHEREFORE, judgment is hereby rendered against the defendant, Valentin Afable Jr., ordering him to pay to the
plaintiff the sum of P66,500.00 plus the legal rate of interest thereon from January 4, 1966 up to the time the same is
fully paid plus the amount of P5,000.00 as and for attorneys fees and to pay the costs of the suit. ordering the private
respondent Afable to pay the petitioner the sum of P66,500.00 plus the legal rate of interest thereon from July 24, 1974,
plus the amount of P5,000.00 as attorneys fees and to pay the costs of suit[1] (Emphasis ours.)

Respondent Afable appealed to the Court of Appeals and then to the Supreme Court. In both instances, the decision
of the lower court was affirmed. Entries of judgment were made and the record of the case was remanded to Branch
27, presided at that time by respondent Judge Edgardo P. Cruz, for the final execution of the Decision dated October
31, 1979, as amended by the Order dated June 20, 1980.
Upon petitioners motion, respondent Judge issued an Alias Writ of Execution by virtue of which respondent Sheriff
Melchor P. Pea conducted a public auction. Sheriff Pea informed the petitioner that the total amount of the judgment
is P270,940.52. The amount included a computation of simple interest. Petitioner, however, claimed that the judgment
award should be P3,027,238.50, because the amount due ought to be based on compounded interest.

Although the auctioned properties were sold to the petitioner, Sheriff Pea did not issue the Certificate of Sale because
there was an excess in the bid price in the amount of P2,941,524.47, which the petitioner failed to pay despite notice.
This excess was computed by the Sheriff on the basis of petitioners bid price of P3,027,238.50 minus the amount of
P270,940.52 computed in the judgment award.

On May 18, 1993, petitioner filed a Motion praying that respondent Judge Cruz issue an order directing respondent
Sheriff Pea to prepare and execute a certificate of sale in favor of the petitioner, placing therein the amount of the
judgment as P3,027,238.50, the amount he bid during the auction which he won. His reason is that compound interest,
which is allowed by Article 2212 of the Civil Code, should apply in this case.

On July 5, 1993, respondent Judge issued an Order denying petitioners Motion dated May 18, 1993, which pertinently
states:

In accordance with CB Circular No. 416 and as construed in Reformina vs. Tomol (139 SCRA 260), legal interest on
P66,500.00 corresponds to 6% per annum for the period January 4, 1966 to July 28, 1974 and 12% per annum from
July 29, 1974 up to April 26, 1993, amounting to P34,180.92 and P149,582.32, respectively, or a grand total of
P183,763.24.

Conformably with the Sheriffs Computation of Interest dated April 26, 1993 and Supplemental Report dated June 14,
1993, the judgment as of April 26, 1993 amounted to P271,039.84, broken down as follows:

Principal P 66,500.00

Interest 183,763.24

Attorneys fees 5,000.00

Publication expenses 15,500.00

Costs of suit 276.60

Total P271,039.84

Considering that plaintiffs P3,027,238.50 bid exceeds the amount of his judgment, then he is not entitled to a certificate
of sale without paying the excess in the sum of P2,756,198.66 (Secs. 22 and 23 Rule 39, Rules of Court). And since
plaintiff did not pay the excess, then the sale did not materialize and the sheriff may again sell the property to the
highest bidder (Sec. 22, Rule 39, id.).[2]

On August 11, 1993, petitioner moved for reconsideration of the Order dated July 5, 1993, reiterating his Motion dated
May 18, 1993.

On November 17, 1993, respondent Judge issued his Order denying the petitioners motion for reconsideration.
Petitioner elevated said Orders to the Court of Appeals in a petition for certiorari, prohibition and mandamus. However,
respondent appellate court dismissed the petition in a Decision dated May 30, 1994. Pertinent portions of said decision
reads:

. . . In this case, the records show that no interest was stipulated by the parties. In the promissory note denominated
as Compromise Agreement signed by private respondent which was duly accepted by petitioner, no interest was
mentioned. In his complaint, petitioner merely prayed that defendant be ordered to pay plaintiff the sum of P66,500.00
with interest thereon at the legal rate from the date of filing of the complaint until fully paid. Clearly, there was no
accrued conventional interest which could further earn interest when plaintiff-appellant made his judicial demand, thus,
the respondent court awarded x x x the sum of P66,500.00 plus the legal rate of interest thereon x x x.

Further the Supreme Court in the same case [Referring to Philippine American Accident Insurance Company, Inc. vs.
the Hon. Jose P. Flores and Concordia G. Navalta, 97 SCRA 811; Rollo, p.9.] stressed that when the judgment ordered
payment of simple legal interest only and nothing said about payment of compound interest, said interest should not
be compounded. In this case, the decretal portion is clearly worded, that is, the legal rate of interest thereon from
January 4, 1966. No mention or reference was made regarding compound interest. Ergo, the judgment award must be
computed as simple legal interest only. (Emphasis ours.)

Foregoing considered, We find no grave abuse of discretion amounting to lack or excess of jurisdiction committed by
public respondent judge in issuing the assailed orders

WHEREFORE, the petition is DENIED due course and is hereby DISMISSED.

SO ORDERED. [3]

Petitioner now comes before the Court, claiming the appellate court committed the following errors in the abovecited
decision:

First Assigned Error

THE RESPONDENT COURT OF APPEALS ERRED IN RULING THAT ARTICLE 2212 OF THE CIVIL CODE APPLIES
ONLY WHERE THE PARTIES TO AN OBLIGATION STIPULATED OR AGREED TO PAY COMPOUNDED
INTEREST.

Second Assigned Error

THE RESPONDENT COURT OF APPEALS ERRED IN CONFUSING LEGAL INTEREST (AS DISTINGUISHED
FROM CONSENSUAL INTEREST) WITH SIMPLE INTEREST, JUST AS IT ALSO ERRED IN CONFUSING THE
INTEREST ON THE PRINCIPAL WITH INTEREST ON THE INTEREST.

Third Assigned Error

THE RESPONDENT COURT OF APPEALS ERRED IN REFUSING TO APPLY THE SIMPLE MANDATE OF ARTICLE
2212 OF THE CIVIL CODE TO THE CASE AT BAR.

Fourth Assigned Error

THE RESPONDENT COURT OF APPEALS ERRED IN PROMULGATING ITS DECISION WHICH IS CLEARLY
CONTRARY TO LAW.
Essentially, we find that the issue here is whether respondent appellate court erred in affirming respondent Judges
order for the payment of simple interest only rather than compounded interest.

Petitioner insists that in computing the interest due of the P66,500.00, interest should be computed at 6% on the
principal sum of P66,500.00 pursuant to Article 2209 and then interest on the legal interest should also be computed
in accordance with the language of Article 2212 of the Civil Code.[4] In his view, said article meant compound interest.

However, this Court has already interpreted Article 2212, and defined the standards for its application in Philippine
American Accident Insurance vs. Flores, 97 SCRA 811. As therein held, Article 2212 contemplates the presence of
stipulated or conventional interest which has accrued when demand was judicially made. In cases where no interest
had been stipulated by the parties, as in the case of Philippine American Accident Insurance, no accrued conventional
interest could further earn interest upon judicial demand.[5]

In the said case, we further held that when the judgment sought to be executed ordered the payment of simple legal
interest only and said nothing about payment of compound interest, but the respondent judge orders payment of
compound interest, then, he goes beyond the confines of a judgment which had become final. Thus:

The judgment which was sought to be executed ordered the payment of simple legal interest only. It said nothing about
the payment of compound interest. Accordingly, when the respondent judge ordered the payment of compound interest
he went beyond the confines of his own judgment which had been affirmed by the Court of Appeals and which had
become final. Fundamental is the rule that execution must conform to that ordained or decreed in the dispositive part
of the decision. Likewise, a court can not, except for clerical errors or omissions amend a judgment that has become
final (Jabon et. al. vs. Alo, et al., 91 Phil. 750 [1952]; Robles vs. Timario, et al., 107 Phil. 809 [1960]; Collector of Internal
Revenue vs. Gutierrez, et al., 108 Phil 215[1960]; Ablaza vs. Sycip, et al., 110 Phil 4 [1060].)

Private respondent invokes Sec.5 of the Usury Law . . . as well as Art.2212 of the Civil Code which stipulates: Interest
due shall earn legal interest from the time it is judicially demanded, although the obligation may be silent upon this
point. Both legal provisions are in applicable (sic) for they contemplate the presence of stipulated or conventional
interest which has accrued when demand was judicially made. (Sunico v. Ramirez, 14 Phil. 500 [1909]; Salvador vs.
Palencia, 25 Phil. 661 [1913]; Bachrach vs. Golingco, 39 Phil 912 [1919]; Robinson vs. Sackermann, 46 Phil. 539
[1924]; Philippine Engineering Co. vs. Green, 48 Phil. 466 [1925]; and Cu Unjieng vs. Mabalacat Sugar Co., 54 Phil.
916 [1930].) ... In other words, there was no accrued conventional interests which could further earn interest upon
judicial demand.

Note that in the case now before us, the Court of Appeals made the factual finding that . . . no interest was stipulated
by the parties. In the promissory note denominated as Compromise Agreement signed by the private respondent which
was duly accepted by petitioner no interest was mentioned. In his complaint, petitioner merely prayed that defendant
be ordered to pay plaintiff the sum of P66,500.00 with interest thereon at the legal rate from the date of the filing of the
complaint until fully paid.[6] Clearly here the Philippine American Accident Insurance ruling applies.

Petitioner also alleges that when the case was remanded to the trial court, respondent Judge, abused his discretion
when he modified the Decision and amended its dispositive portion. He argues that when a decision has become final
and executory, the court may no longer amend, revoke, nor alter the dispositive portion, and the only power of the court
is to order its execution.

But the rule that once a judgment has become final and executory, it is the ministerial duty of the courts to order its
execution is not absolute. It admits of certain exceptions.[7] One exception is that where facts and/or events transpire
after a decision has become executory, which facts and/or events present a supervening cause or reason which
renders the final and executory decision of the court no longer enforceable.[8] Under the law, the court may modify or
alter a judgment even after the same has become executory whenever circumstances transpire rendering its execution
unjust and inequitable, as where certain facts and circumstances justifying or requiring such modification or alteration
transpired after the judgment has become final and executory.[9]

We earlier held that a case, in which an execution order has been issued, is still pending, so that all proceedings on
the execution are still proceedings in the suit.[10] In the present case, after the case was remanded to the lower court,
petitioner filed a motion for the issuance of an alias Writ of Execution. The motion was only finally resolved on July 5,
1993. When Central Bank Circular No. 416 took effect on July 29, 1974, the suit was still pending. Hence, when
respondent Judge ordered the computation of legal interest for the execution of the amended October 31,1979 order,
he correctly took judicial notice of the Courts pronouncement in Reformina vs. Tomol, Jr., 139 SCRA 260.

In Reformina, the Court applied Central Bank Circular No. 416 which took effect on July 29,1974, pursuant to P.D. 116,
amending Act. 2655 (Usury Law) and raising the legal rate of interest from 6% to 12% per annum. Respondent Judge
followed Reformina and did not err in modifying the Order of October 31, 1979. The passage of the Central Bank
Circular No. 416 was a supervening event which happened after the decision had become executory. Had respondent
Judge failed to order the assailed amendment, the result would have been iniquitous. Hence, here, no error nor grave
abuse of discretion could be ascribed to respondent Judges order dated June 30, 1980. Likewise, respondent appellate
court could not be faulted for affirming said order of respondent Judge.

WHEREFORE, the instant petition is DENIED. The Decision of the Court of Appeals dated May 30, 1994, in CA-G.R.
SP NO. 32782 is hereby AFFIRMED. The records of the case are ordered remanded to the Regional Trial Court of
Manila, Branch 27, for execution of the Decision in due course.

Costs against petitioner.

SO ORDERED.

[G.R. No. 131622. November 27, 1998]

LETICIA Y. MEDEL DR. RAFAEL MEDEL and SERVANDO FRANCO, petitioners, vs. COURT OF APPEALS,
SPOUSES VERONICA R. GONZALES and DANILO G. GONZALES, JR., doing lending business under the trade
name and style "GONZALES CREDIT ENTERPRISES", respondents.
DECISION
PARDO, J.:

The case before the Court is a petition for review on certiorari, under Rule 45 of the Revised Rules of Court, seeking
to set aside the decision of the Court of Appeals,[1] and its resolution denying reconsideration,[2] the dispositive portion
of which decision reads as follows:

"WHEREFORE, the appealed judgment is hereby MODIFIED such that defendants are hereby ordered to pay the
plaintiff: the sum of P500,000.00, plus 5.5% per month interest and 2% service charge per annum effective July 23,
1986, plus 1% per month of the total amount due and demandable as penalty charges effective August 23, 1986, until
the entire amount is fully paid.

"The award to the plaintiff of P50,000.00 as attorney's fees is affirmed. And so is the imposition of costs against the
defendants.

SO ORDERED."[3]

The Court required the respondents to comment on the petition,[4] which was filed on April 3, 1998,[5] and the
petitioners to reply thereto, which was filed on May 29, 1998.[6] We now resolve to give due course to the petition and
decide the case.
The facts of the case, as found by the Court of Appeals in its decision, which are considered binding and conclusive
on the parties herein, as the appeal is limited to questions of law, are as follows:

On November 7, 1985, Servando Franco and Leticia Medel (hereafter Servando and Leticia) obtained a loan from
Veronica R. Gonzales (hereafter Veronica), who was engaged in the money lending business under the name
"Gonzales Credit Enterprises", in the amount of P50,000.00, payable in two months. Veronica gave only the amount
of P47,000.00, to the borrowers, as she retained P3,000.00, as advance interest for one month at 6% per month.
Servado and Leticia executed a promissory note for P50,000.00, to evidence the loan, payable on January 7, 1986.

On November 19, 1985, Servando and Leticia obtained from Veronica another loan in the amount of P90,000.00,
payable in two months, at 6% interest per month. They executed a promissory note to evidence the loan, maturing on
January 19, 1986. They received only P84,000.00, out of the proceeds of the loan.

On maturity of the two promissory notes, the borrowers failed to pay the indebtedness.

On June 11, 1986, Servando and Leticia secured from Veronica still another loan in the amount of P300,000.00,
maturing in one month, secured by a real estate mortgage over a property belonging to Leticia Makalintal Yaptinchay,
who issued a special power of attorney in favor of Leticia Medel, authorizing her to execute the mortgage. Servando
and Leticia executed a promissory note in favor of Veronica to pay the sum of P300,000.00, after a month, or on July
11, 1986. However, only the sum of P275,000.00, was given to them out of the proceeds of the loan.

Like the previous loans, Servando and Medel failed to pay the third loan on maturity.

On July 23, 1986, Servando and Leticia with the latter's husband, Dr. Rafael Medel, consolidated all their previous
unpaid loans totaling P440,000.00, and sought from Veronica another loan in the amount of P60,000.00, bringing their
indebtedness to a total of P500,000.00, payable on August 23, 1986. The executed a promissory note, reading as
follows:

"Baliwag, Bulacan July 23, 1986

"Maturity Date August 23, 1986

"P500,000.00

"FOR VALUE RECEIVED, I/WE jointly and severally promise to pay to the order of VERONICA R. GONZALES doing
business in the business style of GONZALES CREDIT ENTERPRISES, Filipino, of legal age, married to Danilo G.
Gonzales, Jr., of Baliwag Bulacan, the sum of PESOS ........ FIVE HUNDRED THOUSAND ..... (P500,000.00)
Philippine Currency with interest thereon at the rate of 5.5 PER CENT per month plus 2% service charge per annum
from date hereof until fully paid according to the amortization schedule contained herein. (Underscoring supplied)

"Payment will be made in full at the maturity date.

"Should I/WE fail to pay any amortization or portion hereof when due, all the other installments together with all interest
accrued shall immediately be due and payable and I/WE hereby agree to pay an additional amount equivalent to one
per cent (1%) per month of the amount due and demandable as penalty charges in the form of liquidated damages
until fully paid; and the further sum of TWENTY FIVE PER CENT (25%) thereon in full, without deductions as Attorney's
Fee whether actually incurred or not, of the total amount due and demandable, exclusive of costs and judicial or extra
judicial expenses. (Underscoring supplied)
"I, WE further agree that in the event the present rate of interest on loan is increased by law or the Central Bank of the
Philippines, the holder shall have the option to apply and collect the increased interest charges without notice although
the original interest have already been collected wholly or partially unless the contrary is required by law.

"It is also a special condition of this contract that the parties herein agree that the amount of peso-obligation under this
agreement is based on the present value of peso, and if there be any change in the value thereof, due to extraordinary
inflation or deflation, or any other cause or reason, then the peso-obligation herein contracted shall be adjusted in
accordance with the value of the peso then prevailing at the time of the complete fulfillment of obligation.

"Demand and notice of dishonor waived. Holder may accept partial payments and grant renewals of this note or
extension of payments, reserving rights against each and all indorsers and all parties to this note.

"IN CASE OF JUDICIAL Execution of this obligation, or any part of it, the debtors waive all his/their rights under the
provisions of Section 12, Rule 39, of the Revised Rules of Court."

On maturity of the loan, the borrowers failed to pay the indebtedness of P500,000.00, plus interests and penalties,
evidenced by the above-quoted promissory note.

On February 20, 1990, Veronica R. Gonzales, joined by her husband Danilo G. Gonzales, filed with the Regional Trial
Court of Bulacan, Branch 16, at Malolos, Bulacan, a complaint for collection of the full amount of the loan including
interests and other charges.

In his answer to the complaint filed with the trial court on April 5, 1990, defendant Servando alleged that he did not
obtain any loan from the plaintiffs; that it was defendants Leticia and Dr. Rafael Medel who borrowed from the plaintiffs
the sum of P500,000.00, and actually received the amount and benefited therefrom; that the loan was secured by a
real estate mortgage executed in favor of the plaintiffs, and that he (Servando Franco) signed the promissory note only
as a witness.

In their separate answer filed on April 10,1990, defendants Leticia and Rafael Medel alleged that the loan was the
transaction of Leticia Yaptinchay, who executed a mortgage in favor of the plaintiffs over a parcel of real estate situated
in San Juan, Batangas; that the interest rate is excessive at 5.5% per month with additional service charge of 2% per
annum, and penalty charge of 1% per month; that the stipulation for attorney's fees of 25% ofthe amount due is
unconscionable, illegal and excessive, and that substantial payments made were applied to interest, penalties and
other charges.

After due trial, the lower court declared that the due execution and genuineness of the four promissory notes had been
duly proved, and ruled that although the Usury Law had been repealed, the interest charged by the plaintiffs on the
loans was unconscionable and "revolting to the conscience". Hence, the trial court applied "the provision of the New
[Civil] Code" that the "legal rate of interest for loan or forbearance of money, goods or credit is 12% per annum."[7]

Accordingly, on December 9, 1991, the trial court rendered judgment, the dispositive portion of which reads as follows:

"WHEREFORE, premises considered, judgment is hereby rendered, as follows:

"1. Ordering the defendants Servando Franco and Leticia Medel, jointly and severally, to pay plaintiffs the amount of
P47,000.00 plus 12% interest per annum from November 7, 1985 and 1% per month as penalty, until the entire amount
is paid in full.

"2. Ordering the defendants Servando Franco and Leticia Y. Medel to plaintiffs, jointly and severally the amount of
P84,000.00 with 12% interest per annum and 1% per cent per month as penalty from November 19,1985 until the
whole amount is fully paid;
"3. Ordering the defendants to pay the plaintiffs, jointly and severally, the amount of P285,000.00 plus 12% interest per
annum and 1% per month as penalty from July 11, 1986, until the whole amount is fully paid;

"4. Ordering the defendants to pay plaintiffs, jointly and severally, the amount of P50,000.00 as attorney's fees;

"5. All counterclaims are hereby dismissed.

"With costs against the defendants."[8]

In due time, both plaintiffs and defendants appealed to the Court of Appeals.

In their appeal, plaintiffs-appellants argued that the promissory note, which consolidated all the unpaid loans of the
defendants, is the law that governs the parties. They further argued that Circular No. 416 of the Central Bank prescribing
the rate of interest for loans or forbearance of money, goods or credit at 12% per annum, applies only in the absence
of a stipulation on interest rate, but not when the parties agreed thereon.

The Court of Appeals sustained the plaintiffs-appellants' contention. It ruled that "the Usury Law having become 'legally
inexistent' with the promulgation by the Central Bank in 1982 of Circular No. 905, the lender and borrower could agree
on any interest that may be charged on the loan".[9] The Court of Appeals further held that "the imposition of 'an
additional amount equivalent to 1% per month of the amount due and demandable as penalty charges in the form of
liquidated damages until fully paid' was allowed by law".[10]

Accordingly, on March 21, 1997, the Court of Appeals promulgated it decision reversing that of the Regional Trial Court,
disposing as follows:

"WHEREFORE, the appealed judgment is hereby MODIFIED such that defendants are hereby ordered to pay the
plaintiffs the sum of P500,000.00, plus 5.5% per month interest and 2% service charge per annum effective July 23,
1986, plus 1% per month of the total amount due and demandable as penalty charges effective August 24, 1986, until
the entire amount is fully paid.

"The award to the plaintiffs of P50,000.00 as attorney's fees is affirmed. And so is the imposition of costs against the
defendants.

"SO OREDERED."[11]

On April 15, 1997, defendants-appellants filed a motion for reconsideration of the said decision. By resolution dated
November 25, 1997, the Court of Appeals denied the motion.[12]

Hence, defendants interposed the present recourse via petition for review on certiorari.[13]

We find the petition meritorious.

Basically, the issue revolves on the validity of the interest rate stipulated upon. Thus, the question presented is whether
or not the stipulated rate of interest at 5.5% per month on the loan in the sum of P500,000.00, that plaintiffs extended
to the defendants is usurious. In other words, is the Usury Law still effective, or has it been repealed by Central Bank
Circular No. 905, adopted on December 22, 1982, pursuant to its powers under P.D. No. 116, as amended by P.D. No.
1684?

We agree with petitioners that the stipulated rate of interest at 5.5% per month on the P500,000.00 loan is excessive,
iniquitous, unconscionable and exorbitant.13 However, we can not consider the rate "usurious" because this Court has
consistently held that Circulr No. 905 of the Central Bank, adopted on December 22, 1982, has expressly removed the
interest ceilings prescribed by the Usury Law[14] and that the Usury Law is now "legally inexistent".[15]

In Security Bank and Trust Company vs. Regional Trial Court of Makati, Branch 61[16] the Court held that CB Circular
No. 905 "did not repeal nor in anyway amend the Usury Law but simply suspended the latter's effectivity." Indeed, we
have held that "a Central Bank Circular can not repeal a law. Only a law can repeal another law."[17] In the recent case
of Florendo vs. Court of Appeals[18], the Court reiterated the ruling that "by virtue of CB Circular 905, the Usury Law
has been rendered ineffective". "Usury has been legally non-existent in our jurisdiction. Interest can now be charged
as lender and borrower may agree upon."[19]

Nevertheless, we find the interest at 5.5% per month, or 66% per annum, stipulated upon by the parties in the
promissory note iniquitous or unconscionable, and, hence, contrary to morals ("contra bonos mores"), if not against
the law.[20] The stipulation is void.[21] The courts shall reduce equitably liquidated damages, whether intended as an
indemnity or a penalty if they are iniquitous or unconscionable.[22]

Consequently, the Court of Appeals erred in upholding the stipulation of the parties. Rather, we agree with the trial
court that, under the circumstances, interest at 12% per annum, and an additional 1% a month penalty charge as
liquidated damages may be more reasonable.

WHEREFORE, the Court hereby REVERSES and SETS ASIDE the decision of the Court of Appeals promulgated on
March 21, 1997, and its resolution dated November 25, 1997. Instead, we render judgment REVIVING and AFFIRMING
the decision dated December 9, 1991, of the Regional Trial Court of Bulacan, Branch 16, Malolos, Bulacan, in Civil
Case No. 134-M-90, involving the same parties.

No pronouncement as to costs in this instance

SO ORDERED.

[G.R. No. 158382. January 27, 2004]

MANSUETO CUATON, petitioner, vs. REBECCA SALUD and COURT OF APPEALS (Special Fourteenth
Division), respondents.
DECISION
YNARES-SANTIAGO, J.:

Before the Court is a petition for review on certiorari assailing the August 31, 2001 Decision[1] of the Court of Appeals
in CA-G.R. CV No. 54715 insofar as it affirmed the Judgment[2] of the Regional Trial Court of General Santos City,
Branch 35, in SPL. Civil Case No. 359, imposing interest at the rate of 8% to 10% per month on the one-million-peso
loan of petitioner.

