Credit Usury Part 2 G.R. No. 160533 January 12, 2005 FIRST FIL-SIN LENDING CORPORATION, petitioner, vs.

. GLORIA D. PADILLO, respondent. DECISION

Page 1 of 38 As to the penalty charges, petitioner argues that the 12% per annum penalty imposed by the CA in lieu of the 1% per day as agreed upon by the parties violates their freedom to stipulate terms and conditions as they may deem proper. Petitioner finally contends that the CA erred in deleting the trial courts award of attorneys fees arguing that the same is anchored on sound and legal ground. Respondent, on the other hand, avers that the interest on the loans is per annum as expressly stated in the promissory notes and disclosure statements. The provision as to annual interest rate is clear and requires no room for interpretation. Respondent asserts that any ambiguity in the promissory notes and disclosure statements should not favor petitioner since the loan documents were prepared by the latter.1awphi1.nt We agree with respondent. Perusal of the promissory notes and the disclosure statements pertinent to the July 22, 1997 and September 7, 1997 loan obligations of respondent clearly and unambiguously provide for interest rates of 4.5% per annum and 5% per annum, respectively. Nowhere was it stated that the interest rates shall be applied on a monthly basis. The lower court and the CA mistook the Loan Transactions Summary for the Disclosure Statement. The former was prepared exclusively by petitioner and merely summarizes the payments made by respondent and the income earned by petitioner. There was no mention of any interest rates and having been prepared exclusively by petitioner, the same is self serving. On the contrary, the Disclosure Statements were signed by both parties and categorically stated that interest rates were to be imposed annually, not monthly. As such, since the terms and conditions contained in the promissory notes and disclosure statements are clear and unambiguous, the same must be given full force and effect. The expressed intention of the parties as laid down on the loan documents controls.1a\^/phi1.net As regards the penalty charges, we agree with the CA in ruling that the 1% penalty per day of delay is highly unconscionable. Applying Article 1229 of the Civil Code, courts shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with, or if it is iniquitous or unconscionable. WHEREFORE, in view of the foregoing, the October 16, 2003 decision of the Court of Appeals in CA-G.R. CV No. 75183 is AFFIRMED with the MODIFICATION that the interest rates on the July 22, 1997 and September 7, 1997 loan obligations of respondent Gloria D. Padillo from petitioner First Fil-Sin Lending Corporation be imposed and computed on a per annum basis, and upon their respective maturities, the interest rate of 12% per annum shall be imposed until full payment. In addition, the penalty at the rate of 12% per annum shall be imposed on the outstanding obligations from date of default until full payment. SO ORDERED. Davide, Jr., C.J., (Chairman), Quisumbing, Carpio, and Azcuna, JJ., concur. 14 Insular Life Assurance Company, Ltd., et al. v. Robert Young, et al., G.R. Nos. 140964 & 142267 , 16 January 2002, 373 SCRA 626, 642. Before us is a petition for review under Rule 45 of the Rules of Court, seeking a reversal of the Court of Appeals decision in CA-G.R. CV No. 751831 dated October 16, 2003, which reversed and set aside the decision of the Regional Trial Court of Manila, Branch 21 in Civil Case No. 0096235.

YNARES-SANTIAGO, J.: On January 27, 2000, respondent filed an action for sum of money against herein petitioner before the Regional Trial Court of Manila. Alleging that she only agreed to pay interest at the rates of 4.5% and 5% per annum, respectively, for the two loans, and not 4.5% and 5% per month, respondent sought to recover the amounts she allegedly paid in excess of her actual obligations. On appeal, the Court of Appeals (CA) reversed and set aside the decision of the court a quo, the dispositive portion of which reads: IN VIEW OF ALL THE FOREGOING, the appealed decision is REVERSED and SET ASIDE and a new one entered: (1) ordering First Fil-Sin Lending Corporation to return the amount of P114,000.00 to Gloria D. Padillo, and (2) deleting the award of attorneys fees in favor of appellee. Other claims and counterclaims are dismissed for lack of sufficient causes. No pronouncement as to cost. The appellate court ruled that, based on the disclosure statements executed by respondent, the interest rates should be imposed on a monthly basis but only for the 3-month term of the loan.l^vvphi1.net Thereafter, the legal interest rate will apply. The CA also found the penalty charges pegged at 1% per day of delay highly unconscionable as it would translate to 365% per annum. Thus, it was reduced to 1% per month or 12% per annum. Hence, the instant petition on the following assignment of errors: I THE COURT OF APPEALS ERRED IN FINDING THAT THE APPLICABLE INTEREST SHOULD BE THE LEGAL INTEREST OF TWELVE PER CENT (12%) PER ANNUM DESPITE THE CLEAR AGREEMENT OF THE PARTIES ON ANOTHER APPLICABLE RATE. II THE COURT OF APPEALS ERRED IN IMPOSING A PENALTY COMPUTED AT THE RATE OF TWELVE PER CENT (12%) PER ANNUM DESPITE THE CLEAR AGREEMENT OF THE PARTIES ON ANOTHER APPLICABLE RATE. III Petitioner maintains that the trial court and the CA are correct in ruling that the interest rates are to be imposed on a monthly and not on a per annum basis. However, it insists that the 4.5% and 5% monthly interest shall be imposed until the outstanding obligations have been fully paid.

Credit Usury Part 2 On July 22, 1997, respondent Gloria D. Padillo obtained a P500,000.00 loan from petitioner First Fil-Sin Lending Corp. On September 7, 1997, respondent obtained another P500,000.00 loan from petitioner. In both instances, respondent executed a promissory note and disclosure statement.2 For the first loan, respondent made 13 monthly interest payments of P22,500.00 each before she settled the P500,000.00 outstanding principal obligation on February 2, 1999. As regards the second loan, respondent made 11 monthly interest payments of P25,000.00 each before paying the principal loan of P500,000.00 on February 2, 1999.3 In sum, respondent paid a total of P792,500.00 for the first loan and P775,000.00 for the second loan. On October 12, 2001,4 the trial court dismissed respondents complaint, and on the counterclaim, ordered her to pay petitioner P311,125.00 with legal interest from February 3, 1999 until fully paid plus 10% of the amount due as attorneys fees and costs of the suit.5 The trial court ruled that by issuing checks representing interest payments at 4.5% and 5% monthly interest rates, respondent is now estopped from questioning the provisions of the promissory notes. SO ORDERED.6 THE COURT OF APPEALS ERRED IN DELETING THE ATTORNEYS FEES AWARDED BY THE REGIONAL TRIAL COURT.7 Thus, when the terms of the agreement are clear and explicit that they do not justify an attempt to read into it any alleged intention of the parties, the terms are to be understood literally just as they appear on the face of the contract.8 It is only in instances when the language of a contract is ambiguous or obscure that courts ought to apply certain established rules of construction in order to ascertain the supposed intent of the parties.l^vvphi1.net However, these rules will not be used to make a new contract for the parties or to rewrite the old one, even if the contract is inequitable or harsh. They are applied by the court merely to resolve doubts and ambiguities within the framework of the agreement.9 Also, reformation cannot be resorted to as the documents have not been assailed on the ground of mutual mistake. When a party sues on a written contract and no attempt is made to show any vice therein, he cannot be allowed to lay claim for more than what its clear stipulations accord. His omission cannot be arbitrarily supplied by the courts by what their own notions of justice or equity may dictate.10 Notably, petitioner even admitted that it was solely responsible for the preparation of the loan documents, and that it failed to correct the pro forma note p.a. to per month.11 Since the mistake is exclusively attributed to petitioner, the same should be charged against it. This unilateral mistake cannot be taken against respondent who merely affixed her signature on the pro forma loan agreements. As between two parties to a written agreement, the party who gave rise to the mistake or error in the provisions of the same is estopped from asserting a contrary intention to that contained therein. The checks issued by respondent do not clearly and convincingly prove that the real intent of the parties is to apply the interest rates on a monthly basis. Absent any proof of vice of consent, the promissory notes and disclosure statements remain the best evidence to ascertain the real intent of the parties.1a\^/phi1.net The same promissory note provides that x x x any and all remaining amount due on the principal upon maturity hereof shall earn interest at the rate of _____ from date of maturity until fully paid. The CA thus properly imposed the legal interest of 12% per annum from the time the loans matured until the same has been fully paid on February 2, 1999. As decreed in Eastern Shipping Lines, Inc. v. Court of Appeals,12 in the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default. G.R. No. L-60907 June 28, 1989 OVERSEAS BANK OF MANILA, petitioner, vs.

Page 2 of 38 With regard to the attorneys fees, the CA correctly deleted the award in favor of petitioner since the trial courts decision does not reveal any explicit basis for such an award. Attorneys fees are not automatically awarded to every winning litigant.l^vvphi1.net It must be shown that any of the instances enumerated under Art. 220813 of the Civil Code exists to justify the award thereof.14 Not one of such instances exists here. Besides, by filing the complaint, respondent was merely asserting her rights which, after due deliberations, proved to be lawful, proper and valid.

G.R. No. L-60705 June 28, 1989 INTEGRATED REALTY CORPORATION and RAUL L. SANTOS, petitioners, vs. PHILIPPINE NATIONAL BANK, OVERSEAS BANK OF MANILA and THE HON. COURT OF APPEALS, respondents.

COURT OF APPEALS, INTEGRATED REALTY CORPORATION, and RAUL L. SANTOS, respondents. REGALADO, J.: In these petitions for review on certiorari, Integrated Realty Corporation and Raul Santos (G.R. No. 60705), and Overseas Bank of Manila (G.R. No. 60907) appeal from the decision of the Court of Appeals, 1 the decretal portion of which states: WHEREFORE, with the modification that appellee Overseas Bank of Manila is ordered to pay to the appellant Raul Santos the sum of P 700,000.00 due under the time deposit certificates Nos. 2308 and 2367 with 6 1/2 (sic) interest per annum from date of issue until fully paid, the appealed decision is affirmed in all other respects. In G.R. No. 60705, petitioners Integrated Realty Corporation (hereafter, IRC and Raul L. Santos (hereafter, Santos) seek the dismissal of the complaint filed by the Philippine National Bank (hereafter, PNB), or in the event that they be held liable thereunder, to revive and affirm that portion of the decision of the trial court ordering Overseas Bank of Manila (hereafter, OBM) to pay IRC and Santos whatever amounts the latter will pay to PNB, with interest from the date of payment. 2 On the other hand, in G.R. No. 60907, petitioner OBM challenges the decision of respondent court insofar as it holds OBM liable for interest on the time deposit with it of Santos corresponding to the period of its closure by order of the Central Bank. 3 In its assailed decision, the respondent Court of Appeals, quoting from the decision of the lower court, 4 narrated the antecedents of this case in this wise:

Credit Usury Part 2 The facts of this case are not seriously disputed by any of the parties. They are set forth in the decision of the trial court as follows: Under date 11 January 1967 defendant Raul L. Santos made a time deposit with defendant OBM in the amount of P 500,000.00. (Exhibit-10 OBM) and was issued a Certificate of Time Deposit No. 2308 (Exhibit 1 Santos, Exhibit D). Under date 6 February 1967 defendant Raul L. Santos also made a time deposit with defendant OBM in the amount of P 200,000.00 (Exhibit 11 OBM and was issued certificate of Time Deposit No. 2367 (Exhibit 2 Santos, Exhibit E). Under date 9 February 1967 defendant IRC thru its President-defendant Raul L. Santos, applied for a loan and/or credit line (Exhibit A) in the amount of P 700,000.00 with plaintiff bank. To secure the said loan, defendant Raul L. Santos executed on August 11, 1967 a Deed of Assignment (Exhibit C) of the two time deposits (Exhibits 1-Santos and 2 Santos, also Exhibits D and E) in favor of plaintiff. Defendant OBM gave its conformity to the assignment thru letter dated 11 August 1967 (Exhibit F). On the same date, defendant IRC thru its President Raul L. Santos, also executed a Deed of Conformity to Loan Conditions (Exhibit G). The defendant OBM after the due dates of the time deposit certificates, did not pay plaintiff PNB. Plaintiff demanded payment from defendants IRC and Raul L. Santos (Exhibit K) and from defendant OBM (Exhibit L). Defendants IRC and Raul L. Santos replied that the obligation (loan) of defendant IRC was deemed paid with the irrevocable assignment of the time deposit certificates (Exhibits 5 Santos, 6 Santos and 7 Santos). On April 6, 1969 (sic), ** PNB filed a complaint to collect from IRC and Santos the loan of P 700,000.00 with interest as well as attomeys fees. It impleaded OBM as a defendant to compel it to redeem and pay to it Santos time deposit certificates with interest, plus exemplary and corrective damages, attorneys fees, and cost. In their answer to the complaint, IRC and Santos alleged that PNB has no cause of action against them because their obligation to PNB was fully paid or extinguished upon the irrevocable assignment of the time deposit certificates, and that they are not answerable for the insolvency of OBM They filed a counterclaim for damages against PNB and a cross-claim against OBM alleging that OBM acted fraudulently in refusing to pay the time deposit certificates to PNB resulting in the filing of the suit against them by PNB, and that, therefore, OBM should pay them whatever amount they may be ordered by the court to pay PNB with interest. They also asked that OBM be ordered to pay them compensatory, moral, exemplary and corrective damages. In its answer to the complaint, OBM denied knowledge of the time deposit certificates because the alleged time deposit of Santos does not appear in its books of account. Whereupon, IRC and Santos, with leave of court, filed a third-party complaint against Emerito B. Ramos, Jr., president of OBM and Rodolfo R. Sunico, treasurer of said bank, who allegedly received the time deposits of Santos and issued the certificates therefor. Answering the third-party complaint, Ramos and Sunico alleged that IRC and Santos have no cause of action against them because they received and signed the time deposit certificates as officers of OBM that the time deposits are recorded in the subsidiary ledgers of the bank and are civil liabilities of the defendant OBM On November 18, 1970, OBM filed an amended or supplemental answer to the complaint, acknowledging the certificates of time deposit that it issued to Santos, and admitting its failure to pay the same due to its distressed financial situation. As affirmative defenses, it alleged that by reason of its state of insolvency its operations have been suspended by the Central Bank since August 1, 1968; that the time deposits ceased to earn interest from that date; that it may

Page 3 of 38 not give preference to any depositor or creditor; and that payment of the plaintiffs claim is prohibited. On January 30, 1976, the lower court rendered judgment for the plaintiff, the dispositive portion of which reads as foIlows WHEREFORE, judgment is hereby rendered, ordering: 1. The defendant Integrated Realty Corporation and Raul L. Santos to pay the plaintiff, jointly and solidarily, the total amount of P 700,000.00 plus interest at the rate of 9% per annum from maturity dates of the two promissory notes on January 11 and February 6, 1968, respectively (Exhibits M and I), plus 1-1/ 2% additional interest effective February 28, 1968 and additional penalty interest of 1% per annum of the Id amount of P 700,000.00 from the time of maturity of Id loan up to the time the said amount of P 700,000.00 is actually paid to the plaintiff; 2. The defendants topay l0% of the amount of P 700,000.00 as and for attorneys fees; 3. The defendant Overseas Bank of Manila to pay cross-plaintiffs Integrated Realty Corporation and Raul L. Santos whatever amounts the latter will pay to the plaintiff with interest from date of payment; 4. The defendant Overseas Bank of Manila to pay cross-plaintiffs Integrated Realty Corporation and Raul L. Santos the amount of P 10,000.00 as and for attorneys fees; 5. The third-party complaint and cross-claim dismissed; 6. The defendant Overseas Bank of Manila to pay the costs. SO ORDERED. 5 IRC Santos and OBM all appealed to the respondent Court of Appeals. As stated in limine, on March 16, 1982 respondent court promulgated its appealed decision, with a modification and the deletion of that portion of the judgment of the trial court ordering OBM to pay IRC and Santos whatever amounts they will pay to PNB with interest from the date of payment. Therein defendants-appellants, through separate petitions, have brought the said decision to this Court for review. 1. The first issue posed before us for resolution is whether the liability of IRC and Santos with PNB should be deemed to have been paid by virtue of the deed of assignment made by the former in favor of PNB, which reads: KNOW ALL MEN BY THESE PRESENTS; I, RAUL L. SANTOS, of legal age, Filipino, with residence and postal address at 661 Richmond St., Mandaluyong, Rizal for and in consideration of certain loans, overdrafts and other credit accommodations granted or those that may hereafter be granted to me/us by the PHILIPPINE NATIONAL BANK, have assigned, transferred and conveyed and by these presents, do hereby assign, transfer and convey by way of security unto said PHILIPPINE NATIONAL BANK its successors and assigns the following Certificates of Time Deposit issued by the OVERSEAS BANK OF MANILA, its CONFORMITY issued on August 11, 1967, hereto enclosed as Annex A, in favor of RAUL L. SANTOS and/or NORA S. SANTOS, in the aggregate sum of SEVEN HUNDRED THOUSAND PESOS ONLY (P 700,000.00), Philippine Currency, .

Credit Usury Part 2 xxx xxx xxx It is also understood that the herein Assignor/s shall remain hable for any outstanding balance of his/their obligation if the Bank is unable to actually receive or collect the above assigned sums , monies or properties resulting from any agreements, orders or decisions of the court or for any other cause whatsoever. 6 xxx xxx xxx Respondent Court of Appeals did not consider the aforesaid assignment as payment, thus: The contention of IRC and Santos that the irrevocable assignment of the time deposit certificates to PNB constituted payment of their obligation to the latter is not well taken. Where a certificate of deposit in a bank, payable at a future day, was handed over by a debtor to his creditor, it was not payment, unless there was an express agreement on the part of the creditor to receive it as such, and the question whether there was or was not such an agreement, was one of facts to be decided by the jury. (Downey vs. Hicks, 55 U.S. [14 How.] 240 L. Ed. 404; See also Michie, Vol. 5-B Banks and Banking, p. 200). 7 We uphold respondent court on this score. In Lopez vs. Court of appeals, et al., 8 petitioner Benito Lopez obtained a loan for P 20,000.00 from the Prudential Bank and Trust Company. On the same day, he executed a promissory note in favor of the bank and, in addition, he executed a surety bond in which he, as principal, and Philippine American General Insurance Co., Inc. (Philamgen), as surety, bound themselves jointly and severally in favor of the bank for the payment of the loan. On the same occasion, Lopez also executed in favor of Philamgen an indemnity agreement whereby he agreed to indemnify the company against any damages which the latter may sustain in consequence of having become a surety upon the bond. At the same time, Lopez executed a deed of assignment of his shares of stock in the Baguio Military Institute, Inc. in favor of Philamgen. When Lopez obligation matured without being settled, Philamgen caused the transfer of the shares of stocks to its name in order that it may sell the same and apply the proceeds thereof in payment of the loan to the bank. However, when no payment was still made by the principal debtor or surety, the bank filed a complaint which compelled Philamgen to pay the bank. Thereafter, Philamgen filed an action to recover the amount of the loan against Lopez. The trial court therein held that the obligation of Lopez was deemed paid when his shares of stocks were transferred in the name of Philamgen. On appeal, the Court of Appeals ruled that Lopez was still liable to Philamgen because, pending payment, Philamgen was merely holding the stock as security for the payment of Lopez obligation. In upholding the finding therein of the Court of Appeals, We held that: Notwithstanding the express terms of the Stock Assignment Separate from Certificate, however, We hold and rule that the transaction should not be regarded as an absolute conveyance in view of the circumstances obtaining at the time of the execution thereof. It should be remembered that on June 2, 1959, the day Lopez obtained a loan of P 20,000.00 from Prudential Bank, Lopez executed a promissory note for P 20,000.00, plus interest at the rate of ten (10%) per cent per annum, in favor of said Bank. He likewise posted a surety bond to secure his full and faithful performance of his obligation under the promissory note with Philamgen as his surety. In return for the undertaking of Philamgen under the surety bond, Lopez executed on the same day not only an indemnity agreement but also a stock assignment.

