Republic of the Philippines

SUPREME COURT
Manila
EN BANC
DECISION
August 12, 1927
G.R. No. 26085
SEVERINO TOLENTINO and POTENCIANA MANIO, plaintiffs-appellants,
vs.
BENITO GONZALEZ SY CHIAM, defendants-appellee.
Araneta and Zaragoza for appellants.
Eusebio Orense for appelle.
Johnson, J.:
PRINCIPAL QUESTIONS PRESENTED BY THE APPEAL
The principal questions presented by this appeal are:
(a) Is the contract in question a pacto de retro or a mortgage?
(b) Under a pacto de retro, when the vendor becomes a tenant of the purchaser and agrees to pay a certain amount per
month as rent, may such rent render such a contract usurious when the amount paid as rent, computed upon the
purchase price, amounts to a higher rate of interest upon said amount than that allowed by law?
(c) May the contract in the present case may be modified by parol evidence?
ANTECEDENT FACTS
Sometime prior to the 28th day of November, 1922, the appellants purchased of the Luzon Rice Mills, Inc., a piece or
parcel of land with the camarin located thereon, situated in the municipality of Tarlac of the Province of Tarlac for the
price of P25,000, promising to pay therefor in three installments. The first installment of P2,000 was due on or before the
2d day of May, 1921; the second installment of P8,000 was due on or before 31st day of May, 1921; the balance of P15,000
at 12 per cent interest was due and payable on or about the 30th day of November, 1922. One of the conditions of that
contract of purchase was that on failure of the purchaser (plaintiffs and appellants) to pay the balance of said purchase
price or any of the installments on the date agreed upon, the property bought would revert to the original owner.
The payments due on the 2d and 31st of May, 1921, amounting to P10,000 were paid so far as the record shows upon the
due dates. The balance of P15,000 due on said contract of purchase was paid on or about the 1st day of December, 1922,
in the manner which will be explained below. On the date when the balance of P15,000 with interest was paid, the vendor
of said property had issued to the purchasers transfer certificate of title to said property, No. 528. Said transfer certificate
of title (No. 528) was transfer certificate of title from No. 40, which shows that said land was originally registered in the
name of the vendor on the 7th day of November, 1913.
PRESENT FACTS
On the 7th day of November, 1922 the representative of the vendor of the property in question wrote a letter to the
appellant Potenciana Manio (Exhibit A, p. 50), notifying the latter that if the balance of said indebtedness was not paid, an
action would be brought for the purpose of recovering the property, together with damages for non compliance with the
condition of the contract of purchase. The pertinent parts of said letter read as follows:
Sirvase notar que de no estar liquidada esta cuenta el dia 30 del corriente, procederemos judicialmente contra Vd. para
reclamar la devolucion del camarin y los daos y perjuicios ocasionados a la compaia por su incumplimiento al contrato.
Somos de Vd. atentos y S. S.
SMITH, BELL & CO., LTD.
By (Sgd.) F. I. HIGHAM
Treasurer.
General Managers
LUZON RICE MILLS INC.
According to Exhibits B and D, which represent the account rendered by the vendor, there was due and payable upon said
contract of purchase on the 30th day of November, 1922, the sum P16,965.09. Upon receiving the letter of the vendor of
said property of November 7, 1922, the purchasers, the appellants herein, realizing that they would be unable to pay the
balance due, began to make an effort to borrow money with which to pay the balance due, began to make an effort to
borrow money with which to pay the balance of their indebtedness on the purchase price of the property involved. Finally
an application was made to the defendant for a loan for the purpose of satisfying their indebtedness to the vendor of said
property. After some negotiations the defendants agreed to loan the plaintiffs to loan the plaintiffs the sum of P17,500
upon condition that the plaintiffs execute and deliver to him a pacto de retro of said property.
In accordance with that agreement the defendant paid to the plaintiffs by means of a check the sum of P16,965.09. The
defendant, in addition to said amount paid by check, delivered to the plaintiffs the sum of P354.91 together with the sum
of P180 which the plaintiffs paid to the attorneys for drafting said contract of pacto de retro, making a total paid by the
defendant to the plaintiffs and for the plaintiffs of P17,500 upon the execution and delivery of said contract. Said contracts
was dated the 28th day of November, 1922, and is in the words and figures following:

Sepan todos por la presente:
Que nosotros, los conyuges Severino Tolentino y Potenciana Manio, ambos mayores de edad, residentes en el Municipio
de Calumpit, Provincia de Bulacan, propietarios y transeuntes en esta Ciudad de Manila, de una parte, y de otra, Benito
Gonzalez Sy Chiam, mayor de edad, casado con Maria Santiago, comerciante y vecinos de esta Ciudad de Manila.

