Republic vs.

PLDT
(1969) FACTS: Sometime in 1933, the defendant PLDT entered into an agreement with RCA Communications Inc., an American corporation, whereby telephone messages coming from the US and received by RCAs domestic station, could automatically be transferred to th e lines of PLDT, and vice versa. The plaintiff through the Bureau of Telecommunications, after having set up its own Government Telephone System, by utilizing its own appropriation and equipment and by renting trunk lines of the PLDT, entered into an agreement with RCA for a joint overseas telephone service. Alleging that plaintiff is in competition with them, PLDT notified the former and receiving no reply, disconnected the trunk lines being rented by the same; thus, prompting the plaintiff to file a case before the CFI praying for judgment commanding PLDT to execute a contract with the Bureau for the use of the facilities of PLDTs telephone system, and for a writ of preliminary injunction against the defendant to restrain the severance of the existing trunk lines and restore those severed. ISSUE: Whether or not the defendant PLDT can be compelled to enter into a contract with the plaintiff. HELD: x x x while the Republic may not compel the PLDT to celebrate a contract with it, the Republic may, in the exercise of the sovereign power of eminent domain, require the telephone company to permit interconnection of the government telephone system and that of the PLDT, as the needs of the government service may require, subject to the payment of just compensation to be determined by the court.

G.R. No. L-40424 June 30, 1980 R. MARINO CORPUS, petitioner, vs. COURT OF APPEALS and JUAN T. DAVID, respondents

MAKASIAR, J.: A Having been close friends, aside from being membres Civil Liberties Union, petitioner Corpus intimately calls respondent David by his nickname "Juaning" and the latter addresses the former simply as "Marino". The factual setting of this case is stated in the decision of the lower court, thus: It appears that in March, 1958, the defendant was charged administratively by several employees of the Central Bank Export Department of which the defendant is the director. Then Governor of Central Bank, Miguel Cuaderno, Sr., recommended that the defendant be considered resigned as on the ground that he had lost confidence in him.. On August 18, 1959, the defendant, filed a case against Miguel Cuaderno, Sr., the Central Bank and Mario Marcos who was appointed to the position of the defendant, On March 30, 1962, the Supreme Court promulgated its decision reversing the order of dismissal and remanding the case for further proceedings. On April 18, 1962, after the promulgation of the decision of the Supreme Court reversing the dismissal of the case the defendant wrote the plaintiff the following letter, Exhibit 'Q'. . xxxxxxxxx Dear Juaning Will you please accept the attached check in the amount of TWO THOUSAND P2,000.00) PESOS for legal services in the handling of L-17860 recently decided by the Court? I wish I could give more but as y u know we were banking on a SC decision reinstating me and reimburse my backstage I had been wanting to offer some token of my appreciation of your legal fight for and in my behalf, and it was only last week that I received something on account of a pending claim. Looking forward to a continuation of the case in the lower court, I remain Sincerely yours, Illegible xxxxxxxxx In a reply letter dated April 25, 1962, the plaintiff returned the check, explaining said act as follows:

April 25, 1962 My dear Marino: Yesterday, I received your letter of April 18th with its enclosure. I wished thank you for your kind thoughts, however, please don't take offense if I have to return the check. I will explain. When I decided to render professional services in your case, I was motivated by the value to me of the very intimate relations which you and I have enjoyed during the past many years. It was nor primarily, for a professional fee. Although we were not fortunate to have obtained a decision in your case which should have put an end to it. I feel that we have reason to be jubilant over the outcome, because, the final favorable outcome of the case seems certain irrespective of the length of time required to terminate the same. Your appreciation of the efforts I have invested in your case is enough compensation therefor, however, when you shall have obtained a decision which would have finally resolved the case in your favor, remembering me then will make me happy. In the meantime, you will make me happier by just keeping the check. Sincerely yours, JUANING xxxxxxxxx When the case was remanded for further proceedings before Judge Lantin, the evidence for the defendant was presented by Atty. 'Alvarez with the plaintiff cooperating in the same-'On June 24, 1963, Judge Lantin rendered his decision in favor of the defendant declaring illegal the resolution of the Monetary Board of July 20, 1959, and ordering the defendant's reinstatement and the payment of his back salaries and allowances - The respondents in said Civil Case No. 41226 filed a motion for reconsideration which was opposed by the herein plaintiff. The said decision was appealed by the respondents, as well as by the herein defendant with respect to the award of P5, 000. 00 attorney's feed The plaintiff prepared two briefs for submission to the Court of Appeals one as appellee (Exhibit H) and the other as appellant (Exhibit H-1). The Court of Appeal however, certified the case to the Supreme Court in 1964. On March 31, 1965, the Supreme Court rendered a decision affirming the judgment of the Court of first Instance of Manila. On April 19, 1965 the plaintiffs law office made a formal de command upon the defendant for collection of 50% of the amount recovered by the defendant as back salaries and other emoluments from the Central Bank (Exhibit N). This letter was written after the defendant failed to appear at an appointment with the plaintiff so that they could go together to the Central Bank to claim the possession of the office to which the defendant was reinstated and after a confrontation in the office of the plaintiff wherein the plaintiff was remanding 50% of the back salaries and other