Page 4 of 38 The indemnity agreement and stock assignment must be considered together as related transactions because in order to judge the intention of the contracting parties, their contemporaneous and subsequent acts shall be principally considered. (Article 1371, New Civil Code). Thus, considering that the indemnity agreement connotes a continuing obligation of Lopez towards Philamgen while the stock assignment indicates a complete discharge of the same obligation, the existence of the indemnity agreement whereby Lopez had to pay a premium of P l,000.00 for a period of one year and agreed at all times to indemnify Philamgen of any and all kinds of losses which the latter might sustain by reason of it becoming a surety, is inconsistent with the theory of an absolute sale for and in consideration of the same undertaking of Philamgen. There would have been no necessity for the execution of the indemnity agreement if the stock assignment was really intended as an absolute conveyance. Along the same vein, in the case at bar it would not have been necessary on the part of IRC and Santos to execute promissory notes in favor of PNB if the assignment of the time deposits of Santos was really intended as an absolute conveyance. There are cogent reasons to conclude that the parties intended said deed of assignment to complement the promissory notes. In declaring that the deed of assignment did not operate as payment of the loan so as to extinguish the obligations of IRC and Santos with PNB, the trial court advanced several valid bases, to wit: a. It is clear from the Deed of Assignment that it was only by way of security; xxx xxx xxx b. The promissory notes (Exhibits H and I) were executed on August 16, 1967. If defendants IRC and Raul L. Santos, upon executing the Deed of Assignment on August 11, 1967 had already paid their loan of P 700,000.00 or otherwise extinguished the same, why were the promissory notes made on August 16, 1967 still executed by IRC and signed by Raul L. Santos as President? c. In the application for a credit line (Exhibit A),the time deposits were offered as collateral. 9 For all intents and purposes, the deed of assignment in this case is actually a pledge. Adverting again to the Courts pronouncements in Lopez, supra, we quote therefrom: The character of the transaction between the parties is to be determined by their intention, regardless of what language was used or what the form of the transfer was. If it was intended to secure the payment of money, it must be construed as a pledge; but if there was some other intention, it is not a pledge. However, even though a transfer, if regarded by itself, appears to have been absolute, its object and character might still be qualified and explained by a contemporaneous writing declaring it to have been a deposit of the property as collateral security. It has been said that a transfer of property by the debtor to a creditor, even if sufficient on its face to make an absolute conveyance, should be treated as a pledge if the debt continues in existence and is not discharged by the transfer, and that accordingly, the use of the terms ordinarily importing conveyance, of absolute ownership will not be given that effect in such a transaction if they are also commonly used in pledges and mortgages and therefore do not unqualifiedly indicate a transfer of absolute ownership, in the absence of clear and unambiguous language or other circumstances excluding an intent to pledge. 10 The facts and circumstances leading to the execution of the deed of assignment, as found by the court a quo and the respondent court, yield said conclusion that it is in fact a pledge. The deed of assignment has satisfied the requirements of a contract of pledge (1) that it be constituted to secure the fulfillment of a principal obligation; (2) that the pledgor be the absolute owner of the thing pledged; (3) that the persons constituting the pledge have the free disposal

Credit Usury Part 2 of their property, and in the absence thereof, that they be legally authorized for the purpose. 11 The further requirement that the thing pledged be placed in the possession of the creditor, or of a third person by common agreement 12 was complied with by the execution of the deed of assignment in favor of PNB. It must also be emphasized that Santos, as assignor, made an express undertaking that he would remain liable for any outstanding balance of his obligation should PNB be unable to actually receive or collect the assigned sums resulting from any agreements, orders or decisions of the court or for any other cause whatsoever. The term for any cause whatsoever is broad enough to include the situation involved in the present case. Under the foregoing circumstances and considerations, the unavoidable conclusion is that IRC and Santos should be held liable to PNB for the amount of the loan with the corresponding interest thereon. 2. We find nothing illegal in the interest of one and one-half percent (1-1/2%) imposed by PNB pursuant to the resolution of its Board which presumably was done in accordance with ordinary banking procedures. Not only did IRC and Santos fail to overcome the presumption of regularity of business transactions, but they are likewise estopped from questioning the validity thereof for the first time in this petition. There is nothing in the records to show that they raised this issue during the trial by presenting countervailing evidence. What was merely touched upon during the proceedings in the court below was the alleged lack of notice to them of the board resolution, but not the veracity or validity thereof. 3. On the issue of whether OBM should be held liable for interests on the time deposits of IRC and Santos from the time it ceased operations until it resumed its business, the answer is in the negative. We have held in The Overseas Bank of Manila vs. Court of Appeals and Tony D. Tapia, 13 that: It is a matter of common knowledge, which We take judicial notice of, that what enables a bank to pay stipulated interest on money deposited with it is that thru the other aspects of its operation it is able to generate funds to cover the payment of such interest. Unless a bank can lend money, engage in international transactions, acquire foreclosed mortgaged properties or their proceeds and generally engage in other banking and financing activities from which it can derive income, it is inconceivable how it can carry on as a depository obligated to pay stipulated interest. Conventional wisdom dictated; this inexorable fair and just conclusion. And it can be said that all who deposit money in banks are aware of such a simple economic proposition petition. 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 banks operation by the Central Bank has been subsequently declared illegal by the Supreme Court, for before the Courts 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. The Court further adjured that: Parenthetically, We may add for the guidance of those who might be concerned, and so that unnecessary litigations be avoided from further clogging the dockets of the courts, that in the

Page 5 of 38 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. We cannot accept the holding of the respondent Court of Appeals that the above-cited decisions apply only where the bank is in a state of liquidation. In the very case aforecited, this issue was likewise raised and We resolved: Thus, Our task is narrowed down to the resolution of the legal problem of whether or not, for purposes of the payment of the interest here in question, stoppage of the operations of a bank by a legal order of liquidation may be equated with actual cessation of the banks operation, not different, factually speaking, in its effects, from legal liquidation the factual cessation having been ordered by the Central Bank. In the case of Chinese Grocers Association, et al. vs. American Apothecaries, 65 Phil. 395, this Court held: As to the second assignment of error, this Court, in G.R. No. 43682, In re Liquidation of the Mercantile Bank of China, Tan Tiong Tick, claimant and appellant vs. American Apothecaries, C., et al., claimants and appellees, through Justice Imperial, held the following: 4. The court held that the appellant is not entitled to charge interest on the amounts of his claims, and this is the object of the second assignment of error, Upon this point a distinction must be made between the interest which the deposits should earn from their existence until the bank ceased to operate, and that which they may earn from the time the banks operations were stopped until the date of payment of the deposits. As to the first-class, we hold that it should be paid because such interest has been earned in the ordinary course of the banks businesses and before the latter has been declared in a state of liquidation. Moreover, the bank being authorized by law to make use of the deposits with the limitation stated, to invest the same in its business and other operations, it may be presumed that it bound itself to pay interest to the depositors as in fact it paid interest prior to the dates of the Id claims. As to the interest which may be charged from the date the bank ceased to do business because it was declared in a state of liquidation, we hold that the said interest should not be paid. The Court of Appeals considered this ruling inapplicable to the instant case, precisely because, as contended by private respondent, the said Apothecaries case had in fact in contemplation a valid order of liquidation of the bank concerned, whereas here, the order of the Central Bank of August 13, 1968 completely forbidding herein petitioner to do business preparatory to its liquidation was first restrained and then nullified by this Supreme Court. In other words, as far as private respondent is concerned, it is the legal reason for cessation of operations, not the actual cessation thereof, that matters and is decisive insofar as his right to the continued payment of the interest on his deposit during the period of cessation is concerned. In the light of the peculiar circumstances of this particular case, We disagree. It is Our considered view, after mature deliberation, that it is utterly unfair to award private respondent his prayer for payment of interest on his deposit during the period that petitioner bank was not allowed by the Central Bank to operate. 4. Lastly, IRC and Santos claim that OBM should reimburse them for whatever amounts they may be adjudged to pay PNB by way of compensation for damages incurred, pursuant to Articles 1170 and 2201 of the Civil Code.

Credit Usury Part 2 It appears that as early as April, 1967, the financial situation of OBM had already caused mounting concern in the Central Bank. 14 On December 5, 1967, new directors and officers drafted from the Central Bank (CB) itself, the Philippine National Bank (PNB) and the Development Bank of the Philippines (DBP) were elected and installed and they took over the management and control of the Overseas Bank. 15 However, it was only on July 31, 1968 when OBM was excluded from clearing with the CB under Monetary Board Resolution No. 1263. Subsequently, on August 2, 1968, pursuant to Resolution No. 1290 of the CB OBMs operations were suspended. 16 These CB resolutions were eventually annulled and set aside by this Court on October 4, 1971 in the decision rendered in the herein cited case of Ramos. Thus, when PNB demanded from OBM payment of the amounts due on the two time deposits which matured on January 11, 1968 and February 6, 1968, respectively, there was as yet no obstacle to the faithful compliance by OBM of its liabilities thereunder. Consequently, for having incurred in delay in the performance of its obligation, OBM should be held liable for damages. 17 When respondent Santos invested his money in time deposits with OBM they entered into a contract of simple loan or mutuum, 18 not a contract of deposit. While it is true that under Article 1956 of the Civil Code no interest shall be due unless it has been expressly stipulated in writing, this applies only to interest for the use of money. It does not comprehend interest paid as damages. 19 OBM contends that it had agreed to pay interest only up to the dates of maturity of the certificates of time deposit and that respondent Santos is not entitled to interest after the maturity dates had expired, unless the contracts are renewed. This is true with respect to the stipulated interest, but the obligations consisting as they did in the payment of money, under Article 1108 of the Civil Code he has the right to recover damages resulting from the default of OBM and the measure of such damages is interest at the legal rate of six percent (6%) per annum on the amounts due and unpaid at the expiration of the periods respectively provided in the contracts. In fine, OBM is being required to pay such interest, not as interest income stipulated in the certificates of time deposit, but as damages for failure and delay in the payment of its obligations which thereby compelled IRC and Santos to resort to the courts. The applicable rule is that legal interest, in the nature of damages for non-compliance with an obligation to pay a sum of money, is recoverable from the date judicial or extra-judicial demand is made, 20 Which latter mode of demand was made by PNB, after the maturity of the certificates of time deposit, on March 1, 1968. 21 The measure of such damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon in the certificates of deposit 22 Which is six and onehalf percent (6-1/2%). Such interest due or accrued shall further earn legal interest from the time of judicial demand. 23 We reject the proposition of IRC and Santos that OBM should reimburse them the entire amount they may be adjudged to pay PNB. It must be noted that their liability to pay the various interests of nine percent (9%) on the principal obligation, one and one-half percent (1-1/2%) additional interest and one percent (1%) penalty interest is an offshoot of their failure to pay under the terms of the two promissory notes executed in favor of PNB. OBM was never a party to Id promissory notes. There is, therefore, no privity of contract between OBM and PNB which will justify the imposition of the aforesaid interests upon OBM whose liability should be strictly confined to and within the provisions of the certificates of time deposit involved in this case. In fact, as noted by respondent court, when OBM assigned as error that portion of the judgment of the court a quo requiring OBM to make the disputed reimbursement, IRC and Santos did not dispute that objection of OBM Besides, IRC and Santos are not without fault. They likewise acted in bad faith when they refuse to comply with their obligations under the promissory notes, thus incurring liability for all damages reasonably attributable to the non-payment of said obligations. 24 WHEREFORE, judgment is hereby rendered, ordering:

Page 6 of 38 1. Integrated Realty Corporation and Raul L. Santos to pay Philippine National Bank, jointly and severally, the total amount of seven hundred thousand pesos (P 700,000.00), with interest thereon at the rate of nine percent (9%) per annum from the maturity dates of the two promissory notes on January 11 and February 6, 1968, respectively, plus one and one-half percent (1-1/2%) additional interest per annum effective February 28, 1968 and additional penalty interest of one percent (1%) per annum of the said amount of seven hundred thousand pesos (P 700,000.00) from the time of maturity of said loan up to the time the said amount of seven hundred thousand pesos (P 700,000.00) is fully paid to Philippine National Bank. 2. Integrated Realty Corporation and Raul L. Santos to pay solidarily Philippine National Bank ten percent (10%) of the amount of seven hundred thousand pesos (P 700,000.00) as and for attorneys fees. 3. Overseas Bank of Manila to pay Integrated Realty Corporation and Raul L. Santos the sum of seven hundred thousand pesos (P 700,000.00) due under Time Deposit Certificates Nos. 2308 and 2367, with interest thereon of six and one-half percent (6-1/2%) per annum from their dates of issue on January 11, 1967 and February 6, 1967, respectively, until the same are fully paid, except that no interest shall be paid during the entire period of actual cessation of operations by Overseas Bank of Manila; 4. Overseas Bank of Manila to pay Integrated Realty Corporation and Raul L. Santos six and one-half per cent (6-1/2%) interest in the concept of damages on the principal amounts of said certificates of time deposit from the date of extrajudicial demand by PNB on March 1, 1968, plus legal interest of six percent (6%) on said interest from April 6, 1968, until fifth payment thereof, except during the entire period of actual cessation of operations of said bank. 5. Overseas Bank of Manila to pay Integrated Realty Corporation and Raul L. Santos ten thousand pesos (P l0,000.00) as and for attorneys fees. SO ORDERED. Melencio-Herrera, (Chairperson), Paras, Padilla and Sarmiento, JJ., concur.

[G.R. No. 141009. July 2, 2002] BATAAN SEEDLING ASSOCIATION, INC. and CARLOS VALENCIA, petitioners, vs. REPUBLIC OF THE PHILIPPINES, represented by the DEPARTMENT OF ENVIRONMENT and NATURAL RESOURCES, respondent. RESOLUTION AUSTRIA-MARTINEZ, J.: Before us is a petition for review on certiorari under Rule 45 of the Rules of Court which seeks to set aside the Decision promulgated on October 14, 1998 by the Court of Appeals in CA-G.R. CV No. 52545,[1] affirming with modification the decision of the Regional Trial Court of Quezon City. The dispositive portion of the assailed Decision reads: IN THE LIGHT OF ALL THE FOREGOING, the Decision appealed from is AFFIRMED with the following modifications:

Credit Usury Part 2 1. The Appellants are hereby ordered to pay, jointly and severally, to the Republic of the Philippines, the principal amount of P56,290.69, with interest thereon at the rate of 12% per annum, from January 27, 1994 until the said amount is paid in full; 2. The Appellant BSAI is hereby ordered to pay to the appellant Republic of the Philippines the amount of P50,000.00 as and by way of exemplary damages. No pronouncement as to cost. SO ORDERED.[2] Petitioner Bataan Seedling Association, Inc. (BSAI for brevity) entered into a Community Based Reforestation Contract on October 26, 1990 with the Republic of the Philippines, represented by the Department of Environment and Natural Resources (DENR). Under said contract, BSAI, in consideration of the amount of Nine Hundred Seventy Five Thousand One Hundred Twenty Six Pesos and Sixty One Centavos (P975,126.61), bound itself to undertake the reforestation of a fifty-hectare open/denuded forest land in Barangay Liyang, Pilar, Bataan within a period of three (3) years.[3] BSAI likewise undertook to report to the DENR any event or condition which delays or may delay or prevent completion of the work,[4] and submit progress billings and accomplishment reports.[5] Concomitant with the contract is the Project Development Plan and the Approved Schedule of Progress Payments detailing the annual cash flow and schedule of activities within the three-year period,[6] and the Contract of Undertaking providing for the mobilization fund in the amount of Seventy Five Thousand Fifty Four Pesos and Sixty Six Centavos (P75,054.66).[7] Said fund was allotted and released by respondent to enable BSAI to start with the project, but the fund was to be returned to respondent upon completion of the project or deducted from the periodic release of moneys to petitioners.[8] Believing that petitioners failed to comply with their obligations under the contract, respondent sent a notice of cancellation dated July 31, 1992 to petitioner Carlos Valencia, President of BSAI, asking the latter to show cause why the contract should not be terminated on the following grounds: 1. Willful violation of the material terms and conditions, stipulations and covenants of the Contract, to wit: a) The association failed to fully plant/establish the whole 50-hectare contracted area during the first year of operations as provided for in the Contract; b) The seedlings raised in the nursery were disposed of to other contractors and the seedlings left were practically overgrown indicating lack of proper care and maintenance; c) Inspite of the fact that a forest fire occurred sometime in December, 1991, no report was ever made to the DENR in violation of Article 1.1.5 of the Contract; d) The Association even failed to submit to the DENR accomplishment reports and other relevant information required and expected from it. 2. Abandonment of the project area. The PENRO/CENRO monitoring and Evaluation Team which inspected the project area on March 18, 25 and 31, 1992 reported that except for the family that actually resides in the bunkhouse, no laborers were observed at the project area during the time of the field inspections. Even you failed to show up despite written and verbal notices served to you. Finally, the photodocuments taken on the plantation illustrates clearly the abandoned project area.[9] Due to their failure to respond to the notice of cancellation, as well as return the mobilization fund, respondent filed a Complaint for Damages against petitioners,[10] praying that the latter jointly and solidarily pay actual damages in the amount of Seventy Five Thousand Fifty Four Pesos and Twenty Five Centavos (P75,054.25) representing the portion of the mobilization fund released to them, and Sixty Two Thousand Pesos Four Hundred Fifty Pesos and Twenty Two Centavos (P62,450.22) as the amount paid under the accomplishment bills, totaling One Hundred Thirty Seven Thousand Five Hundred Four Pesos and Forty Seven Centavos

Page 7 of 38 (P137,504.47). Respondent also sought liquidated damages equivalent to 0.1% of the total contract cost due to BSAIs delay in the performance of its obligations, and exemplary damages in the amount of Fifty Thousand Pesos (P50,000.00).[11] In their Amended Answer, petitioners deny the allegations, arguing that: (1) the whole area was totally destroyed by a forest fire in December 1991 without their fault and negligence, which incident was duly reported to respondent, and (2) the cancellation was arbitrary.[12] The Regional Trial Court of Quezon City, Branch 217, rendered its decision ordering petitioners to pay the amount of Fifty Thousand Pesos (P50,000.00) as exemplary damages.[13] The trial court held that respondent had sufficient grounds to cancel the contract but saw no reason why the mobilization fund and the advance payments should be refunded, or that petitioners should be liable for liquidated damages. Not satisfied, both respondent and petitioners appealed the decision to the Court of Appeals. The appellate court affirmed with modification the decision of the trial court, adjudicating the balance of the mobilization fund refunded by petitioners in the amount of Fifty Six Thousand Two Hundred Ninety Pesos and Sixty Nine Centavos (P56,290.69) with 12% interest.[14] Hence, the petition for review on certiorari. Petitioners submit that the issues to be resolved are as follows: 1. Whether the unilateral cancellation by the respondent of the Community-Based Reforestation Contract is invalid, being without factual and legal basis. 2. Whether the order to refund the amount of P56,290.69 with interest at the rate of 12% per annum, representing the balance of the mobilization fund, is palpably erroneous as being contrary to the facts. [15] At the outset, it must be stated that the foregoing issues and the respective arguments in support thereof have been raised by the parties and passed upon by both the trial court and the appellate court. Petitioners deny that they were bound to fully plant the fifty (50) hectares during the first (1st) year of the program as their commitment under clause 1.1.9 of the Reforestation Contract was to turn-over to the DENR at the end of the third (3rd) year the contracted area of fifty hectares, fully planted and properly maintained. Petitioners also refute the finding that they abandoned the project area, arguing that the investigation conducted by the PENCO/CENRO Monitoring and Evaluation Team is suspect; and that its report ignored the fact that a forest fire occurred sometime in December 1991 destroying the plants and seedlings already introduced in the area. Petitioners further claim that their failure to immediately report the fire and submit progress reports is not a substantial breach of their undertaking to warrant the cancellation of the contract; and that they cannot be made to refund the balance of the mobilization fund because these correspond to the work already done in the area. Finally, petitioners object to the award of exemplary damages for being without legal and factual basis.[16] On the issue of whether or not respondent had sufficient basis to cancel the contract, both the trial and appellate courts found that there was basis for the cancellation. A perusal of the records of this case confirms such finding. True, under the reforestation contract, petitioners were to turn over at the end of the third year the project area fully planted and properly maintained.[17] However, the Project Development Plan, appended and made integral part of the contract,[18] specifically defines and details petitioners undertaking. Under the Plan, the following tasks were to be completed during the

Credit Usury Part 2 first year of the project: (1) survey and mapping of the whole fifty (50) hectares; (2) nursery operations for fast-growth, medium-growing, and slow-growth species; (3) plantation establishment, including site preparation, spot hoeing, staking, holing, and planting and seed transporting of 83,333 pieces, medium-sized seedlings and sucklers in planting holes; and (4) infrastructure work, including the development of footpath, graded trail, plantation road, bunkhouse and look-out tower.[19] Spread out during the three-year period is the annual maintenance, protection, administration and supervision, and, monitoring and evaluation of the project area.[20] Clearly, based on said schedule, petitioners were to undertake the principal task of planting the fifty (50) hectare-project area during the 1st year of the project. What is to be carried out during the entire 3-year period is the maintenance and aftercare of the project site, and petitioners were to turn over the project at the end of the third year fully planted and established. Therefore, petitioners argument that they are not bound to fully plant/establish the whole fifty (50) hectares during the 1st year of operations is without merit. Moreover, contrary to petitioners posture, there was a material breach of the contract warranting its cancellation. One (1) year after the commencement of the project or sometime in December, 1991, a fire razed the reforestation area. As admitted by petitioners, they failed to inform respondent of said incident. Neither did they attempt to submit progress reports on the project, which duties were expressly required of them under the contract. Thus, the appellate court correctly observed, viz.: x x x The Appellant BSAI unabashedly admitted failing to establish/plant the project area. Under Section 1.1.5 of the Contract, the Appellant BSAI was obliged to report to the DENR any event or condition which delayed or may delay the progress or prevent the completion, of the work under the time-table set forth under the contract or any relevant facts known to the Appellant BSAI. A fire in the area which gutted the improvements in contract area occurred in December, 1991. However, the Appellant BSAI never informed the DENR of said fire. Worse, the Appellant BSAI did not anymore conduct any replanting activities on the area, thus accounting, in part, for the failure of the said Appellant to submit periodic progress reports on its activities in said area. Even before the fire occurred, in December 1991, the Appellant BSAI already failed to submit any periodic reports of progress of its activities in the area. This prompted the DENR to conduct an on the site inspection of the subject project area. Indeed, Carlos Valencia and Hernani Salaya Jr., even ignored the requests of DENR for them to be present during the said inspections. The DENR inspection team found and discovered that the Appellant BSAI failed to fully establish planting on the subject project area. Instead of planting the seedlings on the project area, the Appellant BSAI sold some of the seedlings because of its failure to pay the nursery owner, Anilao Satellite Nursery, located in Pilar, Bataan for said seedlings. x x x[21] Petitioners attempt to trivialize their lapse, but the Court believes that this is not merely a slight or casual breach, but a substantial one giving sanction to the cancellation. Under Clause 4.1 of the contract, respondents shall have the right to suspend, terminate or cancel the contract upon petitioners substantial failure to fulfill their obligations, or a willful violation of the material conditions, stipulations and covenants thereof. It can be concluded from the tenor of said clause that the parties intended mandatory compliance with all the provisions of the contract. As stated previously, among such provisions requiring strict adherence are the submission of progress reports and the reporting of such event which may delay or prevent the project. Hence, upon petitioners failure to comply with said obligations, respondent was well within its right to cancel the contract by express grant of Clause 4.1. Anent the refund of the mobilization fund, the Contract of Undertaking signed by petitioners is explicit in this regard, to wit: THAT BATAAN SEEDLING ASSOCIATION, INCORPORATED x x x, for and in consideration of the sum of Seventy Five Thousand Fifty four pesos and sixty six centavos (P75,054.66)

Page 8 of 38 representing advance payment under said contract receipt of which is hereby acknowledge in full, as hereby bind ourselves; xxx 3. To repay the amount advanced in accordance with the Contract of Reforestation and DENR Administration order No. 14 Series of 1989 as amended;[22] (Emphasis Ours) The amount of Seventy Five Thousand Fifty Four Pesos and Sixty Six Centavos (P75,054.66) advanced to BSAI, represents 15% of Five Hundred Thousand Three Hundred Sixty One Pesos and Seventy Two Centavos (P500,361.72), the contract cost for the 1st year.[23] When initial payment was made by respondent to petitioners on February 25, 1991, the amount of Eighteen Thousand Seven Hundred Sixty Three Pesos and Fifty Six Centavos (P18,763.56), or 1/4 of the mobilization fund, was deducted,[24] leaving a balance of Fifty Six Thousand Two Hundred Ninety Pesos and Sixty Nine Centavos (P56,290.69). Respondent thereafter made no deductions on the subsequent payments of the contract price remitted to petitioners. Hence, they remain liable on the balance of said fund in the amount of Fifty Six Thousand Two Hundred Ninety Pesos and Sixty Nine Centavos (P56,290.69). We find no error committed by the Appellate Court on this matter. Nevertheless, the appellate court erred in imposing a 12% interest on the amount due. In Eastern Shipping Lines, Inc. vs. Court of Appeals, we enunciated the following rules: 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. [25]

Credit Usury Part 2 Interest at the rate of 12% per annum is imposable if there is no stipulation in the contract. Herein subject contract does not contain any stipulation as to interest. However, the amount that is due the respondent does not represent a loan or forbearance of money. The word forbearance is defined, within the context of usury law, as a contractual obligation of lender or creditor to refrain, during given period of time, from requiring borrower or debtor to repay loan or debt then due and payable.[26] The contract between petitioner and respondent is a Community Based Reforestation Contract by virtue of which petitioner undertook the reforestation of a fifty-hectare open/denuded forest land. The amount of Fifty Six Thousand Two Hundred Ninety Pesos and Sixty Nine Centavos (P56,290.69) due to respondent, represents the balance of the mobilization fund which petitioner is obliged to return because of its failure to fully comply with its undertaking to plant the entire area with seedlings within the period contracted for reforestation. Under the reforestation contract, the fund released to petitioner was supposed to be returned to respondent upon completion of the project or deducted from the periodic releases of money. Clearly therefrom, the amount of Fifty Six Thousand Two Hundred Ninety Pesos and Sixty Nine Centavos (P56,290.69) was neither a loan nor forbearance of money. Thus, the above-quoted paragraph II, sub-paragraph 1, applies to the present case. In the absence of stipulation, the legal interest is six percent (6%) per annum[27] on the amount finally adjudged by the Court.[28] In addition, under the above-quoted paragraph II, sub-paragraph 3, the amount of Fifty Six Thousand Two Hundred Ninety Pesos and Sixty Nine Centavos (P56,290.69) shall earn 12% interest per annum from date of finality of herein judgment. Finally, the Court finds the award of Fifty Thousand Pesos (P50,000.00) as exemplary damages to be excessive and should therefore be reduced to Twenty Thousand Pesos (P20,000.00). Exemplary damages are imposed not to enrich one party or impoverish another but to serve as a deterrent against or as a negative incentive to curb socially deleterious actions.[29] WHEREFORE, the petition is partly GRANTED and the assailed Decision is AFFIRMED with the following MODIFICATIONS: 1) The interest to be paid on the amount of Fifty Six Thousand Two Hundred Ninety Pesos and Sixty Nine Centavos (P56,290.69) shall be at the rate of 6% per annum from the Court of Appeals Decision dated October 14, 1998. A twelve percent (12% ) interest, in lieu of six percent (6%) shall be imposed upon finality of this decision, until full payment thereof. 2) The award of exemplary damages is reduced from Fifty Thousand Pesos (P50,000.00) to Twenty Thousand Pesos (P20,000.00). SO ORDERED. Davide, Jr., C.J., (Chairman), Vitug, Kapunan, and Ynares-Santiago, JJ., concur.