On January 5, 1993, respondent Rebecca Salud, joined by her husband Rolando Salud, instituted a suit for foreclosure
of real estate mortgage with damages against petitioner Mansueto Cuaton and his mother, Conchita Cuaton, with the
Regional Trial Court of General Santos City, Branch 35, docketed as SPL. Civil Case No. 359.[3] The trial court
rendered a decision declaring the mortgage constituted on October 31, 1991 as void, because it was executed by
Mansueto Cuaton in favor of Rebecca Salud without expressly stating that he was merely acting as a representative
of Conchita Cuaton, in whose name the mortgaged lot was titled. The court ordered petitioner to pay Rebecca Salud,
inter alia, the loan secured by the mortgage in the amount of One Million Pesos plus a total P610,000.00 representing
interests of 10% and 8% per month for the period February 1992 to August 1992, thus

Original loan ------------------------------------------------------ P1,000,000.00

10% interest for the month of
February 1992
balance only --------------------------------------------- 50,000.00

10% interest for the month of

March 1992 --------------------------------------------- 100,000.00

10% interest for the month of

April 1992 ---------------------------------------------- 100,000.00

10% interest for the month of

May 1992 ----------------------------------------------- 100,000.00

10% interest for the month of

June 1992 ----------------------------------------------- 100,000.00

8% interest for the month of

July 1992 ------------------------------------------------ 80,000.00

8% interest for the month of

August 1992 -------------------------------------------- 80,000.00

---------------------
Total amount as of August 1992 ------------------P 1, 610,000.00[4]

The dispositive portion of the trial courts decision, reads:

WHEREFORE, premises considered, judgment is hereby rendered:

a) Declaring the mortgage executed by Mansueto Cuaton over the property owned by Conchita Cuaton, covered by
TCT NO. T-34460, dated October 31, 1991, in favor of Rebecca Salud as unauthorized, void and unenforceable against
defendant, Conchita Cuaton hence, the TRO issued against the foreclosure thereof is hereby made permanent. The
annotation of the mortgage over said property is likewise cancelled;

b) Ordering defendant Mansueto Cuaton to pay plaintiff, Rebecca Salud, the sum of One Million Six Hundred Ten
Thousand (P1,610,000.00) Pesos, with legal interest thereon, from January 5, 1993 until fully paid;

c) Ordering defendant, Mansueto Cuaton, to pay Attorneys fees of P25,000.00 in favor of the plaintiff, Rebecca Salud
and to pay the cost of this suit.

Defendants counterclaims, being merely a result of the filing of plaintiffs complaint are hereby DISMISSED.

SO ORDERED.[5]

Both parties filed their respective notices of appeal.[6]

On August 31, 2001, the Court of Appeals rendered the assailed decision affirming the judgment of the trial court.
Petitioner filed a motion for partial reconsideration of the trial courts decision with respect to the award of interest in the
amount of P610,000.00, arguing that the same was iniquitous and exorbitant.[7] This was denied by the Court of
Appeals on May 7, 2003.[8]
Hence, the instant petition on the sole issue of whether the 8% and 10% monthly interest rates imposed on the one-
million-peso loan obligation of petitioner to respondent Rebecca Salud are valid.

We find merit in the petition.

In Ruiz v. Court of Appeals,[9] we declared that the Usury Law was suspended by Central Bank Circular No. 905, s.
1982, effective on January 1, 1983, and that parties to a loan agreement have been given wide latitude to agree on
any interest rate. However, nothing in the said Circular grants lenders carte blanche authority to raise interest rates to
levels which will either enslave their borrowers or lead to a hemorrhaging of their assets. The stipulated interest rates
are illegal if they are unconscionable.

Thus, in Medel v. Court of Appeals,[10] and Spouses Solangon v. Salazar,[11] the Court annulled a stipulated 5.5%
per month or 66% per annum interest on a P500,000.00 loan and a 6% per month or 72% per annum interest on a
P60,000.00 loan, respectively, for being excessive, iniquitous, unconscionable and exorbitant. In both cases, the
interest rates were reduced to 12% per annum.

In the present case, the 10% and 8% interest rates per month on the one-million-peso loan of petitioner are even higher
than those previously invalidated by the Court in the above cases. Accordingly, the reduction of said rates to 12% per
annum is fair and reasonable.

Stipulations authorizing iniquitous or unconscionable interests are contrary to morals (contra bonos mores), if not
against the law.[12] Under Article 1409 of the Civil Code, these contracts are inexistent and void from the beginning.
They cannot be ratified nor the right to set up their illegality as a defense be waived.[13]

Moreover, the contention regarding the excessive interest rates cannot be considered as an issue presented for the
first time on appeal. The records show that petitioner raised the validity of the 10% monthly interest in his answer filed
with the trial court.[14] To deprive him of his right to assail the imposition of excessive interests would be to sacrifice
justice to technicality. Furthermore, an appellate court is clothed with ample authority to review rulings even if they are
not assigned as errors. This is especially so if the court finds that their consideration is necessary in arriving at a just
decision of the case before it. We have consistently held that an unassigned error closely related to an error properly
assigned, or upon which a determination of the question raised by the error properly assigned is dependent, will be
considered by the appellate court notwithstanding the failure to assign it as an error.[15] Since respondents pointed
out the matter of interest in their Appellants Brief[16] before the Court of Appeals, the fairness of the imposition thereof
was opened to further evaluation. The Court therefore is empowered to review the same.

The case of Eastern Shipping Lines, Inc. v. Court of Appeals,[17] laid down the following guidelines on the imposition
of interest, to wit:

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 23 of the Civil Code.

xxxxxxxxx

3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest,
whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its
satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.
Applying the foregoing rules, the interest of 12% per annum imposed by the Court (in lieu of the invalidated 10% and
8% per month interest rates) on the one-million-peso loan should be computed from the date of the execution of the
loan on October 31, 1991 until finality of this decision. After the judgment becomes final and executory until the
obligation is satisfied, the amount due shall further earn interest at 12% per year.

WHEREFORE, in view of all the foregoing, the instant petition is GRANTED. The August 31, 2001 Decision of the
Court of Appeals in CA-G.R. CV No. 54715, which affirmed the Decision of the Regional Trial Court of General Santos
City, Branch 35, in SPL. Civil Case No. 359, is MODIFIED. The interest rates of 10% and 8% per month imposed by
the trial court is reduced to 12% per annum, computed from the date of the execution of the loan on October 31, 1991
until finality of this decision. After the judgment becomes final and executory until the obligation is satisfied, the amount
due shall further earn interest at 12% per year.

SO ORDERED.

G.R. No. L-33582March 30, 1982

THE OVERSEAS BANK OF MANILA, petitioner,

vs.
VICENTE CORDERO and COURT OF APPEALS, respondents.

ESCOLIN, J.:

Again, We are confronted with another case involving the Overseas Bank of Manila, filed by one of its depositors.

This is a petition for review on certiorari of the decision of the Court of Appeals which affirmed the judgment of the
Court of First Instance of Manila, holding petitioner bank liable to respondent Vicente Cordero in the amount of
P80,000.00 representing the latter's time deposit with petitioner, plus interest thereon at 6% per annum until fully paid,
and costs.

On July 20, 1967, private respondent opened a one-year time deposit with petitioner bank in the amount of P80,000.00
to mature on July 20, 1968 with interest at the rate of 6% per annum. However, due to its distressed financial condition,
petitioner was unable to pay Cordero his said time deposit together with the interest. To enforce payment, Cordero
instituted an action in the Court of First Instance of Manila.

Petitioner, in its answer, raised as special defense the finding by the Monetary Board of its state of insolvency. It cited
the Resolution of August 1, 1968 of the Monetary Board which authorized petitioner's board of directors to suspend all
its operations, and the Resolution of August 13, 1968 of the same Board, ordering the Superintendent of Banks to take
over the assets of petitioner for purposes of liquidation.

Petitioner contended that although the Resolution of August 13, 1968 was then pending review before the Supreme
Court, 1 it effectively barred or abated the action of respondent for even if judgment be ultimately rendered in favor of
Cordero, satisfaction thereof would not be possible in view of the restriction imposed by the Monetary Board, prohibiting
petitioner from issuing manager's and cashier's checks and the provisions of Section 85 of Rep. Act 337, otherwise
known as the General Banking Act, forbidding its directors and officers from making any payment out of its funds after
the bank had become insolvent. It was further claimed that a judgment in favor of respondent would create a preference
in favor of a particular creditor to the prejudice of other creditors and/or depositors of petitioner bank.

After pre-trial, petitioner filed on November 29, 1968, a motion to dismiss, reiterating the same defenses raised in its
answer. Finding the same unmeritorious, the lower court denied the motion and proceeded with the trial on the merits.
In due time, the lower court rendered the aforesaid decision. Dissatisfied, petitioner appealed to the Court of Appeals,
which affirmed the decision of the lower court.

Hence, this petition for review on certiorari.

The issues raised in this petition are quite novel. Petitioner stands firm on its contentions that the suit filed by respondent
Cordero for recovery of his time deposit is barred or abated by the state of insolvency of petitioner as found by the
Monetary Board of the Central Bank of the Philippines; and that the judgment rendered in favor of respondent would
in effect create a preference in his favor to the prejudice of other creditors of the bank.

Certain supervening events, however, have rendered these issues moot and academic. The first of these supervening
events is the letter of Julian Cordero, brother and attorney-in-fact of respondent Vicente Cordero, addressed to the
Commercial Bank of Manila (Combank), successor of petitioner Overseas Bank of Manila. In this letter dated February
13, 1981, copy of which was furnished this Court, it appears that respondent Cordero had received from the Philippine
Deposit Insurance Company the amount of P10,000.00.

The second is a Manifestation by the same Julian Cordero dated July 3, 1981, acknowledging receipt of the sum of
P73,840.00. Said Manifestation is in the nature of a quitclaim, pertinent portions of which We quote:

I, the undersigned acting for and in behalf of my brother Vicente R. Cordero who resides in Canada and by virtue of a
Special Power of Attorney issued by Vicente Romero, our Consul General in Vancouver, Canada, xerox copy attached,
do hereby manifest to this honorable court that we have decided to waive all and any damages that may be awarded
to the above-mentioned case and we hereby also agree to accept the amount of Seventy Three Thousand Eight
Hundred Forty Pesos (P73,840.00) representing the principal and interest as computed by the Commercial Bank of
Manila. We also agree to hold free and harmless the Commercial Bank of Manila against any claim by any third party
or any suit that may arise against this agreement of payment.

... We also confirm receipt of Seventy Three Thousand Eight Hundred Forty Pesos (P73,840.00) with our full
satisfaction. ...

When asked to comment on this Manifestation, counsel for Combank filed on August 12, 1981 a Comment confirming
and ratifying the same, particularly the portions which state:

We also agree to hold free and harmless the Commercial Bank any third party or any suit that may arise against this
agreement of payment, and

We also confirm receipt of Seventy Three Thousand Eight Hundred Forty Pesos (P73,840.00) with our full satisfaction.

However, upon further examination, this Court noted the absence of the alleged special power of attorney executed by
private respondent in favor of Julian Cordero. When directed to produce the same, Julian Cordero submitted the
following explanatory Comment, to which was attached the special power of attorney executed by respondent Vicente
Cordero:

3. This manifestation (referring to the Manifestation of July 3, 1981) applies only to third party claims, suit and
other damages. It does not mean waiving the interest it should earn while the bank is closed and also the attorney's
fees as decided by the lower court. It is very clear. I did not waive the attorney's fees because it belongs to our attorney
and interest because it belongs to us and we are entitled to it.

Thus, with the principal claim of respondent having been satisfied, the only remaining issue to be determined is whether
respondent is entitled to (1) interest on his time deposit during the period that petitioner was closed and (2) to attorney's
fees.
We find the answer to be in the negative.

The pronouncement made by this Court, per Justice Barredo, in the recent case of Overseas Bank of Manila vs. Court
of Appeals 2 is explicit and categorical. We quote:

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. ...
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.

We consider it of trivial consequence that the stoppage of the bank's operations by the Central Bank has been
subsequently declared illegal by the Supreme Court, for before the Court's order, the bank had no alternative under
the law than to obey the orders of the Central Bank. Whatever be the juridical significance of the subsequent action of
the Supreme Court, the stubborn fact remained that the petitioner was totally crippled from then on from earning the
income needed to meet its obligations to its depositors. If such a situation cannot, strictly speaking be legally
denominated as "force majeure" as maintained by private respondent, We hold it is a matter of simple equity that it be
treated as such.

And concluding, this Court stated:

Parenthetically, We may add for the guidance of those who might be concerned and so that unnecessary litigations
may be avoided from further clogging the dockets of the courts that in the light of the consideration expounded in the
above opinion, the same formula that exempts petitioner from the payment of interest to its depositors during the whole
period of factual stoppage of its operations by orders of the Central Bank, modified in effect by the decision as well as
the approval of a formula of rehabilitation by this Court, should be, as a matter of consistency, applicable or followed
in respect to all other obligations of petitioner which could not be paid during the period of its actual complete closure.

Neither can respondent Cordero recover attorney's fees. The trial court found that herein petitioner's refusal to pay was
not due to a wilful and dishonest refusal to comply with its obligation but to restrictions imposed by the Central Bank. 3
Since respondent did not appeal from this decision, he is now barred from contesting the same.

WHEREFORE, that portion of the lower court's decision ordering petitioner to pay interest on Cordero's time deposit is
set aside. It appearing that the amount of the latter's time deposit had been fully paid, this case is hereby dismissed.
No costs.

SO ORDERED.

G.R. Nos. 173654-765 August 28, 2008

PEOPLE OF THE PHILIPPINES, petitioner,

vs.
TERESITA PUIG and ROMEO PORRAS, respondents.

DECISION

CHICO-NAZARIO, J.:
This is a Petition for Review under Rule 45 of the Revised Rules of Court with petitioner People of the Philippines,
represented by the Office of the Solicitor General, praying for the reversal of the Orders dated 30 January 2006 and 9
June 2006 of the Regional Trial Court (RTC) of the 6th Judicial Region, Branch 68, Dumangas, Iloilo, dismissing the
112 cases of Qualified Theft filed against respondents Teresita Puig and Romeo Porras, and denying petitioner’s
Motion for Reconsideration, in Criminal Cases No. 05-3054 to 05-3165.

The following are the factual antecedents:

On 7 November 2005, the Iloilo Provincial Prosecutor’s Office filed before Branch 68 of the RTC in Dumangas, Iloilo,
112 cases of Qualified Theft against respondents Teresita Puig (Puig) and Romeo Porras (Porras) who were the
Cashier and Bookkeeper, respectively, of private complainant Rural Bank of Pototan, Inc. The cases were docketed
as Criminal Cases No. 05-3054 to 05-3165.

The allegations in the Informations1 filed before the RTC were uniform and pro-forma, except for the amounts, date
and time of commission, to wit:

INFORMATION

That on or about the 1st day of August, 2002, in the Municipality of Pototan, Province of Iloilo, Philippines, and within
the jurisdiction of this Honorable Court, above-named [respondents], conspiring, confederating, and helping one
another, with grave abuse of confidence, being the Cashier and Bookkeeper of the Rural Bank of Pototan, Inc., Pototan,
Iloilo, without the knowledge and/or consent of the management of the Bank and with intent of gain, did then and there
willfully, unlawfully and feloniously take, steal and carry away the sum of FIFTEEN THOUSAND PESOS (P15,000.00),
Philippine Currency, to the damage and prejudice of the said bank in the aforesaid amount.

After perusing the Informations in these cases, the trial court did not find the existence of probable cause that would
have necessitated the issuance of a warrant of arrest based on the following grounds:

(1) the element of ‘taking without the consent of the owners’ was missing on the ground that it is the depositors-clients,
and not the Bank, which filed the complaint in these cases, who are the owners of the money allegedly taken by
respondents and hence, are the real parties-in-interest; and

(2) the Informations are bereft of the phrase alleging "dependence, guardianship or vigilance between the respondents
and the offended party that would have created a high degree of confidence between them which the respondents
could have abused."

It added that allowing the 112 cases for Qualified Theft filed against the respondents to push through would be violative
of the right of the respondents under Section 14(2), Article III of the 1987 Constitution which states that in all criminal
prosecutions, the accused shall enjoy the right to be informed of the nature and cause of the accusation against him.
Following Section 6, Rule 112 of the Revised Rules of Criminal Procedure, the RTC dismissed the cases on 30 January
2006 and refused to issue a warrant of arrest against Puig and Porras.

A Motion for Reconsideration2 was filed on 17 April 2006, by the petitioner.

On 9 June 2006, an Order3 denying petitioner’s Motion for Reconsideration was issued by the RTC, finding as follows:

Accordingly, the prosecution’s Motion for Reconsideration should be, as it hereby, DENIED. The Order dated January
30, 2006 STANDS in all respects.

Petitioner went directly to this Court via Petition for Review on Certiorari under Rule 45, raising the sole legal issue of:
WHETHER OR NOT THE 112 INFORMATIONS FOR QUALIFIED THEFT SUFFICIENTLY ALLEGE THE ELEMENT
OF TAKING WITHOUT THE CONSENT OF THE OWNER, AND THE QUALIFYING CIRCUMSTANCE OF GRAVE
ABUSE OF CONFIDENCE.

Petitioner prays that judgment be rendered annulling and setting aside the Orders dated 30 January 2006 and 9 June
2006 issued by the trial court, and that it be directed to proceed with Criminal Cases No. 05-3054 to 05-3165.

Petitioner explains that under Article 1980 of the New Civil Code, "fixed, savings, and current deposits of money in
banks and similar institutions shall be governed by the provisions concerning simple loans." Corollary thereto, Article
1953 of the same Code provides that "a person who receives a loan of money or any other fungible thing acquires the
ownership thereof, and is bound to pay to the creditor an equal amount of the same kind and quality." Thus, it posits
that the depositors who place their money with the bank are considered creditors of the bank. The bank acquires
ownership of the money deposited by its clients, making the money taken by respondents as belonging to the bank.

Petitioner also insists that the Informations sufficiently allege all the elements of the crime of qualified theft, citing that
a perusal of the Informations will show that they specifically allege that the respondents were the Cashier and
Bookkeeper of the Rural Bank of Pototan, Inc., respectively, and that they took various amounts of money with grave
abuse of confidence, and without the knowledge and consent of the bank, to the damage and prejudice of the bank.

Parenthetically, respondents raise procedural issues. They challenge the petition on the ground that a Petition for
Review on Certiorari via Rule 45 is the wrong mode of appeal because a finding of probable cause for the issuance of
a warrant of arrest presupposes evaluation of facts and circumstances, which is not proper under said Rule.

Respondents further claim that the Department of Justice (DOJ), through the Secretary of Justice, is the principal party
to file a Petition for Review on Certiorari, considering that the incident was indorsed by the DOJ.

We find merit in the petition.

The dismissal by the RTC of the criminal cases was allegedly due to insufficiency of the Informations and, therefore,
because of this defect, there is no basis for the existence of probable cause which will justify the issuance of the warrant
of arrest. Petitioner assails the dismissal contending that the Informations for Qualified Theft sufficiently state facts
which constitute (a) the qualifying circumstance of grave abuse of confidence; and (b) the element of taking, with intent
to gain and without the consent of the owner, which is the Bank.

In determining the existence of probable cause to issue a warrant of arrest, the RTC judge found the allegations in the
Information inadequate. He ruled that the Information failed to state facts constituting the qualifying circumstance of
grave abuse of confidence and the element of taking without the consent of the owner, since the owner of the money
is not the Bank, but the depositors therein. He also cites People v. Koc Song,4 in which this Court held:

There must be allegation in the information and proof of a relation, by reason of dependence, guardianship or vigilance,
between the respondents and the offended party that has created a high degree of confidence between them, which
the respondents abused.

At this point, it needs stressing that the RTC Judge based his conclusion that there was no probable cause simply on
the insufficiency of the allegations in the Informations concerning the facts constitutive of the elements of the offense
charged. This, therefore, makes the issue of sufficiency of the allegations in the Informations the focal point of
discussion.

Qualified Theft, as defined and punished under Article 310 of the Revised Penal Code, is committed as follows, viz:
ART. 310. Qualified Theft. – The crime of theft shall be punished by the penalties next higher by two degrees than
those respectively specified in the next preceding article, if committed by a domestic servant, or with grave abuse of
confidence, or if the property stolen is motor vehicle, mail matter or large cattle or consists of coconuts taken from the
premises of a plantation, fish taken from a fishpond or fishery or if property is taken on the occasion of fire, earthquake,
typhoon, volcanic eruption, or any other calamity, vehicular accident or civil disturbance. (Emphasis supplied.)

Theft, as defined in Article 308 of the Revised Penal Code, requires the physical taking of another’s property without
violence or intimidation against persons or force upon things. The elements of the crime under this Article are:

1. Intent to gain;

2. Unlawful taking;

3. Personal property belonging to another;

4. Absence of violence or intimidation against persons or force upon things.

To fall under the crime of Qualified Theft, the following elements must concur:

1. Taking of personal property;

2. That the said property belongs to another;

3. That the said taking be done with intent to gain;

4. That it be done without the owner’s consent;

5. That it be accomplished without the use of violence or intimidation against persons, nor of force upon things;

6. That it be done with grave abuse of confidence.

On the sufficiency of the Information, Section 6, Rule 110 of the Rules of Court requires, inter alia, that the information
must state the acts or omissions complained of as constitutive of the offense.

On the manner of how the Information should be worded, Section 9, Rule 110 of the Rules of Court, is enlightening:

Section 9. Cause of the accusation. The acts or omissions complained of as constituting the offense and the qualifying
and aggravating circumstances must be stated in ordinary and concise language and not necessarily in the language
used in the statute but in terms sufficient to enable a person of common understanding to know what offense is being
charged as well as its qualifying and aggravating circumstances and for the court to pronounce judgment.

It is evident that the Information need not use the exact language of the statute in alleging the acts or omissions
complained of as constituting the offense. The test is whether it enables a person of common understanding to know
the charge against him, and the court to render judgment properly.5

The portion of the Information relevant to this discussion reads:

A]bove-named [respondents], conspiring, confederating, and helping one another, with grave abuse of confidence,
being the Cashier and Bookkeeper of the Rural Bank of Pototan, Inc., Pototan, Iloilo, without the knowledge and/or
consent of the management of the Bank x x x.
It is beyond doubt that tellers, Cashiers, Bookkeepers and other employees of a Bank who come into possession of
the monies deposited therein enjoy the confidence reposed in them by their employer. Banks, on the other hand, where
monies are deposited, are considered the owners thereof. This is very clear not only from the express provisions of the
law, but from established jurisprudence. The relationship between banks and depositors has been held to be that of
creditor and debtor. Articles 1953 and 1980 of the New Civil Code, as appropriately pointed out by petitioner, provide
as follows:

Article 1953. A person who receives a loan of money or any other fungible thing acquires the ownership thereof, and
is bound to pay to the creditor an equal amount of the same kind and quality.

Article 1980. Fixed, savings, and current deposits of money in banks and similar institutions shall be governed by the
provisions concerning loan.

In a long line of cases involving Qualified Theft, this Court has firmly established the nature of possession by the Bank
of the money deposits therein, and the duties being performed by its employees who have custody of the money or
have come into possession of it. The Court has consistently considered the allegations in the Information that such
employees acted with grave abuse of confidence, to the damage and prejudice of the Bank, without particularly referring
to it as owner of the money deposits, as sufficient to make out a case of Qualified Theft. For a graphic illustration, we
cite Roque v. People,6 where the accused teller was convicted for Qualified Theft based on this Information:

That on or about the 16th day of November, 1989, in the municipality of Floridablanca, province of Pampanga,
Philippines and within the jurisdiction of his Honorable Court, the above-named accused ASUNCION GALANG
ROQUE, being then employed as teller of the Basa Air Base Savings and Loan Association Inc. (BABSLA) with office
address at Basa Air Base, Floridablanca, Pampanga, and as such was authorized and reposed with the responsibility
to receive and collect capital contributions from its member/contributors of said corporation, and having collected and
received in her capacity as teller of the BABSLA the sum of TEN THOUSAND PESOS (P10,000.00), said accused,
with intent of gain, with grave abuse of confidence and without the knowledge and consent of said corporation, did then
and there willfully, unlawfully and feloniously take, steal and carry away the amount of P10,000.00, Philippine currency,
by making it appear that a certain depositor by the name of Antonio Salazar withdrew from his Savings Account No.
1359, when in truth and in fact said Antonio Salazar did not withdr[a]w the said amount of P10,000.00 to the damage
and prejudice of BABSLA in the total amount of P10,000.00, Philippine currency.

In convicting the therein appellant, the Court held that:

[S]ince the teller occupies a position of confidence, and the bank places money in the teller’s possession due to the
confidence reposed on the teller, the felony of qualified theft would be committed.7

Also in People v. Sison,8 the Branch Operations Officer was convicted of the crime of Qualified Theft based on the
Information as herein cited:

That in or about and during the period compressed between January 24, 1992 and February 13, 1992, both dates
inclusive, in the City of Manila, Philippines, the said accused did then and there wilfully, unlawfully and feloniously, with
intent of gain and without the knowledge and consent of the owner thereof, take, steal and carry away the following, to
wit:

Cash money amounting to P6,000,000.00 in different denominations belonging to the PHILIPPINE COMMERCIAL
INTERNATIONAL BANK (PCIBank for brevity), Luneta Branch, Manila represented by its Branch Manager, HELEN U.
FARGAS, to the damage and prejudice of the said owner in the aforesaid amount of P6,000,000.00, Philippine
Currency.
That in the commission of the said offense, herein accused acted with grave abuse of confidence and unfaithfulness,
he being the Branch Operation Officer of the said complainant and as such he had free access to the place where the
said amount of money was kept.

The judgment of conviction elaborated thus:

The crime perpetuated by appellant against his employer, the Philippine Commercial and Industrial Bank (PCIB), is
Qualified Theft. Appellant could not have committed the crime had he not been holding the position of Luneta Branch
Operation Officer which gave him not only sole access to the bank vault xxx. The management of the PCIB reposed
its trust and confidence in the appellant as its Luneta Branch Operation Officer, and it was this trust and confidence
which he exploited to enrich himself to the damage and prejudice of PCIB x x x.9

From another end, People v. Locson,10 in addition to People v. Sison, described the nature of possession by the Bank.
The money in this case was in the possession of the defendant as receiving teller of the bank, and the possession of
the defendant was the possession of the Bank. The Court held therein that when the defendant, with grave abuse of
confidence, removed the money and appropriated it to his own use without the consent of the Bank, there was taking
as contemplated in the crime of Qualified Theft.11

Conspicuously, in all of the foregoing cases, where the Informations merely alleged the positions of the respondents;
that the crime was committed with grave abuse of confidence, with intent to gain and without the knowledge and
consent of the Bank, without necessarily stating the phrase being assiduously insisted upon by respondents, "of a
relation by reason of dependence, guardianship or vigilance, between the respondents and the offended party that has
created a high degree of confidence between them, which respondents abused,"12 and without employing the word
"owner" in lieu of the "Bank" were considered to have satisfied the test of sufficiency of allegations.