emoluments amounting to P203,000.00 recoverable by the defendant. The defendant demurred to this demand inasmuch as he had plenty of outstanding obligations and that his tax liability for said back salaries was around P90,000.00, and that he expected to net only around P10,000.00 after deducting all expenses and taxes. On the same date, April 19,1965 the plaintiff wrote the Governor for of Central Bank requesting that the amount representing the sack salaries of the defendant be made out in two one in favor of the defendant and the other representing the professional fees equivalent to 50% of the said back salaries being claimed by the plaintiff (Exhibit 8). F to obtain the relief from the Governor of Central Bank, the plaintiff instituted this action before this Court on July 20, 1965 (Emphasis supplied). Hence, the instant petition for review on certiorari, petitioner contending that the respondent Court of Appeals erred in finding that petitioner accepted private respondent's services "with the understanding of both that he (private respondent) was to be compensated" in money; and that the fee of private respondent was contingent (pp. 3 & 5, Petition for Certiorari, pp. 17 & 19, rec.). The main thrust of this petition for review is whether or not private respondent Atty. Juan T. David is entitled to attorney's fees. Petitioner Marino Corpus contends that respondent David is not entitled to attorney's fees because there was no contract to that effect. On the other hand, respondent David contends that the absence of a formal contract for the payment of the attorney's fees will not negate the payment thereof because the contract may be express or implied, and there was an implied understanding between the petitioner and private respondent that the former will pay the latter attorney's fees when a final decision shall have been rendered in favor of the petitioner reinstating him to -his former position in the Central Bank and paying his back salaries. I WE find respondent David's position meritorious. While there was express agreement between petitioner Corpus and respondent David as regards attorney's fees, the facts of the case support the position of respondent David that there was at least an implied agreement for the payment of attorney's fees. Petitioner's act of giving the check for P2,000.00 through his aforestated April 18, 1962 letter to respondent David indicates petitioner's commitment to pay the former attorney's fees, which is stressed by expressing that "I wish I could give more but as you know we were banking on a SC decision reinstating me and reimbursing my back salaries This last sentiment constitutes a promise to pay more upon his reinstatement and payment of his back salaries. Petitioner ended his letter that he was "looking forward to a continuation of the case in the lower court, ... to which the certiorarimandamus-quo warranto case was remanded by the Supreme Court for further proceedings. Moreover, respondent David's letter-reply of April 25, 1962 confirms the promise of petitioner Corpus to pay attorney's fees upon his reinstatement and payment of back salaries. Said reply states that respondent David decided to be his counsel in the case because of the value to him of their intimate relationship over the years and "not, primarily, for a professional fee." It is patent then, that respondent David agreed to render professional services to petitioner Corpus secondarily for a professional fee. This is stressed by the last paragraph of said reply which states that "however, when you shall have obtained a decision which would have finally resolved the case in your favor,