Page 9 of 38 This is a petition for review of the Decision of the Court of Appeals dated 10 March 1998 and Resolution dated 30 July 1998 in the case entitled Doris Hao vs. Sps. Ernesto and Mina Catungal docketed as CA-G.R. SP No. 46158. Said decision affirmed with modification the judgment rendered by the Regional Trial Court. The antecedents of this case are as follows: On December 28, 1972, the original owner, Aniana Galang, leased a three-storey building situated at Quirino Avenue, Baclaran, Paraaque, Metro Manila, to the Bank of the Philippine Islands (BPI) for a period of about fifteen (15) years, to expire on June 20, 1986. During the existence of the lease, BPI subleased the ground floor of said building to respondent Doris Hao. On August 24, 1984, Galang and respondent executed a contract of lease on the second and third floors of the building. The lease was for a term of four (4) years commencing on August 15, 1984 and ending on August 15, 1988. On August 15, 1986, petitioner spouses Ernesto and Mina Catungal bought the property from Aniana Galang. Invoking her right of first refusal purportedly based on the lease contract between her and Aniana Galang, respondent filed a complaint for Annulment of Sale with Damages docketed as Civil Case No. 88-491 of the Regional Trial Court (RTC) of Makati, Metro Manila. Meanwhile, the lease agreement between BPI and Galang expired. Upon expiration of the lease agreements, petitioner spouses sent demand letters to respondent for her to vacate the building. The demand letters were unheeded by respondent causing petitioners to file two complaints for ejectment, docketed as Civil Cases Nos. 7666 and 7667 of the Metropolitan Trial Court (MeTC) of Paraaque, Metro Manila. The institution of the ejectment cases prompted respondent to file an action for injunction docketed as Civil Case No. 90-758 of the RTC of Makati, to stop the MeTC of Paraaque from proceeding therewith pending the settlement of the issue of ownership raised in Civil Case No. 88-491. These two cases for annulment of sale and for injunction were also consolidated before Branch 63 of the RTC of Makati which rendered a Decision dated September 19, 1991, granting the injunction and annulling the contract of sale between Aniana Galang and petitioners. On appeal,[1] the Court of Appeals reversed and set aside the decision of the RTC and the complaints in Civil Cases Nos. 88-491 and 90-758 were accordingly dismissed. Not satisfied, respondent elevated the above decision of the CA before this Court. We, however, denied respondents petition on April 10, 1996.[2] The MeTC of Paraaque, after the reversal of the decision in Civil Case No. 90-758 for injunction, proceeded with the trial of the ejectment cases. On January 22, 1997, the MeTC of Paraaque rendered a Decision, the dispositive portion of which reads:

[G.R. No. 134972. March 22, 2001] SPS. ERNESTO and MINA CATUNGAL, petitioners, vs. DORIS HAO, respondent. DECISION KAPUNAN, J.:

In view of the foregoing, judgment is hereby rendered ordering the defendant Doris T. Hao who is in actual possession of the property and all persons claiming rights under her to vacate the premises in question and to pay the plaintiffs the amount of P20,000.00 a month from June 28, 1988, until she finally vacates the premises and to pay attorneys fees of P20,000.00. With costs against the defendant.[3] Petitioners filed a motion for clarificatory or amended judgment on the ground that although MeTC ordered the defendant to vacate the entire subject property, it only awarded rent or

Credit Usury Part 2 compensation for the use of said property and attorneys fees for said ground floor and not the entire subject property. Compensation for the use of the subject propertys second and third floors and attorneys fees as prayed for in Civil Case No. 7767 were not awarded.[4] In response to said motion, the MeTC issued an Order dated March 3, 1997, the dispositive portion of which reads: In view of the foregoing, the Decision of this Court is hereby clarified in such a way that the dispositive portion would read as follows: in view of the foregoing, judgment is hereby rendered ordering the defendant Doris T. Hao who is in actual possession of the property and all persons claiming rights under her to vacate the premises and to pay the plaintiffs the amount of P8,000.00 a month in Civil Case No. 7666 for the use and occupancy of the first floor of the premises in question from June 28, 1998 until she finally vacates the premises and to pay the plaintiff a rental of P5,000.00 a month in Civil Case No. 7667 from June 28, 1988, until she finally vacates the premises and to pay attorneys fees of P20,000.00. With costs against defendant. So ordered.[5] Petitioners sought reconsideration of the above order, praying that respondent be ordered to pay P20,000.00 monthly for the use and occupancy of the ground floor and P10,000.00 each monthly for the second and third floors. Respondent, on the other hand, filed a notice of appeal. Instead of resolving the motion for reconsideration, on May 7, 1997, the MeTC of Paraaque issued an Order, elevating the case to the Regional Trial Court: Considering the Motion for Reconsideration of the Order of this Court dated March 3, 1997 and the Comment and Opposition thereto of the counsel for the defendant, the Court finds that the said Motion for Reconsideration should already be addressed to the Regional Trial Court considering that whatever disposition that this Court will award will still be subject to the appeal taken by the defendant and considering further that the supersedeas bond posted by the defendant covered the increased rental.[6] On September 30, 1997, the RTC of Paraaque, Branch 259, rendered a Decision modifying that of the MeTC, the dispositive portion of which reads: In the Light of the foregoing, the appealed decision, being in accordance with law, is hereby affirmed as to the order to vacate the property in question and modified as to the amount of rentals which is hereby increased to P20,000.00 a month for the ground floor starting June 28, 1988 and P10,000.00 a month for the second floor and also P10,000.00 a month for the third floor (or) a total of P40,000.00 monthly rentals commencing June 28, 1988 until the subject property has been vacated and possession thereof turner [sic] over to the plaintiffs-appellees; to pay attorneys fees in the amount of P20,000.00; and with costs.[7] In her Motion dated October 6, 1997, respondent sought a reconsideration of the above ruling of the RTC. The same was denied on November 25, 1997. Respondent elevated her case to the Court of Appeals. The CA rendered the Decision subject of this petition the dispositive portion thereof reads: Wherefore, the decision appealed from is hereby modified by reducing the amount of rentals for both the second and third floors from P20,000.00 to P10,000.00 monthly. With this modification, the judgment below is AFFIRMED in all other respects.[8]

Page 10 of 38 The parties filed their respective motions for reconsideration to the Court of Appeals. Petitioners asked that the decision of the Regional Trial Court fixing the total monthly rentals at P40,000.00 be sustained. On the other hand, respondent sought a revival of the decision of the MeTC on the ground that since petitioners did not interpose an appeal from the amended judgment of the MeTC, the RTC could not validly increase the amount of rentals awarded by the former. In its Resolution dated 30 July 1998, the Court of Appeals resolved the parties motions for reconsideration in favor of the respondent. It ruled that the motion for reconsideration filed by the petitioners before the MeTC was a prohibited pleading under the Rules of Summary Procedure. Such being the case, said motion for reconsideration did not produce any legal effect and thus the amended judgment of the MeTC had become final and executory insofar as the petitioners are concerned. The dispositive portion of the CAs resolution reads as follows: Wherefore, the decision appealed from is hereby MODIFIED by reducing the monthly rentals for the first/ground floor from P20,000.00 to P8,000.00 and for the second and third floors from P10,000.00 each to P5,000.00 for both floors. With this modification the judgment below is affirmed in all other respects. No pronouncement as to costs. So ordered.[9] Petitioners now come before this Court assigning the following errors: A. IN THE ASSAILED DECISION, THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN REVERSING THE FINDINGS OF THE REGIONAL TRIAL COURT BY USING AS BASIS FOR REDUCING THE RENTAL ONLY THE EVIDENCE SUBMITTED BY THE PARTIES AND IGNORING CIRCUMSTANCES OF WHICH THE REGIONAL TRIAL COURT PROPERLY TOOK JUDICIAL NOTICE. B. IN THE ASSAILED DECISION, THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN ITS FINDINGS THAT THE REGIONAL TRIAL COURT HAD NO JURISDICTION TO MODIFY THE APPEALED JUDGMENT BY INCREASING THE AWARD OF MONTHLY RENTALS FROM P13,000.00 TO P40,000.00.[10] We required respondent to comment on the petition.[11] In her Comment/Compliance, respondent contends that the petition should be dismissed and the resolution of the case should be based on the following issues: 1. DID THE RESPONDENT APPELLATE COURT COMMITTED [sic] ANY REVERSIBLE ERROR WHEN IT CONSIDERED PETITIONERS MOTION FOR RECONSIDERATION (ANNEX I - PETITION) FILED WITH THE MTC-COURT AS A PROHIBITVE [sic] PLEADING IN A SUMMARY PROCEDURE CASE SUCH AS THE ONE AT BAR[?] 2. DID THE RESPONDENT APPELLATE COURT COMMITTED [sic] ANY REVERSIBLE ERROR WHEN IT RESOLVED TO RESTORE, REINSTATE, AFFIRM AND UPHOLD THE MTC - AMENDED JUDGMENT OF MARCH 3, 1997 FIXING THE TOTAL AWARD OF P13,000.00 GROUNDED ON A PROHIBITIVE [sic] PLEADING AND FAILURE TO FILE A NOTICE OF APPEAL[?]

Credit Usury Part 2 3. DID THE APPELLATE COURT COMMITTED [sic] ANY REVERSIBLEERROR WHEN IT RESOLVED TO SUSTAIN RESPONDENTS POSITION CONSISTENT WITH THE LAW AND JURISPRUDENCE THAT FOR PETITIONERS FAILURE TO APPEAL AND HAVING FILED A PROHIBITIVE [sic] PLEADING, THEY CANNOT ASK FOR AFFIRMATIVE RELIEF SUCH AS INCREASE IN RENTAL[?][12] There is no question that after the expiration of the lease contracts which respondent contracted with Aniana Galang and BPI, she lost her right to possess the property since, as early as the actual expiration date of the lease contract, petitioners were not negligent in enforcing their right of ownership over the property. While respondent was finally evicted from the leased premises, the amount of monthly rentals which respondent should pay the petitioners as forced lessors of said property from 20 June 1988 (for the ground floor) and 15 August 1988 until 6 January 1998 (for the second and third floors), or a period of almost ten years remains to be resolved. Petitioners, in the main, posit that there should be a reinstatement of the decision of the regional trial court which fixed the monthly rentals to be paid by herein respondent at the total of P40,000.00, P20,000.00 for the occupancy of the first floor, and P10,000.00 each for the occupancy of the second and third floors of the building, effective after the lapse of the original lease contract between respondent and the original owner of the building. On the other hand, respondent insists on the ruling of the Metropolitan Trial Court, which was thereafter reinstated by the Court of Appeals in its 30 July 1998 Resolution, that the monthly rental rates of only P8,000.00 for the first floor and P5,000.00 for each of the second and third floors should prevail. At the outset, it should be recalled that there existed no consensual lessor-lessee relationship between the parties. At most, what we have is a forced lessor-lessee relationship inasmuch as the respondent, by way of detaining the property without the consent of herein petitioners, was in unlawful possession of the property belonging to petitioner spouses. We cannot allow the respondent to insist on the payment of a measly sum of P8,000 for the rentals of the first floor of the property in question and P5,000.00 for each of the second and the third floors of the leased premises. The plaintiff in an ejectment case is entitled to damages caused by his loss of the use and possession of the premises.[13] Damages in the context of Section 17, Rule 70 of the 1997 Rules of Civil Procedure is limited to rent or fair rental value or the reasonable compensation for the use and occupation of the property.[14] What therefore constitutes the fair rental value in the case at bench? In ruling that the increased rental rates of P40,000.00 should be awarded the petitioners, the regional trial court based its decision on the doctrine of judicial notice. The RTC held, thus: While this Court is fully in agreement with the Court of Origin that plaintiffs-appellees have the better right to the possession of the premises in question being the present owners and the contract of lease between the former owner and herein defendant-appellant had already expired, the amount of rentals as laid down in the Clarificatory Order dated 3 March 1997 is inadequate, if not unreasonable. The Court a quo misappreciated the nature of the property, its location and the business practice in the vicinity and indeed committed an error in fixing the amount of rentals in the aforementioned Order. Said premises is situated along Quirino Avenue, a main thoroughfare in Barangay Baclaran, Paraaque, Metro Manila, a fully developed commercial area and the place where the famous shrine of the Mother of Perpetual Help stands. Withal, devotees, traders, tourists and practically people from all walks of life visit said barangay making it suitable for

Page 11 of 38 commerce, not to mention thousand of residents therein. Needless to say, every square meter of said community is valuable for all kinds of business or commerce of man. Further, considering that the questioned property has three floors and strategically located along the main road and consistent with the prevailing rental rates in said business area which is between P20,000.00 and P30,000.00 as testified to by Divina Q. Roco, a real estate agent and Mina Catungal, this Court finds the amount of P20,000.00 a month for the ground floor and P10,000.00 a month each for the second floor and third floor or a total of P40,000.00 monthly rentals as appropriate and reasonable rentals for the use and occupation of said premises. Finally, worth mentioning here as parallel is [the] ruling of the Supreme Court in the case of Manila Bay Club Corporation vs. Court of Appeals, 245 SCRA 715 and 731-732 citing Licmay vs. Court of Appeals, 215 SCRA 1 (1992) and Commander Realty Inc. v. Court of Appeals, 168 SCRA 181. It reads as follows: It is worth stressing at this juncture that the trial court had the authority to fix the reasonable value for the continued use and occupancy of the leased premises after the termination of the lease contract, and that it was not bound by the stipulated rental in the contract of lease since it is equally settled that upon termination or expiration of the Contract of Lease, the rental stipulated therein may no longer be the reasonable value for the use and occupation of the premises as a result or by reason of the change or rise in values. Moreover, the trial court can take judicial notice of the general increase in rentals of real estate especially of business establishments like the leased building owned by the private respondents.[15] We find that the RTC correctly applied and construed the legal concept of judicial notice in the case at bench. Judicial knowledge may be defined as the cognizance of certain facts which a judge under rules of legal procedure or otherwise may properly take or act upon without proof because they are already known to him, or is assumed to have, by virtue of his office.[16] Judicial cognizance is taken only of those matters that are commonly known. The power of taking judicial notice is to be exercised by courts with caution; care must be taken that the requisite notoriety exists; and every reasonable doubt on the subject should be promptly resolved in the negative.[17] Matters of judicial notice have three material requisites: (1) the matter must be one of common and general knowledge; (2) it must be well and authoritatively settled and not doubtful or uncertain; and (3) it must be known to be within the limits of jurisdiction of the court. The RTC correctly took judicial notice of the nature of the leased property subject of the case at bench based on its location and the commercial viability. The above quoted assessment by the RTC of the Baclaran area, where the subject property is located, is fairly grounded. Furthermore, the RTC also had factual basis in arriving at the said conclusion, the same being based on testimonies of witnesses, such as real estate broker Divina Roco and the petitioner Mina Catungal. The RTC rightly modified the rental award from P13,000.00 to P40,000.00, considering that it is settled jurisprudence that courts may take judicial notice of the general increase in rentals of lease contract renewals much more with business establishments. Thus, We held in Manila Bay Club Corporation vs. Court of Appeals:[18] It is worth stressing at this juncture that the trial court had the authority to fix the reasonable value for the continued use and occupancy of the leased premises after the termination of the lease contract, and that it was not bound by the stipulated rental in the contract of lease since it is equally settled that upon termination or expiration of the contract of lease, the rental stipulated therein may no longer be the reasonable value for the use and occupation of the premises as a result or by reason of the change or rise in values. Moreover, the trial court can

Credit Usury Part 2 take judicial notice of the general increase in rentals of real estate especially of business establishments like the leased building owned by the private respondent.[19] The increased award of rentals ruled by the RTC is reasonable given the circumstances of the case at bench. We note that respondent was able to deny petitioners the benefits, including possession, of their rightful ownership over the subject property for almost a decade. The Court of Appeals failed to justify its reduction of the P40,000.00 fair rental value as determined by the RTC. Neither has respondent shown that the rental pegged by the RTC is exorbitant or unconscionable. This is because the burden of proof to show that the rental demanded is unconscionable or exorbitant rests upon private respondent as the lessee.[20] Here, respondent neither discharged this burden when she omitted to present any evidence at all on what she considers to be fair rental value, nor did she controvert the evidence submitted by petitioners by way of testimonies of the real estate broker and petitioner Mina Catungal. Thus, in Sia v. CA, we ruled: xxx On the contrary, the records bear out that the P5,000.00 monthly rental is a reasonable amount, considering that the subject lot is prime commercial real property whose value has significantly increased and that P5,000.00 is within the range of prevailing rental rates in that vicinity. Moreover, petitioner has not proffered controverting evidence to support what he believes to be the fair rental value of the leased building since the burden of proof to show that the rental demanded is unconscionable or exorbitant rests upon the lessee. Thus, here and now we rule, as we did in the case of Manila Bay Club v. Court of Appeals, that petitioner having failed to prove its claim of excessive rentals, the valuation made by the Regional Trial Court, as affirmed by the respondent Court of Appeals, stands.[21] The Court of Appeals merely anchored its decision to reduce the P40,000.00 rental on procedural grounds. According to the Court of Appeals, the motion for reconsideration filed by petitioners before the MeTC is a prohibited pleading under the Rule on Summary Procedure and did not have any effect in stalling the running of the period to appeal the decision nor could it be considered as notice of appeal and consequently this affected the elevation of the case to the RTC. Not having appealed the case to the RTC, the amended judgment of the MeTC fixing the rental rate at P13,000.00 is final and executory as far as petitioners are concerned. We disagree. A reading of the order issued by the MeTC will show that said court elevated the issue on the amount of rentals raised by the petitioner to the RTC because the appeal of respondent had already been perfected, thus: Considering the Motion for Reconsideration of the Order of this Court dated March 3, 1997 and the Comment and Opposition thereto of the counsel for the defendant, the Court finds the said Motion for Reconsideration should already be addressed to the Regional Trial Court considering that whatever disposition that this Court will award will still be subject to the appeal taken by the defendant and considering further that the supersedeas bond posted by the defendant covered the increased rental. In order that this case will be immediately forwarded to the Regional Trial Court in view of the appeal of the defendant, the Court deemed it wise not to act on the said motion for reconsideration and submit the matter to the Regional Trial Court who has the final say on whether the rental or the premises in question will be raised or not. It will be to the advantage of both parties that this Court refrain from acting on the said Motion for Reconsideration so as to expedite the remanding (sic) of this Court to the Regional Trial Court.[22]

Page 12 of 38 When the MeTC referred petitioners motion to the RTC for its disposition, respondent could have opposed such irregularity in the proceeding. This respondent failed to do. Before this Court, respondent now insists that the petition should be denied on the ground that the Motion for Reconsideration filed before the MeTC is a prohibited pleading and hence could not be treated as a notice of appeal. Respondent is precluded by estoppel from doing so. To grant respondents prayer will not only do injustice to the petitioners, but also it will make a mockery of the judicial process as it will result in the nullity of the entire proceedings already had on a mere technicality, a practice frowned upon by the Court. Our ruling in Martinez, et al. vs. De la Merced, et al.[23] is illustrative : xxx In fine, these are acts amounting to a waiver of the irregularity of the proceedings. For it has been consistently held by this Court that while lack of jurisdiction may be assailed at any stage, a partys active participation in the proceedings before a court without jurisdiction will estop such party from assailing such lack of jurisdiction. The Court of Appeals in the assailed Decision correctly observed that the peculiar circumstances attendant to the ejectment cases warrant departure from the presumption that a party who did not interject an appeal is satisfied with the adjudication made by the lower court: As regard the issue on the propriety of the increase in the award of damages/rentals made by the RTC, the Court notes that, while respondent spouses did not formally appeal the decision in the ejectment cases, their motion for reconsideration assailing the clarificatory order reducing the award of damages/rentals was, by order of the MTC, referred to the RTC for appropriate action. Reason for such action is stated in the Order of May 7, 1997, thus: xxx Neither petitioner nor respondent spouses assailed the above order. In fact, in their appeal memorandum, respondent spouses reiterated their claim, first ventilated in their motion for reconsideration dated March 24, 1997, that the MTC grievously erred in finding that plaintiffsappellees are only entitled to a meager monthly rental of P8,000.00 for the ground floor and P5,000.00 for the second and third floors. Hence, while the entrenched procedure in this jurisdiction is that a party who has not himself appealed cannot obtain from the appellate court affirmative relief other than those granted in the decision of the lower court, the peculiar circumstances attendant to the ejectment cases warrant a departure therefrom. The rule is premised on the presumption that a party who did not interpose an appeal is satisfied with the adjudication made by the lower court. Respondent spouses, far from showing satisfaction with the clarificatory order of March 3, 1997, assailed it in their motion for reconsideration which, however, was referred to the RTC for appropriate action in view of the appeal taken by the petitioner. Clearly, the increase in the damages/rentals awarded by the MTC was an issue the RTC could validly resolve in the ejectment cases.[24] Respondent, argues that ejectment cases are tried under the Revised Rule on Summary Procedure,[25] hence, the motion for reconsideration filed by petitioner was a prohibited pleading and could not take the place of the required notice of appeal. The argument by respondent is misleading. Simply because the case was one for ejectment does not automatically mean that the same was triable under the Rules of Summary Procedure. At the time of the filing of the complaint by petitioner in 1989, said Rules provide: SECTION 1. SCOPE - THIS RULE SHALL GOVERN THE PROCEDURE IN THE METROPOLITAN TRIAL COURTS, THE MUNICIPAL CIRCUIT TRIAL COURTS IN THE FOLLOWING CASES:

Credit Usury Part 2 A. CIVIL CASES: (1) CASES OF FORCIBLE ENTRY AND UNLAWFUL DETAINER, EXCEPT WHERE THE QUESTION OF OWNERSHIP IS INVOLVED, OR WHERE THE DAMAGES OR UNPAID RENTALS SOUGHT TO BE RECOVERED BY THE PLAINTIFF EXCEED TWENTY THOUSAND PESOS (P20,000.00) AT THE TIME OF THE FILING OF COMPLAINT. x x x In their complaint, petitioners prayed, among others, for rentals for the period covering June 1988 to April 1989, at a rate of P20,000.00 for the first floor alone, as well as P10,000.00 for attorneys fees. Clearly, considering the amount of rentals and damages claimed by petitioners, said case before the MeTC was not governed by the Rules on Summary Procedure. Said case was governed by the ordinary rules where the general proposition is that the filing of a motion for reconsideration of a final judgment is allowed. In the interest of substantial justice, in this particular case, we rule that the MeTC did not err in treating the motion for reconsideration filed by petitioner as a notice of appeal. Finally, respondent questions why petitioners would want to reinstate the RTC decision when in fact they had already applied for a writ of execution of the 8 March 1997 Decision. Respondent is of the view that since petitioners had already moved for the execution of the decision awarding a smaller amount of damages or fair rental value, the same is inconsistent with a petition asking for a greater fair rental value and, therefore, a possible case of unjust enrichment in favor of the petitioners. We are not persuaded. In order to avoid further injustice to a lawful possessor, an immediate execution of a judgment is mandated and the courts duty to order such execution is practically ministerial.[26] In City of Manila, et al. vs. CA, et al.,[27] We held that Section 8 (now Section 19), Rule 70, on execution pending appeal, also applies even if the plaintiff-lessor appeals where, as in that case, judgment was rendered in favor of the lessor but it was not satisfied with the increased rentals granted by the trial court, hence the appeal xxx. As above discussed, the petitioners have long been deprived of the exercise of their proprietary rights over the leased premises and the rightful amount of rentals at the rate of P40,000.00 a month. Consequently, petitioners are entitled to accrued monthly rentals of P27,000.00, which is the difference between P40,000.00 awarded by the Regional Trial Court and P13,000.00 awarded by the MeTC and affirmed by the Court of Appeals. Said amount of P27,000.00 should rightly be the subject of another writ of execution being distinct from the subject of the first writ of execution filed by petitioners. The Court also awards interest in favor of petitioners. In Eastern Shipping Lines, Inc. vs. Court of Appeals, we gave the following guidelines in the award of interest: xxx 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.