As regards the respondents who were employed as Cashier and Bookkeeper of the Bank in this case, there is even
no reason to quibble on the allegation in the Informations that they acted with grave abuse of confidence. In fact, the
Information which alleged grave abuse of confidence by accused herein is even more precise, as this is exactly the
requirement of the law in qualifying the crime of Theft.

In summary, the Bank acquires ownership of the money deposited by its clients; and the employees of the Bank, who
are entrusted with the possession of money of the Bank due to the confidence reposed in them, occupy positions of
confidence. The Informations, therefore, sufficiently allege all the essential elements constituting the crime of Qualified
Theft.

On the theory of the defense that the DOJ is the principal party who may file the instant petition, the ruling in Mobilia
Products, Inc. v. Hajime Umezawa13 is instructive. The Court thus enunciated:

In a criminal case in which the offended party is the State, the interest of the private complainant or the offended party
is limited to the civil liability arising therefrom. Hence, if a criminal case is dismissed by the trial court or if there is an
acquittal, a reconsideration of the order of dismissal or acquittal may be undertaken, whenever legally feasible, insofar
as the criminal aspect thereof is concerned and may be made only by the public prosecutor; or in the case of an appeal,
by the State only, through the OSG. x x x.

On the alleged wrong mode of appeal by petitioner, suffice it to state that the rule is well-settled that in appeals by
certiorari under Rule 45 of the Rules of Court, only errors of law may be raised,14 and herein petitioner certainly raised
a question of law.

As an aside, even if we go beyond the allegations of the Informations in these cases, a closer look at the records of
the preliminary investigation conducted will show that, indeed, probable cause exists for the indictment of herein
respondents. Pursuant to Section 6, Rule 112 of the Rules of Court, the judge shall issue a warrant of arrest only upon
a finding of probable cause after personally evaluating the resolution of the prosecutor and its supporting evidence.
Soliven v. Makasiar,15 as reiterated in Allado v. Driokno,16 explained that probable cause for the issuance of a warrant
of arrest is the existence of such facts and circumstances that would lead a reasonably discreet and prudent person to
believe that an offense has been committed by the person sought to be arrested.17 The records reasonably indicate
that the respondents may have, indeed, committed the offense charged.

Before closing, let it be stated that while it is truly imperative upon the fiscal or the judge, as the case may be, to relieve
the respondents from the pain of going through a trial once it is ascertained that no probable cause exists to form a
sufficient belief as to the guilt of the respondents, conversely, it is also equally imperative upon the judge to proceed
with the case upon a showing that there is a prima facie case against the respondents.

WHEREFORE, premises considered, the Petition for Review on Certiorari is hereby GRANTED. The Orders dated 30
January 2006 and 9 June 2006 of the RTC dismissing Criminal Cases No. 05-3054 to 05-3165 are REVERSED and
SET ASIDE. Let the corresponding Warrants of Arrest issue against herein respondents TERESITA PUIG and ROMEO
PORRAS. The RTC Judge of Branch 68, in Dumangas, Iloilo, is directed to proceed with the trial of Criminal Cases
No. 05-3054 to 05-3165, inclusive, with reasonable dispatch. No pronouncement as to costs.

SO ORDERED.

[G.R. No. 88880. April 30, 1991.]

PHILIPPINE NATIONAL BANK, Petitioner, v. THE HON. COURT OF APPEALS and AMBROSIO PADILLA,
Respondents.

The Chief Legal Counsel for Petitioner.

Ambrosio Padilla, Mempin & Reyes Law Offices for Private Respondent.

DECISION

GRIÑO-AQUINO, J.:

The Philippine National Bank (PNB) has appealed by certiorari from the decision promulgated on June 27, 1989 by the
Court of Appeals in CA-G.R. CV No. 09791 entitled, "AMBROSIO PADILLA, plaintiff-appellant versus PHILIPPINE
NATIONAL BANK, defendant-appellee," reversing the decision of the trial court which had dismissed the private
respondent’s complaint "to annul interest increases." (p. 32, Rollo.) The Court of Appeals rendered
judgment:jgc:chanrobles.com.ph

". . . declaring the questioned increases of interest as unreasonable, excessive and arbitrary and ordering the
defendant-appellee [PNB] to refund to the plaintiff-appellant the amount of interest collected from July, 1984 in excess
of twenty-four percent (24%) per annum. Costs against the defendant-appellee." (pp 14-15, Rollo.)

In July 1982, the private respondent applied for, and was granted by petitioner PNB, a credit line of 321.8 million,
secured by a real estate mortgage, for a term of two (2) years, with 18% interest per annum. Private respondent
executed in favor of the PNB a Credit Agreement, two (2) promissory notes in the amount of P900,000.00 each, and a
Real Estate Mortgage Contract.

The Credit Agreement provided that

"9.06 Other Conditions. The Borrowers hereby agree to be bound by the rules and regulations of the Central Bank and
the current and general policies of the Bank and those which the Bank may adopt in the future, which may have relation
to or in any way affect the Line, which rules, regulations and policies are incorporated herein by reference as if set forth
herein in full. Promptly upon receipt of a written request from the Bank, the Borrowers shall execute and deliver such
documents and instruments, in form and substance satisfactory to the Bank, in order to effectuate or otherwise comply
with such rules, regulations and policies." (p. 85, Rollo.)

The Promissory Notes, in turn, uniformly authorized the PNB to increase the stipulated 18% interest per annum "within
the limits allowed by law at any time depending on whatever policy it [PNB] may adopt in the future; Provided, that, the
interest rate on this note shall be correspondingly decreased in the event that the applicable maximum interest rate is
reduced by law or by the Monetary Board." (pp. 85-86, Rollo; Emphasis ours.)

The Real Estate Mortgage Contract likewise provided that:jgc:chanrobles.com.ph

"(k) INCREASE OF INTEREST RATE

"The rate of interest charged on the obligation secured by this mortgage as well as the interest on the amount which
may have been advanced by the MORTGAGEE, in accordance with the provisions hereof, shall be subject during the
life of this contract to such an increase within the rate allowed by law, as the Board of Directors of the MORTGAGEE
may prescribe for its debtors." (p. 86, Rollo; Emphasis supplied.)

Four (4) months advance interest and incidental expenses/charges were deducted from the loan, the net proceeds of
which were released to the private respondent by crediting or transferring the amount to his current account with the
bank.chanrobles.com : virtual law library

On June 20, 1984, PNB informed the private respondent that (1) his credit line of P1.8 million "will expire on July 4,
1984," (2)" [i]f renewal of the line for another year is intended, please submit soonest possible your request," and (3)
the "present policy of the Bank requires at least 30% reduction of principal before your line can be renewed." (pp. 86-
87, Rollo.) Complying, private respondent on June 25, 1984, paid PNB P540,000 00 (30% of P1.8 million) and
requested that "the balance of P1,260,000.00 be renewed for another period of two (2) years under the same
arrangement" and that "the increase of the interest rate of my mortgage loan be from 18% to 21%" (p. 87, Rollo.).

On July 4, 1984, private respondent paid PNB P360,000.00.

On July 18, 1984, private respondent reiterated in writing his request that "the increase in the rate of interest from 18%
be fixed at 21% of 24%. (p. 87, Rollo.)

On July 26, 1984, private respondent made an additional payment of P100,000.

On August 10, 1984, PNB informed private respondent that "we can not give due course to your request for preferential
interest rate in view of the following reasons: Existing Loan Policies of the bank requires 32% for loan of more than one
year; our present cost of funds has substantially increased." (pp. 8788, Rollo.)

On August 17, 1984, private respondent further paid PNB P150,000.00.

In a letter dated August 24, 1984 to PNB, private respondent announced that he would "continue making further
payments, and instead of a ‘loan of more than one year,’ I shall pay the said loan before the lapse of one year or before
July 4, 1985. . . . I reiterate my request that the increase of my rate of interest from 18% ‘be fixed at 21% or 24%.’" (p.
88, Rollo.)

On September 12, 1984, private respondent paid PNB P160,000.00.

In letters dated September 12, 1984 and September 13, 1984, PNB informed private respondent that "the interest rate
on your outstanding line/loan is hereby adjusted from 32% p.a. to 41% p.a. (35% prime rate + 6%) effective September
6, 1984;" and further explained "why we can not grant your request for a lower rate of 21% or 24%." (pp. 88-89, Rollo.)

In a letter dated September 24, 1984 to PNB, private respondent registered his protest against the increase of interest
rate from 18% to 32% on July 4, 1984 and from 32% to 41% on September 6, 1984.

On October 15, 1984, private respondent reiterated his request that the interest rate should not be increased from 18%
to 32% and from 32% to 41%. He also attached (as payment) a check for P140,000.00.chanrobles.com.ph : virtual law
library

Like rubbing salt on the private respondent’s wound, the petitioner informed private respondent on October 29, 1984,
that "the interest rate on your outstanding line/loan is hereby adjusted from 41% p.a. to 48% p.a. (42% prime rate plus
6% spread) effective 25 October 1984." (p. 89, Rollo.)

In November 1984, private respondent paid PNB P50,000.00 thus reducing his principal loan obligation to P300,000.00.

On December 18, 1984, private respondent filed in the Regional Trial Court of Manila a complaint against PNB entitled,
"AMBROSIO PADILLA v. PHILIPPINE NATIONAL BANK" (Civil Case No. 84-28391), praying that judgment be
rendered:jgc:chanrobles.com.ph

"a. Declaring that the unilateral increase of interest rates from 18% to 32%, then to 41% and again to 48% are
illegal, not valid nor binding on plaintiff, and that an adjustment of his interest rate from 18% to 24% is reasonable, fair
and just;

"b. The interest rate on the P900,000.00 released on September 27, 1982 be counted from said date and not
from July 4, 1984;

"c. The excess of interest payment collected by defendant bank by debiting plaintiffs current account be refunded
to plaintiff or credited to his current account;

"d. Pending the determination of the merits of this case, a restraining order and or a writ of preliminary injunction
be issued (1) to restrain and or enjoin defendant bank for [sic] collecting from plaintiff and/or debiting his current account
with illegal and excessive increases of interest rates; and (2) to prevent defendant bank from declaring plaintiff in default
for non-payment and from instituting any foreclosure proceeding, extrajudicial or judicial, of the valuable commercial
property of plaintiff." (pp. 89-90, Rollo.)

In its answer to the complaint, PNB denied that the increases in interest rates were illegal, unilateral excessive and
arbitrary and recited the reasons justifying said increases.

On March 31, 1985, the private respondent paid the P300,000 balance of his obligation to PNBN (Exh. 5).

The trial court rendered judgment on April 14, 1986, dismissing the complaint because the increases of interest were
properly made.

The private respondent appealed to the Court of Appeals. On June 27, 1989, the Court of Appeals reversed the trial
court, hence, NB’s recourse to this Court by a petition for review under Rule 45 of the Rules of Court.
The assignments of error raised in PNB’s petition for review can be resolved into a single legal issue of whether the
bank, within the term of the loan which it granted to the private respondent, may unilaterally change or increase the
interest rate stipulated therein at will and as often as it pleased.

The answer to that question is no.

In the first place, although Section 2, PD. No. 116 of January 29, 1973, authorizes the Monetary Board to prescribe the
maximum rate or rates of interest for loans or renewal thereof and to change such rate or rates whenever warranted
by prevailing economic and social conditions, it expressly provides that "such changes shall not be made oftener than
once every twelve months."cralaw virtua1aw library

In this case, PNB, over the objection of the private respondent, and without authority from the Monetary Board, within
a period of only four (4) months, increased the 18% interest rate on the private respondent’s loan obligation three (3)
times: (a) to 32% in July 1984; (b) to 41% in October 1984; and (c) to 48% in November 1984. Those increases were
null and void, for if the Monetary Board itself was not authorized to make such changes oftener than once a year, even
less so may a bank which is subordinate to the Board.chanrobles law library : red

Secondly, as pointed out by the Court of Appeals, while the private respondent-debtor did agree in the Deed of Real
Estate Mortgage (Exh. 5) that the interest rate may be increased during the life of the contract "to such increase within
the rate allowed by law, as the Board of Directors of the MORTGAGEE may prescribe" (Exh. 5-e-1) or "within the limits
allowed by law" (Promissory Notes, Ex’s. 2, 3, and 4), no law was ever passed in July to November 1984 increasing
the interest rates on loans or renewals thereof to 32%, 41% and 48% (per annum), and no documents were executed
and delivered by the debtor to effectuate the increases. The Court of Appeals observed.

". . . We focus Our attention first of all on the agreement between the parties as embodied in the following instruments,
to wit: (1) Exhibit ‘1’ — Credit Agreement dated July 1, 1982; (2) Exhibit ‘2’ — Promissory Note dated July 5, 1982; (3)
Exhibit ‘(3)’ — Promissory Note dated January 3, 1983; (4) Exhibit ‘4’ — Promissory Note, dated December 13, 1983;
and (5) Exhibit ‘5’ — Real Estate Mortgage contract dated July 1, 1982.

"Exhibit ‘1’ states in its portion marked Exhibit ‘1-g-1’:chanrob1es virtual 1aw library

‘9 .06 Other Conditions. The Borrowers hereby agree to be bound by the rules and regulations of the Central Bank and
the current and general policies of the Bank and those which the Bank may adopt in the future, which may have relation
to or in any way affect the Line, which rules, regulations and policies are incorporated herein by reference as if set forth
herein in full. Promptly upon receipt of a written request from the Bank, the Borrowers shall execute and deliver such
documents and instruments, in form and substance satisfactory to the Bank, in order to effectuate or otherwise comply
with such rules, regulations and policies.’

"Exhibits ‘2,’ ‘3,’ and ‘4’ in their portions respectively marked Exhibits ‘2-B,’ ‘3-B,’ and ‘4-B’ uniformly authorize the
defendant bank to increase the stipulated interest rate of 18% per annum ‘within the limits allowed by law at any time
depending on whatever policy it may adopt in the future: Provided, that, the interest rate on this note shall be
correspondingly decreased in the event that the applicable maximum interest rate is reduced by law or by the Monetary
Board.’

"Exhibit ‘5’ in its portion marked Exhibit ‘5-e-1’ stipulates:chanrob1es virtual 1aw library

‘(k) INCREASE OF INTEREST RATE

‘The rate of interest charged on the obligation secured by this mortgage as well as the interest on the amount which
may have been advanced by the MORTGAGEE, in accordance with the provisions hereof, shall be subject during the
life of this contract to such an increase within the rate allowed by law, as the Board of Directors of the MORTGAGEE
may prescribe for its debtors.’

"Clearly, then, the agreement between the parties authorized the defendant bank to increase the interest rate beyond
the original rate of 18% per annum but ‘within the limits allowed by law’ or ‘within the rate allowed by law,’ it being
declared the obligation of the plaintiff as borrower to execute and deliver the corresponding documents and instruments
to effectuate the increase." (pp. 11-12, Rollo.)

In Banco Filipino Savings and Mortgage Bank v. Navarro, 15 SCRA 346 (1987), this Court disauthorized the bank from
raising the interest rate on the borrowers’ loan from 12% to 17% despite an escalation clause in the loan agreement
signed by the debtors authorizing Banco Filipino "to correspondingly increase the interest rate stipulated in this contract
without advance notice to me/us in the event a law should be enacted increasing the lawful rates of interest that may
be charged on this particular kind of loan." (Emphasis supplied.)chanrobles virtual lawlibrary

In the Banco Filipino case, the bank relied on Section 3 of CB Circular No. 494 dated July 1, 1976 (72 O.G. No. 3, p.
676-J) which provided that "the maximum rate of interest, including commissions premiums, fees and other charges
on loans with a maturity of more than 730 days by banking institution . . . shall be 19%."cralaw virtua1aw library

This Court disallowed the increase for the simple reason that said "Circular No. 494, although it has the effect of law is
not a law." Speaking through Mme. Justice Ameurfina M. Herrera, this Court held:jgc:chanrobles.com.ph

"It is now clear that from March 17, 1980, escalation clauses to be valid should specifically provide: (1) that there can
be an increase in interest if increased by law or by the Monetary Board; and (2) in order for such stipulation to be valid,
it must include a provision for reduction of the stipulated interest ‘in the event that the applicable maximum rate of
interest is reduced by law or by the Monetary Board.’" p. 111, Rollo.).

In the present case, the PNB relied on its own Board Resolution No. 681 (Exh. 10), PNB Circular No. 40-79-84 (Exh.
13), and PNB Circular No. 40-129-84 (Exh. 15), but those resolution and circulars are neither laws nor resolutions of
the Monetary Board.

CB Circular No. 905, Series of 1982 (Exh. 11) removed the Usury Law ceiling on interest rates —

". . . increases in interest rates are not subject to any ceiling prescribed by the Usury Law."cralaw virtua1aw library

but it did not authorize the PNB, or any bank for that matter, to unilaterally and successively increase the agreed interest
rates from 18% to 48% within a span of four (4) months, in violation of PD. 116 which limits such changes to "once
every twelve months."cralaw virtua1aw library

Besides violating PD. 116, the unilateral action of the PNB in increasing the interest rate on the private respondent’s
loan, violated the mutuality of contracts ordained in Article 1308 of the Civil Code:jgc:chanrobles.com.ph

"ART. 1308. The contract must bind both contracting parties; its validity or compliance cannot be left to the will of
one of them."cralaw virtua1aw library

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 v. 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 v. 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.

PNB’S successive increases of the interest rate on the private respondent’s loan, over the latter’s protest, were arbitrary
as they violated an express provision of the Credit Agreement (Exh. 1) Section 9.01 that its terms "may be amended
only by an instrument in writing signed by the party to be bound as burdened by such amendment." The increases
imposed by PNB also contravene Art. 1956 of the Civil Code which provides that "no interest shall be due unless it has
been expressly stipulated in writing."cralaw virtua1aw library

The debtor herein never agreed in writing to pay the interest increases fixed by the PNB beyond 24% per annum,
hence, he is not bound to pay a higher rate than that.

That an increase in the interest rate from 18% to 48% within a period of four (4) months is excessive, as found by the
Court of Appeals, is indisputable.

WHEREFORE, finding no reversible error in the decision of the Court of Appeals in CA-G.R. CV No. 09791, the Court
resolved to deny the petition for review for lack of merit, with costs against the petitioner.

SO ORDERED.

SEBASTIAN SIGA-AN,
Petitioner,
VS.
ALICIA VILLANUEVA,
Respondent.

G.R. No. 173227

DECISION

CHICO-NAZARIO, J.:

Before Us is a Petition[1] for Review on Certiorari under Rule 45 of the Rules of Court seeking to set aside the
Decision,[2] dated 16 December 2005, and Resolution,[3] dated 19 June 2006 of the Court of Appeals in CA-G.R. CV
No. 71814, which affirmed in toto the Decision,[4] dated 26 January 2001, of the Las Pinas City Regional Trial Court,
Branch 255, in Civil Case No. LP-98-0068.

The facts gathered from the records are as follows:

On 30 March 1998, respondent Alicia Villanueva filed a complaint[5] for sum of money against petitioner Sebastian
Siga-an before the Las Pinas City Regional Trial Court (RTC), Branch 255, docketed as Civil Case No. LP-98-0068.
Respondent alleged that she was a businesswoman engaged in supplying office materials and equipments to the
Philippine Navy Office (PNO) located at Fort Bonifacio, Taguig City, while petitioner was a military officer and
comptroller of the PNO from 1991 to 1996.

Respondent claimed that sometime in 1992, petitioner approached her inside the PNO and offered to loan her the
amount of P540,000.00. Since she needed capital for her business transactions with the PNO, she accepted petitioners
proposal. The loan agreement was not reduced in writing. Also, there was no stipulation as to the payment of interest
for the loan.[6]
On 31 August 1993, respondent issued a check worth P500,000.00 to petitioner as partial payment of the loan. On 31
October 1993, she issued another check in the amount of P200,000.00 to petitioner as payment of the remaining
balance of the loan. Petitioner told her that since she paid a total amount of P700,000.00 for the P540,000.00 worth of
loan, the excess amount of P160,000.00 would be applied as interest for the loan. Not satisfied with the amount applied
as interest, petitioner pestered her to pay additional interest. Petitioner threatened to block or disapprove her
transactions with the PNO if she would not comply with his demand. As all her transactions with the PNO were subject
to the approval of petitioner as comptroller of the PNO, and fearing that petitioner might block or unduly influence the
payment of her vouchers in the PNO, she conceded. Thus, she paid additional amounts in cash and checks as interests
for the loan. She asked petitioner for receipt for the payments but petitioner told her that it was not necessary as there
was mutual trust and confidence between them. According to her computation, the total amount she paid to petitioner
for the loan and interest accumulated to P1,200,000.00.[7]

Thereafter, respondent consulted a lawyer regarding the propriety of paying interest on the loan despite absence of
agreement to that effect. Her lawyer told her that petitioner could not validly collect interest on the loan because there
was no agreement between her and petitioner regarding payment of interest. Since she paid petitioner a total amount
of P1,200,000.00 for the P540,000.00 worth of loan, and upon being advised by her lawyer that she made overpayment
to petitioner, she sent a demand letter to petitioner asking for the return of the excess amount of P660,000.00.
Petitioner, despite receipt of the demand letter, ignored her claim for reimbursement.[8]

Respondent prayed that the RTC render judgment ordering petitioner to pay respondent (1) P660,000.00 plus legal
interest from the time of demand; (2) P300,000.00 as moral damages; (3) P50,000.00 as exemplary damages; and (4)
an amount equivalent to 25% of P660,000.00 as attorneys fees.[9]

In his answer[10] to the complaint, petitioner denied that he offered a loan to respondent. He averred that in 1992,
respondent approached and asked him if he could grant her a loan, as she needed money to finance her business
venture with the PNO. At first, he was reluctant to deal with respondent, because the latter had a spotty record as a
supplier of the PNO. However, since respondent was an acquaintance of his officemate, he agreed to grant her a loan.
Respondent paid the loan in full.[11]

Subsequently, respondent again asked him to give her a loan. As respondent had been able to pay the previous loan
in full, he agreed to grant her another loan. Later, respondent requested him to restructure the payment of the loan
because she could not give full payment on the due date. He acceded to her request. Thereafter, respondent pleaded
for another restructuring of the payment of the loan. This time he rejected her plea. Thus, respondent proposed to
execute a promissory note wherein she would acknowledge her obligation to him, inclusive of interest, and that she
would issue several postdated checks to guarantee the payment of her obligation. Upon his approval of respondents
request for restructuring of the loan, respondent executed a promissory note dated 12 September 1994 wherein she
admitted having borrowed an amount of P1,240,000.00, inclusive of interest, from petitioner and that she would pay
said amount in March 1995. Respondent also issued to him six postdated checks amounting to P1,240,000.00 as
guarantee of compliance with her obligation. Subsequently, he presented the six checks for encashment but only one
check was honored. He demanded that respondent settle her obligation, but the latter failed to do so. Hence, he filed
criminal cases for Violation of the Bouncing Checks Law (Batas Pambansa Blg. 22) against respondent. The cases
were assigned to the Metropolitan Trial Court of Makati City, Branch 65 (MeTC).[12]

Petitioner insisted that there was no overpayment because respondent admitted in the latters promissory note that her
monetary obligation as of 12 September 1994 amounted to P1,240,000.00 inclusive of interests. He argued that
respondent was already estopped from complaining that she should not have paid any interest, because she was given
several times to settle her obligation but failed to do so. He maintained that to rule in favor of respondent is tantamount
to concluding that the loan was given interest-free. Based on the foregoing averments, he asked the RTC to dismiss
respondents complaint.
After trial, the RTC rendered a Decision on 26 January 2001 holding that respondent made an overpayment of her loan
obligation to petitioner and that the latter should refund the excess amount to the former. It ratiocinated that respondents
obligation was only to pay the loaned amount of P540,000.00, and that the alleged interests due should not be included
in the computation of respondents total monetary debt because there was no agreement between them regarding
payment of interest. It concluded that since respondent made an excess payment to petitioner in the amount of
P660,000.00 through mistake, petitioner should return the said amount to respondent pursuant to the principle of solutio
indebiti.[13]

The RTC also ruled that petitioner should pay moral damages for the sleepless nights and wounded feelings
experienced by respondent. Further, petitioner should pay exemplary damages by way of example or correction for the
public good, plus attorneys fees and costs of suit.

The dispositive portion of the RTC Decision reads:

WHEREFORE, in view of the foregoing evidence and in the light of the provisions of law and jurisprudence on the
matter, judgment is hereby rendered in favor of the plaintiff and against the defendant as follows:

(1) Ordering defendant to pay plaintiff the amount of P660,000.00 plus legal interest of 12% per annum
computed from 3 March 1998 until the amount is paid in full;
(2) Ordering defendant to pay plaintiff the amount of P300,000.00 as moral damages;

(3) Ordering defendant to pay plaintiff the amount of P50,000.00 as exemplary damages;

(4) Ordering defendant to pay plaintiff the amount equivalent to 25% of P660,000.00 as attorneys fees; and

(5) Ordering defendant to pay the costs of suit.[14]

Petitioner appealed to the Court of Appeals. On 16 December 2005, the appellate court promulgated its Decision
affirming in toto the RTC Decision, thus:

WHEREFORE, the foregoing considered, the instant appeal is hereby DENIED and the assailed decision [is]
AFFIRMED in toto.[15]

Petitioner filed a motion for reconsideration of the appellate courts decision but this was denied.[16] Hence, petitioner
lodged the instant petition before us assigning the following errors:
I.