remembering me then will make me happy. In the meantime, you will make me happier by just keeping the check." Thereafter, respondent David continued to render legal services to petitioner Corpus, in collaboration with Atty. Alverez until he and Atty. Alvarez secured the decision directing petitioner's reinstatement with back salaries, which legal services were undisputedly accepted by, and benefited petitioner. It is further shown by the records that in the motion filed on March 5, 1975 by petitioner Corpus before the Court of Appeals for the reconsideration of its decision the order of the lower court granting P30,000.00 attorney's fee's to respondent David, he admitted that he was the first to acknowledge that respondent David was entitled to tion for legal services rendered when he sent the chock for P2,000.00 in his letter of April 18, 1962, and he is still to compensate the respondent but only to the extent of P10,000.00 (p. 44, rec.). This admission serves only to further emphasize the fact that petitioner Corpus was aware all the time that he was liable to pay attorney's fees to respondent David which is therefore inconsistent with his position that the services of respondent David were gratuitous, which did not entitle said respondent to compensation. It may be advanced that respondent David may be faulted for not reducing the agreement for attorney's fees with petitioner Corpus in writing. However, this should be viewed from their special relationship. It appears that both have been friends for several years and were co-members of the Civil Liberties Union. In addition, respondent David and petitioner's father, the late Rafael Corpus, were also close friends. Thus, the absence of an express contract for attorney's fees between respondent David and petitioner Corpus is no argument against the payment of attorney's fees, considering their close relationship which signifies mutual trust and confidence between them. II Moreover, the payment of attorney's fees to respondent David may also be justified by virtue of the innominate contract of facio ut des (I do and you give which is based on the principle that "no one shall unjustly enrich himself at the expense of another." innominate contracts have been elevated to a codal provision in the New Civil Code by providing under Article 1307 that such contracts shall be regulated by the stipulations of the parties, by the general provisions or principles of obligations and contracts, by the rules governing the most analogous nominate contracts, and by the customs of the people. The rationale of this article was stated in the 1903 case of Perez vs. Pomar (2 Phil. 982). In that case, the Court sustained the claim of plaintiff Perez for payment of services rendered against defendant Pomar despite the absence of an express contract to that effect, thus: It does not appear that any written contract was entered into between the parties for the employment of the plaintiff as interpreter, or that any other innominate contract was entered into but whether the plaintiffs services were solicited or whether they wereoffered to the defendant for his assistance, inasmuch as these services were accepted and made use of by the latter, we must consider that there was a tacit and mutual consent as to the rendition of the services. This gives rise to the obligation upon the person benefited by the services to make compensation therefor, since the bilateral obligation to render service as interpreter, on the one hand, and on the other to pay for the service rendered, is thereby incurred. (Arts. 1088, 1089, and 1262 of the Civil Code). xxxxxxxxx WE reiterated this rule in Pacific Merchandising Corp. vs. Consolacion Insurance & Surety Co., Inc. (73 SCRA 564 [1976]) citing the case of Perez v. Pomar, supra thus:

Where one has rendered services to another, and these services are accepted by the latter, in the absence of proof that the service was rendered gratuitously, it is but just that he should pay a reasonable remuneration therefor because 'it is a wellknown principle of law, that no one should be permitted to enrich himself to the damage of another (emphasis supplied).

GEORGE W. BATCHELDER vs. THE CENTRAL BANK OF THE PHILIPPINES G.R. No. L-25071 March 29, 1972 Facts: Monetary Board Resolution No. 857 requires Filipino and American resident contractors for constructions in U.S. military bases in the Philippines to surrender to the Central Bank their dollar earnings under their respective contracts but were entitled to utilize 90% of their surrendered dollars for importation at the preferred rate of commodities for use within or outside said U.S. military bases. Resolution 695 moreover, denies their right to reacquire at the preferred rate ninety per cent (90%) of the foreign exchange the sold or surrendered earnings to Central Bank for the purpose of determining whether the imports against proceeds of contracts entered into prior to April 25, 1960 are classified as dollar-to-dollar transactions or not. George Batchelder, an American Citizen permanently residing in the Philippines who is engaged in the Construction Business, surrendered to the Central Bank his dollar earnings amounting to U.S. $199,966.00. He compels Central Bank of the Philippines to resell to him $170,210.60 at the preferred rate of exchange of two Philippine pesos for one American dollar, more specifically P2.00375 which was denied by the court. He then contended that said decision failed to consider that if there was no contract obligating the bank to resell to him at the preferred rate, the judgment of the lower court can and should nevertheless be sustained on the basis of there being such an obligation arising from law. Issue: Whether or not Central Bank has the obligation arising from law to resell the US$154,094.56 to Batchelder at the preferred rate. Held: Central Bank was intended to attain basic objectives in the field of currency and finance. It shall be the responsibility of the Central Bank of the Philippines to administer the monetary and banking system of the Republic. It shall be the duty of the Central Bank to use the powers granted to it under this Act to achieve the following objectives: (a) to maintain monetary stability in the Philippines; (b) to preserve the international value of the peso and the convertibility of the peso into other freely convertible currencies; and (c) to promote a rising level of production, employment and real income in the Philippines." It is, of course, true that obligations arise from 1) law; 2) contracts; 3) quasi-contracts; 4) acts or omissions punished by law and 5) quasi-delicts. One of the sources an obligation then is a law. A legal norm could so require that a particular party be chargeable with a prestation or undertaking to give or to deliver or to do or to render some service. It is an indispensable requisite though that such a provision, thus in fact exists. There must be a showing to that effect. As early as 1909 in Pelayo v. Lauron, Court through Justice Torres, categorically declared: "Obligation arising from law are not presumed." For in the language of Justice Street in Leung Ben v. O'Brien, a 1918 decision, such an obligation is "a creation of the positive law." They are ordinarily traceable to code or statute. It is true though, as noted in the motion for reconsideration following People v. Que Po Lay, that a Central Bank circular may have the force and effect of law, especially when issued in

pursuance of its quasi-legislative power. That of itself, however, is no justification to conclude that it has thereby assumed an obligation.