Page 13 of 38 The back rentals in this case being equivalent to a loan or forbearance of money, the interest due thereon in twelve percent (12%) per annum from the time of extra-judicial demand on September 27, 1988. WHEREFORE, premises considered, judgment is hereby rendered in favor of petitioners by reinstating the decision of the RTC, with modifications, and ordering respondent to further pay: 1. The sum of Twenty Seven Thousand Pesos (P27,000.00), corresponding to the difference between the P40,000.00 awarded by the Regional Trial Court and the P13,000.00 awarded by the Metropolitan Trial Court, as monthly arrears, computed from respondents unlawful detainer, 20 June 1988 (for the ground floor) and 15 August 1988 (for the second and third floors) of the subject property until the time she vacated the premises on 7 January 1998; 2. Legal interest of twelve percent (12%) per annum on the foregoing sum from the date of notice of demand on 27 September 1988 until fully paid; 3. The sum of Twenty Thousand Pesos (P20,000.00) as and for attorneys fees and; 4. The costs of suit. SO ORDERED. Davide, Jr., C.J. (Chairman), Puno, Pardo, and Ynares-Santiago, JJ., concur.

G.R. No. 129227. May 30, 2000 BANCO FILIPINO SAVINGS AND MORTGAGE BANK, petitioners, vs. THE HON. COURT OF APPEALS, and CALVIN & ELSA ARCILLA, respondents. DECISION GONZAGA_REYES, J.: The undisputed facts as found by the Court of Appeals are as follows: Elsa Arcilla and her husband, Calvin Arcilla, the Appellees in the present recourse, secured, on three (3) occasions, loans from the Banco Filipino Savings and Mortgage Bank, the Appellant in the present recourse, in the total amount of P107,946.00 as evidenced by Promissory Note executed by the Appellees in favor of the Appellant. To secure the payment of said loans, the Appellees executed Real Estate Mortgages in favor of the Appellants over their parcels of land located in BF-Paraaque, covered by Transfer Certificate of Title Nos. 444645, 450406, 450407 and 455410 of the Registry of Deeds of Paraaque (Annexes B to B-2, Amended Complaint). Under said deeds, the Appellant may increase the rate of interest, on said loans, within the limits allowed by law, as Appellants Board of Directors may prescribe for its borrowers. At that time, under the Usury Law, Act 2655, as amended, the maximum rate of interest for loans secured by real estate mortgages was 12% per annum. On January 10, 1975, the Appellees and the Appellant executed a Deed of Consolidation and Amendment of Real Estate Mortgage whereby the aforementioned loans of the Appellees and the Real Estate Mortgage executed by them as security for the payment of said loans were consolidated (pages 33-35, Record). Likewise, under said deed, the loan of the Appellees from the Appellant was increased to P188,000.00. The Appellees executed a Promissory Note, dated January 15, 1975, whereby they bound and obliged themselves, jointly and severally, to pay the Appellant the aforesaid amount of P188,000.00 with interest at the rate of 12% per annum, in

Credit Usury Part 2 nineteen (19) years from date thereof, in stated installments of P2,096.93 a month (page 32, Records). On January 2, 1976, the Central Bank of the Philippines issued Central Bank Circular No. 494, quoted infra, as follows: x x x 3. The maximum rate of interest, including commissions, premiums, fees and other charges on loans with maturity of more than seven hundred thirty (730) days, by banking institutions, including thrift banks, or by financial intermediaries authorized to engage in quasi-banking functions shall be nineteen percent (19%) per annum. x x x 7. Except as provided in this Circular and Circular No. 493, loans or renewals thereof shall continue to be governed by the Usury Law, as amended. (idem, supra) In the meantime, the Skyline Builders, Inc., through its President, Appellee Calvin Arcilla, secured loans from the Bank of the Philippine Islands in the total amount of P450,000.00. To insure payment of the aforesaid loan, the FGU Insurance Corporation, issued PG Bond No. 1003 for the amount of P225,000.00 (pages 434-436, Records) in favor of the Bank of the Philippine Islands. Skyline Buildings, Inc., and the Appellees executed an Agreement of Counter-Guaranty with Mortgage in favor of the FGU Insurance Corporation covering the aforesaid parcels of land to assure payment of any amount that the insurance company may pay on account of said loans (pages 429-436, Records). The mortgage was annotated as Entry No. 58009 at the dorsal portion of Appellees titles. After October 30, 1978, the Appellant prepared and issued a Statement of Account to the Appellees on their loan account to the effect that, as of October 30, 1978, the balance of their loan account, inclusive of interests, computed at 17% per annum, amounted to 284,490.75 (page 555, Records). It turned out that the Appellant unilaterally increased the rate of interest on the loan account of the Appellees from 12% per annum, as covenanted in the Real Estate Mortgage and Deed of Consolidated and Amended Real Estate Mortgage to 17% per annum on the authority of the aforequoted Central Bank Circular. The Appellees failed to pay their monthly amortizations to Appellant. The latter forthwith filed, on April 3, 1979, a petition, with the Provincial Sheriff, for the extrajudicial foreclosure of Appellees Real Esate Mortgage in favor of the Appellant for the amount of P342,798.00 inclusive of the 17% per annum which purportedly was the totality of Appellees account with the Appellant on their loans. The Appellant was the purchaser of the property at public auction for the aforesaid amount of P324,798.00. On May 25, 1979, the Sheriff executed a Certificate of Sale over the aforesaid properties in favor of the Appellant for the aforesaid amount (pages 37-38, Records). The Appellant filed a Petition for a Writ of Possession with the Regional Trial Court entitled Banco Filipino Savings and Mortgage Bank vs. Elsa Arcilla, et al., LRC Case No. P-7757-P. On February 28, 1980, the Court rendered a Decision granting the Petition of the Appellant. The Appellees appealed to the Court of Appeals but the latter Court, on June 29, 1985, promulgated a Decision affirming the Decision of the Regional Trial Court (pages 190-198, Records). In the meantime, the FGU Insurance Corporation, Inc., redeemed the aforesaid properties from the Appellant by paying to the latter the amount of P389,289.41 inclusive of interest computed at 17% per annum. The Appellant and FGU Insurance Corp., Inc., executed, on May 27, 1980, a Deed of Redemption (pages 126-129, Records).

Page 14 of 38 On September 2, 1985, the Appellees filed a complaint in the Court a quo for the Annulment of the Loan Contracts, Foreclose Sale with Prohibition and Injunction, Etc. entitled Calvin Arcilla, et al. vs. Banco Filipino Savings and Mortgage Bank, et al. (pages 1-38, Records). The Appellees averred, in their complaint, inter alia, that the loan contracts and mortgages between the Appellees and the Appellant were null and void because: (a) the interests, charges, etc., were deducted in advance from the face value of the Promissory Notes executed by the Appellees; and (b) the rate of interests charged by the Appellant were usurious. The Appellees prayed that judgment be rendered in their favor as follows: x x x WHEREFORE, it is respectfully prayed a) Pending hearing on the prayer for the issuance of the Writ of Preliminary Injunction, a restraining order be immediately issued against the defendants or anyone acting in their behalf from enforcing the writ of possession issued against the plaintiffs;

b) After notice and hearing, a writ of preliminary injunction be issued against the defendants, particularly defendants FGU Insurance Corporation and the City Sheriff of Pasay City, MM, or any of his deputies or anyone acting in their behalf from enforcing the writ of possession; c) After trial 1) To make the injunction permanent; 2) Declare the loan contracts null and void; 3) Declare the extrajudicial foreclosure null and void; 4) Ordering the defendants to pay the plaintiffs the sums of P100,000.00 as moral damages; P50,000.00 as attorney fees; and, costs of suit. PLAINTIFFS further pray for such other reliefs and remedies just and equitable in the premises. (pages 88-89, Records) In its Answer to the Complaint, the Appellant averred that the interests charged by it on Appellees loan accounts and that the said loan contracts and mortgages were lawful. The Appellant further averred that the Appellees action had already prescribed.

In the interim, the Supreme Court promulgated its Decision in the precedent - setting case of Banco Filipino Savings and Mortgage Bank vs. Hon. Miguel Navarro, et al., 152 SCRA 346 where it declared that Central Bank Circular No. 494 was not the law envisaged in the mortgage deeds of borrowers of the Bank; that the escalation clause incorporated in said deeds giving authority to the Appellant to increase the rate of interests without the corresponding deescalation clause should not be given effect because of its one-sidedness in favor of the Appellant; that the aforesaid Central Bank Circular did not apply to loans secured by real estate mortgages, and that, therefore, the Appellant cannot rely said Circular as authority for it to unilaterally increase the rate of interests on loans secured by Real Estate Mortgages. In the meantime, the FGU Insurance Corp., Inc., filed a Motion for Substitution with the Regional Trial Court, in LRC Case No. Pq-7757-P praying that it be substituted as the Petitioner in said case (pages 354-356, Records). The Appellees were served with a copy of said motion

Credit Usury Part 2 and filed their Opposition thereto. However, on November 10, 1987, the Regional Trial Court rendered a Decision granting the motion of FGU Insurance Company (page 369, Records) On December 3, 1987, the Appellees filed a Motion, with the Court a quo, for leave to file an Amended Complaint to implead FGU Insurance Corporation as party defendant (pages 83129, Records). The Court granted said motion and admitted Appellees Amended Complaint. After the requisite pre-trial, the Court a quo issued a Pre-Trial Order which defined, inter alia, Appellees action against the Appellant, and the latters defenses, to wit: x x x On the part of the defendants Banco Filipino Savings to simplify the case, it seeks to declare as null and void plaintiffs loan contract with Banco Filipino obtained in May 1974, on the ground that the interest agreed in the contract was usurious. Plaintiffs also seek to declare as null and void the foreclosure of their mortgage by Banco Filipino on the ground that the loan with the said mortgagee foreclosure maybe validly done. DEFENSES 1. Prescription 2. Laches 3. Estoppel (page 496, Records) In the meantime, the Appellees and FGU Insurance Corporation entered into and forged a Compromise Agreement. The Court a quo promulgated a Decision, dated April 3, 1991, based on said Compromise Agreement. Under the Compromise Agreement, the Appellees bound and obliged themselves, jointly and severally, to pay to FGU Insurance Corporation the amount of P1,964,117.00 in three (3) equal installments and that: x x x 6. Upon faithful compliance by plaintiffs Calvin S. Arcilla and Elsa B. Arcilla with their Agreement, defendant FGU Insurance Corporation shall renounce in their favor all its rights, interests and claims to the four (4) parcels of land mentioned in paragraph No. 4 of this Compromise Agreement, together with all the improvements thereon, and plaintiffs Calvin S. Arcilla and Elsa B. Arcilla shall be subrogated to all such rights, interests and claims. In addition, defendant FGU Insurance Corporation shall execute in favor of plaintiffs Calvin S. Arcilla and Elsa B. Arcilla a deed of cancellation of the real estate mortgage constituted in its favor on the above-mentioned four (4) parcels of land, together with all the improvements thereon. All documentary stamps and expenses for registration of the said deed of cancellation of mortgage shall be for the account of plaintiffs Calvin S. Arcilla and Elsa B. Arcilla. 7. Subject to the provisions of paragraph No. 4 of this Compromise Agreement, the execution of this Compromise Agreement shall be without prejudice to the prosecution of the claims of plaintiffs Calvin S. Arcilla and Elsa B. Arcilla. (pages 543-544, Records) Thereafter, the Appellees and the Appellant agreed, upon the prodding of the Court a quo, that the only issue to be resolved by the Court a quo was, whether or not the Appellees were entitled to the refund, under the Decision of the Supreme Court in Banco Filipino Savings and Mortgage Bank vs. Hon. Miguel Navarro, et al., supra. On November 8, 1991, the Appellees filed a Motion for Summary Judgment appending thereto, inter alia, the Affidavit of Appellee Calvin S. Arcilla and the appendages thereof (pages 550-555, Records). Appellant filed its

Page 15 of 38 Opposition but did not append any affidavit to said Opposition. On March 26, 1993, the Court a quo promulgated a Decision, the decretal portion of which reads as follows: WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiffs and against defendant Banco Filipino ordering defendant Banco Filipino to pay spouses Calvin S. Arcilla and Elsa B. Arcilla the sum of P126,139.00 with interest thereon at 12% per annum reckoned from the filing of the complaint. Petitioner appealed to the Court of Appeals, which affirmed the decision of the RTC the dispositive portion of which reads: IN THE LIGHT OF ALL THE FOREGOING, the assailed Decision is AFFIRMED. Appellants appeal is DISMISSED. With costs against the Appellant. I. THE HONORABLE COURT OF APPEALS ERRED WHEN IT HELD THAT THE CAUSE OF ACTION OF THE PRIVATE RESPONDENTS ACCRUED ON OCTOBER 30, 1978, AND THEREFORE THE FILING OF THEIR COMPLAINT FOR ANNULMENT OF THEIR LOAN CONTRACTS WITH THE PETITIONER IN 1985 WAS NOT YET BARRED BY PRESCRIPTION. II. THE HONORABLE COURT OF APPEALS ERRED WHEN IT HELD THAT THE MATERIAL ALLEGATIONS OF THE PRIVATE RESPONDENTS COMPLAINT WERE SUFFICIENT TO WARRANT THE RELIEFS GRANTED TO THEM BY THE LOWER COURT, PATICULARLY THE REFUND OF P126,139.00 REPRESENTING ALLEGED EXCESS INTEREST PAID ON THEIR LOAN. Conversely, private respondents allege that their action has not prescribed considering that prescription begins to run from the day the action may be brought; the date their right of action accrued. It is their contention that the period of prescription of their action should commence to run from October 30, 1978 when the petitioner unilaterally increased the rate of interest on private respondents loan to 17% per annum. Thus, when private respondents filed their action against the petitioner on September 2, 1985 or almost eight years thereafter, their action had not yet prescribed. Moreover, private respondents aver that they are entitled to the refund inasmuch as the escalation clause incorporated in the loan contracts do not have a corresponding de-escalation clause and is therefore illegal. The appeal is unmeritorious. There are only two issues, which must be resolved in the present appeal. First, has the action of the private respondents prescribed; and second, are the respondents entitled to the refund of the alleged interest overpayments. It is the legal possibility of bringing the action that determines the starting point for the computation of the period of prescription (Constancia C. Telentino vs. Court of Appeals, et al., 162 SCRA 66). In fine, the ten-year prescriptive period is to be reckoned from the accrual of Appellees right of action, not necessarily on the very date of the execution of the contracts subject of the action (Naga Telepone Co. Inc. vs. Court of Appeals, et al., 230 SCRA 351). A partys right of action accrues only when the confluence of the following elements is established: xxx: a) a right in favor of the plaintiff by whatever means and under whatever law it arises or is created; b) an obligation on the part of defendant to respect such right; and c) an act or omission on the part of such defendant violative of the right of the plaintiff (Cole vs. Vda. de Gregorio, 116 SCRA 670 [1982]; Mathay vs. Consolidated Bank & Trust Co., 58 SCRA 559 [1974]; Vda. de Enriquez vs. Dela Cruz, 54 SCRA 1 [1973]. It is only when the last element

Credit Usury Part 2 occurs or takes place that it can be said in law that a cause of action has arisen (Cole vs. Vda. De Gregorio, supra) (Maria U. Espaol vs. Chairman, etc., et al. 137 SCRA 314, page 318) 6. The aforementioned loans granted by defendant Banco Filipino to the plaintiffs as stated on the face of the promissory note and real estate mortgage (Annexes B to D, inclusive) were not actually received by the plaintiffs because interests, charges, etc. were deducted in advance from the face value of the loans not in accordance with the contracts; 7. Even the loan contracts (Annexes B to D, inclusive) required by defendant Banco Filipino to be signed by the plaintiffs were contrary to and in violation of the then Usury Law, as amended; 8. Assuming arguendo that the loan contracts between plaintiffs and defendant Banco Filipino are valid, the extra-judicial foreclosure of the properties of the plaintiffs on May 24, 1979 was null and void for having been conducted in clear violation of the law (Act 3135), namely: a) lack of roper notice to the plaintiffs; b) lack of proper publication and posting as required by law; c) the alleged sale was conducted at the place other than that prescribed by law, among others; 9. On May 27, 1990, defendant Banco Filipino purportedly executed in favor of defendant FGU Insurance Corporation a Deed of Redemption over the foreclosed properties of the plaintiffs, again, without notice to the latter, as evidenced by the said Deed of Redemption, copy of which is hereto attached and marked as Annex F. Given the validity of the escalation clause, could the petitioner increase the stipulated interest pursuant to the Central Bank Circular 494 from 12% to 17%. We rule that it may not. The escalation clause in the loan contracts reads as follows: WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 45891 is AFFIRMED and the instant petition is hereby DENIED. No pronouncement as to costs. SO ORDERED. Melo, (Chairman), Vitug, and Purisima, JJ., concur. Panganiban, J., on leave. 23 Arturo M. Tolentino, The Civil Code, Volume I (1997), p. 37. Before us is a Petition for Review on Certiorari of the Decision of the Court of Appeals1 in CAG.R. CV No. 45891 entitled CALVIN S. ARCILLA and ELSA B. ARCILLA vs. BANCO FILIPINO SAVINGS and MORTGAGE BANK, ET. AL. which affirmed the decision of the Regional Trial Court (RTC), Branch 33, Manila ordering BANCO FILIPINO to pay CALVIN and ELSA ARCILLA the amount of P126,139.00 with interest thereon at 12% per annum from the filing of the complaint. SO ORDERED. (pages 584-585, Records)2 SO ORDERED.3

Page 16 of 38 Their Motion for Reconsideration4 was denied hence this petition where the petitioner assigns the following errors: III. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE PRIVATE RESPONDENTS WERE ENTITLED TO THE SAID REFUND OF P126,139.00 CLAIMED BY THEM.5 The petitioner maintains that the complaint filed by herein private respondents was an action for Annulment of Loan Contracts, foreclosure sale with prohibition and injunction. It is contended that these causes of action accrued on the date of the execution of the promissory note and deed of mortgage on January 15, 1975 and not October 30, 1978 as found by the Court of Appeals. Thus, private respondents cause of action has already prescribed inasmuch as the case was filed on September 2, 1985 or more than ten years thereafter. Petitioner further contends that private respondents cannot rely on the ruling in the case of Banco Filipino Savings & Mortgage Bank vs. Navarro6 considering that they were not parties to said case. Petitioner also maintains that the order of the lower court, which was affirmed by the Court of Appeals ordering the petitioner to refund the excess interest paid by private respondents in the amount of P126,318.00 was without any legal basis since private respondents never raised the issue of interest nor prayed for any relief with respect thereto. Moreover, the private respondents never paid said amount to the petitioner. While the amount was included in the bid price of the bank when it bought the mortgaged properties during the public auction, said bid price did not prejudice the private respondents because when the private respondents repurchased the properties, the amount they paid was different and independent of the redemption price of the bank. Besides, the agreement between the private respondents and FGU Insurance Corporation was one of sale and not redemption. Thus, any amount paid by the private respondents to FGU was voluntarily entered into by them and was not a consequence of the foreclosure of the mortgage properties. Petitioners claim that the action of the private respondents has prescribed is bereft of merit. Under Article 1150 of the Civil Code, the time for prescription of all kinds of actions, when there is no special provision which ordains otherwise, shall be counted from the day they may be brought. Thus, the period of prescription of any cause of action is reckoned only from the date the cause of action accrued.7 And a cause of action arises when that which should have been done is not done, or that which should not have been done is done.8 The period should not be made to retroact to the date of the execution of the contract on January 15, 1975 as claimed by the petitioner for at that time, there would be no way for the respondents to know of the violation of their rights.9 The Court of Appeals therefore correctly found that respondents cause of action accrued on October 30, 1978, the date they received the statement of account showing the increased rate of interest, for it was only from that moment that they discovered the petitioners unilateral increase thereof. We quote with approval the pertinent portions of the Court of Appeals decision as follows: More, the aggrieved must have either actual or presumptive knowledge of the violation, by the guilty party of his rights either by an act or omission. The question that now comes to the fore is when the Appellees became precisely aware of the unilateral increase, by the Appellant, of the rate of interest on their loan account to 17% per annum. As can be ascertained from the records, the Appellees discovered or should have discovered, for the first time, the unilateral increase by the Appellant of the rate of interest to 17% per annum when they received the Statement of Account of the Appellant as of October 30, 1978. Hence, it was only then that the prescriptive period for the Appellees to institute their action in the Court a quo commenced. Since the Appellees filed their complaint in the Court a quo on September 2, 1985, the same was seasonably filed within the ten-year prescriptive period.10 Anent the second issue as to whether the respondents are entitled to recover the alleged overpayments of interest, we find that they are despite the absence of any prayer therefor. This