MANIFESTAMOS Y HACEMOS CONSTAR:
Primero. Que nosotros, Severino Tolentino y Potenciano Manio, por y en consideracion a la cantidad de diecisiete mil
quinientos pesos (P17,500) moneda filipina, que en este acto hemos recibido a nuestra entera satisfaccion de Don Benito
Gonzalez Sy Chiam, cedemos, vendemos y traspasamos a favor de dicho Don Benito Gonzalez Sy Chiam, sus herederos y
causahabientes, una finca que, segun el Certificado de Transferencia de Titulo No. 40 expedido por el Registrador de
Titulos de la Provincia de Tarlac a favor de Luzon Rice Mills Company Limited que al incorporarse se donomino y se
denomina Luzon Rice Mills Inc., y que esta corporacion nos ha transferido en venta absoluta, se describe como sigue:
Un terreno (lote No. 1) con las mejoras existentes en el mismo, situado en el Municipio de Tarlac. Linda por el O. y N. con
propiedad de Manuel Urquico; por el E. con propiedad de la Manila Railroad Co.; y por el S. con un camino. Partiendo de
un punto marcado 1 en el plano, cuyo punto se halla al N. 41 gds. 17 E.859.42 m. del mojon de localizacion No. 2 de la
Oficina de Terrenos en Tarlac; y desde dicho punto 1 N. 81 gds. 31 O., 77 m. al punto 2; desde este punto N. 4 gds. 22 E.;
54.70 m. al punto 3; desde este punto S. 86 gds. 17 E.; 69.25 m. al punto 4; desde este punto S. 2 gds. 42 E., 61.48 m. al
punto de partida; midiendo una extension superficcial de cuatro mil doscientos diez y seis metros cuadrados (4,216) mas
o menos. Todos los puntos nombrados se hallan marcados en el plano y sobre el terreno los puntos 1 y 2 estan
determinados por mojones de P. L. S. de 20 x 20 x 70 centimetros y los puntos 3 y 4 por mojones del P. L. S. B. L.: la
orientacion seguida es la verdadera, siendo la declinacion magnetica de 0 gds. 45 E. y la fecha de la medicion, 1. de
febrero de 1913.
Segundo. Que es condicion de esta venta la de que si en el plazo de cinco (5) aos contados desde el dia 1. de
diciembre de 1922, devolvemos al expresado Don Benito Gonzalez Sy Chiam el referido precio de diecisiete mil quinientos
pesos (P17,500) queda obligado dicho Sr. Benito Gonzalez y Chiam a retrovendernos la finca arriba descrita; pero si
transcurre dicho plazo de cinco aos sin ejercitar el derecho de retracto que nos hemos reservado, entonces quedara esta
venta absoluta e irrevocable.
Tercero. Que durante el expresado termino del retracto tendremos en arrendamiento la finca arriba descrita, sujeto a
condiciones siguientes:
(a) El alquiler que nos obligamos a pagar por mensualidades vencidas a Don Benito Gonzalez Sy Chiam y en su domicilio,
era de trescientos setenta y cinco pesos (P375) moneda filipina, cada mes.
(b) El amillaramiento de la finca arrendada sera por cuenta de dicho Don Benito Gonzalez Sy Chiam, asi como tambien la
prima del seguro contra incendios, si el conviniera al referido Sr. Benito Gonzalez Sy Chiam asegurar dicha finca.
(c) La falta de pago del alquiler aqui estipulado por dos meses consecutivos dara lugar a la terminacion de este
arrendamieno y a la perdida del derecho de retracto que nos hemos reservado, como si naturalmente hubiera expirado el
termino para ello, pudiendo en su virtud dicho Sr. Gonzalez Sy Chiam tomar posesion de la finca y desahuciarnos de la
misma.
Cuarto. Que yo, Benito Gonzalez Sy Chiam, a mi vez otorgo que acepto esta escritura en los precisos terminos en que la
dejan otorgada los conyuges Severino Tolentino y Potenciana Manio.
En testimonio de todo lo cual, firmamos la presente de nuestra mano en Manila, por cuadruplicado en Manila, hoy a 28 de
noviembre de 1922.
(Fdo.) SEVERINO TOLENTINO
(Fda.) POTENCIANA MANIO
(Fdo.) BENITO GONZALEZ SY CHIAM
Firmado en presencia de:
(Fdos.) MOISES M. BUHAIN
B. S. BANAAG
An examination of said contract of sale with reference to the first question above, shows clearly that it is a pacto de retro
and not a mortgage. There is no pretension on the part of the appellant that said contract, standing alone, is a mortgage.
The pertinent language of the contract is:
Segundo. Que es condicion de esta venta la de que si en el plazo de cinco (5) aos contados desde el dia 1. de
diciembre de 1922, devolvemos al expresado Don Benito Gonzales Sy Chiam el referido precio de diecisiete mil quinientos
pesos (P17,500) queda obligado dicho Sr. Benito Gonzales Sy Chiam a retrovendornos la finca arriba descrita; pero si
transcurre dicho plazo de cinco (5) aos sin ejercitar al derecho de retracto que nos hemos reservado, entonces quedara
esta venta absoluta e irrevocable.