Emeterio Cui vs. Arellano University G.R. No. 15172 May 30, 1961

FACTS: Before the school year 1948-1949 Emeterio Cui took up preparatory law course in the Arellano University. After Finishing his preparatory law course plaintiff enrolled in the College of Law of the defendant from school year 1948-1949. Plaintiff finished his law studies in the defendant university up to and including the first semester of the fourt year. During all the school years in which plaintiff was studying law in defendant law college, Francisco R. Capistrano, brother of mother of plaintiff, was the dean of college of law and legal counsel of the defendant university. Plaintiff enrolled for last semester of his law studies in the defendant university but failed to pay tuition fees because his uncle Dean Francisco R. Capistrano, having severed his connection with defendant and having accepted the deanship and chancellorship of the college of law of the Abad Santos University graduating from the college of law of the latter university. Plaintiff, during all the time he has studying law in Defendant University was awarded scholarship grants, for scholastic merit, so that his semestral tuition fees were retured to him after the end of semester and when his scholarship grants were awarded to him. The whole amount of tuition fess paid by the plaintiff to defendant and refunded to him by the latter from the first semester up to and including the first semester of his last year in college of law or the fourth year, is in total P1,003.87. After Graduating in law from Abad Santos University he applied to take the bar examination. To secure permission to take the bar, he needed the transcript of his records in defendant Arellano University. Plaintiff petitioned the latter to issue to him the needed transcripts. The defendant refused until after he paid back the P1,003.87 which defendant refunded him. As he could not take the bar examination without those transcripts, plaintiff paid to defendant the said sum under protest. The issue in this case is whether the above quoted provision of the contract between plaintiff and the defendant, whereby the former waived his right to transfer to another school without refunding to the latter the equivalent of his scholarships in cash, is valid or not. The lower court resolved this question in the affirmative, upon the ground that the aforementioned memorandum of the Director of Private Schools is not a law; that the provisions thereof are advisory, not mandatory in nature; and that, although the contractual provision "may be unethical, yet it was more unethical for plaintiff to quit studying with the defendant without good reasons and simply because he wanted to follow the example of his uncle." Moreover, defendant maintains in its brief that the aforementioned memorandum of the Director of Private Schools is null and void because said officer had no authority to issue it, and because it had been neither approved by the corresponding department head nor published in the official gazette. We do not deem it necessary or advisable to consider as the lower court did, the question whether plaintiff had sufficient reasons or not to transfer from defendant University to the Abad Santos University. The nature of the issue before us, and its far reaching effects, transcend personal equations and demand a determination of the case from a high impersonal plane. Neither do we deem it essential to pass upon the validity of said Memorandum No. 38, for, regardless of the same, we are of the opinion that the stipulation in question is contrary to public policy and, hence, null and void. The aforesaid memorandum merely incorporates a sound principle of public policy. As the Director of Private Schools correctly pointed, out in his letter, Exhibit B, to the defendant, There is one more point that merits refutation and that is whether or not the contract entered into between Cui and Arellano University on September 10, 1951 was void as against public

policy. In the case of Zeigel vs. Illinois Trust and Savings Bank, 245 Ill. 180, 19 Ann. Case 127, the court said: 'In determining a public policy of the state, courts are limited to a consideration of the Constitution, the judicial decisions, the statutes, and the practice of government officers.' It might take more than a government bureau or office to lay down or establish a public policy, as alleged in your communication, but courts consider the practices of government officials as one of the four factors in determining a public policy of the state. It has been consistently held in America that under the principles relating to the doctrine of public policy, as applied to the law of contracts, courts of justice will not recognize or uphold a transaction which its object, operation, or tendency is calculated to be prejudicial to the public welfare, to sound morality or to civic honesty (Ritter vs. Mutual Life Ins. Co., 169 U.S. 139; Heding vs. Gallaghere 64 L.R.A. 811; Veazy vs. Allen, 173 N.Y. 359). If Arellano University understood clearly the real essence of scholarships and the motives which prompted this office to issue Memorandum No. 38, s. 1949, it should have not entered into a contract of waiver with Cui on September 10, 1951, which is a direct violation of our Memorandum and an open challenge to the authority of the Director of Private Schools because the contract was repugnant to sound morality and civic honesty. And finally, in Gabriel vs. Monte de Piedad, Off. Gazette Supp. Dec. 6, 1941, p. 67 we read: 'In order to declare a contract void as against public policy, a court must find that the contract as to consideration or the thing to be done, contravenes some established interest of society, or is inconsistent with sound policy and good morals or tends clearly to undermine the security of individual rights. The policy enunciated in Memorandum No. 38, s. 1949 is sound policy. Scholarship are awarded in recognition of merit not to keep outstanding students in school to bolster its prestige. In the understanding of that university scholarships award is a business scheme designed to increase the business potential of an education institution . Thus conceived it is not only inconsistent with sound policy but also good morals. But what is morals? Manresa has this definition. It is good customs; those generally accepted principles of morality which have received some kind of social and practical confirmation. The practice of awarding scholarships to attract students and keep them in school is not good customs nor has it received some kind of social and practical confirmation except in some private institutions as in Arellano University. The University of the Philippines which implements Section 5 of Article XIV of the Constitution with reference to the giving of free scholarships to gifted children, does not require scholars to reimburse the corresponding value of the scholarships if they transfer to other schools. So also with the leading colleges and universities of the United States after which our educational practices or policies are patterned. In these institutions scholarships are granted not to attract and to keep brilliant students in school for their propaganda mine but to reward merit or help gifted students in whom society has an established interest or a first lien. (Emphasis supplied.) WHEREFORE, the decision appealed from is hereby reversed and another one shall be entered sentencing the defendant to pay to the plaintiff the sum of P1,033.87, with interest thereon at the legal rate from September 1, 1954, date of the institution of this case, as well as the costs, and dismissing defendant's counterclaim. It is so ordered.