Credit Usury Part 2 Court has ruled that it is the material allegations of fact in the complaint, not the legal conclusion made therein or the prayer that determines the relief to which the plaintiff is entitled.11 It is the allegations of the pleading which determine the nature of the action and the Court shall grant relief warranted by the allegations and the proof even if no such relief is prayed for.12 Thus, even if the complaint seeks the declaration of nullity of the contract, the Court of Appeals correctly ruled that the factual allegations contained therein ultimately seek the return of the excess interests paid. The amended complaint13 of herein private respondents specifically allege that the contracts of loan entered into by them and the petitioner were contrary to and signed in violation of the Usury Law14 and consequentially pray that said contracts be declared null and void. The amended complaint reads: 10. The Deed of Redemption (Annex F) is clearly null and void for having been executed in violation of Rule 39, Rules of Court, and other related provisions of the Rules of Court.15 The loan contracts with real estate mortgage entered into by and between the petitioner and respondent stated that the petitioner may increase the interest on said loans, within the limits allowed by law, as petitioners Board of Directors may prescribe for its borrowers. At the time the contracts were entered into, said escalation clause was valid.16 It was only pursuant to P.D. No. 1684 which became effective March 17, 1980 wherein to be valid, escalation clauses should 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 the reduction of the stipulated interest in the event that the maximum rate of interest is reduced by law or by the Monetary Board.17 xxx g) 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 paragraph (b) and (d) hereof, shall be subject, during the terms of this contract, to such an increase, within the limits allowed by law, as the Board of Directors of the Mortgagee may prescribe for its debtors; xxx (emphasis supplied)18 In Banco Filipino Savings & Mortgage Bank vs. Navarro,19 which involved a similar escalation clause20, we ruled that Central Bank Circular 494, although it has the force and effect of law, is not a law and is not the law contemplated by the parties which authorizes the petitioner to unilaterally raise the interest rate of the loan.21 Consequently, the reliance by the petitioner on Central Bank Circular 494 to unilaterally raise the interest rates on the loan in question was without any legal basis. Petitioners argument that the Banco Filipino case cannot be applied to the present case since the respondents were not intervenors therein is flawed. Only the judgment in said case cannot bind the respondents as they were not parties thereto, however, the doctrine enunciated therein is a judicial decision and forms part of the legal system of the land.22 It forms a precedent, which must be adhered to under the doctrine of stare decisis.23 Thus, even if the respondents were not parties to the above-mentioned case, the doctrine enunciated therein may be applied to the present case. DECISION YNARES-SANTIAGO, J.:

Page 17 of 38

The instant petition for review seeks to partially set aside the July 26, 1993 Decision[1] of respondent Court of Appeals in CA-G.R. CV No. 29950, insofar as it orders petitioner to reimburse respondent Continental Cement Corporation the amount of P490,228.90 with interest thereon at the legal rate from July 26, 1988 until fully paid. The petition also seeks to set aside the March 8, 1994 Resolution[2] of respondent Court of Appeals denying its Motion for Reconsideration. The facts are as follows: On July 13, 1982, respondents Continental Cement Corporation (hereinafter, respondent Corporation) and Gregory T. Lim (hereinafter, respondent Lim) obtained from petitioner Consolidated Bank and Trust Corporation Letter of Credit No. DOM-23277 in the amount of P1,068,150.00 On the same date, respondent Corporation paid a marginal deposit of P320,445.00 to petitioner. The letter of credit was used to purchase around five hundred thousand liters of bunker fuel oil from Petrophil Corporation, which the latter delivered directly to respondent Corporation in its Bulacan plant. In relation to the same transaction, a trust receipt for the amount of P1,001,520.93 was executed by respondent Corporation, with respondent Lim as signatory. Claiming that respondents failed to turn over the goods covered by the trust receipt or the proceeds thereof, petitioner filed a complaint for sum of money with application for preliminary attachment[3] before the Regional Trial Court of Manila. In answer to the complaint, respondents averred that the transaction between them was a simple loan and not a trust receipt transaction, and that the amount claimed by petitioner did not take into account payments already made by them. Respondent Lim also denied any personal liability in the subject transactions. In a Supplemental Answer, respondents prayed for reimbursement of alleged overpayment to petitioner of the amount of P490,228.90. At the pre-trial conference, the parties agreed on the following issues: 1) Whether or not the transaction involved is a loan transaction or a trust receipt transaction; 2) Whether or not the interest rates charged against the defendants by the plaintiff are proper under the letter of credit, trust receipt and under existing rules or regulations of the Central Bank; 3) Whether or not the plaintiff properly applied the previous payment of P300,456.27 by the defendant corporation on July 13, 1982 as payment for the latters account; and 4) Whether or not the defendants are personally liable under the transaction sued for in this case.[4] On September 17, 1990, the trial court rendered its Decision,[5] dismissing the Complaint and ordering petitioner to pay respondents the following amounts under their counterclaim: P490,228.90 representing overpayment of respondent Corporation, with interest thereon at the legal rate from July 26, 1988 until fully paid; P10,000.00 as attorneys fees; and costs. Both parties appealed to the Court of Appeals, which partially modified the Decision by deleting the award of attorneys fees in favor of respondents and, instead, ordering respondent Corporation to pay petitioner P37,469.22 as and for attorneys fees and litigation expenses.

[G.R. No. 114286. April 19, 2001] THE CONSOLIDATED BANK AND TRUST CORPORATION (SOLIDBANK), petitioner, vs. THE COURT OF APPEALS, CONTINENTAL CEMENT CORPORATION, GREGORY T. LIM and SPOUSE, respondents.

Credit Usury Part 2 Hence, the instant petition raising the following issues: 1. WHETHER OR NOT THE RESPONDENT APPELLATE COURT ACTED INCORRECTLY OR COMMITTED REVERSIBLE ERROR IN HOLDING THAT THERE WAS OVERPAYMENT BY PRIVATE RESPONDENTS TO THE PETITIONER IN THE AMOUNT OF P490,228.90 DESPITE THE ABSENCE OF ANY COMPUTATION MADE IN THE DECISION AND THE ERRONEOUS APPLICATION OF PAYMENTS WHICH IS IN VIOLATION OF THE NEW CIVIL CODE. 2. WHETHER OR NOT THE MANNER OF COMPUTATION OF THE MARGINAL DEPOSIT BY THE RESPONDENT APPELLATE COURT IS IN ACCORDANCE WITH BANKING PRACTICE. 3. WHETHER OR NOT THE AGREEMENT AMONG THE PARTIES AS TO THE FLOATING OF INTEREST RATE IS VALID UNDER APPLICABLE JURISPRUDENCE AND THE RULES AND REGULATIONS OF THE CENTRAL BANK. 4. WHETHER OR NOT THE RESPONDENT APPELLATE COURT GRIEVOUSLY ERRED IN NOT CONSIDERING THE TRANSACTION AT BAR AS A TRUST RECEIPT TRANSACTION ON THE BASIS OF THE JUDICIAL ADMISSIONS OF THE PRIVATE RESPONDENTS AND FOR WHICH RESPONDENTS ARE LIABLE THEREFOR. 5. WHETHER OR NOT THE RESPONDENT APPELLATE COURT GRIEVOUSLY ERRED IN NOT HOLDING PRIVATE RESPONDENT SPOUSES LIABLE UNDER THE TRUST RECEIPT TRANSACTION.[6] The petition must be denied. On the first issue respecting the fact of overpayment found by both the lower court and respondent Court of Appeals, we stress the time-honored rule that findings of fact by the Court of Appeals especially if they affirm factual findings of the trial court will not be disturbed by this Court, unless these findings are not supported by evidence.[7] Petitioner decries the lack of computation by the lower court as basis for its ruling that there was an overpayment made. While such a computation may not have appeared in the Decision itself, we note that the trial courts finding of overpayment is supported by evidence presented before it. At any rate, we painstakingly reviewed and computed the payments together with the interest and penalty charges due thereon and found that the amount of overpayment made by respondent Bank to petitioner, i.e., P563,070.13, was more than what was ordered reimbursed by the lower court. However, since respondents did not file an appeal in this case, the amount ordered reimbursed by the lower court should stand. Moreover, petitioners contention that the marginal deposit made by respondent Corporation should not be deducted outright from the amount of the letter of credit is untenable. Petitioner argues that the marginal deposit should be considered only after computing the principal plus accrued interests and other charges. However, to sustain petitioner on this score would be to countenance a clear case of unjust enrichment, for while a marginal deposit earns no interest in favor of the debtor-depositor, the bank is not only able to use the same for its own purposes, interest-free, but is also able to earn interest on the money loaned to respondent Corporation. Indeed, it would be onerous to compute interest and other charges on the face value of the letter of credit which the petitioner issued, without first crediting or setting off the marginal deposit which the respondent Corporation paid to it. Compensation is proper and should take effect by operation of law because the requisites in Article 1279 of the Civil Code are present and should extinguish both debts to the concurrent amount.[8]

Page 18 of 38 Hence, the interests and other charges on the subject letter of credit should be computed only on the balance of P681,075.93, which was the portion actually loaned by the bank to respondent Corporation. Neither do we find error when the lower court and the Court of Appeals set aside as invalid the floating rate of interest exhorted by petitioner to be applicable. The pertinent provision in the trust receipt agreement of the parties fixing the interest rate states: I, WE jointly and severally agree to any increase or decrease in the interest rate which may occur after July 1, 1981, when the Central Bank floated the interest rate, and to pay additionally the penalty of 1% per month until the amount/s or installment/s due and unpaid under the trust receipt on the reverse side hereof is/are fully paid.[9] We agree with respondent Court of Appeals that the foregoing stipulation is invalid, there being no reference rate set either by it or by the Central Bank, leaving the determination thereof at the sole will and control of petitioner. While it may be acceptable, for practical reasons given the fluctuating economic conditions, for banks to stipulate that interest rates on a loan not be fixed and instead be made dependent upon prevailing market conditions, there should always be a reference rate upon which to peg such variable interest rates. An example of such a valid variable interest rate was found in Polotan, Sr. v. Court of Appeals.[10] In that case, the contractual provision stating 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[11] was considered valid. The aforequoted provision was upheld notwithstanding that it may partake of the nature of an escalation clause, because at the same time it provides for the decrease in the interest rate in case the prevailing market rates dictate its reduction. In other words, unlike the stipulation subject of the instant case, the interest rate involved in the Polotan case is designed to be based on the prevailing market rate. On the other hand, a stipulation ostensibly signifying an agreement to any increase or decrease in the interest rate, without more, cannot be accepted by this Court as valid for it leaves solely to the creditor the determination of what interest rate to charge against an outstanding loan. Petitioner has also failed to convince us that its transaction with respondent Corporation is really a trust receipt transaction instead of merely a simple loan, as found by the lower court and the Court of Appeals. The recent case of Colinares v. Court of Appeals[12] appears to be foursquare with the facts obtaining in the case at bar. There, we found that inasmuch as the debtor received the goods subject of the trust receipt before the trust receipt itself was entered into, the transaction in question was a simple loan and not a trust receipt agreement. Prior to the date of execution of the trust receipt, ownership over the goods was already transferred to the debtor. This situation is inconsistent with what normally obtains in a pure trust receipt transaction, wherein the goods belong in ownership to the bank and are only released to the importer in trust after the loan is granted. In the case at bar, as in Colinares, the delivery to respondent Corporation of the goods subject of the trust receipt occurred long before the trust receipt itself was executed. More specifically, delivery of the bunker fuel oil to respondent Corporations Bulacan plant commenced on July 7, 1982 and was completed by July 19, 1982.[13] Further, the oil was used up by respondent Corporation in its normal operations by August, 1982.[14] On the other hand, the subject trust receipt was only executed nearly two months after full delivery of the oil was made to respondent Corporation, or on September 2, 1982.

Credit Usury Part 2 The danger in characterizing a simple loan as a trust receipt transaction was explained in Colinares, to wit: The Trust Receipts Law does not seek to enforce payment of the loan, rather it punishes the dishonesty and abuse of confidence in the handling of money or goods to the prejudice of another regardless of whether the latter is the owner. Here, it is crystal clear that on the part of Petitioners there was neither dishonesty nor abuse of confidence in the handling of money to the prejudice of PBC. Petitioners continually endeavored to meet their obligations, as shown by several receipts issued by PBC acknowledging payment of the loan. The Information charges Petitioners with intent to defraud and misappropriating the money for their personal use. The mala prohibita nature of the alleged offense notwithstanding, intent as a state of mind was not proved to be present in Petitioners situation. Petitioners employed no artifice in dealing with PBC and never did they evade payment of their obligation nor attempt to abscond. Instead, Petitioners sought favorable terms precisely to meet their obligation. Also noteworthy is the fact that Petitioners are not importers acquiring the goods for re-sale, contrary to the express provision embodied in the trust receipt. They are contractors who obtained the fungible goods for their construction project. At no time did title over the construction materials pass to the bank, but directly to the Petitioners from CM Builders Centre. This impresses upon the trust receipt in question vagueness and ambiguity, which should not be the basis for criminal prosecution in the event of violation of its provisions. The practice of banks of making borrowers sign trust receipts to facilitate collection of loans and place them under the threats of criminal prosecution should they be unable to pay it may be unjust and inequitable, if not reprehensible. Such agreements are contracts of adhesion which borrowers have no option but to sign lest their loan be disapproved. The resort to this scheme leaves poor and hapless borrowers at the mercy of banks, and is prone to misinterpretation, as had happened in this case. Eventually, PBC showed its true colors and admitted that it was only after collection of the money, as manifested by its Affidavit of Desistance. Similarly, respondent Corporation cannot be said to have been dishonest in its dealings with petitioner. Neither has it been shown that it has evaded payment of its obligations. Indeed, it continually endeavored to meet the same, as shown by the various receipts issued by petitioner acknowledging payment on the loan. Certainly, the payment of the sum of P1,832,158.38 on a loan with a principal amount of only P681,075.93 negates any badge of dishonesty, abuse of confidence or mishandling of funds on the part of respondent Corporation, which are the gravamen of a trust receipt violation. Furthermore, respondent Corporation is not an importer which acquired the bunker fuel oil for re-sale; it needed the oil for its own operations. More importantly, at no time did title over the oil pass to petitioner, but directly to respondent Corporation to which the oil was directly delivered long before the trust receipt was executed. The fact that ownership of the oil belonged to respondent Corporation, through its President, Gregory Lim, was acknowledged by petitioners own account officer on the witness stand, to wit: Q - After the bank opened a letter of credit in favor of Petrophil Corp. for the account of the defendants thereby paying the value of the bunker fuel oil what transpired next after that? A - Upon purchase of the bunker fuel oil and upon the requests of the defendant possession of the bunker fuel oil were transferred to them. Q - You mentioned them to whom are you referring to? SO ORDERED. A - To the Continental Cement Corp. upon the execution of the trust receipt acknowledging the ownership of the bunker fuel oil this should be acceptable for whatever disposition he may make. Davide, Jr., C.J., (Chairman), Puno, and Kapunan, JJ., concur.

Page 19 of 38 Q - You mentioned about acknowledging ownership of the bunker fuel oil to whom by whom? A - By the Continental Cement Corp. Q - So by your statement who really owns the bunker fuel oil? ATTY. RACHON: Objection already answered. COURT: Give time to the other counsel to object. ATTY. RACHON: He has testified that ownership was acknowledged in favor of Continental Cement Corp. so that question has already been answered. ATTY. BAAGA: That is why I made a follow up question asking ownership of the bunker fuel oil. COURT: Proceed. ATTY. BAAGA: Q - Who owns the bunker fuel oil after purchase from Petrophil Corp.? A - Gregory Lim.[15] By all indications, then, it is apparent that there was really no trust receipt transaction that took place. Evidently, respondent Corporation was required to sign the trust receipt simply to facilitate collection by petitioner of the loan it had extended to the former. Finally, we are not convinced that respondent Gregory T. Lim and his spouse should be personally liable under the subject trust receipt. Petitioners argument that respondent Corporation and respondent Lim and his spouse are one and the same cannot be sustained. The transactions sued upon were clearly entered into by respondent Lim in his capacity as Executive Vice President of respondent Corporation. We stress the hornbook law that corporate personality is a shield against personal liability of its officers. Thus, we agree that respondents Gregory T. Lim and his spouse cannot be made personally liable since respondent Lim entered into and signed the contract clearly in his official capacity as Executive Vice President. The personality of the corporation is separate and distinct from the persons composing it.[16] WHEREFORE, in view of all the foregoing, the instant Petition for Review is DENIED. The Decision of the Court of Appeals dated July 26, 1993 in CA-G.R. CV No. 29950 is AFFIRMED.

Credit Usury Part 2 Pardo J., no part.

Page 20 of 38 In a letter dated January 3, 1980 and signed by Branch Manager Fil S. Carreon Jr., respondent PNB advised petitioner Mendoza that effective December 1, 1979, the bank raised its interest rates to 14% per annum, in line with Central Banks Monetary Board Resolution No. 2126 dated November 29, 1979. On March 9, 1981, he wrote a letter to respondent PNB requesting for the restructuring of his past due accounts into a five-year term loan and for an additional LC/TR line of Two Million Pesos (P2,000,000.00).8 According to the letter, because of the shut-down of his end-user companies and the huge amount spent for the expansion of his business, petitioner failed to pay to respondent bank his LC/TR accounts as they became due and demandable. Ceferino D. Cura, Branch Manager of PNB Mandaluyong replied on behalf of the respondent bank and required petitioner to submit the following documents before the bank would act on his request: 1) Audited Financial Statements for 1979 and 1980; 2) Projected cash flow (cash in - cash out) for five (5) years detailed yearly; and 3) List of additional machinery and equipment and proof of ownership thereof. Cura also suggested that petitioner reduce his total loan obligations to Three Million Pesos (P3,000,000.00) to give us more justification in recommending a plan of payment or restructuring of your accounts to higher authorities of the Bank.9 On September 25, 1981, petitioner sent another letter addressed to PNB Vice-President Jose Salvador, regarding his request for restructuring of his loans. He offered respondent PNB the following proposals: 1) the disposal of some of the mortgaged properties, more particularly, his house and lot and a vacant lot in order to pay the overdue trust receipts; 2) capitalization and conversion of the balance into a 5-year term loan payable semi-annually or on annual installments; 3) a new Two Million Pesos (P2,000,000.00) LC/TR line in order to enable Atlantic Exchange Philippines to operate at full capacity; 4) assignment of all his receivables to PNB from all domestic and export sales generated by the LC/TR line; and 5) maintenance of the existing Five Hundred Thousand Pesos (P500,000.00) credit line. The petitioner testified that respondent PNB Mandaluyong Branch found his proposal favorable and recommended the implementation of the agreement. However, Fernando Maramag, PNB Executive Vice-President, disapproved the proposed release of the mortgaged properties and reduced the proposed new LC/TR line to One Million Pesos (P1,000,000.00).10 Petitioner claimed he was forced to agree to these changes and that he was required to submit a new formal proposal and to sign two (2) blank promissory notes. In a letter dated July 2, 1982, petitioner offered the following revised proposals to respondent bank: 1) the restructuring of past due accounts including interests and penalties into a 5-year term loan, payable semi-annually with one year grace period on the principal; 2) payment of Four Hundred Thousand Pesos (P400,000.00) upon the approval of the proposal; 3) reduction of penalty from 3% to 1%; 4) capitalization of the interest component with interest rate at 16% per annum; 5) establishment of a One Million Pesos (P1,000,000.00) LC/TR line against the mortgaged properties; 6) assignment of all his export proceeds to respondent bank to guarantee payment of his loans. According to petitioner, respondent PNB approved his proposal. He further claimed that he and his wife were asked to sign two (2) blank promissory note forms. According to petitioner, they were made to believe that the blank promissory notes were to be filled out by respondent PNB to conform with the 5-year restructuring plan allegedly agreed upon. The first Promissory Note,11 No. 127/82, covered the principal while the second Promissory Note,12 No. 128/82, represented the accrued interest. Petitioner testified that respondent PNB allegedly contravened their verbal agreement by 1) affixing dates on the two (2) subject promissory notes to make them mature in two (2) years

G.R. No. 116710 June 25, 2001 DANILO D. MENDOZA, also doing business under the name and style of ATLANTIC EXCHANGE PHILIPPINES, petitioner, vs. COURT OF APPEALS, PHILIPPINE NATIONAL BANK, FERNANDO MARAMAG, JR., RICARDO G. DECEPIDA and BAYANI A. BAUTISTA, respondents. DE LEON, JR., J.: Before us is a petition for review on certiorari of the Decision1 dated August 8, 1994 of the respondent Court of Appeals (Tenth Division) in CA-G.R. CV No. 38036 reversing the judgment2 of the Regional Trial Court (RTC) and dismissing the complaint therein. Petitioner Danilo D. Mendoza is engaged in the domestic and international trading of raw materials and chemicals. He operates under the business name Atlantic Exchange Philippines (Atlantic), a single proprietorship registered with the Department of Trade and Industry (DTI). Sometime in 1978 he was granted by respondent Philippine National Bank (PNB) a Five Hundred Thousand Pesos (P500,000.00) credit line and a One Million Pesos (P1,000,000.00) Letter of Credit/Trust Receipt (LC/TR) line. As security for the credit accommodations and for those which may thereinafter be granted, petitioner mortgaged to respondent PNB the following: 1) three (3) parcels of land3 with improvements in F. Pasco Avenue, Santolan, Pasig; 2) his house and lot in Quezon City; and 3) several pieces of machinery and equipment in his Pasig coco-chemical plant. The real estate mortgage4 provided the following escalation clause: (f) 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 paragraph (d) of the conditions herein stipulated shall be subject during the life of this contract to such increase within the rates allowed by law, as the Board of Directors of the Mortgagee may prescribe for its debtors. Petitioner executed in favor of respondent PNB three (3) promissory notes covering the Five Hundred Thousand Pesos (P500,000.00) credit line, one dated March 8, 1979 for Three Hundred Ten Thousand Pesos (P310,000.00); another dated March 30, 1979 for Forty Thousand Pesos (P40,000.00); and the last dated September 27, 1979 for One Hundred Fifty Thousand Pesos (P150,000.00). The said 1979 promissory notes uniformly stipulated: with interest thereon at the rate of 12% per annum, until paid, which interest rate the Bank may, at any time, without notice, raise within the limits allowed by law xxx.5 Petitioner made use of his LC/TR line to purchase raw materials from foreign importers. He signed a total of eleven (11) documents denominated as Application and Agreement for Commercial Letter of Credit,6 on various dates from February 8 to September 11, 1979, which uniformly contained the following clause: Interest shall be at the rate of 9% per annum from the date(s) of the draft(s) to the date(s) of arrival of payment therefor in New York. The Bank, however, reserves the right to raise the interest charges at any time depending on whatever policy it may follow in the future.7

Credit Usury Part 2 instead of five (5) years as supposedly agreed upon; 2) inserting in the first Promissory Note No. 127/82 an interest rate of 21% instead of 18%; 3) inserting in the second Promissory Note No. 128/82, the amount stated therein representing the accrued interest as One Million Five Hundred Thirty Six Thousand Four Hundred Ninety Eight Pesos and Seventy Three Centavos (P1,536,498.73) when it should only be Seven Hundred Sixty Thousand Three Hundred Ninety Eight Pesos and Twenty Three Centavos (P760,398.23) and pegging the interest rate thereon at 18% instead of 12%. The subject Promissory Notes Nos. 127/82 and 128/82 both dated December 29, 1982 in the principal amounts of Two Million Six Hundred Fifty One Thousand One Hundred Eighteen Pesos and Eighty Six Centavos (P 2,651,118.86) and One Million Five Hundred Thirty Six Thousand Seven Hundred Ninety Eight and Seventy Three Centavos (P1,536,798.73) respectively and marked Exhibits BB and CC respectively, were payable on equal semiannual amortization and contained the following escalation clause: x x x which interest rate the BANK may increase 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. In either case, the adjustment in the interest rate agreed upon shall take effect on the effectivity date of the increase or decrease in the maximum interest rate. x x x It appears from the record that the subject Promissory Notes Nos. 127/82 and 128/82 superseded and novated the three (3) 1979 promissory notes and the eleven (11) 1979 Application and Agreement for Commercial Letter of Credit which the petitioner executed in favor of respondent PNB. According to the petitioner, sometime in June 1983 the new PNB Mandaluyong Branch Manager Bayani A. Bautista suggested that he sell the coco-chemical plant so that he could keep up with the semi-annual amortizations. On three (3) occasions, Bautista even showed up at the plant with some unidentified persons who claimed that they were interested in buying the plant. Petitioner testified that when he confronted the PNB management about the two (2) Promissory Notes Nos. 127/82 and 128/82 (marked Exhibits BB and CC respectively) which he claimed were improperly filled out, Bautista and Maramag assured him that the five-year restructuring agreement would be implemented on the condition that he assigns 10% of his export earnings to the Bank.13 In a letter dated August 22, 1983, petitioner Mendoza consented to assign 10% of the net export proceeds of a Letter of Credit covering goods amounting to One Hundred Fourteen Thousand Dollars ($114,000.00).14 However, petitioner claimed that respondent PNB subsequently debited 14% instead of 10% from his export proceeds.15 Pursuant to the escalation clauses of the subject two (2) promissory notes, the interest rate on the principal amount in Promissory Note No. 127/82 was increased from 21% to 29% on May 28, 1984, and to 32% on July 3, 1984 while the interest rate on the accrued interest per Promissory Note No. 128/82 was increased from 18% to 29% on May 28, 1984, and to 32% on July 3, 1984. Petitioner failed to pay the subject two (2) Promissory Notes Nos. 127/82 and 128/82 (Exhibits BB and CC) as they fell due. Respondent PNB extra-judicially foreclosed the real and chattel mortgages, and the mortgaged properties were sold at public auction to respondent PNB, as highest bidder, for a total of Three Million Seven Hundred Ninety Eight Thousand Seven Hundred Nineteen Pesos and Fifty Centavos (P3,798,719.50).