THE RTC AND THE COURT OF APPEALS ERRED IN RULING THAT NO INTEREST WAS DUE TO PETITIONER;

II.

THE RTC AND THE COURT OF APPEALS ERRED IN APPLYING THE PRINCIPLE OF SOLUTIO INDEBITI.[17]

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.[18] 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.[19]
Article 1956 of the Civil Code, which refers to monetary interest,[20] 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.[21]

It appears that petitioner and respondent did not agree on the payment of interest for the loan. Neither was there
convincing proof of written agreement between the two regarding the payment of interest. Respondent testified that
although she accepted petitioners offer of loan amounting to P540,000.00, there was, nonetheless, no verbal or written
agreement for her to pay interest on the loan.[22]

Petitioner presented a handwritten promissory note dated 12 September 1994[23] wherein respondent purportedly
admitted owing petitioner capital and interest. Respondent, however, explained that it was petitioner who made a
promissory note and she was told to copy it in her own handwriting; that all her transactions with the PNO were subject
to the approval of petitioner as comptroller of the PNO; that petitioner threatened to disapprove her transactions with
the PNO if she would not pay interest; that being unaware of the law on interest and fearing that petitioner would make
good of his threats if she would not obey his instruction to copy the promissory note, she copied the promissory note
in her own handwriting; and that such was the same promissory note presented by petitioner as alleged proof of their
written agreement on interest.[24] Petitioner did not rebut the foregoing testimony. It is evident that respondent did not
really consent to the payment of interest for the loan and that she was merely tricked and coerced by petitioner to pay
interest. Hence, it cannot be gainfully said that such promissory note pertains to an express stipulation of interest or
written agreement of interest on the loan between petitioner and respondent.

Petitioner, nevertheless, claims that both the RTC and the Court of Appeals found that he and respondent agreed on
the payment of 7% rate of interest on the loan; that the agreed 7% rate of interest was duly admitted by respondent in
her testimony in the Batas Pambansa Blg. 22 cases he filed against respondent; that despite such judicial admission
by respondent, the RTC and the Court of Appeals, citing Article 1956 of the Civil Code, still held that no interest was
due him since the agreement on interest was not reduced in writing; that the application of Article 1956 of the Civil
Code should not be absolute, and an exception to the application of such provision should be made when the borrower
admits that a specific rate of interest was agreed upon as in the present case; and that it would be unfair to allow
respondent to pay only the loan when the latter very well knew and even admitted in the Batas Pambansa Blg. 22
cases that there was an agreed 7% rate of interest on the loan.[25]

We have carefully examined the RTC Decision and found that the RTC did not make a ruling therein that petitioner and
respondent agreed on the payment of interest at the rate of 7% for the loan. The RTC clearly stated that although
petitioner and respondent entered into a valid oral contract of loan amounting to P540,000.00, they, nonetheless, never
intended the payment of interest thereon.[26] While the Court of Appeals mentioned in its Decision that it concurred in
the RTCs ruling that petitioner and respondent agreed on a certain rate of interest as regards the loan, we consider
this as merely an inadvertence because, as earlier elucidated, both the RTC and the Court of Appeals ruled that
petitioner is not entitled to the payment of interest on the loan. The rule is that factual findings of the trial court deserve
great weight and respect especially when affirmed by the appellate court.[27] We found no compelling reason to disturb
the ruling of both courts.

Petitioners reliance on respondents alleged admission in the Batas Pambansa Blg. 22 cases that they had agreed on
the payment of interest at the rate of 7% deserves scant consideration. In the said case, respondent merely testified
that after paying the total amount of loan, petitioner ordered her to pay interest.[28] Respondent did not categorically
declare in the same case that she and respondent made an express stipulation in writing as regards payment of interest
at the rate of 7%. As earlier discussed, monetary interest is due only if there was an express stipulation in writing for
the payment of interest.
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.[29] The case at bar involves
petitioners claim for monetary interest.

Further, said compensatory interest is not chargeable in the instant case because it was not duly proven that
respondent defaulted in paying the loan. Also, as earlier found, no interest was due on the loan because there was no
written agreement as regards payment of interest.

Apropos the second assigned error, petitioner argues that the principle of solutio indebiti does not apply to the instant
case. Thus, he cannot be compelled to return the alleged excess amount paid by respondent as interest.[30]

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.[31] 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.[32] We
have held that the principle of solutio indebiti applies in case of erroneous payment of undue interest.[33]

It was duly established that respondent paid interest to petitioner. Respondent was under no duty to make such
payment because there was no express stipulation in writing to that effect. There was no binding relation between
petitioner and respondent as regards the payment of interest. The payment was clearly a mistake. Since petitioner
received something when there was no right to demand it, he has an obligation to return it.

We shall now determine the propriety of the monetary award and damages imposed by the RTC and the Court of
Appeals.

Records show that respondent received a loan amounting to P540,000.00 from petitioner.[34] Respondent issued two
checks with a total worth of P700,000.00 in favor of petitioner as payment of the loan.[35] These checks were
subsequently encashed by petitioner.[36] Obviously, there was an excess of P160,000.00 in the payment for the loan.
Petitioner claims that the excess of P160,000.00 serves as interest on the loan to which he was entitled. Aside from
issuing the said two checks, respondent also paid cash in the total amount of P175,000.00 to petitioner as interest.[37]
Although no receipts reflecting the same were presented because petitioner refused to issue such to respondent,
petitioner, nonetheless, admitted in his Reply-Affidavit[38] in the Batas Pambansa Blg. 22 cases that respondent paid
him a total amount of P175,000.00 cash in addition to the two checks. Section 26 Rule 130 of the Rules of Evidence
provides that the declaration of a party as to a relevant fact may be given in evidence against him. Aside from the
amounts of P160,000.00 and P175,000.00 paid as interest, no other proof of additional payment as interest was
presented by respondent. Since we have previously found that petitioner is not entitled to payment of interest and that
the principle of solutio indebiti applies to the instant case, petitioner should return to respondent the excess amount of
P160,000.00 and P175,000.00 or the total amount of P335,000.00. Accordingly, the reimbursable amount to
respondent fixed by the RTC and the Court of Appeals should be reduced from P660,000.00 to P335,000.00.

As earlier stated, petitioner filed five (5) criminal cases for violation of Batas Pambansa Blg. 22 against respondent. In
the said cases, the MeTC found respondent guilty of violating Batas Pambansa Blg. 22 for issuing five dishonored
checks to petitioner. Nonetheless, respondents conviction therein does not affect our ruling in the instant case. The
two checks, subject matter of this case, totaling P700,000.00 which respondent claimed as payment of the P540,000.00
worth of loan, were not among the five checks found to be dishonored or bounced in the five criminal cases. Further,
the MeTC found that respondent made an overpayment of the loan by reason of the interest which the latter paid to
petitioner.[39]

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.[40] To our mind, the amount of P150,000.00 as moral damages is fair, reasonable, and
proportionate to the injury suffered by respondent.

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.[41]

Jurisprudence instructs that in awarding attorneys fees, the trial court must state the factual, legal or equitable
justification for awarding the same.[42] In the case under consideration, the RTC stated in its Decision that the award
of attorneys 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 respondents lawyer in the instant case and the fact that it dragged
on for several years.[43] Further, respondent testified that she agreed to compensate her lawyer handling the instant
case such amount.[44] The award, therefore, of attorneys fees and its amount equivalent to 25% of the amount paid
as interest by respondent to petitioner is proper.

Finally, the RTC and the Court of Appeals imposed a 12% rate of legal interest on the amount refundable to respondent
computed from 3 March 1998 until its full payment. This is erroneous.

We held in Eastern Shipping Lines, Inc. v. Court of Appeals,[45] 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, petitioners 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 attorneys fees, to be computed from the time of the extra-judicial demand on
3 March 1998,[46] 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.

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 attorneys fees to be computed
from the time of the extra-judicial 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.

SO ORDERED.

[G.R. No. 122079. June 27, 1997]

SPOUSES ANTONIO E.A. CONCEPCION and MANUELA S. CONCEPCION, petitioners, vs. HON. COURT OF
APPEALS, HOME SAVINGS BANK AND TRUST COMPANY, and as nominal party-defendants, THE SHERIFF
ASSIGNED TO SAN JUAN, METRO MANILA, and who conducted the auction sale and the REGISTER OF
DEEDS or his representative of San Juan, Metro Manila, and ASAJE REALTY CORPORATION, respondents.
DECISION
VITUG, J.:

The spouses Antonio E.A. Concepcion and Manuela S. Concepcion assail, via the instant petition for review on
certiorari, the decision,[1] dated 15 September 1995, of the Court of Appeals, affirming with modification the judgment
of the Regional Trial Court ("RTC"),[2] Branch 157, of Pasig City,[3] that dismissed the complaint of herein petitioners
against private respondents.

The facts, hereunder narrated, are culled from the findings of the appellate court.

On 17 January 1979, the Home Savings Bank and Trust Company (now Insular Life Savings and Trust Company)
granted to the Concepcions a loan amounting to P1,400,000.00. The Concepcions, in turn, executed in favor of the
bank a promissory note and a real estate mortgage over their property located at 11 Albany St., Greenhills, San Juan,
Metro Manila. The loan was payable in equal quarterly amortizations for a period of fifteen (15) years and carried an
interest rate of sixteen percent (16%) per annum. The promissory note provided that the Concepcions had authorized
-

"x x x the Bank to correspondingly increase the interest rate presently stipulated in this transaction without advance
notice to me/us in the event the Central Bank of the Philippines raises its rediscount rate to member banks, and/or the
interest rate on savings and time deposit, and/or the interest rate on such loans and/or advances."[4]

In accordance with the above provision, the bank unilaterally increased the interest rate from 16% to 21% effective 17
February 1980; from 21% to 30% effective 17 October 1984; and from 30% to 38% effective 17 November 1984,
increasing the quarterly amortizations from P67,830.00 to, respectively, P77,619.72, P104,661.10, and P123,797.05
for the periods aforestated. The Concepcions paid, under protest, the increased amortizations of P77,619.72 and
P104,661.10 until January 1985 but thereafter failed to pay the quarterly amortization of P123,797.05 (starting due
date of 17 April 1985).

In a letter, dated 15 July 1985, the bank's President made a demand on the Concepcions for the payment of the
arrearages. The Concepcions failed to pay, constraining the bank's counsel to send a final demand letter, dated 26
August 1985, for the payment of P393,878.81, covering the spouses' due account for three quarterly payments plus
interest, penalty, and service charges. Still, no payment was received.
On 14 April 1986, the bank finally filed with the Office of the Provincial Sheriff of Pasig City a petition for extrajudicial
foreclosure of the real estate mortgage executed by the Concepcions. A notice of sale was issued on 15 May 1986,
setting the public auction sale on 11 June 1986. The notice was published in the newspaper "Mabuhay." A copy of the
notice was sent to the Concepcions at 59 Whitefield St., White Plains Subdivision, Quezon City and/or at 11 Albany
St., Greenhills Subdivision, San Juan, Metro Manila. The public auction sale went on as scheduled with the bank
emerging as the highest bidder. A Certificate of Sale was issued in favor of the bank.

The Concepcions were unable to exercise their right of redemption within the one-year period provided under Act No.
3135. The bank thus consolidated its title over the property and, after the cancellation of the title in the name of the
Concepcions, a new transfer certificate of title (No. 090-R) was issued in the name of Home Savings Bank and Trust
Company.

On 31 July 1987, the bank executed a Deed of Absolute Sale in favor of Asaje Realty Corporation and a new certificate
of title was issued in the latter's name.

Meanwhile, on 29 July 1987, the Concepcions filed an action against Home Savings Bank and Trust Company, the
Sheriff of San Juan, Metro Manila, and the Register of Deeds of San Juan, Metro Manila, for the cancellation of the
foreclosure sale, the declaration of nullity of the consolidation of title in favor of the bank, and the declaration of nullity
of the unilateral increases of the interest rates on their loan. The spouses likewise claimed damages against the
defendants. The Concepcions, having learned of the sale of the property to Asaje Realty Corporation, filed an amended
complaint impleading the realty corporation and so praying as well for the cancellation of the sale executed between
said corporation and the bank and the cancellation of the certificate of title issued in the name of Asaje.

On 31 August 1992, the trial court found for the defendants and ruled:

"In view of all the foregoing premises, this Court finally concludes that the plaintiffs have no cause of action either
against defendant Home Savings Bank & Trust Company or defendant Asaje Realty Corporation; and under the
circumstances of this case, it deems it just and equitable that attorney's fees and expenses of litigation should be
recovered by said defendants.

"WHEREFORE, judgment is hereby rendered dismissing the amended complaint of plaintiffs Spouses Antonio E.A.
Concepcion and Manuela S. Concepcion against the defendants for lack of merit, and ordering the said plaintiffs to
pay attorney's fees and expenses of litigation in the sum of P30,000.00 to defendant Home Savings Bank & Trust
Company and in the amount of P25,000.00 to defendant Asaje Realty Corporation, in addition to their respective costs
of suit.

"SO ORDERED."[5]

The Concepcions went to the Court of Appeals.

On 15 September 1995, the appellate court affirmed the trial court's decision, with modification, as follows:

"Under the facts and circumstances of the case at bench, the award of attorney's fees, expenses of litigation and costs
of suit in favor of defendant-appellee should be deleted. It is not a sound policy to place a penalty on the right to litigate,
nor should counsel's fees be awarded everytime a party wins a suit (Arenas vs. Court of Appeals, 169 SCRA 558).

"WHEREFORE, the appealed judgment is AFFIRMED with the modification that the award of attorneys fees, litigation
expenses and costs of suit in favor of defendant-appellees are deleted from the dispositive portion.

"SO ORDERED."[6]
The Concepcions forthwith filed with this Court a petition for review on certiorari, contending that they have been denied
their contractually stipulated right to be personally notified of the foreclosure proceedings on the mortgaged property.

There is some merit in the petition.

The three common types of forced sales arising from a failure to pay a mortgage debt include (a) an extrajudicial
foreclosure sale, governed by Act No. 3135; (b) a judicial foreclosure sale, regulated by Rule 68 of the Rules of Court;
and (c) an ordinary execution sale, covered by Rule 39 of the Rules of Court.[7] Each mode, peculiarly, has its own
requirements.

In an extrajudicial foreclosure, such as here, Section 3 of Act No. 3135[8] is the law applicable;[9] the provision reads:

"Sec. 3. Notice shall be given by posting notices of the sale for not less than twenty days in at least three public places
of the municipality or city where the property is situated, and if such property is worth more than four hundred pesos,
such notice shall also be published once a week for at least three consecutive weeks in a newspaper of general
circulation in the municipality or city."

The Act only requires (1) the posting of notices of sale in three public places, and (2) the publication of the same in a
newspaper of general circulation.[10] Personal notice to the mortgagor is not necessary.[11] Nevertheless, the parties
to the mortgage contract are not precluded from exacting additional requirements.

In the case at bar, the mortgage contract stipulated that -

"All correspondence relative to this Mortgage, including demand letters, summons, subpoenas, or notifications of any
judicial or extrajudicial actions shall be sent to the Mortgagor at the address given above or at the address that may
hereafter be given in writing by the Mortgagor to the Mortgagee, and the mere act of sending any correspondence by
mail or by personal delivery to the said address shall be valid and effective notice to the Mortgagor for all legal purposes,
and fact that any communication is not actually received by the Mortgagor, or that it has been returned unclaimed to
the Mortgagee, or that no person was found at the address given, or that the address is fictitious or cannot be located,
shall not excuse or relieve Mortgagor from the effects of such notice."[12]

The stipulation, not being contrary to law, morals, good customs, public order or public policy, is the law between the
contracting parties and should be faithfully complied with.[13]

Private respondent bank maintains that the stipulation that "all correspondence relative to (the) Mortgage x x x shall be
sent to the Mortgagor at the address given above or at the address that may hereafter be given in writing by the
Mortgagor to the Mortgagee"[14] gives the mortgagee an alternative to send its correspondence either at the old or the
new address given.[15] This stand is illogical. It could not have been the intendment of the parties to defeat the very
purpose of the provision referred to which is obviously to apprise the mortgagors of the bank's action that might affect
the property and to accord to them an opportunity to safeguard their rights. The Court finds the bank's failure to comply
with its agreement with petitioners an inexcusable breach of the mortgagee's covenant. Neither petitioners' subsequent
opportunity to redeem the property nor their failed negotiations with the bank for a new schedule of payments,[16] can
be a valid justification for the breach.

The foregoing notwithstanding, petitioners may no longer seek the reconveyance of the property from private
respondent Asaje Realty Corporation, the latter having been, evidently, an innocent purchaser in good faith.[17] The
realty corporation purchased the property when the title was already in the name of the bank. It was under no obligation
to investigate the title of the bank or to look beyond what clearly appeared to be on the face of the certificate.[18]
Private respondent bank, however, can still be held to account for the bid price of Asaje Realty Corporation over and
above, if any, the amount due the bank on the basis of the original interest rate, the unilateral increases made by the
bank having been correctly invalidated by the Court of Appeals.

The validity of "escalation" or "escalator" clauses in contracts, in general, was upheld by the Supreme Court in Banco
Filipino Savings and Mortgage Bank vs. Hon. Navarro and Del Valle.[19] Hence:

"Some contracts contain what is known as an `escalator clause,' which is defined as one in which the contract fixes a
base price but contains a provision that in the event of specified cost increases, the seller or contractor may raise the
price up to a fixed percentage of the base. Attacks on such a clause have usually been based on the claim that,
because of the open price-provision, the contract was too indefinite to be enforceable and did not evidence an actual
meeting of the minds of the parties, or that the arrangement left the price to be determined arbitrarily by one party so
that the contract lacked mutuality. In most instances, however, these attacks have been unsuccessful.

"The Court further finds as a matter of law that the cost of living index adjustment, or escalator clause, is not
substantively unconscionable.

"Cost of living index adjustment clauses are widely used in commercial contracts in an effort to maintain fiscal stability
and to retain `real dollar' value to the price terms of long term contracts. The provision is a common one, and has been
universally upheld and enforced. Indeed, the Federal government has recognized the efficacy of escalator clauses in
tying Social Security benefits to the cost of living index, 42 U.S.C.s 415(i). Pension benefits and labor contracts
negotiated by most of the major labor unions are other examples. That inflation, expected or otherwise, will cause a
particular bargain to be more costly in terms of total dollars than originally contemplated can be of little solace to the
plaintiffs."[20]

In Philippine National Bank vs. Court of Appeals,[21] the Court further elucidated, as follows:

"It is basic that there can be no contract in the true sense in the absence of the element of agreement, or of mutual
assent of the parties. If this assent is wanting on the part of one who contracts, his act has no more efficacy than if it
had been done under duress or by a person of unsound mind.

"Similarly, contract changes must be made with the consent of the contracting parties. The minds of all the parties must
meet as to the proposed modification, especially when it affects an important aspect of the agreement. In the case of
loan contracts, it cannot be gainsaid that the rate of interest is always a vital component, for it can make or break a
capital venture. Thus, any change must be mutually agreed upon, otherwise, it is bereft of any binding effect.

"We cannot countenance petitioner bank's posturing that the escalation clause at bench gives it unbridled right to
unilaterally upwardly adjust the interest on private respondents' loan. That would completely take away from private
respondents the right to assent to an important modification in their agreement, and would negate the element of
mutuality in contracts. In Philippine National Bank v. Court of Appeals, et al., 196 SCRA 536, 544-545 (1991) we held
-

"`x x x (T)he unilateral action of the PNB in increasing the interest rate on the private respondent's loan violated the
mutuality of contracts ordained in Article 1308 of the Civil Code:

"`ART. 1308. The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one
of them.'

"In order that obligations arising from contracts may have the force or 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 x x x. Hence, even assuming
that the x x x 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' x x x. Such a contract is a veritable trap for
the weaker party whom the courts of justice must protect against abuse and imposition. (Citations omitted.)"[22]

Even if we were to consider that petitioners were bound by their agreement allowing an increase in the interest rate
despite the lack of advance notice to them, the escalation should still be subject, as so contractually stipulated, to a
corresponding increase by the Central Bank of its rediscount rate to member banks, or of the interest rate on savings
and time deposit, or of the interest rate on such loans and advances. The notices sent to petitioners merely read:

Letter of 19 July 1984:

"Please be informed that the Bank has increased the interest rate of your existing loan from 21 to 30% per annum
beginning October 17, 1984. This increase of interest rate is in accordance with the provision of Section 2 of
Presidential Decree No. 1684[23] amending Act No. 2655. This provision of the decree is reiterated under paragraph
1 of your Promissory Note. Your quarterly amortization has been increased to P104,661.10.

"We trust that you will be guided accordingly."[24]

Letter of 14 November 1984:

"On account of the prevailing business and economic condition, we are compelled to increase the interest rate of your
existing loan from 30% to 38% per annum effective November 17, 1984. This increase is in accordance with your
agreement (escalation clause) in your promissory note/s.

"In view of this increase in the interest rate of your loan, your Quarterly amortization correspondingly increased to
P123,797.05 commencing on April 17, 1985.

"We trust that you will understand our position and please be guided accordingly."[25]

Given the circumstances, the Court sees no cogent reasons to fault the appellate court in its finding that there are no
sufficient valid justifications aptly shown for the unilateral increases by private respondent bank of the interest rates on
the loan.

WHEREFORE, the decision of the appellate court is AFFIRMED subject to the MODIFICATION that private respondent
Home Savings Bank and Trust Company shall pay to petitioners the excess, if any, of the bid price it received from
Asaje Realty Corporation for the foreclosed property in question over and above the unpaid balance of the loan
computed at the original interest rate. This case is REMANDED to the trial court for the above determination. No costs.

SO ORDERED.

G.R. No. 187678 April 10, 2013

SPOUSES IGNACIO F. JUICO and ALICE P. JUICO, Petitioners,

vs.
CHINA BANKING CORPORATION, Respondent.

DECISION
VILLARAMA, JR., J.:

Before us is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as amended, assailing
the February 20, 2009 Decision1 and April 27, 2009 Resolution2 of the Court of Appeals (CA) in CA G.R. CV No.
80338. The CA affirmed the April 14, 2003 Decision3 of the Regional Trial Court (RTC) of Makati City, Branch 147.

The factual antecedents:

Spouses Ignacio F. Juico and Alice P. Juico (petitioners) obtained a loan from China Banking Corporation (respondent)
as evidenced by two Promissory Notes both dated October 6, 1998 and numbered 507-001051-34 and 507-001052-
0,5 for the sums of !!6,216,000 and ₱4, 139,000, respectively. The loan was secured by a Real Estate Mortgage (REM)
over petitioners’ property located at 49 Greensville St., White Plains, Quezon City covered by Transfer Certificate of
Title (TCT) No. RT-103568 (167394) PR-412086 of the Register of Deeds of Quezon City.

When petitioners failed to pay the monthly amortizations due, respondent demanded the full payment of the outstanding
balance with accrued monthly interests. On September 5, 2000, petitioners received respondent’s last demand letter7
dated August 29, 2000.

As of February 23, 2001, the amount due on the two promissory notes totaled ₱19,201,776.63 representing the
principal, interests, penalties and attorney’s fees. On the same day, the mortgaged property was sold at public auction,
with respondent as highest bidder for the amount of ₱10,300,000.

On May 8, 2001, petitioners received8 a demand letter9 dated May 2, 2001 from respondent for the payment of
₱8,901,776.63, the amount of deficiency after applying the proceeds of the foreclosure sale to the mortgage debt. As
its demand remained unheeded, respondent filed a collection suit in the trial court. In its Complaint,10 respondent
prayed that judgment be rendered ordering the petitioners to pay jointly and severally: (1) ₱8,901,776.63 representing
the amount of deficiency, plus interests at the legal rate, from February 23, 2001 until fully paid; (2) an additional
amount equivalent to 1/10 of 1% per day of the total amount, until fully paid, as penalty; (3) an amount equivalent to
10% of the foregoing amounts as attorney’s fees; and (4) expenses of litigation and costs of suit.

In their Answer,11 petitioners admitted the existence of the debt but interposed, by way of special and affirmative
defense, that the complaint states no cause of action considering that the principal of the loan was already paid when
the mortgaged property was extrajudicially foreclosed and sold for ₱10,300,000. Petitioners contended that should
they be held liable for any deficiency, it should be only for ₱55,000 representing the difference between the total
outstanding obligation of ₱10,355,000 and the bid price of ₱10,300,000. Petitioners also argued that even assuming
there is a cause of action, such deficiency cannot be enforced by respondent because it consists only of the penalty
and/or compounded interest on the accrued interest which is generally not favored under the Civil Code. By way of
counterclaim, petitioners prayed that respondent be ordered to pay ₱100,000 in attorney’s fees and costs of suit.