G.R. No. L-13403

March 23, 1960

RAMON E. SAURA, plaintiff-appellant, vs. ESTELA P. SINDICO, defendant-appellee. Anacleto Magno for appellant. Espeque and Jalandoni for appellee. REYES, J. B. L., J.: Appeal on issues of law from an order of the Court of First Instance of Pangasinan dismissing plaintiff's complaint for damages. From the records it appears that Ramon E. Saura and Estela P. Sindico were contesting for nomination as the official candidate of the Nacionalista Party in the fourth district of Pangasinan in the congressional elections of November 12, 1957. On August 23, 1957, the parties entered into a written agreement bearing the same date, containing among other matters stated therein, a pledge that Each aspirant shall respect the result of the aforesaid convention, i.e., no one of us shall either run as a rebel or independent candidate after losing in said convention. In the provincial convention held by the Nacionalista Party on August 31, 1957, Saura was elected and proclaimed the Party's official congressional candidate for the aforesaid district of Pangasinan. Nonetheless, Sindico, in disregard of the covenant, filed, on September 6, 1957, her certificate of candidacy for the same office with the Commission on Elections, and she openly and actively campaigned for her election. Wherefore, on October 5, 1957, plaintiff Saura commenced this suit for the recovery of damages. Upon motion of the defendant, the lower court, in its order of November 19, 1957, dismissed the complaint on the basis that the agreement sued upon is null and void, in tat (1) the subject matter of the contract, being a public office, is not within the commerce of man; and (2) the "pledge" was in curtailment of the free exercise of elective franchise and therefore against public policy. Hence, this appeal. We agree with the lower court in adjudging the contract or agreement in question a nullity. Among those that may not be the subject matter (object) of contracts are certain rights of individuals, which the law and public policy have deemed wise to exclude from the commerce of man. Among them are the political rights conferred upon citizens, including, but not limited to, once's right to vote, the right to present one's candidacy to the people and to be voted to public office, provided, however, that all the qualifications prescribed by law obtain. Such rights may not, therefore, be bargained away curtailed with impunity, for they are conferred not for individual or private benefit or advantage but for the public good and interest. Constitutional and statutory provision fix the qualifications of persons who may be eligible for certain elective public offices. Said requirements may neither be enlarged nor reduced by mere agreements between private parties. A voter possessing all the qualifications required to fill an office may, by himself or through a political party or group, present his candidacy without further limitations than those provided by law. Every voter has a right to be a candidate for public office if he possesses the qualifications required to fill the office. It does not necessarily follow that he can be the candidate of a particular political party. The statute provides when and how one may be a candidate of a