Page 21 of 38 The petitioner filed in the RTC in Pasig, Rizal a complaint for specific performance, nullification of the extra-judicial foreclosure and damages against respondents PNB, Fernando Maramag Jr., Ricardo C. Decepida, Vice-President for Metropolitan Branches, and Bayani A. Bautista. He alleged that the Extrajudicial Foreclosure Sale of the mortgaged properties was null and void since his loans were restructured to a five-year term loan; hence, it was not yet due and demandable; that the escalation clauses in the subject two (2) Promissory Notes Nos. 127/82 and 128/82 were null and void, that the total amount presented by PNB as basis of the foreclosure sale did not reflect the actual loan obligations of the plaintiff to PNB; that Bautista purposely delayed payments on his exports and caused delays in the shipment of materials; that PNB withheld certain personal properties not covered by the chattel mortgage; and that the foreclosure of his mortgages was premature so that he was unable to service his foreign clients, resulting in actual damages amounting to Two Million Four Thousand Four Hundred Sixty One Pesos (P 2,004,461.00). On March 16, 1992, the trial court rendered judgment in favor of the petitioner and ordered the nullification of the extrajudicial foreclosure of the real estate mortgage, the Sheriffs sale of the mortgaged real properties by virtue of consolidation thereof and the cancellation of the new titles issued to PNB; that PNB vacate the subject premises in Pasig and turn the same over to the petitioner; and also the nullification of the extrajudicial foreclosure and sheriffs sale of the mortgaged chattels, and that the chattels be returned to petitioner Mendoza if they were removed from his Pasig premises or be paid for if they were lost or rendered unserviceable. The trial court also ordered respondent PNB to restructure to five-years petitioners principal loan of Two Million Six Hundred Fifty One Thousand One Hundred Eighteen Pesos and Eighty Six Centavos (P2,651,118.86) and the accumulated capitalized interest on the same in the amount of Seven Hundred Sixty Thousand Three Hundred Eighty Nine Pesos and Twenty Three Centavos (P760,389.23) as of December 1982, and that respondent PNB should compute the additional interest from January 1983 up to October 15, 1984 only when respondent PNB took possession of the said properties, at the rate of 12% and 9% respectively. The trial court also ordered respondent PNB to grant petitioner Mendoza an additional Two Million Pesos (P2,000,000.00) loan in order for him to have the necessary capital to resume operation. It also ordered respondents PNB, Bayani A. Bautista and Ricardo C. Decepida to pay to petitioner actual damages in the amount of Two Million One Hundred Thirteen Thousand Nine Hundred Sixty One Pesos (P2,113,961.00) and the peso equivalent of Six Thousand Two Hundred Fifteen Dollars ($6,215.00) at the prevailing foreign exchange rate on October 11, 1983; and exemplary damages in the amount of Two Hundred Thousand Pesos (P200,000.00). Respondent PNB appealed this decision of the trial court to the Court of Appeals. And the Court of Appeals reversed the decision of the trial court and dismissed the complaint. Hence, this petition. It is the petitioners contention that the PNB management restructured his existing loan obligations to a five-year term loan and granted him another Two Million Pesos (P2,000,000.00) LC/TR line; that the Promissory Notes Nos. 127/82 and 128/82 evidencing a 2-year restructuring period or with the due maturity date December 29, 1984 were filled out fraudulently by respondent PNB, and contrary to his verbal agreement with respondent PNB; hence, his indebtedness to respondent PNB was not yet due and the extrajudicial foreclosure of his real estate and chattel mortgages was premature. On the other hand, respondent PNB denies that petitioners loan obligations were restructured to five (5) years and maintains that the subject two (2) Promissory Notes Nos. 127/82 and 128/82 were filled out regularly and became due as of December 29, 1984 as shown on the face thereof. Respondent Court of Appeals held that there is no evidence of a promise from respondent PNB, admittedly a banking corporation, that it had accepted the proposals of the petitioner to have a

Credit Usury Part 2 five-year restructuring of his overdue loan obligations. It found and held, on the basis of the evidence adduced, that appellees (Mendoza) communications were mere proposals while the banks responses were not categorical that the appellees request had been favorably accepted by the bank. Contending that respondent PNB had allegedly approved his proposed five-year restructuring plan, petitioner presented three (3) documents executed by respondent PNB officials. The first document is a letter dated March 16, 1981 addressed to the petitioner and signed by Ceferino D. Cura, Branch Manager of PNB Mandaluyong, which states: x x x In order to study intelligently the feasibility of your above request, please submit the following documents/papers within thirty (30) days from the date thereof, viz: 1. Audited Financial Statements for 1979 and 1980; 2. Projected cash flow (cash in - cash out) for five years detailed yearly; and 3. List of additional machinery and equipment and proof of ownership thereof. We would strongly suggest, however, that you reduce your total obligations to at least P3 million (principal and interest and other charges) to give us more justification in recommending a plan of payment or restructuring of your accounts to higher authorities of this bank. The second document is a letter dated May 11, 1981 addressed to Mr. S. Pe Benito, Jr., Managing Director of the Technological Resources Center and signed by said PNB Branch Manager, Ceferino D. Cura. According to petitioner, this letter showed that respondent PNB seriously considered the restructuring of his loan obligations to a five-year term loan, to wit: xxx At the request of our client, we would like to furnish you with the following information pertinent to his accounts with us: xxx We are currently evaluating the proposal of the client to re-structure his accounts with us into a five-year plan. We hope that the above information will guide you in evaluating the proposals of Mr. Danilo Mendoza. xxx The third document is a letter dated July 8, 1981 addressed to petitioner and signed by PNB Assistant Vice-President Apolonio B. Francisco. xxx Considering that your accounts/accommodations were granted and carried in the books of our Mandaluyong Branch, we would suggest that your requests and proposals be directed to Ceferino Cura, Manager of our said Branch. We feel certain that Mr. Cura will be pleased to discuss matters of mutual interest with you. xxx

Page 22 of 38

Petitioner also presented a letter which he addressed to Mr. Jose Salvador, Vice-President of the Metropolitan Branches of PNB, dated September 24, 1981, which reads: Re: Restructuring of our Account into a 5-year Term Loan and Request for the Establishment of a P2.0 Million LC/TR Line Dear Sir: In compliance with our discussion last September 17, we would like to formalize our proposal to support our above requested assistance from the Philippine National Bank. xxx Again we wish to express our sincere appreciation for your open-minded approach towards the solution of this problem which we know and will be beneficial and to the best interest of the bank and mutually advantageous to your client. xxx Petitioner argues that he submitted the requirements according to the instructions given to him and that upon submission thereof, his proposed five-year restructuring plan was deemed automatically approved by respondent PNB. We disagree. Nowhere in those letters is there a categorical statement that respondent PNB had approved the petitioners proposed five-year restructuring plan. It is stretching the imagination to construe them as evidence that his proposed five-year restructuring plan has been approved by the respondent PNB which is admittedly a banking corporation. Only an absolute and unqualified acceptance of a definite offer manifests the consent necessary to perfect a contract.16 If anything, those correspondences only prove that the parties had not gone beyond the preparation stage, which is the period from the start of the negotiations until the moment just before the agreement of the parties.17 There is nothing in the record that even suggests that respondent PNB assented to the alleged five-year restructure of petitioners overdue loan obligations to PNB. However, the trial court ruled in favor of petitioner Mendoza, holding that since petitioner has complied with the conditions of the alleged oral contract, the latter may not renege on its obligation to honor the five-year restructuring period, under the rule of promissory estoppel. Citing Ramos v. Central Bank,18 the trial court said: The broad general rule to the effect that a promise to do or not to do something in the future does not work an estoppel must be qualified, since there are numerous cases in which an estoppel has been predicated on promises or assurances as to future conduct. The doctrine of promissory estoppel is by no means new, although the name has been adopted only in comparatively recent years. According to that doctrine, an estoppel may arise from the making of a promise, even though without consideration, if it was intended that the promise should be relied upon and in fact it was relied upon, and if a refusal to enforce it would be virtually to sanction the perpetration of fraud or would result in other injustice. In this respect, the reliance by the promisee is generally evidenced by action or forbearance on his part, and the idea has been expressed that such action or forbearance would reasonably have been expected by the promissor. xxx

Credit Usury Part 2 The doctrine of promissory estoppel is an exception to the general rule that a promise of future conduct does not constitute an estoppel. In some jurisdictions, in order to make out a claim of promissory estoppel, a party bears the burden of establishing the following elements: (1) a promise reasonably expected to induce action or forebearance; (2) such promise did in fact induce such action or forebearance, and (3) the party suffered detriment as a result.19 It is clear from the forgoing that the doctrine of promissory estoppel presupposes the existence of a promise on the part of one against whom estoppel is claimed. The promise must be plain and unambiguous and sufficiently specific so that the Judiciary can understand the obligation assumed and enforce the promise according to its terms.20 For petitioner to claim that respondent PNB is estopped to deny the five-year restructuring plan, he must first prove that respondent PNB had promised to approve the plan in exchange for the submission of the proposal. As discussed earlier, no such promise was proven, therefore, the doctrine does not apply to the case at bar. A cause of action for promissory estoppel does not lie where an alleged oral promise was conditional, so that reliance upon it was not reasonable.21 It does not operate to create liability where it does not otherwise exist.22 Since there is no basis to rule that petitioners overdue loan obligations were restructured to mature in a period of five (5) years, we see no other option but to respect the two-year period as contained in the two (2) subject Promissory Notes Nos. 127/82 and 128/82, marked as Exhibits BB and CC respectively which superseded and novated all prior loan documents signed by petitioner in favor of respondent PNB. Petitioner argues, in his memorandum, that respondent Court of Appeals had no basis in saying that the acceptance of the five-year restructuring is totally absent from the record.23 On the contrary, the subject Promissory Notes Nos. 127/82 and 128/82 are clear on their face that they were due on December 29, 1984 or two (2) years from the date of the signing of the said notes on December 29, 1982. Petitioner claims that the two (2) subject Promissory Notes Nos. 127/82 and 128/82 were signed by him in blank with the understanding that they were to be subsequently filled out to conform with his alleged oral agreements with PNB officials, among which is that they were to become due only after five (5) years. If petitioner were to be believed, the PNB officials concerned committed a fraudulent act in filling out the subject two (2) promissory notes in question. Private transactions are presumed to be fair and regular.24 The burden of presenting evidence to overcome this presumption falls upon petitioner. Considering that petitioner imputes a serious act of fraud on respondent PNB, which is a banking corporation, this court will not be satisfied with anything but the most convincing evidence. However, apart from petitioners selfserving verbal declarations, we find no sufficient proof that the subject two (2) Promissory Notes Nos. 127/82 and 128/82 were completed irregularly. Therefore, we rule that the presumption has not been rebutted. Besides, it could be gleaned from the record that the petitioner is an astute businessman who took care to reduce in writing his business proposals to the respondent bank. It is unthinkable that the same person would commit the careless mistake of leaving his subject two (2) promissory notes in blank in the hands of other persons. As the respondent Court of Appeals correctly pointed out: Surely, plaintiff-appellee who is a C.P.A and a Tax Consultant (p. 3 TSN, January 9, 1990) will insist that the details of the two promissory notes he and his wife executed in 1982 should be specific to enable them to make the precise computation in the event of default as in the case at bench. In fact, his alleged omission as a C.P.A. and a Tax Consultant to insist that the two promissory notes be filled up on important details like the rates of interest is inconsistent with the legal presumption of a person who takes ordinary care of his concerns (Section 3 (c), Rule 131, Revised Rules on Evidence).

Page 23 of 38 As pointed out by the Court of Appeals, Orlando Montecillo, Chief, Loans and Discounts, PNB Mandaluyong Branch, testified that the said Promissory Notes Nos. 127/82 and 128/82 were completely filled out when Danilo Mendoza signed them (Rollo, p. 14). In a last-ditch effort to save his five-year loan restructuring theory, petitioner contends that respondent PNBs action of withholding 10% from his export proceeds is proof that his proposal had been accepted and the contract had been partially executed. He claims that he would not have consented to the additional burden if there were no corresponding benefit. This contention is not well taken. There is no credible proof that the 10% assignment of his export proceeds was not part of the conditions of the two-year restructuring deal. Considering that the resulting amount obtained from this assignment of export proceeds was not even enough to cover the interest for the corresponding month,25 we are hard-pressed to construe it as the required proof that respondent PNB allegedly approved the proposed five-year restructuring of petitioners overdue loan obligations. It is interesting to note that in his Complaint, petitioner made no mention that the assignment of his export proceeds was a condition for the alleged approval of his proposed five-year loan restructuring plan. The Complaint merely alleged that plaintiff in a sincere effort to make payments on his obligations agreed to assign 10% of his export proceeds to defendant PNB. This curious omission leads the court to believe that the alleged link between the petitioners assignment of export proceeds and the alleged five-year restructuring of his overdue loans was more contrived than real. It appears that respondent bank increased the interest rates on the two (2) subject Promissory Notes Nos. 127/82 and 128/82 without the prior consent of the petitioner. The petitioner did not agree to the increase in the stipulated interest rate of 21% per annum on Promissory Note No. 127/82 and 18% per annum on Promissory Note No. 128/82. As held in several cases, the unilateral determination and imposition of increased interest rates by respondent bank is violative of the principle of mutuality of contracts ordained in Article 1308 of the Civil Code.26 As held in one case:27 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. It has been held that no one receiving a proposal to change a contract to which he is a party is obliged to answer the proposal, and his silence per se cannot be construed as an acceptance.28 Estoppel will not lie against the petitioner regarding the increase in the stipulated interest on the subject Promissory Notes Nos. 127/82 and 128/82 inasmuch as he was not even informed beforehand by respondent bank of the change in the stipulated interest rates. However, we also note that the said two (2) subject Promissory Notes Nos. 127/82 and 128/82 expressly provide for a penalty charge of 3% per annum to be imposed on any unpaid amount when due. Petitioner prays for the release of some of his movables29 being withheld by respondent PNB, alleging that they were not included among the chattels he mortgaged to respondent bank. However, petitioner did not present any proof as to when he acquired the subject movables and hence, we are not disposed to believe that the same were after-acquired chattels not covered by the chattel and real estate mortgages.

Credit Usury Part 2 In asserting its rights over the subject movables, respondent PNB relies on a common provision in the two (2) subject Promissory Notes Nos. 127/82 and 128/82 which states: In the event that this note is not paid at maturity or when the same becomes due under any of the provisions hereof, we hereby authorized the BANK at its option and without notice, to apply to the payment of this note, any and all moneys, securities and things of value which may be in its hands on deposit or otherwise belonging to me/us and for this purpose. We hereby, jointly and severally, irrevocably constitute and appoint the BANK to be our true Attorney-in-Fact with full power and authority for us in our name and behalf and without prior notice to negotiate, sell and transfer any moneys securities and things of value which it may hold, by public or private sale and apply the proceeds thereof to the payment of this note. It is clear, however, from the above-quoted provision of the said promissory notes that respondent bank is authorized, in case of default, to sell things of value belonging to the mortgagor which may be on its hands for deposit or otherwise belonging to me/us and for this purpose. Besides the petitioner executed not only a chattel mortgage but also a real estate mortgage to secure his loan obligations to respondent bank. A stipulation in the mortgage, extending its scope and effect to after-acquired property is valid and binding where the after-acquired property is in renewal of, or in substitution for, goods on hand when the mortgage was executed, or is purchased with the proceeds of the sale of such goods.30 As earlier pointed out, the petitioner did not present any proof as to when the subject movables were acquired. More importantly, respondent bank makes a valid argument for the retention of the subject movables. Respondent PNB asserts that those movables were in fact immovables by destination under Art. 415 (5) of the Civil Code.31 It is an established rule that a mortgage constituted on an immovable includes not only the land but also the buildings, machinery and accessories installed at the time the mortgage was constituted as well as the buildings, machinery and accessories belonging to the mortgagor, installed after the constitution thereof.32 Petitioner also contends that respondent PNBs bid prices for this foreclosed properties in the total amount of Three Million Seven Hundred Ninety Eight Thousand Seven Hundred Nineteen Pesos and Fifty Centavos (P3,798,719.50), were allegedly unconscionable and shocking to the conscience of men. He claims that the fair market appraisal of his foreclosed plant site together with the improvements thereon located in Pasig, Metro Manila amounted to Five Million Four Hundred Forty One Thousand Six Hundred Fifty Pesos (P5,441,650.00) while that of his house and lot in Quezon City amounted to Seven Hundred Twenty Two Thousand Pesos (P722,000.00) per the appraisal report dated September 20, 1990 of Cuervo Appraisers, Inc.33 That contention is not well taken considering that: 1. The total of the principal amounts alone of petitioners subject Promissory Notes Nos. 127/82 and 128/82 which are both overdue amounted to Four Million One Hundred Eighty Seven Thousand Nine Hundred Seventeen Pesos and Fifty Nine Centavos (P 4,187,917.59). 2. While the appraisal of Cuervo Appraisers, Inc. was undertaken in September 1990, the extrajudicial foreclosure of petitioners real estate and chattel mortgages have been effected way back on October 15, 1984, October 23, 1984 and December 21, 1984.34 Common experience shows that real estate values especially in Metro Manila tend to go upward due to developments in the locality.1wphi1.nt 3. In the public auction/foreclosure sales, respondent PNB, as mortgagee, was not obliged to bid more than its claims or more than the amount of petitioners loan obligations which are all overdue. The foreclosed real estate and chattel mortgages which petitioner earlier executed are

Page 24 of 38 accessory contracts covering the collaterals or security of his loans with respondent PNB. The principal contracts are the Promissory Notes Nos. 127/82 and 128/82 which superseded and novated the 1979 promissory notes and the 1979 eleven (11) Applications and Agreements for Commercial Letter of Credit. Finally, the record shows that petitioner did not even attempt to tender any redemption price to respondent PNB, as highest bidder of the said foreclosed real estate properties, during the oneyear redemption period. In view of all the foregoing, it is our view and we hold that the extrajudicial foreclosure of petitioners real estate and chattel mortgages was not premature and that it was in fact legal and valid. WHEREFORE, the petition is hereby DENIED. The challenged Decision of the Court of Appeals in CA-G.R. CV No. 38036 is AFFIRMED with modification that the increase in the stipulated interest rates of 21% per annum and 18% per annum appearing on Promissory Notes Nos. 127/82 and 128/82 respectively is hereby declared null and void. SO ORDERED. Bellosillo, Mendoza, Quisumbing, Buena, JJ., concur.