At the trial, respondent presented Ms. Annabelle Cokai Yu, its Senior Loans Assistant, as witness. She testified that
she handled the account of petitioners and assisted them in processing their loan application. She called them monthly
to inform them of the prevailing rates to be used in computing interest due on their loan. As of the date of the public
auction, petitioners’ outstanding balance was ₱19,201,776.6312 based on the following statement of account which
she prepared:

STATEMENT OF ACCOUNT
As of FEBRUARY 23, 2001
IGNACIO F. JUICO

PN# 507-0010520 due on 04-07-2004

1âwphi1
Principal balance of PN# 5070010520. . . . . . . . . . . . . . 4,139,000.00
Interest on ₱4,139,000.00 fr. 04-Nov-99
04-Nov-2000 366 days @ 15.00%. . . . . . . . . . . . . . . . . 622,550.96
Interest on ₱4,139,000.00 fr. 04-Nov-2000
04-Dec-2000 30 days @ 24.50%. . . . . . . . . . . . . . . . . . 83,346.99
Interest on ₱4,139,000.00 fr. 04-Dec-2000
04-Jan-2001 31 days @ 21.50%. . . . . . . . . . . . . . . . . . . 75,579.27
Interest on ₱4,139,000.00 fr. 04-Jan-2001
04-Feb-2001 31 days @ 19.50%. . . . . . . . . . . . . . . . . . 68,548.64
Interest on ₱4,139,000.00 fr. 04-Feb-2001
23-Feb-2001 19 days @ 18.00%. . . . . . . . . . . . . . . . . . 38,781.86
Penalty charge @ 1/10 of 1% of the total amount due
(₱4,139,000.00 from 11-04-99 to 02-23-2001 @
1/10 of 1% per day). . . . . . . . . . . . . . . . . 1,974,303.00
Sub-total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,002,110.73
PN# 507-0010513 due on 04-07-2004
Principal balance of PN# 5070010513. . . . . . . . . . . . . . 6,216,000.00
Interest on ₱6,216,000.00 fr. 06-Oct-99
04-Nov-2000 395 days @ 15.00%. . . . . . . . . . . . . . . . . 1,009,035.62
Interest on ₱6,216,000.00 fr. 04-Nov-2000
04-Dec-2000 30 days @ 24.50%. . . . . . . . . . . . . . . . . . 125,171.51
Interest on ₱6,216,000.00 fr. 04-Dec-2000
04-Jan-2001 31 days @ 21.50%. . . . . . . . . . . . . . . . . . . 113,505.86
Interest on ₱6,216,000.00 fr. 04-Jan-2001
04-Feb-2001 31 days @ 19.50%. . . . . . . . . . . . . . . . . . 102,947.18
Interest on ₱6,216,000.00 fr. 04-Feb-2001
23-Feb-2001 19 days @ 18.00%. . . . . . . . . . . . . . . . . . 58,243.07
Penalty charge @ 1/10 of 1% of the total amount due
(₱6,216,000.00 from 10-06-99 to 02-23-2001 @
1/10 of 1% per day). . . . . . . . . . . . . . . . . 3,145,296.00
Subtotal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,770,199.23
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,772,309.96
Less: A/P applied to balance of principal (55,000.00)
Less: Accounts payable L & D (261,149.39) 17,456,160.57
Add: 10% Attorney’s Fee 1,745,616.06
Total amount due 19,201,776.63
Less: Bid Price 10,300,000.00
TOTAL DEFICIENCY AMOUNT AS OF
FEB. 23, 2001 8,901,776.63 13
Petitioners thereafter received a demand letter14 dated May 2, 2001 from respondent’s counsel for the deficiency
amount of ₱8,901,776.63. Ms. Yu further testified that based on the Statement of Account15 dated March 15, 2002
which she prepared, the outstanding balance of petitioners was ₱15,190,961.48.16

On cross-examination, Ms. Yu reiterated that the interest rate changes every month based on the prevailing market
rate and she notified petitioners of the prevailing rate by calling them monthly before their account becomes past due.
When asked if there was any written authority from petitioners for respondent to increase the interest rate unilaterally,
she answered that petitioners signed a promissory note indicating that they agreed to pay interest at the prevailing
rate.17
Petitioner Ignacio F. Juico testified that prior to the release of the loan, he was required to sign a blank promissory note
and was informed that the interest rate on the loan will be based on prevailing market rates. Every month, respondent
informs him by telephone of the prevailing interest rate. At first, he was able to pay his monthly amortizations but when
he started to incur delay in his payments due to the financial crisis, respondent pressured him to pay in full, including
charges and interests for the delay. His property was eventually foreclosed and was sold at public auction.18

On cross-examination, petitioner testified that he is a Doctor of Medicine and also engaged in the business of
distributing medical supplies. He admitted having read the promissory notes and that he is aware of his obligation
under them before he signed the same.19

In its decision, the RTC ruled in favor of respondent. The fallo of the RTC decision reads:

WHEREFORE, premises considered, the Complaint is hereby sustained, and Judgment is rendered ordering herein
defendants to pay jointly and severally to plaintiff, the following:

1. ₱8,901,776.63 representing the amount of the deficiency owing to the plaintiff, plus interest thereon at the legal rate
after February 23, 2001;

2. An amount equivalent to 10% of the total amount due as and for attorney’s fees, there being stipulation therefor in
the promissory notes;

3. Costs of suit.

SO ORDERED.20

The trial court agreed with respondent that when the mortgaged property was sold at public auction on February 23,
2001 for ₱10,300,000 there remained a balance of ₱8,901,776.63 since before foreclosure, the total amount due on
the two promissory notes aggregated to ₱19,201,776.63 inclusive of principal, interests, penalties and attorney’s fees.
It ruled that the amount realized at the auction sale was applied to the interest, conformably with Article 1253 of the
Civil Code which provides that if the debt produces interest, payment of the principal shall not be deemed to have been
made until the interests have been covered. This being the case, petitioners’ principal obligation subsists but at a
reduced amount of ₱8,901,776.63.

The trial court further held that Ignacio’s claim that he signed the promissory notes in blank cannot negate or mitigate
his liability since he admitted reading the promissory notes before signing them. It also ruled that considering the
substantial amount involved, it is unbelievable that petitioners threw all caution to the wind and simply signed the
documents without reading and understanding the contents thereof. It noted that the promissory notes, including the
terms and conditions, are pro forma and what appears to have been left in blank were the promissory note number,
date of the instrument, due date, amount of loan, and condition that interest will be at the prevailing rates. All of these
details, the trial court added, were within the knowledge of the petitioners.

When the case was elevated to the CA, the latter affirmed the trial court’s decision. The CA recognized respondent’s
right to claim the deficiency from the debtor where the proceeds of the sale in an extrajudicial foreclosure of mortgage
are insufficient to cover the amount of the debt. Also, it found as valid the stipulation in the promissory notes that
interest will be based on the prevailing rate. It noted that the parties agreed on the interest rate which was not
unilaterally imposed by the bank but was the rate offered daily by all commercial banks as approved by the Monetary
Board. Having signed the promissory notes, the CA ruled that petitioners are bound by the stipulations contained
therein.

Petitioners are now before this Court raising the sole issue of whether the interest rates imposed upon them by
respondent are valid. Petitioners contend that the interest rates imposed by respondent are not valid as they were not
by virtue of any law or Bangko Sentral ng Pilipinas (BSP) regulation or any regulation that was passed by an appropriate
government entity. They insist that the interest rates were unilaterally imposed by the bank and thus violate the principle
of mutuality of contracts. They argue that the escalation clause in the promissory notes does not give respondent the
unbridled authority to increase the interest rate unilaterally. Any change must be mutually agreed upon.

Respondent, for its part, points out that petitioners failed to show that their case falls under any of the exceptions
wherein findings of fact of the CA may be reviewed by this Court. It contends that an inquiry as to whether the interest
rates imposed on the loans of petitioners were supported by appropriate regulations from a government agency or the
Central Bank requires a reevaluation of the evidence on records. Thus, the Court would in effect, be confronted with a
factual and not a legal issue.

The appeal is partly meritorious.

The principle of mutuality of contracts is expressed in Article 1308 of the Civil Code, which provides:

Article 1308. The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one
of them. Article 1956 of the Civil Code likewise ordains that "no interest shall be due unless it has been expressly
stipulated in writing."

The binding effect of any agreement between parties to a contract is premised on two settled principles: (1) that any
obligation arising from contract has the force of law between the parties; and (2) that there must be mutuality between
the parties based on their essential equality. Any contract which appears to be heavily weighed in favor of one of the
parties so as to lead to an unconscionable result is void. Any stipulation regarding the validity or compliance of the
contract which is left solely to the will of one of the parties, is likewise, invalid.21

Escalation clauses refer to stipulations allowing an increase in the interest rate agreed upon by the contracting parties.
This Court has long recognized that there is nothing inherently wrong with escalation clauses which are valid
stipulations in commercial contracts to maintain fiscal stability and to retain the value of money in long term contracts.22
Hence, such stipulations are not void per se.23

Nevertheless, an escalation clause "which grants the creditor an unbridled right to adjust the interest independently
and upwardly, completely depriving the debtor of the right to assent to an important modification in the agreement" is
void. A stipulation of such nature violates the principle of mutuality of contracts.24 Thus, this Court has previously
nullified the unilateral determination and imposition by creditor banks of increases in the rate of interest provided in
loan contracts.25

In Banco Filipino Savings & Mortgage Bank v. Navarro,26 the escalation clause stated: "I/We hereby authorize Banco
Filipino to correspondingly increase the interest rate stipulated in this contract without advance notice to me/us in the
event a law should be enacted increasing the lawful rates of interest that may be charged on this particular kind of
loan." While escalation clauses in general are considered valid, we ruled that Banco Filipino may not increase the
interest on respondent borrower’s loan, pursuant to Circular No. 494 issued by the Monetary Board on January 2, 1976,
because said circular is not a law although it has the force and effect of law and the escalation clause has no provision
for reduction of the stipulated interest "in the event that the applicable maximum rate of interest is reduced by law or
by the Monetary Board" (de-escalation clause).

Subsequently, in Insular Bank of Asia and America v. Spouses Salazar27 we reiterated that escalation clauses are
valid stipulations but their enforceability are subject to certain conditions. The increase of interest rate from 19% to
21% per annum made by petitioner bank was disallowed because it did not comply with the guidelines adopted by the
Monetary Board to govern interest rate adjustments by banks and non-banks performing quasi-banking functions.
In the 1991 case of Philippine National Bank v. Court of Appeals,28 the promissory notes authorized PNB to increase
the stipulated interest per annum "within the limits allowed by law at any time depending on whatever policy PNB may
adopt in the future; Provided, that, the interest rate on this note shall be correspondingly decreased in the event that
the applicable maximum interest rate is reduced by law or by the Monetary Board." This Court declared the increases
(from 18% to 32%, then to 41% and then to 48%) unilaterally imposed by PNB to be in violation of the principle of
mutuality essential in contracts.29

A similar ruling was made in a 1994 case30 also involving PNB where the credit agreement provided that "PNB
reserves the right to increase the interest rate within the limits allowed by law at any time depending on whatever policy
it may adopt in the future: Provided, that the interest rate on this accommodation shall be correspondingly decreased
in the event that the applicable maximum interest is reduced by law or by the Monetary Board x x x".

Again, in 1996, the Court invalidated escalation clauses authorizing PNB to raise the stipulated interest rate at any time
without notice, within the limits allowed by law. The Court observed that there was no attempt made by PNB to secure
the conformity of respondent borrower to the successive increases in the interest rate. The borrower’s assent to the
increases cannot be implied from their lack of response to the letters sent by PNB, informing them of the increases.31

In the more recent case of Philippine Savings Bank v. Castillo,32 we sustained the CA in declaring as unreasonable
the following escalation clause: "The rate of interest and/or bank charges herein stipulated, during the terms of this
promissory note, its extensions, renewals or other modifications, may be increased, decreased or otherwise changed
from time to time within the rate of interest and charges allowed under present or future law(s) and/or government
regulation(s) as the PSBank may prescribe for its debtors." Clearly, the increase or decrease of interest rates under
such clause hinges solely on the discretion of petitioner as it does not require the conformity of the maker before a new
interest rate could be enforced. We also said that respondents’ assent to the modifications in the interest rates cannot
be implied from their lack of response to the memos sent by petitioner, informing them of the amendments, nor from
the letters requesting for reduction of the rates. Thus:

… the validity of the escalation clause did not give petitioner the unbridled right to unilaterally adjust interest rates. The
adjustment should have still been subjected to the mutual agreement of the contracting parties. In light of the absence
of consent on the part of respondents to the modifications in the interest rates, the adjusted rates cannot bind them
notwithstanding the inclusion of a de-escalation clause in the loan agreement.33

It is now settled that an escalation clause is void where the creditor unilaterally determines and imposes an increase
in the stipulated rate of interest without the express conformity of the debtor. Such unbridled right given to creditors to
adjust the interest independently and upwardly would completely take away from the debtors the right to assent to an
important modification in their agreement and would also negate the element of mutuality in their contracts.34 While a
ceiling on interest rates under the Usury Law was already lifted under Central Bank Circular No. 905, nothing therein
"grants lenders carte blanche authority to raise interest rates to levels which will either enslave their borrowers or lead
to a hemorrhaging of their assets."35

The two promissory notes signed by petitioners provide:

I/We hereby authorize the CHINA BANKING CORPORATION to increase or decrease as the case may be, the interest
rate/service charge presently stipulated in this note without any advance notice to me/us in the event a law or Central
Bank regulation is passed or promulgated by the Central Bank of the Philippines or appropriate government entities,
increasing or decreasing such interest rate or service charge.36

Such escalation clause is similar to that involved in the case of Floirendo, Jr. v. Metropolitan Bank and Trust
Company37 where this Court ruled:
The provision in the promissory note authorizing respondent bank to increase, decrease or otherwise change from time
to time the rate of interest and/or bank charges "without advance notice" to petitioner, "in the event of change in the
interest rate prescribed by law or the Monetary Board of the Central Bank of the Philippines," does not give respondent
bank unrestrained freedom to charge any rate other than that which was agreed upon. Here, the monthly
upward/downward adjustment of interest rate is left to the will of respondent bank alone. It violates the essence of
mutuality of the contract.38

More recently in Solidbank Corporation v. Permanent Homes, Incorporated,39 we upheld as valid an escalation clause
which required a written notice to and conformity by the borrower to the increased interest rate. Thus:

The Usury Law had been rendered legally ineffective by Resolution No. 224 dated 3 December 1982 of the Monetary
Board of the Central Bank, and later by Central Bank Circular No. 905 which took effect on 1 January 1983. These
circulars removed the ceiling on interest rates for secured and unsecured loans regardless of maturity. The effect of
these circulars is to allow the parties to agree on any interest that may be charged on a loan. The virtual repeal of the
Usury Law is within the range of judicial notice which courts are bound to take into account. Although interest rates are
no longer subject to a ceiling, the lender still does not have an unbridled license to impose increased interest rates.
The lender and the borrower should agree on the imposed rate, and such imposed rate should be in writing.

The three promissory notes between Solidbank and Permanent all contain the following provisions:

"5. We/I irrevocably authorize Solidbank to increase or decrease at any time the interest rate agreed in this Note or
Loan on the basis of, among others, prevailing rates in the local or international capital markets. For this purpose, We/I
authorize Solidbank to debit any deposit or placement account with Solidbank belonging to any one of us. The
adjustment of the interest rate shall be effective from the date indicated in the written notice sent to us by the bank, or
if no date is indicated, from the time the notice was sent.

6. Should We/I disagree to the interest rate adjustment, We/I shall prepay all amounts due under this Note or Loan
within thirty (30) days from the receipt by anyone of us of the written notice. Otherwise, We/I shall be deemed to have
given our consent to the interest rate adjustment."

The stipulations on interest rate repricing are valid because (1) the parties mutually agreed on said stipulations; (2)
repricing takes effect only upon Solidbank’s written notice to Permanent of the new interest rate; and (3) Permanent
has the option to prepay its loan if Permanent and Solidbank do not agree on the new interest rate. The phrases
"irrevocably authorize," "at any time" and "adjustment of the interest rate shall be effective from the date indicated in
the written notice sent to us by the bank, or if no date is indicated, from the time the notice was sent," emphasize that
Permanent should receive a written notice from Solidbank as a condition for the adjustment of the interest rates.
(Emphasis supplied.)

In this case, the trial and appellate courts, in upholding the validity of the escalation clause, underscored the fact that
there was actually no fixed rate of interest stipulated in the promissory notes as this was made dependent on prevailing
rates in the market. The subject promissory notes contained the following condition written after the first paragraph:

With one year grace period on principal and thereafter payable in 54 equal monthly instalments to start on the second
year. Interest at the prevailing rates payable quarterly in arrears.40

In Polotan, Sr. v. CA (Eleventh Div.),41 petitioner cardholder assailed the trial and appellate courts in ruling for the
validity of the escalation clause in the Cardholder’s Agreement. On petitioner’s contention that the interest rate was
unilaterally imposed and based on the standards and rate formulated solely by respondent credit card company, we
held:
The contractual provision in question states that "if there occurs any change in the prevailing market rates, the new
interest rate shall be the guiding rate in computing the interest due on the outstanding obligation without need of serving
notice to the Cardholder other than the required posting on the monthly statement served to the Cardholder." This
could not be considered an escalation clause for the reason that it neither states an increase nor a decrease in interest
rate. Said clause simply states that the interest rate should be based on the prevailing market rate.

Interpreting it differently, while said clause does not expressly stipulate a reduction in interest rate, it nevertheless
provides a leeway for the interest rate to be reduced in case the prevailing market rates dictate its reduction.

Admittedly, the second paragraph of the questioned proviso which provides that "the Cardholder hereby authorizes
Security Diners to correspondingly increase the rate of such interest in the event of changes in prevailing market rates
x x x" is an escalation clause. However, it cannot be said to be dependent solely on the will of private respondent as it
is also dependent on the prevailing market rates.

Escalation clauses are not basically wrong or legally objectionable as long as they are not solely potestative but based
on reasonable and valid grounds. Obviously, the fluctuation in the market rates is beyond the control of private
respondent.42 (Emphasis supplied.)

In interpreting a contract, its provisions should not be read in isolation but in relation to each other and in their entirety
so as to render them effective, having in mind the intention of the parties and the purpose to be achieved. 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.43

Here, the escalation clause in the promissory notes authorizing the respondent to adjust the rate of interest on the
basis of a law or regulation issued by the Central Bank of the Philippines, should be read together with the statement
after the first paragraph where no rate of interest was fixed as it would be based on prevailing market rates. While the
latter is not strictly an escalation clause, its clear import was that interest rates would vary as determined by prevailing
market rates. Evidently, the parties intended the interest on petitioners’ loan, including any upward or downward
adjustment, to be determined by the prevailing market rates and not dictated by respondent’s policy. It may also be
mentioned that since the deregulation of bank rates in 1983, the Central Bank has shifted to a market-oriented interest
rate policy.44

There is no indication that petitioners were coerced into agreeing with the foregoing provisions of the promissory notes.
In fact, petitioner Ignacio, a physician engaged in the medical supply business, admitted having understood his
obligations before signing them. At no time did petitioners protest the new rates imposed on their loan even when their
property was foreclosed by respondent.

This notwithstanding, we hold that the escalation clause is still void because it grants respondent the power to impose
an increased rate of interest without a written notice to petitioners and their written consent. Respondent’s monthly
telephone calls to petitioners advising them of the prevailing interest rates would not suffice. A detailed billing statement
based on the new imposed interest with corresponding computation of the total debt should have been provided by the
respondent to enable petitioners to make an informed decision. An appropriate form must also be signed by the
petitioners to indicate their conformity to the new rates. Compliance with these requisites is essential to preserve the
mutuality of contracts. For indeed, one-sided impositions do not have the force of law between the parties, because
such impositions are not based on the parties’ essential equality.45

Modifications in the rate of interest for loans pursuant to an escalation clause must be the result of an agreement
between the parties. Unless such important change in the contract terms is mutually agreed upon, it has no binding
effect.46 In the absence of consent on the part of the petitioners to the modifications in the interest rates, the adjusted
rates cannot bind them. Hence, we consider as invalid the interest rates in excess of 15%, the rate charged for the first
year.
Based on the August 29, 2000 demand letter of China Bank, petitioners’ total principal obligation under the two
promissory notes which they failed to settle is ₱10,355,000. However, due to China Bank’s unilateral increases in the
interest rates from 15% to as high as 24.50% and penalty charge of 1/10 of 1% per day or 36.5% per annum for the
period November 4, 1999 to February 23, 2001, petitioners’ balance ballooned to ₱19,201,776.63. Note that the
original amount of principal loan almost doubled in only 16 months. The Court also finds the penalty charges imposed
excessive and arbitrary, hence the same is hereby reduced to 1% per month or 12% per annum.1âwphi1

Petitioners’ Statement of Account, as of February 23, 2001, the date of the foreclosure proceedings, should thus be
modified as follows:

Principal ₱10,355,000.00
Interest at 15% per annum
₱10,355,000 x .15 x 477 days/365 days 2,029,863.70
Penalty at 12% per annum 1,623 ,890. 96
₱10,355,000 x .12 x 477days/365 days
Sub-Total 14,008,754.66
Less: A/P applied to balance of principal (55,000.00)
Less: Accounts payable L & D (261,149.39)
13,692,605.27
Add: Attorney's Fees 1,369,260.53
Total Amount Due 15,061,865.79
Less: Bid Price 10,300,000.00
TOTAL DEFICIENCY AMOUNT
4,761,865.79
WHEREFORE, the petition for review on certiorari is PARTLY GRANTED. The February 20, 2009 · Decision and April
27, 2009 Resolution of the Court of Appeals in CA G.R. CV No. 80338 are hereby MODIFIED. Petitioners Spouses
Ignacio F. Juico and Alice P. Juico are hereby ORDERED to pay jointly and severally respondent China Banking
Corporation ₱4, 7 61 ,865. 79 representing the amount of deficiency inclusive of interest, penalty charge and attorney's
fees. Said amount shall bear interest at 12% per annum, reckoned from the time of the filing of the complaint until its
full satisfaction.

No pronouncement as to costs.

SO ORDERED.

[G.R. No. 138677. February 12, 2002]

TOLOMEO LIGUTAN and LEONIDAS DE LA LLANA, petitioners, vs. HON. COURT OF APPEALS & SECURITY
BANK & TRUST COMPANY, respondents.
DECISION
VITUG, J.:

Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court, assailing the decision and
resolutions of the Court of Appeals in CA-G.R. CV No. 34594, entitled "Security Bank and Trust Co. vs. Tolomeo
Ligutan, et al."

Petitioners Tolomeo Ligutan and Leonidas dela Llana obtained on 11 May 1981 a loan in the amount of P120,000.00
from respondent Security Bank and Trust Company. Petitioners executed a promissory note binding themselves, jointly
and severally, to pay the sum borrowed with an interest of 15.189% per annum upon maturity and to pay a penalty of
5% every month on the outstanding principal and interest in case of default. In addition, petitioners agreed to pay 10%
of the total amount due by way of attorneys fees if the matter were indorsed to a lawyer for collection or if a suit were
instituted to enforce payment. The obligation matured on 8 September 1981; the bank, however, granted an extension
but only up until 29 December 1981.

Despite several demands from the bank, petitioners failed to settle the debt which, as of 20 May 1982, amounted to
P114,416.10. On 30 September 1982, the bank sent a final demand letter to petitioners informing them that they had
five days within which to make full payment. Since petitioners still defaulted on their obligation, the bank filed on 3
November 1982, with the Regional Trial Court of Makati, Branch 143, a complaint for recovery of the due amount.

After petitioners had filed a joint answer to the complaint, the bank presented its evidence and, on 27 March 1985,
rested its case. Petitioners, instead of introducing their own evidence, had the hearing of the case reset on two
consecutive occasions. In view of the absence of petitioners and their counsel on 28 August 1985, the third hearing
date, the bank moved, and the trial court resolved, to consider the case submitted for decision.

Two years later, or on 23 October 1987, petitioners filed a motion for reconsideration of the order of the trial court
declaring them as having waived their right to present evidence and prayed that they be allowed to prove their case.
The court a quo denied the motion in an order, dated 5 September 1988, and on 20 October 1989, it rendered its
decision,[1] the dispositive portion of which read:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendants, ordering the latter to
pay, jointly and severally, to the plaintiff, as follows:

"1. The sum of P114,416.00 with interest thereon at the rate of 15.189% per annum, 2% service charge and 5% per
month penalty charge, commencing on 20 May 1982 until fully paid;

"2. To pay the further sum equivalent to 10% of the total amount of indebtedness for and as attorneys fees; and

"3. To pay the costs of the suit.[2]

Petitioners interposed an appeal with the Court of Appeals, questioning the rejection by the trial court of their motion
to present evidence and assailing the imposition of the 2% service charge, the 5% per month penalty charge and 10%
attorney's fees. In its decision[3] of 7 March 1996, the appellate court affirmed the judgment of the trial court except on
the matter of the 2% service charge which was deleted pursuant to Central Bank Circular No. 783. Not fully satisfied
with the decision of the appellate court, both parties filed their respective motions for reconsideration.[4] Petitioners
prayed for the reduction of the 5% stipulated penalty for being unconscionable. The bank, on the other hand, asked
that the payment of interest and penalty be commenced not from the date of filing of complaint but from the time of
default as so stipulated in the contract of the parties.

On 28 October 1998, the Court of Appeals resolved the two motions thusly:

We find merit in plaintiff-appellees claim that the principal sum of P114,416.00 with interest thereon must commence
not on the date of filing of the complaint as we have previously held in our decision but on the date when the obligation
became due.

Default generally begins from the moment the creditor demands the performance of the obligation. However, demand
is not necessary to render the obligor in default when the obligation or the law so provides.