political party. If he cannot fill the requirement so as to be the candidates of the political party of his choice, he may still be a candidate at the general election by petition. The right of the voter to vote at the general election for whom he pleases cannot be limited . (Roberts vs. Cleveland, Secretary of State of State of New Mexico, 48 NM 226, 149 P (2d) 120, 153 A.L.R. 635, 637-638) (Emphasis supplied) In common law, certain agreements in consideration of the withdrawal of candidates for office have invariably been condemned by the courts as being against public policy, be it a withdrawal from the race for nomination or, after nomination, from the race for election. (See notes in 37 L. R. A. (N.S.) 289 and cases cited therein; 18 Am. Jur. Sec. 352, pp. 399-400) In the case at hand, plaintiff complains on account of defendant's alleged violation of the "pledge" in question by filing her own certificate o candidacy for a seat in the Congress of the Philippines and in openly and actively campaigning for her election. In the face of the preceding considerations, we certainly cannot entertain plaintiff's action, which would result in limiting the choice of the electors to only those persons selected by a small group or by party boses. The case of Pendleton vs. Pace, 9 S.W. (2nd) 437, cited by the appellant, is clearly inapplicable. The court there only sanctioned the validity of an agreement by the opposing candidates for nomination setting aside and re-submitting the nomination for another primary election on account of the protest or contest filed by the losing candidate in the first primary election. To abandon the contest proceedings, the candidates for nomination agreed to submit again their nomination to the electors in the subsequent primary. Appellant likewise cites and quotes a portion of our ruling in Monsale vs. Nico, 83 Phil., 758; 46 Off. Gaz., 210, to the effect that it is not incompetent or a candidate to withdraw or annul his certificate of candidacy. This is not in point, for while we stated there that he may do so, there being no legal prohibition against such a voluntary withdrawal, it does not follow, nor did we imply anywhere in the decision, that in case there is any agreement or consideration for such a withdrawal, said agreement or consideration should be held valid or given effect. We find it unnecessary to discuss the other points raised by the parties. Wherefore, the order of dismissal appealed from is hereby affirmed. No pronouncement as to costs.

G.R. No. L-65425 November 5, 1987 IRENEO LEAL, JOSE LEAL, CATALINA LEAL, BERNABELA LEAL, VICENTE LEAL EUIOGIA LEAL PATERNO RAMOS, MACARIO DEL ROSARIO, MARGARITA ALBERTO, VICTORIA TORRES, JUSTINA MANUEL, JULIAN MANUEL, MELANIA SANTOS, CLEMENTE SAMARIO, MARIKINA VALLEY, INC., MIGUELA MENDOZA, and REGISTER OF DEEDS OF RIZAL, petitioners, vs. THE HONORABLE INTERMEDIATE APPELLATE COURT (4th Civil Cases Division), and VICENTE SANTIAGO (Substituted by SALUD M. SANTIAGO), respondents. FACTS: -Reversal of IAC in its Resolution dated Sept. 27, 1983 of the earlier decision dated June 28, 1978 penned by Justice Paras of the Court of Appeals, in the same case, affirming the trial courts dismissal of the private respondents complaint. March 21, 1941: Vicente Santiago and Cirilio Leal entered into a contract which was called the Compraventa where V. Santiago sold to the latter three parcels of land. Cited in the contract was: En caso deventa, no podran vender a otrosdichos tres lotes de terrenosino al aqui rendedor Vicente Santiago, o los herederos o sucesores de estepor el niismo precio de P5,600 siempre y cuando estos ultimos pueden hacer la compra. 1960-1965: Parts of the properties were mortgaged or leased to the co-petitioners or to third party 1966-1957: V. Santiago offered re-purchase of the properties but the petitioner refused the offer August 2, 1967: V. Santiago instituted complaint for specific performance. The trial court (Court of First Instance in Q.C.) rendered its decision dismissing the case for it was thought to be a premature case or that there was no sale at all. The respondent was not contented at all that he filed another complaint in the Court of Appeals June 28, 1978: Justice Paras of the Court of Appeals affirmed the trial courts dismissal of respondents complaint. Included in the decision was the order for the cancellation of the annotations at the back of the Transfer Certificates of Title issued which prohibits the petitioner to sell the land to the third party. Respondentsfiled a motion for reconsideration and an opposition to the petitioners(Leal) motion to amend but the incidents were not resolved since the Court of Appeals was abolished and was replaced by the IAC. Sept. 27, 1983: The June 28, 1978 decision of the CA was reversed. The petitioners were to accept P5,600 for re-purchase of Land and they should pay rental of P3,087.50 as rental from 1967-1968 and the same amount every year after. The Transfer Certificate of Title No. 42535 was ordered to be in the names of V. Santiago & Luis Santiago and to issue another TCT to S. Santiago. ISSUE/S:

Whether or not it is quoted in the Compraventa that the private respondent has the right of re purchase. Whether the annotations of the prohibition to sell at the back of the TCTs should be cancelled.