G.R. No. 141811 November 15, 2001 FIRST METRO INVESTMENT CORPORATION, petitioner, vs. ESTE DEL SOL MOUNTAIN RESERVE, INC., VALENTIN S. DAEZ, JR., MANUEL Q. SALIENTES, MA. ROCIO A. DE VEGA, ALEXANDER G. ASUNCION, ALBERTO * M. LADORES, VICENTE M. DE VERA, JR., and FELIPE B. SESE, respondents. DE LEON, JR., J.: Before us is a petition for review on certiorari of the Decision1 of the Court of Appeals2 dated November 8, 1999 in CA-G.R. CV No. 53328 reversing the Decision3 of the Regional Trial Court of Pasig City, Branch 159 dated June 2, 1994 in Civil Case No. 39224. Essentially, the Court of Appeals found and declared that the fees provided for in the Underwriting and Consultancy Agreements executed by and between petitioner First Metro Investment Corp. (FMIC) and respondent Este del Sol Mountain Reserve, Inc. (Este del Sol) simultaneously with the Loan Agreement dated January 31, 1978 were mere subterfuges to camouflage the usurious interest charged by petitioner FMIC. The facts of the case are as follows: It appears that on January 31, 1978, petitioner FMIC granted respondent Este del Sol a loan of Seven Million Three Hundred Eighty-Five Thousand Five Hundred Pesos (P7,385,500.00) to finance the construction and development of the Este del Sol Mountain Reserve, a sports/resort complex project located at Barrio Puray, Montalban, Rizal.4 Under the terms of the Loan Agreement, the proceeds of the loan were to be released on staggered basis. Interest on the loan was pegged at sixteen (16%) percent per annum based on

Credit Usury Part 2 the diminishing balance. The loan was payable in thirty-six (36) equal and consecutive monthly amortizations to commence at the beginning of the thirteenth month from the date of the first release in accordance with the Schedule of Amortization.5 In case of default, an acceleration clause was, among others, provided and the amount due was made subject to a twenty (20%) percent one-time penalty on the amount due and such amount shall bear interest at the highest rate permitted by law from the date of default until full payment thereof plus liquidated damages at the rate of two (2%) percent per month compounded quarterly on the unpaid balance and accrued interests together with all the penalties, fees, expenses or charges thereon until the unpaid balance is fully paid, plus attorneys fees equivalent to twenty-five (25%) percent of the sum sought to be recovered, which in no case shall be less than Twenty Thousand Pesos (P20,000.00) if the services of a lawyer were hired.6 In accordance with the terms of the Loan Agreement, respondent Este del Sol executed several documents7 as security for payment, among them, (a) a Real Estate Mortgage dated January 31, 1978 over two (2) parcels of land being utilized as the site of its development project with an area of approximately One Million Twenty-Eight Thousand and Twenty-Nine (1,028,029) square meters and particularly described in TCT Nos. N-24332 and N-24356 of the Register of Deeds of Rizal, inclusive of all improvements, as well as all the machineries, equipment, furnishings and furnitures existing thereon; and (b) individual Continuing Suretyship agreements by corespondents Valentin S. Daez, Jr., Manuel Q. Salientes, Ma. Rocio A. De Vega, Alexander G. Asuncion, Alberto M. Ladores, Vicente M. De Vera, Jr. and Felipe B. Sese, all dated February 2, 1978, to guarantee the payment of all the obligations of respondent Este del Sol up to the aggregate sum of Seven Million Five Hundred Thousand Pesos (P7,500,000.00) each.8 Respondent Este del Sol also executed, as provided for by the Loan Agreement, an Underwriting Agreement on January 31, 1978 whereby petitioner FMIC shall underwrite on a best-efforts basis the public offering of One Hundred Twenty Thousand (120,000) common shares of respondent Este del Sols capital stock for a one-time underwriting fee of Two Hundred Thousand Pesos (P200,000.00). In addition to the underwriting fee, the Underwriting Agreement provided that for supervising the public offering of the shares, respondent Este del Sol shall pay petitioner FMIC an annual supervision fee of Two Hundred Thousand Pesos (P200,000.00) per annum for a period of four (4) consecutive years. The Underwriting Agreement also stipulated for the payment by respondent Este del Sol to petitioner FMIC a consultancy fee of Three Hundred Thirty-Two Thousand Five Hundred Pesos (P332,500.00) per annum for a period of four (4) consecutive years. Simultaneous with the execution of and in accordance with the terms of the Underwriting Agreement, a Consultancy Agreement was also executed on January 31, 1978 whereby respondent Este del Sol engaged the services of petitioner FMIC for a fee as consultant to render general consultancy services.9 In three (3) letters all dated February 22, 1978 petitioner billed respondent Este del Sol for the amounts of [a] Two Hundred Thousand Pesos (P200,000.00) as the underwriting fee of petitioner FMIC in connection with the public offering of the common shares of stock of respondent Este del Sol; [b] One Million Three Hundred Thirty Thousand Pesos (P1,330,000.00) as consultancy fee for a period of four (4) years; and [c] Two Hundred Thousand Pesos (P200,000.00) as supervision fee for the year beginning February, 1978, in accordance to the Underwriting Agreement.10 The said amounts of fees were deemed paid by respondent Este del Sol to petitioner FMIC which deducted the same from the first release of the loan. Since respondent Este del Sol failed to meet the schedule of repayment in accordance with a revised Schedule of Amortization, it appeared to have incurred a total obligation of Twelve Million Six Hundred Seventy-Nine Thousand Six Hundred Thirty Pesos and Ninety-Eight Centavos (P12,679,630.98) per the petitioners Statement of Account dated June 23, 1980,11 to wit:

Page 25 of 38 STATEMENT OF ACCOUNT OF ESTE DEL SOL MOUNTAIN RESERVE, INC. AS OF JUNE 23, 1980 PARTICULARS AMOUNT Total amount due as of 11-22-78 per revised amortization schedule dated 1-3-78 P7,999,631.42 Interest on P7,999,631.42 @ 16% p.a. from 11-22-78 to 2-22-79 (92 days) 327,096.04 Balance 8,326,727.46 One time penalty of 20% of the entire unpaid obligations under Section 6.02 (ii) of Loan Agreement 1,665,345.49 Past due interest under Section 6.02 (iii) of loan Agreement: @ 19% p.a. from 2-22-79 to 11-30-79 (281 days) @ 21% p.a. from 11-30-79 to 6-23-80 (206 days) 1,481,879.93 1,200,714.10 Other charges publication of extra judicial foreclosure of REM made on 5-23-80 & 6-6-80 4,964.00 Total Amount Due and Collectible as of June 23, 1980 P12,679,630.98

Accordingly, petitioner FMIC caused the extrajudicial foreclosure of the real estate mortgage on June 23, 1980.12 At the public auction, petitioner FMIC was the highest bidder of the mortgaged properties for Nine Million Pesos (P9,000,000.00). The total amount of Three Million One Hundred Eighty-Eight Thousand Six Hundred Thirty Pesos and Seventy-Five Centavos (P3,188,630.75) was deducted therefrom, that is, for the publication fee for the publication of the Sheriffs Notice of Sale, Four Thousand Nine Hundred Sixty-Four Pesos (P4,964.00); for Sheriffs fees for conducting the foreclosure proceedings, Fifteen Thousand Pesos (P15,000.00); and for Attorneys fees, Three Million One Hundred Sixty-Eight Thousand Six Hundred Sixty-Six Pesos and Seventy-Five Centavos (P3,168,666.75). The remaining balance

Credit Usury Part 2 of Five Million Eight Hundred Eleven Thousand Three Hundred Sixty-Nine Pesos and TwentyFive Centavos (P5,811,369.25) was applied to interests and penalty charges and partly against the principal, due as of June 23, 1980, thereby leaving a balance of Six Million Eight Hundred Sixty-Three Thousand Two Hundred Ninety-Seven Pesos and Seventy-Three Centavos (P6,863,297.73) on the principal amount of the loan as of June 23, 1980.13 Failing to secure from the individual respondents, as sureties of the loan of respondent Este del Sol by virtue of their continuing surety agreements, the payment of the alleged deficiency balance, despite individual demands sent to each of them,14 petitioner instituted on November 11, 1980 the instant collection suit15 against the respondents to collect the alleged deficiency balance of Six Million Eight Hundred Sixty-Three Thousand Two Hundred Ninety-Seven Pesos and Seventy-Three Centavos (P6,863,297.73) plus interest thereon at twenty-one (21%) percent per annum from June 24, 1980 until fully paid, and twenty-five (25%) percent thereof as and for attorneys fees and costs. In their Answer, the respondents sought the dismissal of the case and set up several special and affirmative defenses, foremost of which is that the Underwriting and Consultancy Agreements executed simultaneously with and as integral parts of the Loan Agreement and which provided for the payment of Underwriting, Consultancy and Supervision fees were in reality subterfuges resorted to by petitioner FMIC and imposed upon respondent Este del Sol to camouflage the usurious interest being charged by petitioner FMIC.16 The petitioner FMIC presented as its witnesses during the trial: Cesar Valenzuela, its former Senior Vice-President, Felipe Neri, its Vice-President for Marketing, and Dennis Aragon, an Account Manager of its Account Management Group, as well as documentary evidence. On the other hand, co-respondents Vicente M. De Vera, Jr. and Valentin S. Daez, Jr., and Perfecto Doroja, former Senior Manager and Assistant Vice-President of FMIC, testified for the respondents. After the trial, the trial court rendered its decision in favor of petitioner FMIC, the dispositive portion of which reads: WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendants, ordering defendants jointly and severally to pay to plaintiff the amount of P6,863,297.73 plus 21% interest per annum, from June 24, 1980, until the entire amount is fully paid, plus the amount equivalent to 25% of the total amount due, as attorneys fees, plus costs of suit. Defendants counterclaims are dismissed, for lack of merit. Finding the decision of the trial court unacceptable, respondents interposed an appeal to the Court of Appeals. On November 8, 1999, the appellate court reversed the challenged decision of the trial court. The appellate court found and declared that the fees provided for in the Underwriting and Consultancy Agreements were mere subterfuges to camouflage the excessively usurious interest charged by the petitioner FMIC on the loan of respondent Este del Sol; and that the stipulated penalties, liquidated damages and attorneys fees were excessive, iniquitous, unconscionable and revolting to the conscience, and declared that in lieu thereof, the stipulated one time twenty (20%) percent penalty on the amount due and ten (10%) percent of the amount due as attorneys fees would be reasonable and suffice to compensate petitioner FMIC for those items. Thus, the appellate court dismissed the complaint as against the individual respondents sureties and ordered petitioner FMIC to pay or reimburse respondent Este del Sol the amount of Nine Hundred Seventy-One Thousand Pesos (P971,000.00) representing the difference between what is due to the petitioner and what is due to respondent Este del Sol, based on the following computation:17 A: DUE TO THE [PETITIONER] Principal of Loan P7,382,500.00 Add: 20% one-time Penalty Attorneys fees 1,476,500.00 900,000.00 P9,759,000.00 Less: Proceeds of foreclosure Sale 9,000,000.00 Deficiency P759,000.00 B. DUE TO [RESPONDENT ESTE DEL SOL] Return of usurious interest in the form of: Underwriting fee Supervision fee Consultancy fee P 200,000.00 200,000.00 1,330,000.00 Total amount due Este P1,730,000.00

Page 26 of 38

The appellee is, therefore, obliged to return to the appellant Este del Sol the difference of P971,000.00 or (P1,730,000.00 less P759,000.00). Petitioner moved for reconsideration of the appellate courts adverse decision. However, this was denied in a Resolution18 dated February 9, 2000 of the appellate court. Hence, the instant petition anchored on the following assigned errors:19 THE APPELLATE COURT HAS DECIDED QUESTIONS OF SUBSTANCE IN A WAY NOT IN ACCORD WITH LAW AND WITH APPLICABLE DECISIONS OF THIS HONORABLE COURT WHEN IT:

Credit Usury Part 2 a] HELD THAT ALLEGEDLY THE UNDERWRITING AND CONSULTANCY AGREEMENTS SHOULD NOT BE CONSIDERED SEPARATE AND DISTINCT FROM THE LOAN AGREEMENT, AND INSTEAD, THEY SHOULD BE CONSIDERED AS A SINGLE CONTRACT. b] HELD THAT THE UNDERWRITING AND CONSULTANCY AGREEMENTS ARE MERE SUBTERFUGES TO CAMOUFLAGE THE USURIOUS INTEREST CHARGED BY THE PETITIONER. c] REFUSED TO CONSIDER THE TESTIMONIES OF PETITIONERS WITNESSES ON THE SERVICES PERFORMED BY PETITIONER. d] REFUSED TO CONSIDER THE FACT [i] THAT RESPONDENTS HAD WAIVED THEIR RIGHT TO SEEK RECOVERY OF THE AMOUNTS THEY PAID TO PETITIONER, AND [ii] THAT RESPONDENTS HAD ADMITTED THE VALIDITY OF THE UNDERWRITING AND CONSULTANCY AGREEMENTS. e] MADE AN ERRONEOUS COMPUTATION ON SUPPOSEDLY WHAT IS DUE TO EACH PARTY AFTER THE FORECLOSURE SALE, AS SHOWN IN PP. 34-35 OF THE ASSAILED DECISION, EVEN GRANTING JUST FOR THE SAKE OF ARGUMENT THAT THE APPELLATE COURT WAS CORRECT IN STIGMATIZING [i] THE PROVISIONS OF THE LOAN AGREEMENT THAT REFER TO STIPULATED PENALTIES, LIQUIDATED DAMAGES AND ATTORNEYS FEES AS SUPPOSEDLY EXCESSIVE, INIQUITOUS AND UNCONSCIONABLE AND REVOLTING TO THE CONSCIENCE AND [ii] THE UNDERWRITING, SUPERVISION AND CONSULTANCY SERVICES AGREEMENT AS SUPPOSEDLY MERE SUBTERFUGES TO CAMOUFLAGE THE USURIOUS INTEREST CHARGED UPON THE RESPONDENT ESTE BY PETITIONER. f] REFUSED TO CONSIDER THE FACT THAT RESPONDENT ESTE, AND THUS THE INDIVIDUAL RESPONDENTS, ARE STILL OBLIGATED TO THE PETITIONER. Petitioner essentially assails the factual findings and conclusion of the appellate court that the Underwriting and Consultancy Agreements were executed to conceal a usurious loan. Inquiry upon the veracity of the appellate courts factual findings and conclusion is not the function of this Court for the Supreme Court is not a trier of facts. Only when the factual findings of the trial court and the appellate court are opposed to each other does this Court exercise its discretion to re-examine the factual findings of both courts and weigh which, after considering the record of the case, is more in accord with law and justice. After a careful and thorough review of the record including the evidence adduced, we find no reason to depart from the findings of the appellate court. First, there is no merit to petitioner FMICs contention that Central Bank Circular No. 905 which took effect on January 1, 1983 and removed the ceiling on interest rates for secured and unsecured loans, regardless of maturity, should be applied retroactively to a contract executed on January 31, 1978, as in the case at bar, that is, while the Usury Law was in full force and effect. It is an elementary rule of contracts that the laws, in force at the time the contract was made and entered into, govern it.20 More significantly, Central Bank Circular No. 905 did not repeal nor in any way amend the Usury Law but simply suspended the latters effectivity.21 The illegality of usury is wholly the creature of legislation. A Central Bank Circular cannot repeal a law. Only a law can repeal another law.22 Thus, retroactive application of a Central Bank Circular cannot, and should not, be presumed.23 Second, when a contract between two (2) parties is evidenced by a written instrument, such document is ordinarily the best evidence of the terms of the contract. Courts only need to rely

Page 27 of 38 on the face of written contracts to determine the intention of the parties. However, this rule is not without exception.24 The form of the contract is not conclusive for the law will not permit a usurious loan to hide itself behind a legal form. Parol evidence is admissible to show that a written document though legal in form was in fact a device to cover usury. If from a construction of the whole transaction it becomes apparent that there exists a corrupt intention to violate the Usury Law, the courts should and will permit no scheme, however ingenious, to becloud the crime of usury.25 In the instant case, several facts and circumstances taken altogether show that the Underwriting and Consultancy Agreements were simply cloaks or devices to cover an illegal scheme employed by petitioner FMIC to conceal and collect excessively usurious interest, and these are: a) The Underwriting and Consultancy Agreements are both dated January 31, 1978 which is the same date of the Loan Agreement.26 Furthermore, under the Underwriting Agreement payment of the supervision and consultancy fees was set for a period of four (4) years27 to coincide ultimately with the term of the Loan Agreement.28 This fact means that all the said agreements which were executed simultaneously were set to mature or shall remain effective during the same period of time. b) The Loan Agreement dated January 31, 1978 stipulated for the execution and delivery of an underwriting agreement29 and specifically mentioned that such underwriting agreement is a condition precedent30 for petitioner FMIC to extend the loan to respondent Este del Sol, indicating and as admitted by petitioner FMICs employees,31 that such Underwriting Agreement is part and parcel of the Loan Agreement.32 c) Respondent Este del Sol was billed by petitioner on February 28, 1978 One Million Three Hundred Thirty Thousand Pesos (P1,330,000.00)33 as consultancy fee despite the clear provision in the Consultancy Agreement that the said agreement is for Three Hundred ThirtyTwo Thousand Five Hundred Pesos (P332,500.00) per annum for four (4) years and that only the first year consultancy fee shall be due upon signing of the said consultancy agreement.34 d) The Underwriting, Supervision and Consultancy fees in the amounts of Two Hundred Thousand Pesos (P200,000.00), and one Million Three Hundred Thirty Thousand Pesos (P1,330,000.00), respectively, were billed by petitioner to respondent Este del Sol on February 22, 1978,35 that is, on the same occasion of the first partial release of the loan in the amount of Two Million Three Hundred Eighty-Two Thousand Five Hundred Pesos (P2,382,500.00).36 It is from this first partial release of the loan that the said corresponding bills for Underwriting, Supervision and Constantly fees were conducted and apparently paid, thus, reverting back to petitioner FMIC the total amount of One Million Seven Hundred Thirty Thousand Pesos (P1,730,000.00) as part of the amount loaned to respondent Este del Sol.37 e) Petitioner FMIC was in fact unable to organize an underwriting/selling syndicate to sell any share of stock of respondent Este del Sol and much less to supervise such a syndicate, thus failing to comply with its obligation under the Underwriting Agreement.38 Besides, there was really no need for an Underwriting Agreement since respondent Este del Sol had its own licensed marketing arm to sell its shares and all its shares have been sold through its marketing arm.39 f) Petitioner FMIC failed to comply with its obligation under the Consultancy Agreement,40 aside from the fact that there was no need for a Consultancy Agreement, since respondent Este del Sols officers appeared to be more competent to be consultants in the development of the projected sports/resort complex.41

Credit Usury Part 2 All the foregoing established facts and circumstances clearly belie the contention of petitioner FMIC that the Loan, Underwriting and Consultancy Agreements are separate and independent transactions. The Underwriting and Consultancy Agreements which were executed and delivered contemporaneously with the Loan Agreement on January 31, 1978 were exacted by petitioner FMIC as essential conditions for the grant of the loan. An apparently lawful loan is usurious when it is intended that additional compensation for the loan be disguised by an ostensibly unrelated contract providing for payment by the borrower for the lenders services which are of little value or which are not in fact to be rendered, such as in the instant case.42 In this connection, Article 1957 of the New Civil Code clearly provides that: Art. 1957. Contracts and stipulations, under any cloak or device whatever, intended to circumvent the laws against usury shall be void. The borrower may recover in accordance with the laws on usury. In usurious loans, the entire obligation does not become void because of an agreement for usurious interest; the unpaid principal debt still stands and remains valid but the stipulation as to the usurious interest is void, consequently, the debt is to be considered without stipulation as to the interest.43 The reason for this rule was adequately explained in the case of Angel Jose Warehousing Co., Inc. v. Chelda Enterprises44 where this Court held: In simple loan with stipulation of usurious interest, the prestation of the debtor to pay the principal debt, which is the cause of the contract (Article 1350, Civil Code), is not illegal. The illegality lies only as to the prestation to pay the stipulated interest; hence, being separable, the latter only should be deemed void, since it is the only one that is illegal. Thus, the nullity of the stipulation on the usurious interest does not affect the lenders right to receive back the principal amount of the loan. With respect to the debtor, the amount paid as interest under a usurious agreement is recoverable by him, since the payment is deemed to have been made under restraint, rather than voluntarily.45 This Court agrees with the factual findings and conclusion of the appellate court, to wit: We find the stipulated penalties, liquidated damages and attorneys fees, excessive, iniquitous and unconscionable and revolting to the conscience as they hardly allow the borrower any chance of survival in case of default. And true enough, ESTE folded up when the appellee extrajudicially foreclosed on its (ESTEs) development project and literally closed its offices as both the appellee and ESTE were at the time holding office in the same building. Accordingly, we hold that 20% penalty on the amount due and 10% of the proceeds of the foreclosure sale as attorneys fees would suffice to compensate the appellee, especially so because there is no clear showing that the appellee hired the services of counsel to effect the foreclosure, it engaged counsel only when it was seeking the recovery of the alleged deficiency. Attorneys fees as provided in penal clauses are in the nature of liquidated damages. So long as such stipulation does not contravene any law, morals, or public order, it is binding upon the parties. Nonetheless, courts are empowered to reduce the amount of attorneys fees if the same is iniquitous or unconscionable.46 Articles 1229 and 2227 of the New Civil Code provide that: Art. 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable. Art. 2227. Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably reduced if they are iniquitous or unconscionable.

Page 28 of 38 In the case at bar, the amount of Three Million One Hundred Eighty-Eight Thousand Six Hundred Thirty Pesos and Seventy-Five Centavos (93,188,630.75) for the stipulated attorneys fees equivalent to twenty-five (25%) percent of the alleged amount due, as of the date of the auction sale on June 23, 1980, is manifestly exorbitant and unconscionable. Accordingly, we agree with the appellate court that a reduction of the attorneys fees to ten (10%) percent is appropriate and reasonable under the facts and circumstances of this case. Lastly, there is no merit to petitioner FMICs contention that the appellate court erred in awarding an amount allegedly not asked nor prayed for by respondents. Whether the exact amount of the relief was not expressly prayed for is of no moment for the reason that the relief was plainly warranted by the allegations of the respondents as well as by the facts as found by the appellate court. A party is entitled to as much relief as the facts may warrant 47 In view of all the foregoing, the Court is convinced that the appellate court committed no reversible error in its challenged Decision. WHEREFORE, the instant petition is hereby DENIED, and the assailed Decision of the Court of Appeals is AFFIRMED. Costs against petitioner. SO ORDERED. Bellosillo, Mendoza, Quisumbing, and Buena, JJ., concur.

G.R. No. 155223 April 4, 2007 BOBIE ROSE V. FRIAS, represented by her Attorney-in-fact, MARIE F. FUJITA, Petitioner, vs. FLORA SAN DIEGO-SISON, Respondent. DECISION AUSTRIA-MARTINEZ, J.: 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 PARTYs 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.

Credit Usury Part 2 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. 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. 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 owners duplicate title knowing the same was in respondents possession, entitled respondent to moral damages; and that petitioners 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 respondents 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: 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 owners copy, she executed an affidavit of loss of TCT No. 168173 when she knew all along that said title was in respondents possession; petitioners 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. Petitioners 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:

Page 29 of 38 (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. 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 CAs 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. 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 CAs interpretation of the phrase in this wise: 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. 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.1awphi1.nt 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. 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. It is clear therefrom that petitioners execution of the affidavit of loss became the basis of the filing of the petition with the RTC for the issuance of new owners duplicate copy of TCT No. 168173. Petitioners actuation would have deprived respondent of the security for her loan were it not for respondents 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. Petitioner argues that the CA erred in awarding attorneys fees because the trial courts decision did not explain the findings of facts and law to justify the award of attorneys fees as the same was mentioned only in the dispositive portion of the RTC decision. We agree.

Credit Usury Part 2 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 attorneys fees is DELETED. No pronouncement as to costs. SO ORDERED. 44 Samatra v. Vda. de Parias, 431 Phil. 255, 267 (2002); Development Bank of the Philippines v. Court of Appeals, 330 Phil. 801, 810 (1996). 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 CAG.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: x x x x.6 Petitioner received from respondent two million pesos in cash and one million pesos in a postdated 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 owners 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 owners 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 respondents petition for relief from judgment due to the fact that respondent is in possession of the owners 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 attorneys fees.

Page 30 of 38 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 respondents 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 respondents 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 owners duplicate copy; that the petition for the issuance of a new owners 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 attorneys fees. Trial on the merits ensued. On January 31, 1996, the RTC issued a decision,17 the dispositive portion of which reads: 4) Ordering defendant to pay plaintiff attorneys fees of P100,000.00 plus cost of litigation.18 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 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. (C) WHETHER OR NOT THE GRANT OF CORRECTIVE AND EXEMPLARY DAMAGES AND ATTORNEYS FEES IS PROPER EVEN IF NOT MENTIONED IN THE TEXT OF THE DECISION.22 While the CAs 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

Credit Usury Part 2 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 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-appellants (petitioners) 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 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 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. 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 We agree with the findings of the trial court and the CA that petitioners 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 owners duplicate copy of TCT No. 168173 entitles respondent to moral damages.1a\^/phi1.net 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 owners 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 respondents possession, petitioner executed an affidavit of loss that the owners 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

Page 31 of 38 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 petitioners own witness, Benilda Ynfante (Ynfante), was not able to establish petitioners claim that the title was returned by Atty. Lozada in view of Ynfantes testimony that after the brown envelope was given to petitioner, the latter passed it on to her and she placed it in petitioners attach case36 and did not bother to look at the envelope.37 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. 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 Attorneys 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 attorneys 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 attorneys 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 attorneys fees when the trial court failed to discuss in its Decision the reasons for awarding the same. Consequently, the award of attorneys fees should be deleted.

G.R. No. 173227 January 20, 2009 SEBASTIAN SIGA-AN, Petitioner, vs. ALICIA VILLANUEVA, Respondent. DECISION CHICO-NAZARIO, J.: The facts gathered from the records are as follows: 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. 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

Credit Usury Part 2 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 Petitioner appealed to the Court of Appeals. On 16 December 2005, the appellate court promulgated its Decision affirming in toto the RTC Decision, thus: I. THE RTC AND THE COURT OF APPEALS ERRED IN RULING THAT NO INTEREST WAS DUE TO PETITIONER; II. 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. 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. 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. 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.