In the case at bar, defendants-appellants executed a promissory note where they undertook to pay the obligation on
its maturity date 'without necessity of demand.' They also agreed to pay the interest in case of non-payment from the
date of default.
xxxxxxxxx

While we maintain that defendants-appellants must be bound by the contract which they acknowledged and signed,
we take cognizance of their plea for the application of the provisions of Article 1229 x x x.

Considering that defendants-appellants partially complied with their obligation under the promissory note by the
reduction of the original amount of P120,000.00 to P114,416.00 and in order that they will finally settle their obligation,
it is our view and we so hold that in the interest of justice and public policy, a penalty of 3% per month or 36% per
annum would suffice.

xxxxxxxxx

WHEREFORE, the decision sought to be reconsidered is hereby MODIFIED. The defendants-appellants Tolomeo
Ligutan and Leonidas dela Llana are hereby ordered to pay the plaintiff-appellee Security Bank and Trust Company
the following:

1. The sum of P114,416.00 with interest thereon at the rate of 15.189% per annum and 3% per month penalty charge
commencing May 20, 1982 until fully paid;

2. The sum equivalent to 10% of the total amount of the indebtedness as and for attorneys fees.[5]

On 16 November 1998, petitioners filed an omnibus motion for reconsideration and to admit newly discovered
evidence,[6] alleging that while the case was pending before the trial court, petitioner Tolomeo Ligutan and his wife
Bienvenida Ligutan executed a real estate mortgage on 18 January 1984 to secure the existing indebtedness of
petitioners Ligutan and dela Llana with the bank. Petitioners contended that the execution of the real estate mortgage
had the effect of novating the contract between them and the bank. Petitioners further averred that the mortgage was
extrajudicially foreclosed on 26 August 1986, that they were not informed about it, and the bank did not credit them
with the proceeds of the sale. The appellate court denied the omnibus motion for reconsideration and to admit newly
discovered evidence, ratiocinating that such a second motion for reconsideration cannot be entertained under Section
2, Rule 52, of the 1997 Rules of Civil Procedure. Furthermore, the appellate court said, the newly-discovered evidence
being invoked by petitioners had actually been known to them when the case was brought on appeal and when the
first motion for reconsideration was filed.[7]

Aggrieved by the decision and resolutions of the Court of Appeals, petitioners elevated their case to this Court on 9
July 1999 via a petition for review on certiorari under Rule 45 of the Rules of Court, submitting thusly -

I. The respondent Court of Appeals seriously erred in not holding that the 15.189% interest and the penalty of three
(3%) percent per month or thirty-six (36%) percent per annum imposed by private respondent bank on petitioners loan
obligation are still manifestly exorbitant, iniquitous and unconscionable.

II. The respondent Court of Appeals gravely erred in not reducing to a reasonable level the ten (10%) percent award
of attorneys fees which is highly and grossly excessive, unreasonable and unconscionable.

III. The respondent Court of Appeals gravely erred in not admitting petitioners newly discovered evidence which could
not have been timely produced during the trial of this case.

IV. The respondent Court of Appeals seriously erred in not holding that there was a novation of the cause of action of
private respondents complaint in the instant case due to the subsequent execution of the real estate mortgage during
the pendency of this case and the subsequent foreclosure of the mortgage.[8]
Respondent bank, which did not take an appeal, would, however, have it that the penalty sought to be deleted by
petitioners was even insufficient to fully cover and compensate for the cost of money brought about by the radical
devaluation and decrease in the purchasing power of the peso, particularly vis-a-vis the U.S. dollar, taking into account
the time frame of its occurrence. The Bank would stress that only the amount of P5,584.00 had been remitted out of
the entire loan of P120,000.00.[9]

A penalty clause, expressly recognized by law,[10] 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[11] 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.[12] 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.[13]

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,[14] just an example, the Court has tempered the
penalty charges after taking into account the debtors 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.[15] The stipulated penalty might even be deleted such as when there has been substantial performance in
good faith by the obligor,[16] when the penalty clause itself suffers from fatal infirmity, or when exceptional
circumstances so exist as to warrant it.[17]

The Court of Appeals, exercising its good judgment in the instant case, has reduced the penalty interest from 5% a
month to 3% a month which petitioner still disputes. Given the circumstances, not to mention the repeated acts of
breach by petitioners of their contractual obligation, the Court sees no cogent ground to modify the ruling of the
appellate court..

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.[18] 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.[19]

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 attorneys 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% attorneys fees to be reasonable.

Neither can the appellate court be held to have erred in rejecting petitioners' call for a new trial or to admit newly
discovered evidence. As the appellate court so held in its resolution of 14 May 1999 -
Under Section 2, Rule 52 of the 1997 Rules of Civil Procedure, no second motion for reconsideration of a judgment or
final resolution by the same party shall be entertained. Considering that the instant motion is already a second motion
for reconsideration, the same must therefore be denied.

Furthermore, it would appear from the records available to this court that the newly-discovered evidence being invoked
by defendants-appellants have actually been existent when the case was brought on appeal to this court as well as
when the first motion for reconsideration was filed. Hence, it is quite surprising why defendants-appellants raised the
alleged newly-discovered evidence only at this stage when they could have done so in the earlier pleadings filed before
this court.

The propriety or acceptability of such a second motion for reconsideration is not contingent upon the averment of 'new'
grounds to assail the judgment, i.e., grounds other than those theretofore presented and rejected. Otherwise,
attainment of finality of a judgment might be stayed off indefinitely, depending on the partys ingenuousness or
cleverness in conceiving and formulating 'additional flaws' or 'newly discovered errors' therein, or thinking up some
injury or prejudice to the rights of the movant for reconsideration.[20]

At any rate, the subsequent execution of the real estate mortgage as security for the existing loan would not have
resulted in the extinguishment of the original contract of loan because of novation. Petitioners acknowledge that the
real estate mortgage contract does not contain any express stipulation by the parties intending it to supersede the
existing loan agreement between the petitioners and the bank.[21] Respondent bank has correctly postulated that the
mortgage is but an accessory contract to secure the loan in the promissory note.

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.[22] 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.[23] 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
compatible covenants or where the old contract is merely supplemented by the new one.[24] 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,[25] or from a sale to one of loan;[26] (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[27] 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.

WHEREFORE, the petition is DENIED.

SO ORDERED.

UNITED COCONUT PLANTERS BANK,

Petitioner,

- versus -

SPOUSES SAMUEL and ODETTE BELUSO,

Respondents.

G.R. No. 159912

August 17, 2007
CHICO-NAZARIO, J.:

This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, which seeks to annul the Court of
Appeals Decision[1] dated 21 January 2003 and its Resolution[2] dated 9 September 2003 in CA-G.R. CV No. 67318.
The assailed Court of Appeals Decision and Resolution affirmed in turn the Decision[3] dated 23 March 2000 and
Order[4] dated 8 May 2000 of the Regional Trial Court (RTC), Branch 65 of Makati City, in Civil Case No. 99-314,
declaring void the interest rate provided in the promissory notes executed by the respondents Spouses Samuel and
Odette Beluso (spouses Beluso) in favor of petitioner United Coconut Planters Bank (UCPB).

The procedural and factual antecedents of this case are as follows:

On 16 April 1996, UCPB granted the spouses Beluso a Promissory Notes Line under a Credit Agreement whereby the
latter could avail from the former credit of up to a maximum amount of P1.2 Million pesos for a term ending on 30 April
1997. The spouses Beluso constituted, other than their promissory notes, a real estate mortgage over parcels of land
in Roxas City, covered by Transfer Certificates of Title No. T-31539 and T-27828, as additional security for the
obligation. The Credit Agreement was subsequently amended to increase the amount of the Promissory Notes Line to
a maximum of P2.35 Million pesos and to extend the term thereof to 28 February 1998.

The spouses Beluso availed themselves of the credit line under the following Promissory Notes:

PN #
Date of PN
Maturity Date
Amount Secured
8314-96-00083-3
29 April 1996
27 August 1996
P 700,000
8314-96-00085-0
2 May 1996
30 August 1996
P 500,000
8314-96-000292-2
20 November 1996
20 March 1997
P 800,000

The three promissory notes were renewed several times. On 30 April 1997, the payment of the principal and interest
of the latter two promissory notes were debited from the spouses Belusos account with UCPB; yet, a consolidated loan
for P1.3 Million was again released to the spouses Beluso under one promissory note with a due date of 28 February
1998.

To completely avail themselves of the P2.35 Million credit line extended to them by UCPB, the spouses Beluso
executed two more promissory notes for a total of P350,000.00:

PN #
Date of PN
Maturity Date
Amount Secured
97-00363-1
11 December 1997
28 February 1998
P 200,000
98-00002-4
2 January 1998
28 February 1998
P 150,000

However, the spouses Beluso alleged that the amounts covered by these last two promissory notes were never
released or credited to their account and, thus, claimed that the principal indebtedness was only P2 Million.

In any case, UCPB applied interest rates on the different promissory notes ranging from 18% to 34%. From 1996 to
February 1998 the spouses Beluso were able to pay the total sum of P763,692.03.

From 28 February 1998 to 10 June 1998, UCPB continued to charge interest and penalty on the obligations of the
spouses Beluso, as follows:

PN #
Amount Secured
Interest
Penalty
Total
97-00363-1
P 200,000
31%
36%
P 225,313.24
97-00366-6
P 700,000
30.17%
(7 days)
32.786% (102 days)
P 795,294.72
97-00368-2
P 1,300,000
28%
(2 days)
30.41% (102 days)
P 1,462,124.54
98-00002-4
P 150,000
33%
(102 days)
36%
P 170,034.71

The spouses Beluso, however, failed to make any payment of the foregoing amounts.
On 2 September 1998, UCPB demanded that the spouses Beluso pay their total obligation of P2,932,543.00 plus 25%
attorneys fees, but the spouses Beluso failed to comply therewith. On 28 December 1998, UCPB foreclosed the
properties mortgaged by the spouses Beluso to secure their credit line, which, by that time, already ballooned to
P3,784,603.00.

On 9 February 1999, the spouses Beluso filed a Petition for Annulment, Accounting and Damages against UCPB with
the RTC of Makati City.

On 23 March 2000, the RTC ruled in favor of the spouses Beluso, disposing of the case as follows:

PREMISES CONSIDERED, judgment is hereby rendered declaring the interest rate used by [UCPB] void and the
foreclosure and Sheriffs Certificate of Sale void. [UCPB] is hereby ordered to return to [the spouses Beluso] the
properties subject of the foreclosure; to pay [the spouses Beluso] the amount of P50,000.00 by way of attorneys fees;
and to pay the costs of suit. [The spouses Beluso] are hereby ordered to pay [UCPB] the sum of P1,560,308.00.[5]

On 8 May 2000, the RTC denied UCPBs Motion for Reconsideration,[6] prompting UCPB to appeal the RTC Decision
with the Court of Appeals. The Court of Appeals affirmed the RTC Decision, to wit:

WHEREFORE, premises considered, the decision dated March 23, 2000 of the Regional Trial Court, Branch 65, Makati
City in Civil Case No. 99-314 is hereby AFFIRMED subject to the modification that defendant-appellant UCPB is not
liable for attorneys fees or the costs of suit.[7]

On 9 September 2003, the Court of Appeals denied UCPBs Motion for Reconsideration for lack of merit. UCPB thus
filed the present petition, submitting the following issues for our resolution:

WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR
WHEN IT AFFIRMED THE DECISION OF THE TRIAL COURT WHICH DECLARED VOID THE PROVISION ON
INTEREST RATE AGREED UPON BETWEEN PETITIONER AND RESPONDENTS

II

WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR
WHEN IT AFFIRMED THE COMPUTATION BY THE TRIAL COURT OF RESPONDENTS INDEBTEDNESS AND
ORDERED RESPONDENTS TO PAY PETITIONER THE AMOUNT OF ONLY ONE MILLION FIVE HUNDRED SIXTY
THOUSAND THREE HUNDRED EIGHT PESOS (P1,560,308.00)

III

WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR
WHEN IT AFFIRMED THE DECISION OF THE TRIAL COURT WHICH ANNULLED THE FORECLOSURE BY
PETITIONER OF THE SUBJECT PROPERTIES DUE TO AN ALLEGED INCORRECT COMPUTATION OF
RESPONDENTS INDEBTEDNESS

IV

WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR
WHEN IT AFFIRMED THE DECISION OF THE TRIAL COURT WHICH FOUND PETITIONER LIABLE FOR
VIOLATION OF THE TRUTH IN LENDING ACT
V

WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR
WHEN IT FAILED TO ORDER THE DISMISSAL OF THE CASE BECAUSE THE RESPONDENTS ARE GUILTY OF
FORUM SHOPPING[8]

Validity of the Interest Rates

The Court of Appeals held that the imposition of interest in the following provision found in the promissory notes of the
spouses Beluso is void, as the interest rates and the bases therefor were determined solely by petitioner UCPB:

FOR VALUE RECEIVED, I, and/or We, on or before due date, SPS. SAMUEL AND ODETTE BELUSO (BORROWER),
jointly and severally promise to pay to UNITED COCONUT PLANTERS BANK (LENDER) or order at UCPB Bldg.,
Makati Avenue, Makati City, Philippines, the sum of ______________ PESOS, (P_____), Philippine Currency, with
interest thereon at the rate indicative of DBD retail rate or as determined by the Branch Head.[9]

UCPB asserts that this is a reversible error, and claims that while the interest rate was not numerically quantified in the
face of the promissory notes, it was nonetheless categorically fixed, at the time of execution thereof, at the rate
indicative of the DBD retail rate. UCPB contends that said provision must be read with another stipulation in the
promissory notes subjecting to review the interest rate as fixed:
The interest rate shall be subject to review and may be increased or decreased by the LENDER considering among
others the prevailing financial and monetary conditions; or the rate of interest and charges which other banks or
financial institutions charge or offer to charge for similar accommodations; and/or the resulting profitability to the
LENDER after due consideration of all dealings with the BORROWER.[10]

In this regard, UCPB avers that these are valid reference rates akin to a prevailing rate or prime rate allowed by this
Court in Polotan v. Court of Appeals.[11] Furthermore, UCPB argues that even if the proviso as determined by the
branch head is considered void, such a declaration would not ipso facto render the connecting clause indicative of DBD
retail rate void in view of the separability clause of the Credit Agreement, which reads:

Section 9.08 Separability Clause. If any one or more of the provisions contained in this AGREEMENT, or documents
executed in connection herewith shall be declared invalid, illegal or unenforceable in any respect, the validity, legality
and enforceability of the remaining provisions hereof shall not in any way be affected or impaired.[12]

According to UCPB, the imposition of the questioned interest rates did not infringe on the principle of mutuality of
contracts, because the spouses Beluso had the liberty to choose whether or not to renew their credit line at the new
interest rates pegged by petitioner.[13] UCPB also claims that assuming there was any defect in the mutuality of the
contract at the time of its inception, such defect was cured by the subsequent conduct of the spouses Beluso in availing
themselves of the credit line from April 1996 to February 1998 without airing any protest with respect to the interest
rates imposed by UCPB. According to UCPB, therefore, the spouses Beluso are in estoppel.[14]

We agree with the Court of Appeals, and find no merit in the contentions of UCPB.

Article 1308 of the Civil Code provides:

Art. 1308. The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of
them.
We applied this provision in Philippine National Bank v. Court of Appeals,[15] where we held:

In order that obligations arising from contracts may have the force of law between the parties, there must be mutuality
between the parties based on their essential equality. A contract containing a condition which makes its fulfillment
dependent exclusively upon the uncontrolled will of one of the contracting parties, is void (Garcia vs. Rita Legarda,
Inc., 21 SCRA 555). Hence, even assuming that the P1.8 million loan agreement between the PNB and the private
respondent gave the PNB a license (although in fact there was none) to increase the interest rate at will during the
term of the loan, that license would have been null and void for being violative of the principle of mutuality essential in
contracts. It would have invested the loan agreement with the character of a contract of adhesion, where the parties
do not bargain on equal footing, the weaker party's (the debtor) participation being reduced to the alternative "to take
it or leave it" (Qua vs. Law Union & Rock Insurance Co., 95 Phil. 85). Such a contract is a veritable trap for the weaker
party whom the courts of justice must protect against abuse and imposition.

The provision stating that the interest shall be at the rate indicative of DBD retail rate or as determined by the Branch
Head is indeed dependent solely on the will of petitioner UCPB. Under such provision, petitioner UCPB has two choices
on what the interest rate shall be: (1) a rate indicative of the DBD retail rate; or (2) a rate as determined by the Branch
Head. As UCPB is given this choice, the rate should be categorically determinable in both choices. If either of these
two choices presents an opportunity for UCPB to fix the rate at will, the bank can easily choose such an option, thus
making the entire interest rate provision violative of the principle of mutuality of contracts.

Not just one, but rather both, of these choices are dependent solely on the will of UCPB. Clearly, a rate as determined
by the Branch Head gives the latter unfettered discretion on what the rate may be. The Branch Head may choose any
rate he or she desires. As regards the rate indicative of the DBD retail rate, the same cannot be considered as valid
for being akin to a prevailing rate or prime rate allowed by this Court in Polotan. The interest rate in Polotan reads:

The Cardholder agrees to pay interest per annum at 3% plus the prime rate of Security Bank and Trust Company. x x
x.[16]

In this provision in Polotan, there is a fixed margin over the reference rate: 3%. Thus, the parties can easily determine
the interest rate by applying simple arithmetic. On the other hand, the provision in the case at bar does not specify any
margin above or below the DBD retail rate. UCPB can peg the interest at any percentage above or below the DBD
retail rate, again giving it unfettered discretion in determining the interest rate.

The stipulation in the promissory notes subjecting the interest rate to review does not render the imposition by UCPB
of interest rates on the obligations of the spouses Beluso valid. According to said stipulation:

The interest rate shall be subject to review and may be increased or decreased by the LENDER considering among
others the prevailing financial and monetary conditions; or the rate of interest and charges which other banks or
financial institutions charge or offer to charge for similar accommodations; and/or the resulting profitability to the
LENDER after due consideration of all dealings with the BORROWER.[17]

It should be pointed out that the authority to review the interest rate was given UCPB alone as the lender. Moreover,
UCPB may apply the considerations enumerated in this provision as it wishes. As worded in the above provision, UCPB
may give as much weight as it desires to each of the following considerations: (1) the prevailing financial and monetary
condition; (2) the rate of interest and charges which other banks or financial institutions charge or offer to charge for
similar accommodations; and/or (3) the resulting profitability to the LENDER (UCPB) after due consideration of all
dealings with the BORROWER (the spouses Beluso). Again, as in the case of the interest rate provision, there is no
fixed margin above or below these considerations.
In view of the foregoing, the Separability Clause cannot save either of the two options of UCPB as to the interest to be
imposed, as both options violate the principle of mutuality of contracts.

UCPB likewise failed to convince us that the spouses Beluso were in estoppel.

Estoppel cannot be predicated on an illegal act. As between the parties to a contract, validity cannot be given to it by
estoppel if it is prohibited by law or is against public policy.[18]

The interest rate provisions in the case at bar are illegal not only because of the provisions of the Civil Code on mutuality
of contracts, but also, as shall be discussed later, because they violate the Truth in Lending Act. Not disclosing the true
finance charges in connection with the extensions of credit is, furthermore, a form of deception which we cannot
countenance. It is against the policy of the State as stated in the Truth in Lending Act:

Sec. 2. Declaration of Policy. It is hereby declared to be the policy of the State to protect its citizens from a lack of
awareness of the true cost of credit to the user by assuring a full disclosure of such cost with a view of preventing the
uninformed use of credit to the detriment of the national economy.[19]

Moreover, while the spouses Beluso indeed agreed to renew the credit line, the offending provisions are found in the
promissory notes themselves, not in the credit line. In fixing the interest rates in the promissory notes to cover the
renewed credit line, UCPB still reserved to itself the same two options (1) a rate indicative of the DBD retail rate; or (2)
a rate as determined by the Branch Head.

Error in Computation
UCPB asserts that while both the RTC and the Court of Appeals voided the interest rates imposed by UCPB, both
failed to include in their computation of the outstanding obligation of the spouses Beluso the legal rate of interest of
12% per annum. Furthermore, the penalty charges were also deleted in the decisions of the RTC and the Court of
Appeals. Section 2.04, Article II on Interest and other Bank Charges of the subject Credit Agreement, provides:

Section 2.04 Penalty Charges. In addition to the interest provided for in Section 2.01 of this ARTICLE, any principal
obligation of the CLIENT hereunder which is not paid when due shall be subject to a penalty charge of one percent
(1%) of the amount of such obligation per month computed from due date until the obligation is paid in full. If the bank
accelerates teh (sic) payment of availments hereunder pursuant to ARTICLE VIII hereof, the penalty charge shall be
used on the total principal amount outstanding and unpaid computed from the date of acceleration until the obligation
is paid in full.[20]

Paragraph 4 of the promissory notes also states:

In case of non-payment of this Promissory Note (Note) at maturity, I/We, jointly and severally, agree to pay an additional
sum equivalent to twenty-five percent (25%) of the total due on the Note as attorneys fee, aside from the expenses
and costs of collection whether actually incurred or not, and a penalty charge of one percent (1%) per month on the
total amount due and unpaid from date of default until fully paid.[21]

Petitioner further claims that it is likewise entitled to attorneys fees, pursuant to Section 9.06 of the Credit Agreement,
thus:

If the BANK shall require the services of counsel for the enforcement of its rights under this AGREEMENT, the Note(s),
the collaterals and other related documents, the BANK shall be entitled to recover attorneys fees equivalent to not less
than twenty-five percent (25%) of the total amounts due and outstanding exclusive of costs and other expenses.[22]
Another alleged computational error pointed out by UCPB is the negation of the Compounding Interest agreed upon
by the parties under Section 2.02 of the Credit Agreement:

Section 2.02 Compounding Interest. Interest not paid when due shall form part of the principal and shall be subject to
the same interest rate as herein stipulated.[23]

and paragraph 3 of the subject promissory notes:

Interest not paid when due shall be added to, and become part of the principal and shall likewise bear interest at the
same rate.[24]

UCPB lastly avers that the application of the spouses Belusos payments in the disputed computation does not reflect
the parties agreement. The RTC deducted the payment made by the spouses Beluso amounting to P763,693.00 from
the principal of P2,350,000.00. This was allegedly inconsistent with the Credit Agreement, as well as with the
agreement of the parties as to the facts of the case. In paragraph 7 of the spouses Belusos Manifestation and Motion
on Proposed Stipulation of Facts and Issues vis--vis UCPBs Manifestation, the parties agreed that the amount of
P763,693.00 was applied to the interest and not to the principal, in accord with Section 3.03, Article II of the Credit
Agreement on Order of the Application of Payments, which provides:

Section 3.03 Application of Payment. Payments made by the CLIENT shall be applied in accordance with the following
order of preference:

1. Accounts receivable and other out-of-pocket expenses

2. Front-end Fee, Origination Fee, Attorneys Fee and other expenses of collection;
3. Penalty charges;
4. Past due interest;
5. Principal amortization/Payment in arrears;
6. Advance interest;
7. Outstanding balance; and
8. All other obligations of CLIENT to the BANK, if any.[25]

Thus, according to UCPB, the interest charges, penalty charges, and attorneys fees had been erroneously excluded
by the RTC and the Court of Appeals from the computation of the total amount due and demandable from spouses
Beluso.

The spouses Belusos defense as to all these issues is that the demand made by UCPB is for a considerably bigger
amount and, therefore, the demand should be considered void. There being no valid demand, according to the spouses
Beluso, there would be no default, and therefore the interests and penalties would not commence to run. As it was
likewise improper to foreclose the mortgaged properties or file a case against the spouses Beluso, attorneys fees were
not warranted.

We agree with UCPB on this score. Default commences upon judicial or extrajudicial demand.[26] The excess amount
in such a demand does not nullify the demand itself, which is valid with respect to the proper amount. A contrary ruling
would put commercial transactions in disarray, as validity of demands would be dependent on the exactness of the
computations thereof, which are too often contested.
There being a valid demand on the part of UCPB, albeit excessive, the spouses Beluso are considered in default with
respect to the proper amount and, therefore, the interests and the penalties began to run at that point.

As regards the award of 12% legal interest in favor of petitioner, the RTC actually recognized that said legal interest
should be imposed, thus: There being no valid stipulation as to interest, the legal rate of interest shall be charged.[27]
It seems that the RTC inadvertently overlooked its non-inclusion in its computation.

The spouses Beluso had even originally asked for the RTC to impose this legal rate of interest in both the body and
the prayer of its petition with the RTC:

12. Since the provision on the fixing of the rate of interest by the sole will of the respondent Bank is null and void, only
the legal rate of interest which is 12% per annum can be legally charged and imposed by the bank, which would amount
to only about P599,000.00 since 1996 up to August 31, 1998.

xxxx

WHEREFORE, in view of the foregoing, petiitoners pray for judgment or order:

xxxx

2. By way of example for the public good against the Banks taking unfair advantage of the weaker party to their contract,
declaring the legal rate of 12% per annum, as the imposable rate of interest up to February 28, 1999 on the loan of
2.350 million.[28]

All these show that the spouses Beluso had acknowledged before the RTC their obligation to pay a 12% legal interest
on their loans. When the RTC failed to include the 12% legal interest in its computation, however, the spouses Beluso
merely defended in the appellate courts this non-inclusion, as the same was beneficial to them. We see, however,
sufficient basis to impose a 12% legal interest in favor of petitioner in the case at bar, as what we have voided is merely
the stipulated rate of interest and not the stipulation that the loan shall earn interest.