HELD: The Resolution dated Sept. 27, 1983 was SET ASIDE and the Decision promulgated on June 28, 1978 is Reinstated. The annotations of the prohibition to sell at the back of TCT Nos. 138837-138842 were cancelled cost against respondent. For the following reasons: -In IACs resolution : repurchase was given birth by the phrase siempre y cuando ultimos pueden hacer la compra (when the buyer has money to buy). Under Article 1508 (2nd Paragraph) there is agreement as to the time, although it is indefinite, therefore the right should be exercised within ten years, because the law does not favor suspended ownership. -The right to redeem must be expressly stipulated in the contract of sale in order that it may have legal existence. Under Article 1606 of the Civil Code of the Philippines the right to redeem or repurchase, in the absence of an express agreement as to time, shall last four years from the date of contract. -Prohibition to sell the lots to persons other than the vendor (back of TCT) will be cancelled or deleted since the prohibition to alienate should not exceed 20 years otherwise there would be subversion of public policy. -Civil Code of the Phil. Art. 1306 includes that 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. Public order signifies the public weal public policy. Essentially, therefore, public order and public policy mean one and the same thing. One such condition which is contrary to public policy is the present prohibition to self to third parties(or perpetual restriction to the right of ownership specifically the owners right to freely dispose of his properties.

G.R. No. L-46591

July 28, 1987

BANCO FILIPINO SAVINGS and MORTGAGE BANK, petitioner, vs. HON. MIGUEL NAVARRO, Presiding Judge, Court of First Instance of Manila, Branch XXXI and FLORANTE DEL VALLE, respondents. MELENCIO-HERRERA, J.: The facts are not in dispute: On May 20, 1975, respondent Florante del Valle (the BORROWER) obtained a loan secured by a real estate mortgage (the LOAN, for short) from petitioner BANCO FILIPINO 1 in the sum of Forty-one Thousand Three Hundred (P41,300.00) Pesos, payable and to be amortized within fifteen (15) years at twelve (12%) per cent interest annually. Hence, the LOAN still had more than 730 days to run by January 2, 1976, the date when CIRCULAR No. 494 was issued by the Central Bank. Stamped on the promissory note evidencing the loan is an Escalation Clause, reading as follows: I/We hereby authorize Banco Filipino to correspondingly increase the interest rate stipulated in this contract without advance notice to me/us in the event law should be enacted increasing the lawful rates of interest that may be charged on this particular kind of loan. The Escalation Clause is based upon Central Bank CIRCULAR No. 494 issued on January 2, 1976, the pertinent portion of which reads: 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 and rural banks, or by financial intermediaries authorized to engage in quasi-banking functions shall be nineteen percent (19%) per annum. xxx xxx xxx

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." On the strength of CIRCULAR No. 494 BANCO FILIPINO gave notice to the BORROWER on June 30, 1976 of the increase of interest rate on the LOAN from 12% to 17% per annum effective on March 1, 1976. Contending that CIRCULAR No. 494 is not the law contemplated in the Escalation Clause of the promissory note, the BORROWER filed suit against BANCO FILIPINO for "Declaratory Relief" with respondent Court, praying that the Escalation Clause be declared null and void and that BANCO FILIPINO be ordered to desist from enforcing the increased rate of interest on the BORROWER's real estate loan. For its part, BANCO FILIPINO maintained that the Escalation Clause signed by the BORROWER authorized it to increase the interest rate once a law was passed increasing the rate of interest and that its authority to increase was provided for by CIRCULAR No. 494.

In its judgment, respondent Court nullified the Escalation Clause and ordered BANCO FILIPINO to desist from enforcing the increased rate of interest on the BORROWER's loan. It reasoned out that P.D. No. 116 does not expressly grant the Central Bank authority to maximize interest rates with retroactive effect and that BANCO FILIPINO cannot legally impose a higher rate of interest before the expiration of the 15-year period in which the loan is to be paid other than the 12% per annum in force at the time of the execution of the loan. What should be resolved is whether BANCO FILIPINO can increase the interest rate on the LOAN from 12% to 17% per annum under the Escalation Clause. It is our considered opinion that it may not. It is clear from the stipulation between the parties that the interest rate may be increased "in the event a lawshould be enacted increasing the lawful rate of interest that may be charged on this particular kind of loan." " The Escalation Clause was dependent on an increase of rate made by "law" alone. CIRCULAR No. 494, although it has the effect of law, is not a law. "Although a circular duly issued is not strictly a statute or a law , it has, however, the force and effect of law." 6 (Italics supplied). "An administrative regulation adopted pursuant to law has the force and effect of law." 7 "That administrative rules and regulations have the force of law can no longer be questioned. " 8 The distinction between a law and an administrative regulation is recognized in the Monetary Board guidelines quoted in the letter to the BORROWER of Ms. Paderes of September 24, 1976 ( supra). According to the guidelines, for a loan's interest to be subject to the increases provided in CIRCULAR No. 494, there must be an Escalation Clause allowing the increase "in the event that any law or Central Bank regulation is promulgated increasing the maximum interest rate for loans." The guidelines thus presuppose that a Central Bank regulation is not within the term "any law." It is now clear that from March 17, 1980, escalation clauses to be valid should specifically provide: (1) that there can be an increase in interest if increased by law or by the Monetary Board; and (2) in order for such stipulation to be valid, it must include a provision for reduction of the stipulated interest "in the event that the applicable maximum rate of interest is reduced by law or by the Monetary Board." While P.D. No. 1684 is not to be given retroactive effect, the absence of a de-escalation clause in the Escalation Clause in question provides another reason why it should not be given effect because of its one-sidedness in favor of the lender.