Page 32 of 38 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. 46 Records, p. 7. Before Us is a Petition1 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-980068. On 30 March 1998, respondent Alicia Villanueva filed a complaint5 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

Credit Usury Part 2 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 answer10 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 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 (5) Ordering defendant to pay the costs of suit.14 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: 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

Page 33 of 38 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 199423 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.

Credit Usury Part 2 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. 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. 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 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 ReplyAffidavit38 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

Page 34 of 38 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. 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.

SPOUSES DAVID B. CARPO G.R. Nos. 150773 & and RECHILDA S. CARPO, 153599

Credit Usury Part 2 Petitioners, - versus -ELEANOR CHUA and TINGA, and ELMA DY NG, CHICO-NAZARIO, JJ. Respondents. September 30, 2005 Tinga, J.: The cases stemmed from a loan contracted by petitioners. On 18 July 1995, they borrowed from Eleanor Chua and Elma Dy Ng (respondents) the amount of One Hundred Seventy-Five Thousand Pesos (P175,000.00), payable within six (6) months with an interest rate of six percent (6%) per month. To secure the payment of the loan, petitioners mortgaged their residential house and lot situated at San Francisco, Magarao, Camarines Sur, which lot is covered by Transfer Certificate of Title (TCT) No. 23180. Petitioners failed to pay the loan upon demand. Consequently, the real estate mortgage was extrajudicially foreclosed and the mortgaged property sold at a public auction on 8 July 1996. The house and lot was awarded to respondents, who were the only bidders, for the amount of Three Hundred Sixty-Seven Thousand Four Hundred Fifty-Seven Pesos and Eighty Centavos (P367,457.80). Upon failure of petitioners to exercise their right of redemption, a certificate of sale was issued on 5 September 1997 by Sheriff Rolando A. Borja. TCT No. 23180 was cancelled and in its stead, TCT No. 29338 was issued in the name of respondents. On 23 July 1999, petitioners filed a complaint for annulment of real estate mortgage and the consequent foreclosure proceedings, docketed as Civil Case No. 99-4376 of the RTC. Petitioners consigned the amount of Two Hundred Fifty-Seven Thousand One Hundred NinetySeven Pesos and Twenty-Six Centavos (P257,197.26) with the RTC. During the pendency of the case before the Court of Appeals, RTC Judge Filemon B. Montenegro dismissed the complaint in Civil Case No. 99-4376 on the ground that it was filed out of time and barred by laches. The RTC proceeded from the premise that the complaint was one for annulment of a voidable contract and thus barred by the four-year prescriptive period. Hence, the first petition for review now under consideration was filed with this Court, assailing the dismissal of the complaint. The second petition for review was filed with the Court after the Court of Appeals on 30 April 2002 annulled and set aside the RTC orders in SP No. 98-1665 on the ground that it was the ministerial duty of the lower court to issue the writ of possession when title over the mortgaged property had been consolidated in the mortgagee. This Court ordered the consolidation of the two cases, on motion of petitioners. On the other hand, petitioners argue in G.R. No. 153599 that the RTC did not commit any grave abuse of discretion when it issued the orders dated 3 August 1999 and 6 January 2000, and that these orders could not have been the proper subjects of a petition for certiorari and mandamus. More accurately, the justiciable issues before us are whether the Court of Appeals could properly entertain the petition for certiorari from the timeliness aspect, and whether the appellate court correctly concluded that the writ of possession could no longer be stayed. We first resolve the petition in G.R. No. 150773.

Page 35 of 38

In Medel, the Court found that the interest stipulated at 5.5% per month or 66% per annum was so iniquitous or unconscionable as to render the stipulation void. There is no need to unsettle the principle affirmed in Medel and like cases. From that perspective, it is apparent that the stipulated interest in the subject loan is excessive, iniquitous, unconscionable and exorbitant. Pursuant to the freedom of contract principle embodied in Article 1306 of the Civil Code, contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy. In the ordinary course, the codal provision may be invoked to annul the excessive stipulated interest. Notably in Medel, the Court did not invalidate the entire loan obligation despite the inequitability of the stipulated interest, but instead reduced the rate of interest to the more reasonable rate of 12% per annum. The same remedial approach to the wrongful interest rates involved was employed or affirmed by the Court in Solangon, Imperial, Ruiz, Cuaton, and Arrofo. The Courts ultimate affirmation in the cases cited of the validity of the principal loan obligation side by side with the invalidation of the interest rates thereupon is congruent with the rule that a usurious loan transaction is not a complete nullity but defective only with respect to the agreed interest. In Gui Jong & Co. vs. Rivera, et al., 45 Phil. 778, this Court likewise declared that, in any event, the debtor in a usurious contract of loan should pay the creditor the amount which he justly owes him, citing in support of this ruling its previous decisions in Go Chioco, Supra, Aguilar vs. Rubiato, et al., 40 Phil. 570, and Delgado vs. Duque Valgona, 44 Phil. 739. Then in Lopez and Javelona vs. El Hogar Filipino, 47 Phil. 249, We also held that the standing jurisprudence of this Court on the question under consideration was clearly to the effect that the Usury Law, by its letter and spirit, did not deprive the lender of his right to recover from the borrower the money actually loaned to and enjoyed by the latter. This Court went further to say that the Usury Law did not provide for the forfeiture of the capital in favor of the debtor in usurious contracts, and that while the forfeiture might appear to be convenient as a drastic measure to eradicate the evil of usury, the legal question involved should not be resolved on the basis of convenience. Other cases upholding the same principle are Palileo vs. Cosio, 97 Phil. 919 and Pascua vs. Perez, L-19554, January 31, 1964, 10 SCRA 199, 200-202. In the latter We expressly held that when a contract is found to be tainted with usury the only right of the respondent (creditor) was merely to collect the amount of the loan, plus interest due thereon. The view has been expressed, however, that the ruling thus consistently adhered to should now be abandoned because Article 1957 of the new Civil Code a subsequent law provides that contracts and stipulations, under any cloak or device whatever, intended to circumvent the laws against usury, shall be void, and that in such cases the borrower may recover in accordance with the laws on usury. From this the conclusion is drawn that the whole contract is void and that, therefore, the creditor has no right to recover not even his capital. The meaning and scope of our ruling in the cases mentioned heretofore is clearly stated, and the view referred to in the preceding paragraph is adequately answered, in Angel Jose, etc. vs. Chelda Enterprises, et al. (L-25704, April 24, 1968). On the question of whether a creditor in a usurious contract may or may not recover the principal of the loan, and, in the affirmative, whether or not he may also recover interest thereon at the legal rate, We said the following:

Credit Usury Part 2 Appealing directly to Us, defendants raise two questions of law: (1) In a loan with usurious interest, may the creditor recover the principal of the loan? (2) Should attorneys fees be awarded in plaintiffs favor? Great reliance is made by appellants on Art. 1411 of the New Civil Code . Since, according to the appellants, a usurious loan is void due to illegality of cause or object, the rule of pari delicto expressed in Article 1411, supra, applies, so that neither party can bring action against each other. Said rule, however, appellants add, is modified as to the borrower, by express provision of the law (Art. 1413, New Civil Code), allowing the borrower to recover interest paid in excess of the interest allowed by the Usury Law. As to the lender, no exception is made to the rule; hence, he cannot recover on the contract. So they continue the New Civil Code provisions must be upheld as against the Usury Law, under which a loan with usurious interest is not totally void, because of Article 1961 of the New Civil Code, that: Usurious contracts shall be governed by the Usury Law and other special laws, so far as they are not inconsistent with this Code. We do not agree with such reasoning. Article 1411 of the New Civil Code is not new; it is the same as Article 1305 of the Old Civil Code. Therefore, said provision is no warrant for departing from previous interpretation that, as provided in the Usury Law (Act No. 2655, as amended), a loan with usurious interest is not totally void only as to the interest. [a]ppellants fail to consider that a contract of loan with usurious interest consists of principal and accessory stipulations; the principal one is to pay the debt; the accessory stipulation is to pay interest thereon. And said two stipulations are divisible in the sense that the former can still stand without the latter. Article 1273, Civil Code, attests to this: The renunciation of the principal debt shall extinguish the accessory obligations; but the waiver of the latter shall leave the former in force. The question therefore to resolve is whether the illegal terms as to payment of interest likewise renders a nullity the legal terms as to payments of the principal debt. Article 1420 of the New Civil Code provides in this regard: In case of a divisible contract, if the illegal terms can be separated from the legal ones, the latter may be enforced. In simple loan with stipulation of usurious interest, the prestation of the debtor to pay the principal debt, which is the cause of the contract (Article 1350, Civil Code), is not illegal. The illegality lies only as to the prestation to pay the stipulated interest; hence, being separable, the latter only should be deemed void, since it is the only one that is illegal. The Courts wholehearted affirmation of the rule that the principal obligation subsists despite the nullity of the stipulated interest is evinced by its subsequent rulings, cited above, in all of which the main obligation was upheld and the offending interest rate merely corrected. Hence, it is clear and settled that the principal loan obligation still stands and remains valid. By the same token, since the mortgage contract derives its vitality from the validity of the principal obligation, the invalid stipulation on interest rate is similarly insufficient to render void the ancillary mortgage contract. Yet the RTC pronounced that the complaint was barred by the four-year prescriptive period provided in Article 1391 of the Civil Code, which governs voidable contracts. This conclusion was derived from the allegation in the complaint that the consent of petitioners was vitiated through undue influence. While the RTC correctly acknowledged the rule of prescription for voidable contracts, it erred in applying the rule in this case. We are hard put to conclude in this case that there was any undue influence in the first place.

Page 36 of 38 There is ultimately no showing that petitioners consent to the loan and mortgage agreements was vitiated by undue influence. The financial condition of petitioners may have motivated them to contract with respondents, but undue influence cannot be attributed to respondents simply because they had lent money. Article 1391, in relation to Article 1390 of the Civil Code, grants the aggrieved party the right to obtain the annulment of contract on account of factors which vitiate consent. Article 1337 defines the concept of undue influence, as follows: There is undue influence when a person takes improper advantage of his power over the will of another, depriving the latter of a reasonable freedom of choice. The following circumstances shall be considered: the confidential, family, spiritual and other relations between the parties or the fact that the person alleged to have been unduly influenced was suffering from mental weakness, or was ignorant or in financial distress. The RTC had likewise concluded that petitioners were barred by laches from assailing the validity of the real estate mortgage. We wholeheartedly agree. If indeed petitioners unwillingly gave their consent to the agreement, they should have raised this issue as early as in the foreclosure proceedings. It was only when the writ of possession was issued did petitioners challenge the stipulations in the loan contract in their action for annulment of mortgage. Evidently, petitioners slept on their rights. The Court of Appeals succinctly made the following observations: Clearly then, with the absence of undue influence, petitioners have no cause of action. Even assuming undue influence vitiated their consent to the loan contract, their action would already be barred by prescription when they filed it. Moreover, petitioners had clearly slept on their rights as they failed to timely assail the validity of the mortgage agreement. The denial of the petition in G.R. No. 150773 is warranted. We now resolve the petition in G.R. No. 153599. Petitioners claim that the assailed RTC orders dated 3 August 1999 and 6 January 2000 could no longer be questioned in a special civil action for certiorari and mandamus as the reglementary period for such action had already elapsed. It must be noted that the Order dated 3 August 1999 suspending the enforcement of the writ of possession had a period of effectivity of only twenty (20) days from 3 August 1999, or until 23 August 1999. Thus, upon the expiration of the twenty (20)-day period, the said Order became functus officio. Thus, there is really no sense in assailing the validity of this Order, mooted as it was. For the same reason, the validity of the order need not have been assailed by respondents in their special civil action before the Court of Appeals. On the other hand, the Order dated 6 January 2000 is in the nature of a writ of injunction whose period of efficacy is indefinite. It may be properly assailed by way of the special civil action for certiorari, as it is interlocutory in nature. Since the 6 January 2000 Order is not a final order, but rather interlocutory in nature, we cannot agree with petitioners who insist that it may be assailed only through an appeal perfected within fifteen (15) days from receipt thereof by respondents. It is axiomatic that an interlocutory order cannot be challenged by an appeal, Accordingly, no error can be attributed to the Court of Appeals in granting the petition for certiorari and mandamus. As pointed out by respondents, the remedy of mandamus lies to compel the performance of a ministerial duty. The issuance of a writ of possession to a purchaser in an extrajudicial foreclosure is merely a ministerial function.[26]

Credit Usury Part 2 One final note. The issue on the validity of the stipulated interest rates, regrettably for petitioners, was not raised at the earliest possible opportunity. It should be pointed out though that since an excessive stipulated interest rate may be void for being contrary to public policy, an action to annul said interest rate does not prescribe. Such indeed is the remedy; it is not the action for annulment of the ancillary real estate mortgage. Despite the nullity of the stipulated interest rate, the principal loan obligation subsists, and along with it the mortgage that serves as collateral security for it. WHEREFORE, in view of all the foregoing, the petitions are DENIED. Costs against petitioners. SO ORDERED. [25]Yamaoka v. Pescarich, 414 Phil. 211 (2001); Go v. Court of Appeals, 358 Phil. 214 (1998). [T]he proper remedy in such cases is an ordinary appeal from an adverse judgment on the merits, incorporating in said appeal the grounds for assailing the interlocutory orders. Allowing appeals from interlocutory orders would result in the sorry spectacle of a case being subject of a counterproductive ping-pong to and from the appellate court as often as a trial court is perceived to have made an error in any of its interlocutory rulings. However, where the assailed order is patently erroneous and the remedy of appeal would not afford adequate and expeditious relief, the Court may allow certiorari as a mode of redress. [26]F. David Enterprises v. Insular Bank of Asia and America, G.R. No. 78714, 21 November 1990, 191 SCRA 516; Primetown Property Group v. Juntilla, G.R. No. 157801, 8 June 2005; Santiago v. Merchants Rural Bank of Talavera, Inc., G.R. No. 147820, 18 March 2005; DBP v. Gatal, G.R. No. 138567, 4 March 2005; Mamerto Maniquis Foundation v. Pizarro, A.M. No. RTJ-03-1750, 14 January 2005, 448 SCRA 140; De Vera v. Agloro, G.R. No. 155673, 14 January 2005, 448 SCRA 203, citing China Banking Corporation v. Ordinario, G.R. No. 121943, 24 March 2003, 399 SCRA 430; A.G. Development Corporation v. Court of Appeals, 346 Phil. 136 (1997); Suico Industrial Corporation v. Court of Appeals, 361 Phil. 160 (1999); Idolor v. Court of Appeals, G.R. No. 161028, 31 January 2005, 450 SCRA 396, citing Samson, et al. v. Judge Rivera, et al., G.R. No. 154355, 20 May 2004, 428 SCRA 75 [27]Primetown Property Group v. Juntilla, G.R. No. 157801, 8 June 2005; Santiago v. Merchants Rural Bank of Talavera, Inc., G.R. No. 147820, 18 March 2005; DBP v. Gatal, G.R. No. 138567, 4 March 2005; Mamerto Maniquis Foundation v. Pizarro, A.M. No. RTJ-03-1750, 14 January 2005, 448 SCRA 140; De Vera v. Agloro, G.R. No. 155673, 14 January 2005, 448 SCRA 203, citing China Banking Corporation v. Ordinario, G.R. No. 121943, 24 March 2003, 399 SCRA 430; A.G. Development Corporation v. Court of Appeals, 346 Phil. 136 (1997); Suico Industrial Corporation v. Court of Appeals, 361 Phil. 160 (1999). Idolor v. Court of Appeals, G.R. No. 161028, 31 January 2005, 450 SCRA 396, citing Samson, et al. v. Judge Rivera, et al., G.R. No. 154355, 20 May 2004, 428 SCRA 759. [28]Kho v. Court of Appeals, G.R. No. 83498, 22 October 1991, 203 SCRA 160; Veloso v. Intermediate Appellate Court, G.R. No. 73338, 21 January 1992, 205 SCRA 227. Before this Court are two consolidated petitions for review. The first, docketed as G.R. No. 150773, assails the Decision[1] of the Regional Trial Court (RTC), Branch 26 of Naga City dated 26 October 2001 in Civil Case No. 99-4376. RTC Judge Filemon B. Montenegro dismissed the complaint[2] for annulment of real estate mortgage and consequent foreclosure proceedings filed by the spouses David B. Carpo and Rechilda S. Carpo (petitioners). The second, docketed as G.R. No. 153599, seeks to annul the Court of Appeals Decision[3] dated 30 April 2002 in CA-G.R. SP No. 57297. The Court of Appeals Third Division annulled and set aside the orders of Judge Corazon A. Tordilla to suspend the sheriffs enforcement of the writ of possession.

Page 37 of 38 Despite the issuance of the TCT, petitioners continued to occupy the said house and lot, prompting respondents to file a petition for writ of possession with the RTC docketed as Special Proceedings (SP) No. 98-1665. On 23 March 1999, RTC Judge Ernesto A. Miguel issued an Order[4] for the issuance of a writ of possession. Meanwhile, in SP No. 98-1665, a temporary restraining order was issued upon motion on 3 August 1999, enjoining the enforcement of the writ of possession. In an Order[5] dated 6 January 2000, the RTC suspended the enforcement of the writ of possession pending the final disposition of Civil Case No. 99-4376. Against this Order, respondents filed a petition for certiorari and mandamus before the Court of Appeals, docketed as CA-G.R. SP No. 57297. In G.R. No. 150773, petitioners claim that following the Courts ruling inMedel v. Court of Appeals[6] the rate of interest stipulated in the principal loan agreement is clearly null and void. Consequently, they also argue that the nullity of the agreed interest rate affects the validity of the real estate mortgage. Notably, while petitioners were silent in their petition on the issues of prescription and laches on which the RTC grounded the dismissal of the complaint, they belatedly raised the matters in their Memorandum. Nonetheless, these points warrant brief comment. Petitioners contend that the agreed rate of interest of 6% per month or 72% per annum is so excessive, iniquitous, unconscionable and exorbitant that it should have been declared null and void. Instead of dismissing their complaint, they aver that the lower court should have declared them liable to respondents for the original amount of the loan plus 12% interest per annum and 1% monthly penalty charge as liquidated damages,[7] in view of the ruling in Medel v. Court of Appeals.[8] 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. The stipulation is void. The Court shall reduce equitably liquidated damages, whether intended as an indemnity or a penalty if they are iniquitous or unconscionable.[9] In a long line of cases, this Court has invalidated similar stipulations on interest rates for being excessive, iniquitous, unconscionable and exorbitant. In Solangon v. Salazar,[10] we annulled the stipulation of 6% per month or 72% per annum interest on a P60,000.00 loan. In Imperial v. Jaucian,[11] we reduced the interest rate from 16% to 1.167% per month or 14% per annum. In Ruiz v. Court of Appeals,[12] we equitably reduced the agreed 3% per month or 36% per annum interest to 1% per month or 12% per annum interest. The 10% and 8% interest rates per month on a P1,000,000.00 loan were reduced to 12% per annum in Cuaton v. Salud.[13] Recently, this Court, in Arrofo v. Quino,[14]reduced the 7% interest per month on a P15,000.00 loan amounting to 84% interest per annum to 18% per annum. In the case at bar, the stipulated interest rate is 6% per month, or 72% per annum. By the standards set in the above-cited cases, this stipulation is similarly invalid. However, the RTC refused to apply the principle cited and employed in Medel on the ground that Medel did not pertain to the annulment of a real estate mortgage,[15] as it was a case for annulment of the loan contract itself. The question thus sensibly arises whether the invalidity of the stipulation on interest carries with it the invalidity of the principal obligation. The question is crucial to the present petition even if the subject thereof is not the annulment of the loan contract but that of the mortgage contract. The consideration of the mortgage contract is the same as that of the principal contract from which it receives life, and without which it cannot exist as an independent contract. Being a mere accessory contract, the validity of the mortgage contract would depend on the validity of the loan secured by it.[16]

Credit Usury Part 2 We are aware that the Court of Appeals, on certain occasions, had ruled that a usurious loan is wholly null and void both as to the loan and as to the usurious interest.[17] However, this Court adopted the contrary rule, as comprehensively discussed in Briones v. Cammayo:[18] The principal debt remaining without stipulation for payment of interest can thus be recovered by judicial action. And in case of such demand, and the debtor incurs in delay, the debt earns interest from the date of the demand (in this case from the filing of the complaint). Such interest is not due to stipulation, for there was none, the same being void. Rather, it is due to the general provision of law that in obligations to pay money, where the debtor incurs in delay, he has to pay interest by way of damages (Art. 2209, Civil Code). The court a quo therefore, did not err in ordering defendants to pay the principal debt with interest thereon at the legal rate, from the date of filing of the complaint.[19] It should be noted that had the Court declared the loan and mortgage agreements void for being contrary to public policy, no prescriptive period could have run.[20] Such benefit is obviously not available to petitioners. While petitioners were allegedly financially distressed, it must be proven that there is deprivation of their free agency. In other words, for undue influence to be present, the influence exerted must have so overpowered or subjugated the mind of a contracting party as to destroy his free agency, making him express the will of another rather than his own.[21] The alleged lingering financial woes of petitioners per se cannot be equated with the presence of undue influence. In all these proceedings starting from the foreclosure, followed by the issuance of a provisional certificate of sale; then the definite certificate of sale; then the issuance of TCT No. 29338 in favor of the defendants and finally the petition for the issuance of the writ of possession in favor of the defendants, there is no showing that plaintiffs questioned the validity of these proceedings. It was only after the issuance of the writ of possession in favor of the defendants, that plaintiffs allegedly tendered to the defendants the amount of P260,000.00 which the defendants refused. In all these proceedings, why did plaintiffs sleep on their rights?[22] As a rule, the special civil action for certiorari under Rule 65 must be filed not later than sixty (60) days from notice of the judgment or order.[23] Petitioners argue that the 3 August 1999 Order could no longer be assailed by respondents in a special civil action for certiorari before the Court of Appeals, as the petition was filed beyond sixty (60) days following respondents receipt of the Order. Considering that the 3 August 1999 Order had become functus officio in the first place, this argument deserves scant consideration. Petitioners further claim that the 6 January 2000 Order could not have likewise been the subject of a special civil action for certiorari, as it is according to them a final order, as opposed to an interlocutory order. That the 6 January 2000 Order is interlocutory in nature should be beyond doubt. An order is interlocutory if its effects would only be provisional in character and would still leave substantial proceedings to be further had by the issuing court in order to put the controversy to rest.[24] The injunctive relief granted by the order is definitely final, but merely provisional, its effectivity hinging on the ultimate outcome of the then pending action for annulment of real estate mortgage. Indeed, an interlocutory order hardly puts to a close, or disposes of, a case or a disputed issue leaving nothing else to be done by the court in respect thereto, as is characteristic of a final order. but is susceptible to review only through the special civil action of certiorari.[25] The sixty (60)day reglementary period for special civil actions under Rule 65 applies, and respondents petition was filed with the Court of Appeals well within the period.

Page 38 of 38 Thus, we also affirm the Court of Appeals ruling to set aside the RTC orders enjoining the enforcement of the writ of possession.[27] The purchaser in a foreclosure sale is entitled as a matter of right to a writ of possession, regardless of whether or not there is a pending suit for annulment of the mortgage or the foreclosure proceedings. An injunction to prohibit the issuance or enforcement of the writ is entirely out of place.[28]