We must likewise uphold the contract stipulation providing the compounding of interest. The provisions in the Credit
Agreement and in the promissory notes providing for the compounding of interest were neither nullified by the RTC or
the Court of Appeals, nor assailed by the spouses Beluso in their petition with the RTC. The compounding of interests
has furthermore been declared by this Court to be legal. We have held in Tan v. Court of Appeals,[29] that:

Without prejudice to the provisions of Article 2212, interest due and unpaid shall not earn interest. However, the
contracting parties may by stipulation capitalize the interest due and unpaid, which as added principal, shall earn new
interest.

As regards the imposition of penalties, however, although we are likewise upholding the imposition thereof in the
contract, we find the rate iniquitous. Like in the case of grossly excessive interests, the penalty stipulated in the contract
may also be reduced by the courts if it is iniquitous or unconscionable.[30]

We find the penalty imposed by UCPB, ranging from 30.41% to 36%, to be iniquitous considering the fact that this
penalty is already over and above the compounded interest likewise imposed in the contract. If a 36% interest in itself
has been declared unconscionable by this Court,[31] what more a 30.41% to 36% penalty, over and above the payment
of compounded interest? UCPB itself must have realized this, as it gave us a sample computation of the spouses
Belusos obligation if both the interest and the penalty charge are reduced to 12%.
As regards the attorneys 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[32] of the Civil Code, which would put the obligor
in delay.

The RTC, however, also held UCPB liable for attorneys 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 attorneys fees, it must be
recalled, falls under the sound discretion of the court.[33] Since both parties were forced to litigate to protect their
respective rights, and both are entitled to the award of attorneys fees from the other, practical reasons dictate that we
set off or compensate both parties liabilities for attorneys fees. Therefore, instead of awarding attorneys fees in favor
of petitioner, we shall merely affirm the deletion of the award of attorneys fees to the spouses Beluso.

In sum, we hold that spouses Beluso should still be held liable for a compounded legal interest of 12% per annum and
a penalty charge of 12% per annum. We also hold that, instead of awarding attorneys fees in favor of petitioner, we
shall merely affirm the deletion of the award of attorneys fees to the spouses Beluso.

Annulment of the Foreclosure Sale

Properties of spouses Beluso had been foreclosed, titles to which had already been consolidated on 19 February 2001
and 20 March 2001 in the name of UCPB, as the spouses Beluso failed to exercise their right of redemption which
expired on 25 March 2000. The RTC, however, annulled the foreclosure of mortgage based on an alleged incorrect
computation of the spouses Belusos indebtedness.

UCPB alleges that none of the grounds for the annulment of a foreclosure sale are present in the case at bar.
Furthermore, the annulment of the foreclosure proceedings and the certificates of sale were mooted by the subsequent
issuance of new certificates of title in the name of said bank. UCPB claims that the spouses Belusos action for
annulment of foreclosure constitutes a collateral attack on its certificates of title, an act proscribed by Section 48 of
Presidential Decree No. 1529, otherwise known as the Property Registration Decree, which provides:

Section 48. Certificate not subject to collateral attack. A certificate of title shall not be subject to collateral attack. It
cannot be altered, modified or cancelled except in a direct proceeding in accordance with law.

The spouses Beluso retort that since they had the right to refuse payment of an excessive demand on their account,
they cannot be said to be in default for refusing to pay the same. Consequently, according to the spouses Beluso, the
enforcement of such illegal and overcharged demand through foreclosure of mortgage should be voided.

We agree with UCPB and affirm the validity of the foreclosure proceedings. Since we already found that a valid demand
was made by UCPB upon the spouses Beluso, despite being excessive, the spouses Beluso are considered in default
with respect to the proper amount of their obligation to UCPB and, thus, the property they mortgaged to secure such
amounts may be foreclosed. Consequently, proceeds of the foreclosure sale should be applied to the extent of the
amounts to which UCPB is rightfully entitled.

As argued by UCPB, none of the grounds for the annulment of a foreclosure sale are present in this case. The grounds
for the proper annulment of the foreclosure sale are the following: (1) that there was fraud, collusion, accident, mutual
mistake, breach of trust or misconduct by the purchaser; (2) that the sale had not been fairly and regularly conducted;
or (3) that the price was inadequate and the inadequacy was so great as to shock the conscience of the court.[34]

Liability for Violation of Truth in Lending Act

The RTC, affirmed by the Court of Appeals, imposed a fine of P26,000.00 for UCPBs alleged violation of Republic Act
No. 3765, otherwise known as the Truth in Lending Act.

UCPB challenges this imposition, on the argument that Section 6(a) of the Truth in Lending Act which mandates the
filing of an action to recover such penalty must be made under the following circumstances:

Section 6. (a) Any creditor who in connection with any credit transaction fails to disclose to any person any information
in violation of this Act or any regulation issued thereunder shall be liable to such person in the amount of P100 or in an
amount equal to twice the finance charge required by such creditor in connection with such transaction, whichever is
greater, except that such liability shall not exceed 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. x x x (Emphasis ours.)

According to UCPB, the Court of Appeals even stated that [a]dmittedly the original complaint did not explicitly allege a
violation of the Truth in Lending Act and no action to formally admit the amended petition [which expressly alleges
violation of the Truth in Lending Act] was made either by [respondents] spouses Beluso and the lower court. x x x.[35]

UCPB further claims that the action to recover the penalty for the violation of the Truth in Lending Act had been barred
by the one-year prescriptive period provided for in the Act. UCPB asserts that per the records of the case, the latest of
the subject promissory notes had been executed on 2 January 1998, but the original petition of the spouses Beluso
was filed before the RTC on 9 February 1999, which was after the expiration of the period to file the same on 2 January
1999.

On the matter of allegation of the violation of the Truth in Lending Act, the Court of Appeals ruled:

Admittedly the original complaint did not explicitly allege a violation of the Truth in Lending Act and no action to formally
admit the amended petition was made either by [respondents] spouses Beluso and the lower court. In such
transactions, the debtor and the lending institutions do not deal on an equal footing and this law was intended to protect
the public from hidden or undisclosed charges on their loan obligations, requiring a full disclosure thereof by the lender.
We find that its infringement may be inferred or implied from allegations that when [respondents] spouses Beluso
executed the promissory notes, the interest rate chargeable thereon were left blank. Thus, [petitioner] UCPB failed to
discharge its duty to disclose in full to [respondents] Spouses Beluso the charges applicable on their loans.[36]

We agree with the Court of Appeals. The allegations in the complaint, much more than the title thereof, are controlling.
Other than that stated by the Court of Appeals, we find that the allegation of violation of the Truth in Lending Act can
also be inferred from the same allegation in the complaint we discussed earlier:

b.) In unilaterally imposing an increased interest rates (sic) respondent bank has relied on the provision of their
promissory note granting respondent bank the power to unilaterally fix the interest rates, which rate was not determined
in the promissory note but was left solely to the will of the Branch Head of the respondent Bank, x x x.[37]

The allegation that the promissory notes grant UCPB the power to unilaterally fix the interest rates certainly also means
that the promissory notes do not contain a clear statement in writing of (6) the finance charge expressed in terms of
pesos and centavos; and (7) the percentage that the finance charge bears to the amount to be financed expressed as
a simple annual rate on the outstanding unpaid balance of the obligation.[38] Furthermore, the spouses Belusos 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.
UCPBs 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.[39] As this penalty depends on the finance charge
required of the borrower, the borrowers cause of action would only accrue when such finance charge is required. In
the case at bar, the date of the demand for payment of the finance charge is 2 September 1998, while the foreclosure
was made on 28 December 1998. The filing of the case on 9 February 1999 is therefore within the one-year prescriptive
period.

UCPB argues that a violation of the Truth in Lending Act, being a criminal offense, cannot be inferred nor implied from
the allegations made in the complaint.[40] Pertinent provisions of the Act read:

Sec. 6. (a) Any creditor who in connection with any credit transaction fails to disclose to any person any information in
violation of this Act or any regulation issued thereunder shall be liable to such person in the amount of P100 or in an
amount equal to twice the finance charge required by such creditor in connection with such transaction, whichever is
the greater, except that such liability shall not exceed 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 attorneys fees and court costs as determined by the court.

xxxx

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

As can be gleaned from Section 6(a) and (c) of the Truth in Lending Act, the violation of the said Act gives rise to both
criminal and civil liabilities. Section 6(c) considers a criminal offense the willful violation of the Act, imposing the penalty
therefor of fine, imprisonment or both. Section 6(a), on the other hand, clearly provides for a civil cause of action for
failure to disclose any information of the required information to any person in violation of the Act. The penalty therefor
is an amount of 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, which provides:

SEC. 5. Joinder of causes of action.A party may in one pleading assert, in the alternative or otherwise, as many causes
of action as he may have against an opposing party, subject to the following conditions:

(a) The party joining the causes of action shall comply with the rules on joinder of parties;

(b) The joinder shall not include special civil actions or actions governed by special rules;

(c) Where the causes of action are between the same parties but pertain to different venues or jurisdictions, the joinder
may be allowed in the Regional Trial Court provided one of the causes of action falls within the jurisdiction of said court
and the venue lies therein; and
(d) Where the claims in all the causes of action are principally for recovery of money, the aggregate amount claimed
shall be the test of jurisdiction.

In attacking the RTCs disposition on the violation of the Truth in Lending Act since the same was not alleged in the
complaint, UCPB is actually asserting a violation of due process. Indeed, due process mandates that a defendant
should be sufficiently apprised of the matters he or she would be defending himself or herself against. However, in the
1 July 1999 pre-trial brief filed by the spouses Beluso before the RTC, the claim for civil sanctions for violation of the
Truth in Lending Act was expressly alleged, thus:

Moreover, since from the start, respondent bank violated the Truth in Lending Act in not informing the borrower in
writing before the execution of the Promissory Notes of the interest rate expressed as a percentage of the total loan,
the respondent bank instead is liable to pay petitioners double the amount the bank is charging petitioners by way of
sanction for its violation.[41]

In the same pre-trial brief, the spouses Beluso also expressly raised the following issue:

b.) Does the expression indicative rate of DBD retail (sic) comply with the Truth in Lending Act provision to express the
interest rate as a simple annual percentage of the loan?[42]

These assertions are so clear and unequivocal that any attempt of UCPB to feign ignorance of the assertion of this
issue in this case as to prevent it from putting up a defense thereto is plainly hogwash.

Petitioner further posits that it is the Metropolitan Trial Court which has jurisdiction to try and adjudicate the alleged
violation of the Truth in Lending Act, considering that the present action allegedly involved a single credit transaction
as there was only one Promissory Note Line.

We disagree. We have already ruled that the action to recover the penalty under Section 6(a) of the Truth in Lending
Act had been jointly instituted with (1) the action to declare the interests in the promissory notes void, and (2) the action
to declare the foreclosure void. There had been no question that the above actions belong to the jurisdiction of the
RTC. Subsection (c) of the above-quoted Section 5 of the Rules of Court on Joinder of Causes of Action provides:
(c) Where the causes of action are between the same parties but pertain to different venues or jurisdictions, the joinder
may be allowed in the Regional Trial Court provided one of the causes of action falls within the jurisdiction of said court
and the venue lies therein.

Furthermore, opening a credit line does not create a credit transaction of loan or mutuum, since the former is merely a
preparatory contract to the contract of loan or mutuum. Under such credit line, the bank is merely obliged, for the
considerations specified therefor, to lend to the other party amounts not exceeding the limit provided. The credit
transaction thus occurred not when the credit line was opened, but rather when the credit line was availed of. In the
case at bar, the violation of the Truth in Lending Act allegedly occurred not when the parties executed the Credit
Agreement, where no interest rate was mentioned, but when the parties executed the promissory notes, where the
allegedly offending interest rate was stipulated.

UCPB further argues that since the spouses Beluso were duly given copies of the subject promissory notes after their
execution, then they were duly notified of the terms thereof, in substantial compliance with the Truth in Lending Act.

Once more, we disagree. Section 4 of the Truth in Lending Act clearly provides that the disclosure statement must be
furnished prior to the consummation of the transaction:
SEC. 4. Any creditor shall furnish to each person to whom credit is extended, prior to the consummation of the
transaction, a clear statement in writing setting forth, to the extent applicable and in accordance with rules and
regulations prescribed by the Board, the following information:

(1) the cash price or delivered price of the property or service to be acquired;

(2) the amounts, if any, to be credited as down payment and/or trade-in;

(3) the difference between the amounts set forth under clauses (1) and (2)

(4) the charges, individually itemized, which are paid or to be paid by such person in connection with the transaction
but which are not incident to the extension of credit;

(5) the total amount to be financed;

(6) the finance charge expressed in terms of pesos and centavos; and

(7) the percentage that the finance bears to the total amount to be financed expressed as a simple annual rate on
the outstanding unpaid balance of the obligation.

The rationale of this provision is to protect users of credit from a lack of awareness of the true cost thereof, proceeding
from the experience that banks are able to conceal such true cost by hidden charges, uncertainty of interest rates,
deduction of interests from the loaned amount, and the like. The law thereby seeks to protect debtors by permitting
them to fully appreciate the true cost of their loan, to enable them to give full consent to the contract, and to properly
evaluate their options in arriving at business decisions. Upholding UCPBs claim of substantial compliance would defeat
these purposes of the Truth in Lending Act. The belated discovery of the true cost of credit will too often not be able to
reverse the ill effects of an already consummated business decision.

In addition, the promissory notes, the copies of which were presented to the spouses Beluso after execution, are not
sufficient notification from UCPB. As earlier discussed, the interest rate provision therein does not sufficiently indicate
with particularity the interest rate to be applied to the loan covered by said promissory notes.

Forum Shopping

UCPB had earlier moved to dismiss the petition (originally Case No. 99-314 in RTC, Makati City) on the ground that
the spouses Beluso instituted another case (Civil Case No. V-7227) before the RTC of Roxas City, involving the same
parties and issues. UCPB claims that while Civil Case No. V-7227 initially appears to be a different action, as it prayed
for the issuance of a temporary restraining order and/or injunction to stop foreclosure of spouses Belusos properties,
it poses issues which are similar to those of the present case.[43] To prove its point, UCPB cited the spouses Belusos
Amended Petition in Civil Case No. V-7227, which contains similar allegations as those in the present case. The RTC
of Makati denied UCPBs Motion to Dismiss Case No. 99-314 for lack of merit. Petitioner UCPB raised the same issue
with the Court of Appeals, and is raising the same issue with us now.

The spouses Beluso claim that the issue in Civil Case No. V-7227 before the RTC of Roxas City, a Petition for Injunction
Against Foreclosure, is the propriety of the foreclosure before the true account of spouses Beluso is determined. On
the other hand, the issue in Case No. 99-314 before the RTC of Makati City is the validity of the interest rate provision.
The spouses Beluso claim that Civil Case No. V-7227 has become moot because, before the RTC of Roxas City could
act on the restraining order, UCPB proceeded with the foreclosure and auction sale. As the act sought to be restrained
by Civil Case No. V-7227 has already been accomplished, the spouses Beluso had to file a different action, that of
Annulment of the Foreclosure Sale, Case No. 99-314 with the RTC, Makati City.
Even if we assume for the sake of argument, however, that only one cause of action is involved in the two civil actions,
namely, the violation of the right of the spouses Beluso not to have their property foreclosed for an amount they do not
owe, the Rules of Court nevertheless allows the filing of the second action. Civil Case No. V-7227 was dismissed by
the RTC of Roxas City before the filing of Case No. 99-314 with the RTC of Makati City, since the venue of litigation
as provided for in the Credit Agreement is in Makati City.

Rule 16, Section 5 bars the refiling of an action previously dismissed only in the following instances:

SEC. 5. Effect of dismissal.Subject to the right of appeal, an order granting a motion to dismiss based on paragraphs
(f), (h) and (i) of section 1 hereof shall bar the refiling of the same action or claim. (n)

Improper venue as a ground for the dismissal of an action is found in paragraph (c) of Section 1, not in paragraphs (f),
(h) and (i):

SECTION 1. Grounds.Within the time for but before filing the answer to the complaint or pleading asserting a claim, a
motion to dismiss may be made on any of the following grounds:

(a) That the court has no jurisdiction over the person of the defending party;

(b) That the court has no jurisdiction over the subject matter of the claim;

(c) That venue is improperly laid;

(d) That the plaintiff has no legal capacity to sue;

(e) That there is another action pending between the same parties for the same cause;

(f) That the cause of action is barred by a prior judgment or by the statute of limitations;

(g) That the pleading asserting the claim states no cause of action;

(h) That the claim or demand set forth in the plaintiffs pleading has been paid, waived, abandoned, or otherwise
extinguished;

(i) That the claim on which the action is founded is unenforceable under the provisions of the statute of frauds; and

(j) That a condition precedent for filing the claim has not been complied with.[44] (Emphases supplied.)

When an action is dismissed on the motion of the other party, it is only when the ground for the dismissal of an action
is found in paragraphs (f), (h) and (i) that the action cannot be refiled. As regards all the other grounds, the complainant
is allowed to file same action, but should take care that, this time, it is filed with the proper court or after the
accomplishment of the erstwhile absent condition precedent, as the case may be.

UCPB, however, brings to the attention of this Court a Motion for Reconsideration filed by the spouses Beluso on 15
January 1999 with the RTC of Roxas City, which Motion had not yet been ruled upon when the spouses Beluso filed
Civil Case No. 99-314 with the RTC of Makati. Hence, there were allegedly two pending actions between the same
parties on the same issue at the time of the filing of Civil Case No. 99-314 on 9 February 1999 with the RTC of Makati.
This will still not change our findings. It is indeed the general rule that in cases where there are two pending actions
between the same parties on the same issue, it should be the later case that should be dismissed. However, this rule
is not absolute. According to this Court in Allied Banking Corporation v. Court of Appeals[45]:

In these cases, it is evident that the first action was filed in anticipation of the filing of the later action and the purpose
is to preempt the later suit or provide a basis for seeking the dismissal of the second action.

Even if this is not the purpose for the filing of the first action, it may nevertheless be dismissed if the later action is the
more appropriate vehicle for the ventilation of the issues between the parties. Thus, in Ramos v. Peralta, it was held:

[T]he rule on litis pendentia does not require that the later case should yield to the earlier case. What is required merely
is that there be another pending action, not a prior pending action. Considering the broader scope of inquiry involved
in Civil Case No. 4102 and the location of the property involved, no error was committed by the lower court in deferring
to the Bataan court's jurisdiction.

Given, therefore, the pendency of two actions, the following are the relevant considerations in determining which action
should be dismissed: (1) the date of filing, with preference generally given to the first action filed to be retained; (2)
whether the action sought to be dismissed was filed merely to preempt the later action or to anticipate its filing and lay
the basis for its dismissal; and (3) whether the action is the appropriate vehicle for litigating the issues between the
parties.

In the case at bar, Civil Case No. V-7227 before the RTC of Roxas City was an action for injunction against a foreclosure
sale that has already been held, while Civil Case No. 99-314 before the RTC of Makati City includes an action for the
annulment of said foreclosure, an action certainly more proper in view of the execution of the foreclosure sale. The
former case was improperly filed in Roxas City, while the latter was filed in Makati City, the proper venue of the action
as mandated by the Credit Agreement. It is evident, therefore, that Civil Case No. 99-314 is the more appropriate
vehicle for litigating the issues between the parties, as compared to Civil Case No. V-7227. Thus, we rule that the RTC
of Makati City was not in error in not dismissing Civil Case No. 99-314.

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

1. In addition to the sum of P2,350,000.00 as determined by the courts a quo, respondent spouses Samuel
and Odette Beluso are also liable for the following amounts:
a. Penalty of 12% per annum on the amount due[46] from the date of demand; and
b. Compounded legal interest of 12% per annum on the amount due[47] from date of demand;
2. The following amounts shall be deducted from the liability of the spouses Samuel and Odette Beluso:
a. Payments made by the spouses in the amount of P763,692.00. These payments shall be applied to the date of
actual payment of the following in the order that they are listed, to wit:
i. penalty charges due and demandable as of the time of payment;
ii. interest due and demandable as of the time of payment;
iii. principal amortization/payment in arrears as of the time of payment;
iv. outstanding balance.
b. Penalty under Republic Act No. 3765 in the amount of P26,000.00. This amount shall be deducted from the liability
of the spouses Samuel and Odette Beluso on 9 February 1999 to the following in the order that they are listed, to wit:
i. penalty charges due and demandable as of time of payment;
ii. interest due and demandable as of the time of payment;
iii. principal amortization/payment in arrears as of the time of payment;
iv. outstanding balance.
3. The foreclosure of mortgage is hereby declared VALID. Consequently, the amounts which the Regional
Trial Court and the Court of Appeals ordered respondents to pay, as modified in this Decision, shall be deducted from
the proceeds of the foreclosure sale.

SO ORDERED.

G.R. No. 195166, July 08, 2015

SPOUSES SALVADOR ABELLA AND ALMA ABELLA, Petitioners, v. SPOUSES ROMEO ABELLA AND ANNIE
ABELLA, Respondents.

DECISION

LEONEN, J.:

This resolves a Petition for Review on Certiorari under Rule 45 of the Rules of Court praying that judgment be rendered
reversing and setting aside the September 30, 2010 Decision1 and the January 4, 2011 Resolution2 of the Court of
Appeals Nineteenth Division in CA-G.R. CV No. 01388. The Petition also prays that respondents Spouses Romeo and
Annie Abella be ordered to pay petitioners Spouses Salvador and Alma Abella 2.5% monthly interest plus the remaining
balance of the amount loaned.

The assailed September 30, 2010 Decision of the Court of Appeals reversed and set aside the December 28, 2005
Decision3 of the Regional Trial Court, Branch 8, Kalibo, Aklan in Civil Case No. 6627. It directed petitioners to pay
respondents P148,500.00 (plus interest), which was the amount respondents supposedly overpaid. The assailed
January 4, 2011 Resolution of the Court of Appeals denied petitioners' Motion for Reconsideration.

The Regional Trial Court's December 28, 2005 Decision ordered respondents to pay petitioners the supposedly unpaid
loan balance of P300,000.00 plus the allegedly stipulated interest rate of 30% per annum, as well as litigation expenses
and attorney's fees.4redarclaw

On July 31, 2002, petitioners Spouses Salvador and Alma Abella filed a Complaint5 for sum of money and damages
with prayer for preliminary attachment against respondents Spouses Romeo and Annie Abella before the Regional
Trial Court, Branch 8, Kalibo, Aklan. The case was docketed as Civil Case No. 6627.6redarclaw

In their Complaint, petitioners alleged that respondents obtained a loan from them in the amount of P500,000.00. The
loan was evidenced by an acknowledgment receipt dated March 22, 1999 and was payable within one (1) year.
Petitioners added that respondents were able to pay a total of P200,000.00—P100,000.00 paid on two separate
occasions—leaving an unpaid balance of P300,000.00.7redarclaw

In their Answer8 (with counterclaim and motion to dismiss), respondents alleged that the amount involved did not
pertain to a loan they obtained from petitioners but was part of the capital for a joint venture involving the lending of
money.9redarclaw

Specifically, respondents claimed that they were approached by petitioners, who proposed that if respondents were to
"undertake the management of whatever money [petitioners] would give them, [petitioners] would get 2.5% a month
with a 2.5% service fee to [respondents]."10 The 2.5% that each party would be receiving represented their sharing of
the 5% interest that the joint venture was supposedly going to charge against its debtors. Respondents further alleged
that the one year averred by petitioners was not a deadline for payment but the term within which they were to return
the money placed by petitioners should the joint venture prove to be not lucrative. Moreover, they claimed that the
entire amount of P500,000.00 was disposed of in accordance with their agreed terms and conditions and that
petitioners terminated the joint venture, prompting them to collect from the joint venture's borrowers. They were,
however, able to collect only to the extent of P200,000.00; hence, the P300,000.00 balance remained
unpaid.11redarclaw

In the Decision12 dated December 28, 2005, the Regional Trial Court ruled in favor of petitioners. It noted that the
terms of the acknowledgment receipt executed by respondents clearly showed that: (a) respondents were indebted to
the extent of P500,000.00; (b) this indebtedness was to be paid within one (1) year; and (c) the indebtedness was
subject to interest. Thus, the trial court concluded that respondents obtained a simple loan, although they later invested
its proceeds in a lending enterprise.13 The Regional Trial Court adjudged respondents solidarity liable to petitioners.
The dispositive portion of its Decision reads:LawlibraryofCRAlaw
ChanRoblesVirtualawlibrary

WHEREFORE, premises considered, judgment is hereby rendered:LawlibraryofCRAlaw

Ordering the defendants jointly and severally to pay the plaintiffs the sum of P300,000.00 with interest at the rate of
30% per annum from the time the complaint was filed on July 31, 2002 until fully paid;chanRoblesvirtualLawlibrary

Ordering the defendants to pay the plaintiffs the sum of P2,227.50 as reimbursement for litigation expenses, and
another sum of P5,000.00 as attorney's fees.
For lack of legal basis, plaintiffs' claim for moral and exemplary damages has to be denied, and for lack of merit the
counter-claim is ordered dismissed.14
In the Order dated March 13, 2006,15 the Regional Trial Court denied respondents' Motion for Reconsideration.