G.R. No. 101771 December 17, 1996 SPOUSES MARIANO and GILDA FLORENDO, petitioners, vs. COURT OF APPEALS and LAND BANK OF THE PHILIPPINES, respondents.

PANGANIBAN, J.:p May a bank unilaterally raise the interest rate on a housing loan granted an employee, by reason of the voluntary resignation of the borrower? Such is the query raised in the petition for review on certiorari now before us, which assails the Decision promulgated on June 19, 1991 by respondent Court of Appeals 1 in CA-G.R. CV No. 24956, upholding the validity and enforceability of the escalation by private respondent Land Bank of the Philippines of the applicable interest rate on the housing loan taken out by petitioner-spouses. The Antecedent Facts 1. That (Petitioner) Gilda Florendo (was) an employee of (Respondent Bank) from May 17, 1976 until August 16, 1984 when she voluntarily resigned. However, before her resignation, she applied for a housing loan of P148,000.00, payable within 25 years from (respondent bank's) Provident Fund on July 20, 1983; 4. That the loan . . . was actually given to (petitioner) Gilda Florendo, . . ., in her capacity as employee of (respondent bank); 5. That on March 19, 1985, (respondent bank) increased the interest rate on (petitioner's) loan from 9% per annum to 17%, the said increase to take effect on March 19, 1985; 9. That thereafter, (respondent bank) kept on demanding that (petitioner) pay the increased interest or the new monthly installments based on the increased interest rate, but Plaintiff just as vehemently maintained that the said increase is unlawful and unjustifiable. Because of (respondent bank's) repeated demands, (petitioners) were forced to file the instant suit for Injunction and Damages; 10. That, just the same, despite (respondent bank's) demands that (petitioners) pay the increased interest or increased monthly installments, they (petitioners) have faithfully paid and discharged their loan obligations, more particularly the monthly payment of the original stipulated installment of P1,248.72. Disregarding (respondent bank's) repeated demand for increased interest and monthly installment, (petitioners) are presently up-to-date in the payments of their obligations under the original contracts (Housing Loan Agreement, Promissory Note and Real Estate Mortgage) with (respondent bank); xxx xxx xxx Petitioners promptly appealed, arguing that, inter alia, the increased rate of interest is onerous and was imposed unilaterally, without the consent of the borrower-spouses. Respondent bank likewise

appealed and contested the propriety of having the increased interest rate apply only upon the finality of the judgment and not from March 19, 1985. Did the respondent bank have a valid and legal basis to impose an increased interest rate on the petitioners' housing loan? The Court's Ruling Basis for Increased Interest Rate Petitioners argue that the HLA provision covers only administrative and other matters, and does not include interest rates per se, since Article VI of the agreement deals with insurance on and upkeep of the mortgaged property. As for the stipulation in the mortgage deed, they claim that it is vague because it does not state if the "prevailing" CB rules and regulations referred to therein are those prevailing at the time of the execution of these contracts or at the time of the increase or decrease of the interest rate. They insist that the bank's authority to escalate interest rates has not been shown to be "crystal-clear as a matter of fact" and established beyond doubt. The contracts being "contracts of adhesion," any vagueness in their provisions should be interpreted in favor of petitioners. We note that Section 1-F of Article VI of the HLA cannot be read as an escalation clause as it does not make any reference to increases or decreases in the interest rate on loans . However, paragraph (f) of the mortgage contract is clearly and indubitably an escalation provision, and therefore, the parties were and are bound by the said stipulation that "(t)he rate of interest charged on the obligation secured by this mortgage . . ., shall be subject, during the life of this contract, to such an increase/decrease in accordance with prevailing rules, regulations and circulars of the Central Bank of the Philippines as the Provident Fund Board of Trustees of the Mortgagee (respondent bank) may prescribe for its debtors . . . ." 9 Contrary to petitioners' allegation, there is no vagueness in the aforequoted proviso; even their own arguments (below) indicate that this provision is quite clear to them.
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