On respondents' appeal, the Court of Appeals ruled that while respondents had indeed entered into a simple loan with
petitioners, respondents were no longer liable to pay the outstanding amount of P300,000.00.16redarclaw

The Court of Appeals reasoned that the loan could not have earned interest, whether as contractually stipulated interest
or as interest in the concept of actual or compensatory damages. As to the loan's not having earned stipulated interest,
the Court of Appeals anchored its ruling on Article 1956 of the Civil Code, which requires interest to be stipulated in
writing for it to be due.17 The Court of Appeals noted that while the acknowledgement receipt showed that interest was
to be charged, no particular interest rate was specified.18 Thus, at the time respondents were making interest payments
of 2.5% per month, these interest payments were invalid for not being properly stipulated by the parties. As to the loan's
not having earned interest in the concept of actual or compensatory damages, the Court of Appeals, citing Eusebio-
Calderon v. People,19 noted that interest in the concept of actual or compensatory damages accrues only from the
time that demand (whether judicial or extrajudicial) is made. It reasoned that since respondents received petitioners'
demand letter only on July 12, 2002, any interest in the concept of actual or compensatory damages due should be
reckoned only from then. Thus, the payments for the 2.5% monthly interest made after the perfection of the loan in
1999 but before the demand was made in 2002 were invalid.20redarclaw

Since petitioners' charging of interest was invalid, the Court of Appeals reasoned that all payments respondents made
by way of interest should be deemed payments for the principal amount of P500,000.00.21redarclaw

The Court of Appeals further noted that respondents made a total payment of P648,500.00, which, as against the
principal amount of P500,000.00, entailed an overpayment of P148,500.00. Applying the principle of solutio indebiti,
the Court of Appeals concluded that petitioners were liable to reimburse respondents for the overpaid amount of
P148,500.00.22 The dispositive portion of the assailed Court of Appeals Decision reads:LawlibraryofCRAlaw
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WHEREFORE, the Decision of the Regional Trial Court is hereby REVERSED and SET ASIDE, and a new one issued,
finding that the Spouses Salvador and Alma Abella are DIRECTED to jointly and severally pay Spouses Romeo and
Annie Abella the amount of P148,500.00, with interest of 6% interest (sic) per annum to be computed upon receipt of
this decision, until full satisfaction thereof. Upon finality of this judgment, an interest as the rate of 12% per annum,
instead of 6%, shall be imposed on the amount due, until full payment thereof.23
In the Resolution24 dated January 4, 2011, the Court of Appeals denied petitioners' Motion for Reconsideration.

Aggrieved, petitioners filed the present appeal25 where they claim that the Court of Appeals erred in completely striking
off interest despite the parties' written agreement stipulating it, as well as in ordering them to reimburse and pay interest
to respondents.

In support of their contentions, petitioners cite Article 1371 of the Civil Code,26 which calls for the consideration of the
contracting parties' contemporaneous and subsequent acts in determining their true intention. Petitioners insist that
respondents' consistent payment of interest in the year following the perfection of the loan showed that interest at 2.5%
per month was properly agreed upon despite its not having been expressly stated in the acknowledgment receipt. They
add that during the proceedings before the Regional Trial Court, respondents admitted that interest was due on the
loan.27redarclaw

In their Comment,28 respondents reiterate the Court of Appeals' findings that no interest rate was ever stipulated by
the parties and that interest was not due and demandable at the time they were making interest payments.29redarclaw

In their Reply,30 petitioners argue that even though no interest rate was stipulated in the acknowledgment receipt, the
case fell under the exception to the Parol Evidence Rule. They also argue that there exists convincing and sufficiently
credible evidence to supplement the imperfection of the acknowledgment receipt.31redarclaw

For resolution are the following issues:LawlibraryofCRAlaw

First, whether interest accrued on respondents' loan from petitioners, If so, at what rate?

Second, whether petitioners are liable to reimburse respondents for the Litter's supposed excess payments and for
interest.

As noted by the Court of Appeals and the Regional Trial Court, respondents entered into a simple loan or mutuum,
rather than a joint venture, with petitioners.

Respondents' claims, as articulated in their testimonies before the trial court, cannot prevail over the clear terms of the
document attesting to the relation of the parties. "If the terms of a contract are clear and leave no doubt upon the
intention of the contracting parties, the literal meaning of its stipulations shall control."32redarclaw

Articles 1933 and 1953 of the Civil Code provide the guideposts that determine if a contractual relation is one of simple
loan or mutuum:LawlibraryofCRAlaw
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Art. 1933. By the contract of loan, one of the parties delivers to another, either something not consumable so that the
latter may use the same for a certain time and return it, in which case the contract is called a commodatum; or money
or other consumable thing, upon the condition that the same amount of the same kind and quality shall be paid, in
which case the contract is simply called a loan or mutuum.

Commodatum is essentially gratuitous.

Simple loan may be gratuitous or with a stipulation to pay interest.

In commodatum the bailor retains the ownership of the thing loaned, while in simple loan, ownership passes to the
borrower.
....

Art. 1953. A person who receives a loan of money or any other fungible thing acquires the ownership thereof, and is
bound to pay to the creditor an equal amount of the same kind and quality. (Emphasis supplied)
On March 22, 1999, respondents executed an acknowledgment receipt to petitioners, which
states:LawlibraryofCRAlaw
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Batan, Aklan
March 22, 1999

This is to acknowledge receipt of the Amount of Five Hundred Thousand (P500,000.00) Pesos from Mrs. Alma R.
Abella, payable within one (1) year from date hereof with interest.

Annie C. Abella (sgd.) Romeo M. Abella (sgd.)33

(Emphasis supplied)
The text of the acknowledgment receipt is uncomplicated and straightforward. It attests to: first, respondents' receipt
of the sum of P500,000.00 from petitioner Alma Abella; second, respondents' duty to pay tack this amount within one
(1) year from March 22, 1999; and third, respondents' duty to pay interest. Consistent with what typifies a simple loan,
petitioners delivered to respondents with the corresponding condition lat respondents shall pay the same amount to
petitioners within one (1) year.

II

Although we have settled the nature of the contractual relation between petitioners and respondents, controversy
persists over respondents' duty to pay conventional interest, i.e., interest as the cost of borrowing money.34redarclaw

Article 1956 of the Civil Code spells out the basic rule that "[n]o interest shall be due unless it has been expressly
stipulated in writing."

On the matter of interest, the text of the acknowledgment receipt is simple, plain, and unequivocal. It attests to the
contracting parties' intent to subject to interest the loan extended by petitioners to respondents. The controversy,
however, stems from the acknowledgment receipt's failure to state the exact rate of interest.

Jurisprudence is clear about the applicable interest rate if a written instrument fails to specify a rate. In Spouses Toring
v. Spouses Olan,35 this court clarified the effect of Article 1956 of the Civil Code and noted that the legal rate of interest
(then at 12%) is to apply: "In a loan or forbearance of money, according to the Civil Code, the interest due should be
that stipulated in writing, and in the absence thereof, the rate shall be 12% per annum."36redarclaw

Spouses Toring cites and restates (practically verbatim) what this court settled in Security Bank and Trust Company v.
Regional Trial Court of Makati, Branch 61: "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."37redarclaw

Security Bank also refers to Eastern Shipping Lines, Inc. v. Court of Appeals, which, in turn, stated:38
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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.39 (Emphasis supplied)
The rule is not only definite; it is cast in mandatory language. From Eastern Shipping to Security Bank to Spouses
Toring, jurisprudence has repeatedly used the word "shall," a term that has long been settled to denote something
imperative or operating to impose a duty.40 Thus, the rule leaves no room for alternatives or otherwise does not allow
for discretion. It requires the application of the legal rate of interest.

Our intervening Decision in Nacar v. Gallery Frames41 recognized that the legal rate of interest has been reduced to
6% per annum:LawlibraryofCRAlaw
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Recently, however, the Bangko Sentral ng Pilipinas Monetary Board (BSP-MB), in its Resolution No. 796 dated May
16, 2013, approved the amendment of Section 2 of Circular No. 905, Series of 1982 and, accordingly, issued Circular
No. 799, Series of 2013, effective July 1, 2013, the pertinent portion of which reads:LawlibraryofCRAlaw
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The Monetary Board, in its Resolution No. 796 dated 16 May 2013, approved the following revisions governing the rate
of interest in the absence of stipulation in loan contracts, thereby amending Section 2 of Circular No. 905, Series of
1982:LawlibraryofCRAlaw
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Section 1. The rate of interest for the loan or forbearance of any money, goods or credits and the rate allowed in
judgments, in the absence of an express contract as to such rate of interest, shall be six percent (6%) per annum.

Section 2. In view of the above, Subsection X305.1 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 are hereby amended
accordingly.
This Circular shall take effect on 1 July 2013.
Thus, from the foregoing, in the absence of an express stipulation as to the rate of interest that would govern the
parties, the rate of legal interest for loans or forbearance of any money, goods or credits and the rate allowed in
judgments shall no longer be twelve percent (12%) per annum — as reflected in the case of Eastern Shipping Lines
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.42 (Emphasis supplied, citations omitted)
Nevertheless, both Bangko Sentral ng Pilipinas Circular No. 799, Series of 2013 and Nacar retain the definite and
mandatory framing of the rule articulated in Eastern Shipping, Security Bank, and Spouses Toring. Nacar even restates
Eastern Shipping:LawlibraryofCRAlaw
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To recapitulate and for future guidance, the guidelines laid down in the case of Eastern Shipping Lines are accordingly
modified to embody BSP-MB Circular No. 799, as follows:LawlibraryofCRAlaw

....
When the obligation is breached, and it consists in the payment of a sum of money, i.e., a Joan 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.43 (Emphasis supplied, citations omitted)
Thus, it remains that where interest was stipulated in writing by the debtor and creditor in a simple loan or mutuum, but
no exact interest rate was mentioned, the legal rate of interest shall apply. At present, this is 6% per annum, subject to
Nacar's qualification on prospective application.

Applying this, the loan obtained by respondents from petitioners is deemed subjected to conventional interest at the
rate of 12% per annum, the legal rate of interest at the time the parties executed their agreement. Moreover, should
conventional interest still be due as of July 1, 2013, the rate of 12% per annum shall persist as the rate of conventional
interest.
This is so because interest in this respect is used as a surrogate for the parties' intent, as expressed as of the time of
the execution of their contract. In this sense, the legal rate of interest is an affirmation of the contracting parties' intent;
that is, by their contract's silence on a specific rate, the then prevailing legal rate of interest shall be the cost of borrowing
money. This rate, which by their contract the parties have settled on, is deemed to persist regardless of shifts in the
legal rate of interest. Stated otherwise, the legal rate of interest, when applied as conventional interest, shall always
be the legal rate at the time the agreement was executed and shall not be susceptible to shifts in rate.

Petitioners, however, insist on conventional interest at the rate of 2.5% per month or 30% per annum. They argue that
the acknowledgment receipt fails to show the complete and accurate intention of the contracting parties. They rely on
Article 1371 of the Civil Code, which provides that the contemporaneous and subsequent acts of the contracting parties
shall be considered should there be a need to ascertain their intent.44 In addition, they claim that this case falls under
the exceptions to the Parol Evidence Rule, as spelled out in Rule 130, Section 9 of the Revised Rules on
Evidence.45redarclaw

It is a basic precept in legal interpretation and construction that a rule or provision that treats a subject with specificity
prevails over a rule or provision that treats a subject in general terms.46redarclaw

The rule spelled out in Security Bank and Spouses Toring is anchored on Article 1956 of the Civil Code and specifically
governs simple loans or mutuum. Mutuum is a type of nominate contract that is specifically recognized by the Civil
Code and for which the Civil Code provides a specific set of governing rules: Articles 1953 to 1961. In contrast, Article
11371 is among the Civil Code provisions generally dealing with contracts. As this case particularly involves a simple
loan, the specific rule spelled out in Security Bank and Spouses Toring finds preferential application as against Article
1371.

Contrary to petitioners' assertions, there is no room for entertaining extraneous (or parol) evidence. In Spouses
Bonifacio and Lucia Paras v. Kimwa Construction and Development Corporation,47 we spelled out the requisites for
the admission of parol evidence:LawlibraryofCRAlaw
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In sum, two (2) things must be established for parol evidence to be admitted: first, that the existence of any of the four
(4) exceptions has been put in issue in a party's pleading or has not been objected to by the adverse party; and second,
that the parol evidence sought to be presented serves to form the basis of the conclusion proposed by the presenting
party.48
The issue of admitting parol evidence is a matter that is proper to the trial, not the appellate, stage of a case. Petitioners
raised the issue of applying the exceptions to the Parol Evidence Rule only in the Reply they filed before this court.
This is the last pleading that either of the parties has filed in the entire string of proceedings culminating in this Decision.
It is, therefore, too late for petitioners to harp on this rule. In any case, what is at issue is not admission of evidence
per se, but the appreciation given to the evidence adduced by the parties. In the Petition they filed before this court,
petitioners themselves acknowledged that checks supposedly attesting to payment of monthly interest at the rate of
2.5% were admitted by the trial court (and marked as Exhibits "2," "3," "4," "5," "6," "7," and "8").49 What petitioners
have an issue with is not the admission of these pieces of evidence but how these have not been appreciated in a
manner consistent with the conclusions they advance.

Even if it can be shown that the parties have agreed to monthly interest at the rate of 2.5%, this is unconscionable. As
emphasized in Castro v. Tan,50 the willingness of the parties to enter into a relation involving an unconscionable
interest rate is inconsequential to the validity of the stipulated rate:LawlibraryofCRAlaw
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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.51
The imposition of an unconscionable interest rate is void ab initio for being "contrary to morals, and the
law."52redarclaw

In determining whether the rate of interest is unconscionable, the mechanical application of pre-established floors
would be wanting. The lowest rates that have previously been considered unconscionable need not be an impenetrable
minimum. What is more crucial is a consideration of the parties' contexts. Moreover, interest rates must be appreciated
in light of the fundamental nature of interest as compensation to the creditor for money lent to another, which he or she
could otherwise have used for his or her own purposes at the time it was lent. It is not the default vehicle for predatory
gain. As such, interest need only be reasonable. It ought not be a supine mechanism for the creditor's unjust enrichment
at the expense of another.

Petitioners here insist upon the imposition of 2.5% monthly or 30% annual interest. Compounded at this rate,
respondents' obligation would have more than doubled—increased to 219.7% of the principal—by the end of the third
year after which the loan was contracted if the entire principal remained unpaid. By the end of the ninth year, it would
have multiplied more than tenfold (or increased to 1,060.45%). In 2015, this would have multiplied by more than 66
times (or increased to 6,654.17%). Thus, from an initial loan of only P500,000.00, respondents would be obliged to pay
more than P33 million. This is grossly unfair, especially since up to the fourth year from when the loan was obtained,
respondents had been assiduously delivering payment. This reduces their best efforts to satisfy their obligation into a
protracted servicing of a rapacious loan.

The legal rate of interest is the presumptive reasonable compensation for borrowed money. While parties are free to
deviate from this, any deviation must be reasonable and fair. Any deviation that is far-removed is suspect. Thus, in
cases where stipulated interest is more than twice the prevailing legal rate of interest, it is for the creditor to prove that
this rate is required by prevailing market conditions. Here, petitioners have articulated no such justification.

In sum, Article 1956 of the Civil Code, read in light of established jurisprudence, prevents the application of any interest
rate other than that specifically provided for by the parties in their loan document or, in lieu of it, the legal rate. Here,
as the contracting parties failed to make a specific stipulation, the legal rate must apply. Moreover, the rate that
petitioners adverted to is unconscionable. The conventional interest due on the principal amount loaned by respondents
from petitioners is held to be 12% per annum.

III

Apart from respondents' liability for conventional interest at the rate of 12% per annum, outstanding conventional
interest—if any is due from respondents—shall itself earn legal interest from the time judicial demand was made by
petitioners, i.e., on July 31, 2002, when they filed their Complaint. This is consistent with Article 2212 of the Civil Code,
which provides:LawlibraryofCRAlaw
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Art. 2212. Interest due shall earn legal interest from the time it is judicially demanded, although the obligation may be
silent upon this point.
So, too, Nacar states that "the interest due shall itself earn legal interest from the time it is judicially
demanded."53redarclaw

Consistent with Nacar, as well as with our ruling in Rivera v. Spouses Chua,54 the interest due on conventional interest
shall be at the rate of 12% per annum from July 31, 2002 to June 30, 2013. Thereafter, or starting July 1, 2013, this
shall be at the rate of 6% per annum.

IV
Proceeding from these premises, we find that respondents made an overpayment in the amount of P3,379.17.

As acknowledged by petitioner Salvador Abella, respondents paid a total of P200,000.00, which was charged against
the principal amount of P500,000.00. The first payment of P100,000.00 was made on June 30, 2001,55 while the
second payment of P100,000.00 was made on December 30, 2001.56redarclaw

The Court of Appeals' September 30, 2010 Decision stated that respondents paid P6,000.00 in March
1999.57redarclaw

The Pre-Trial Order dated December 2, 2002,58 stated that the parties admitted that "from the time the principal sum
of P500,000.00 was borrowed from [petitioners], [respondents] ha[d] been religiously paying"59 what was supposedly
interest "at the rate of 2.5% per month."60redarclaw

From March 22, 1999 (after the loan was perfected) to June 22, 2001 (before respondents' payment of P100,000.00
on June 30, 2001, which was deducted from the principal amount of P500,000.00), the 2.5% monthly "interest" was
pegged to the principal amount of P500,000.00. These monthly interests, thus, amounted to P12,500.00 per month.
Considering that the period from March 1999 to June 2001 spanned twenty-seven (27) months, respondents paid a
total of P337,500.00.61redarclaw

From June 22, 2001 up to December 22, 2001 (before respondents' payment of another P100,000.00 on December
30, 2001, which was deducted from the remaining principal amount of P400,000.00), the 2.5% monthly "interest" was
pegged to the remaining principal amount of P400,000.00. These monthly interests, thus, amounted to P10,000.00 per
month. Considering that this period spanned six (6) months, respondents paid a total of P60,000.00.62redarclaw

From after December 22, 2001 up to June 2002 (when petitioners filed their Complaint), the 2.5% monthly "interest"
was pegged to the remaining principal amount of P300,000.00. These monthly interests, thus, amounted to P7,500.00
per month. Considering that this period spanned six (6) months, respondents paid a total of P45,000.00.63redarclaw

Applying these facts and the properly applicable interest rate (for conventional interest, 12% per annum; for interest on
conventional interest, 12% per annum from July 31, 2002 up to June 30, 2013 and 6% per annum henceforth), the
following conclusions may be drawn:LawlibraryofCRAlaw

By the end of the first year following the perfection of the loan, or as of March 21, 2000, P560,000.00 was due from
respondents. This consisted cf the principal of P500,000.00 and conventional interest of P60,000.00.

Within this first year, respondents made twelve (12) monthly payments totalling P150,000.00 (P12,500.00 each from
April 1999 to March 2000). This was in addition to their initial payment of P6,000.00 in March 999.

Application of payments must be in accordance with Article 1253 of the Civil Code, which reads:LawlibraryofCRAlaw
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Art. 1253. If the debt produces interest, payment of the principal shall not be deemed to have been made until the
interests have been covered.
Thus, the payments respondents made must first be reckoned as interest payments. Thereafter, any excess payments
shall be charged against the principal. As respondents paid a total of P156,000.00 within the first year, the conventional
interest of P60,000.00 must be deemed fully paid and the remaining amount that respondents paid (i.e., P96,000.00)
is to be charged against the principal. This yields a balance of P404,000.00.

By the end of the second year following the perfection of the loan, or as of March 21, 2001, P452,480.00 was due from
respondents. This consisted of the outstanding principal of P404,000.00 and conventional interest of P48,480.00.

Within this second year, respondents completed another round of twelve (12) monthly payments totaling P150,000.00.
Consistent with Article 1253 of the Civil Code, as respondents paid a total of P156,000.00 within the second year, the
conventional interest of P48,480.00 must be deemed fully paid and the remaining amount that respondents paid (i.e.,
P101,520.00) is to be charged against the principal. This yields a balance of P302,480.00.

By the end of the third year following the perfection of the loan, or as of March 21, 2002, P338,777.60 was due from
respondents. This consists of he outstanding principal of P302,480.00 and conventional interest of P36,297.60.

Within this third year, respondents paid a total of P320,000.00, as follows:LawlibraryofCRAlaw

(a)
Between March 22, 2001 and June 30, 2001, respondents completed three (3) monthly payments of P12,500.00 each,
totaling P37,500.00.
(b)
On June 30, 2001, respondents paid P100,000.00, which was charged as principal payment.
(c)
Between June 30, 2001 and December 30, 2001, respondents delivered monthly payments of P10,000.00 each. At
this point, the monthly payments no longer amounted to P12,500.00 each because the supposed monthly interest
payments were pegged to the supposedly remaining principal of P400,000.00. Thus, during this period, they paid a
total of six (6) monthly payments totaling P60,000.00.
(d)
On December 30, 2001, respondents paid P100,000.00, which, like the June 30, 2001 payment, was charged against
the principal.
(e)
From the end of December 2002 to the end of February 2002, respondents delivered monthly payments of P7,500.00
each. At this point, the supposed monthly interest payments were now pegged to the supposedly remaining principal
of P300,000.00. Thus, during this period, they delivered three (3) monthly payments totaling P22,500.00.

Consistent with Article 1253 of the Civil Code, as respondents paid a total of P320,000.00 within the third year, the
conventional interest of P36,927.50 must be deemed fully paid and the remaining amount that respondents paid (i.e.,
P283,702.40) is to be charged against the principal. This yields a balance of P18,777.60.

By the end of the fourth year following the perfection of the loan, or as of March 21, 2003, P21,203.51 would have been
due from respondents. This consists of: (a) the outstanding principal of P18,777.60, (b) conventional interest of
P2,253.31, and (c) interest due on conventional interest starting from July 31, 2002, the date of judicial demand, in the
amount of P172.60. The last (i.e., interest on interest) must be pro-rated. There were only 233 days from July 31, 2002
(the date of judicial demand) to March 21, 2003 (the end of the fourth year); this left 63.83% of the fourth year, within
which interest on interest might have accrued. Thus, the full annual interest on interest of 12% per annum could not
have been completed, and only the proportional amount of 7.66% per annum may be properly imposed for the
remainder of the fourth year.

From the end of March 2002 to June 2002, respondents delivered three (3) more monthly payments of P7,500.00 each.
Thus, during this period, they delivered three (3) monthly payments totalling P22,500.00.

At this rate, however, payment would have been completed by respondents even before the end of the fourth year.
Thus, for precision, it is more appropriate to reckon the amounts due as against payments made on monthly, rather
than an annual, basis.

By April 21, 2002, P18,965.38 (i.e., remaining principal of P18,777.60 plus pro-rated monthly conventional interest at
1%, amounting to P187.78) would have been due from respondents. Deducting the monthly payment of P7,500.00 for
the preceding month in a manner consistent with Article 1253 of the Civil Code would yield a balance of P11,465.38.
By May 21, 2002, P11,580.03 (i.e., remaining principal of P11,465.38 plus pro-rated monthly conventional interest at
1%, amounting to P114.65) would have been due from respondents. Deducting the monthly payment of P7,500.00 for
the preceding month in a manner consistent with Article 1253 of the Civil Code would yield a balance of P4,080.03.

By June 21, 2002, P4,120.83 (i.e., remaining principal of P4,080.03 plus pro-rated monthly conventional interest at 1%,
amounting to P40.80) would have been due from respondents. Deducting the monthly payment of P7,500.00 for the
preceding month in a manner consistent with Article 1253 of the Civil Code would yield a negative balance of P3,379.17.

Thus, by June 21, 2002, respondents had not only fully paid the principal and all the conventional interest that had
accrued on their loan. By this date, they also overpaid P3,379.17. Moreover, while hypothetically, interest on
conventional interest would not have run from July 31, 2002, no such interest accrued since there was no longer any
conventional interest due from respondents by then.

As respondents made an overpayment, the principle of solutio indebiti as provided by Article 2154 of the Civil Code64
applies. Article 2154 reads:LawlibraryofCRAlaw
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Article 2154. 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 Moreno-Lentfer v. Wolff,65 this court explained the application of solutio indebiti:LawlibraryofCRAlaw
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The quasi-contract of solutio indebiti harks back to the ancient principle that no one shall enrich himself unjustly at the
expense of another. It 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.66
As respondents had already fully paid the principal and all conventional interest that had accrued, they were no longer
obliged to make further payments. Any further payment they made was only because of a mistaken impression that
they were still due. Accordingly, petitioners are now bound by a quasi-contractual obligation to return any and all excess
payments delivered by respondents.

Nacar provides that "[w]hen 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."67 This
applies to obligations arising from quasi-contracts such as solutio indebiti.

Further, Article 2159 of the Civil Code provides:LawlibraryofCRAlaw

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Art. 2159. Whoever in bad faith accepts an undue payment, shall pay legal interest if a sum of money is involved, or
shall be liable for fruits received or which should have been received if the thing produces fruits.

He shall furthermore be answerable for any loss or impairment of the thing from any cause, and for damages to the
person who delivered the thing, until it is recovered.
Consistent however, with our finding that the excess payment made by respondents were borne out of a mere mistake
that it was due, we find it in the better interest of equity to no longer hold petitioners liable for interest arising from their
quasi-contractual obligation.

Nevertheless, Nacar also provides:LawlibraryofCRAlaw

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.68
Thus, interest at the rate of 6% per annum may be properly imposed on the total judgment award. This shall be
reckoned from the finality of this Decision until its full satisfaction.

WHEREFORE, the assailed September 30, 2010 Decision and the January 4, 2011 Resolution of the Court of Appeals
Nineteenth Division in CA-G.R. CV No. 01388 are SET ASIDE. Petitioners Spouses Salvador and Alma Abella are
DIRECTED to jointly and severally reimburse respondents Spouses Romeo and Annie Abella the amount of P3,379.17,
which respondents have overpaid.

A legal interest of 6% per annum shall likewise be imposed on the total judgment award from the finality of this Decision
until its full satisfaction.

SO ORDERED.