Language cannot be clearer. The purpose of the contract is expressed clearly in said quotation that there can certainly be
not doubt as to the purpose of the plaintiff to sell the property in question, reserving the right only to repurchase the
same. The intention to sell with the right to repurchase cannot be more clearly expressed.
It will be noted from a reading of said sale of pacto de retro, that the vendor, recognizing the absolute sale of the property,
entered into a contract with the purchaser by virtue of which she became the tenant of the purchaser. That contract of
rent appears in said quoted document above as follows:
Tercero. Que durante el expresado termino del retracto tendremos en arrendamiento la finca arriba descrita, sujeto a
condiciones siguientes:
(a) El alquiler que nos obligamos a pagar por mensualidades vencidas a Don Benito Gonzalez Sy Chiam y en su domicilio,
sera de trescientos setenta y cinco pesos (P375) moneda filipina, cada mes.
(b) El amillaramiento de la finca arrendada sera por cuenta de dicho Don Benito Gonzalez Sy Chiam, asi como tambien la
prima del seguro contra incendios, si le conviniera al referido Sr. Benito Gonzalez Sy Chiam asegurar dicha finca.
From the foregoing, we are driven to the following conclusions: First, that the contract of pacto de retro is an absolute sale
of the property with the right to repurchase and not a mortgage; and, second, that by virtue of the said contract the
vendor became the tenant of the purchaser, under the conditions mentioned in paragraph 3 of said contact quoted above.
It has been the uniform theory of this court, due to the severity of a contract of pacto de retro, to declare the same to be a
mortgage and not a sale whenever the interpretation of such a contract justifies that conclusion. There must be
something, however, in the language of the contract or in the conduct of the parties which shows clearly and beyond
doubt that they intended the contract to be a mortgage and not a pacto de retro. (International Banking Corporation vs.
Martinez, 10 Phil., 252; Padilla vs. Linsangan, 19 Phil., 65; Cumagun vs. Alingay, 19 Phil., 415; Olino vs. Medina, 13 Phil.,
379; Manalo vs. Gueco, 42 Phil., 925; Velazquez vs. Teodoro, 46 Phil., 757; Villa vs. Santiago, 38 Phil., 157.)
We are not unmindful of the fact that sales with pacto de retro are not favored and that the court will not construe an
instrument to one of sale with pacto de retro, with the stringent and onerous effect which follows, unless the terms of the
document and the surrounding circumstances require it.
While it is general rule that parol evidence is not admissible for the purpose of varying the terms of a contract, but when
an issue is squarely presented that a contract does not express the intention of the parties, courts will, when a proper
foundation is laid therefor, hear evidence for the purpose of ascertaining the true intention of the parties.
In the present case the plaintiffs allege in their complaint that the contract in question is a pacto de retro. They admit that
they signed it. They admit they sold the property in question with the right to repurchase it. The terms of the contract
quoted by the plaintiffs to the defendant was a sale with pacto de retro, and the plaintiffs have shown no circumstance
whatever which would justify us in construing said contract to be a mere loan with guaranty. In every case in which this
court has construed a contract to be a mortgage or a loan instead of a sale with pacto de retro, it has done so, either
because the terms of such contract were incompatible or inconsistent with the theory that said contract was one of
purchase and sale. (Olino vs. Medina, supra; Padilla vs. Linsangan, supra; Manlagnit vs. Dy Puico, 34 Phil., 325; Rodriguez
vs. Pamintuan and De Jesus, 37 Phil., 876.)
In the case of Padilla vs. Linsangan the term employed in the contract to indicate the nature of the conveyance of the land
was pledged instead of sold. In the case of Manlagnit vs. Dy Puico, while the vendor used to the terms sale and
transfer with the right to repurchase, yet in said contract he described himself as a debtor the purchaser as a creditor
and the contract as a mortgage. In the case of Rodriguez vs. Pamintuan and De Jesus the person who executed the
instrument, purporting on its face to be a deed of sale of certain parcels of land, had merely acted under a power of
attorney from the owner of said land, authorizing him to borrow money in such amount and upon such terms and
conditions as he might deem proper, and to secure payment of the loan by a mortgage. In the case of Villa vs. Santiago (38
Phil., 157), although a contract purporting to be a deed of sale was executed, the supposed vendor remained in possession
of the land and invested the money he had obtained from the supposed vendee in making improvements thereon, which
fact justified the court in holding that the transaction was a mere loan and not a sale. In the case of Cuyugan vs. Santos (39
Phil., 970), the purchaser accepted partial payments from the vendor, and such acceptance of partial payments is
absolutely incompatible with the idea of irrevocability of the title of ownership of the purchaser at the expiration of the
term stipulated in the original contract for the exercise of the right of repurchase.
Referring again to the right of the parties to vary the terms of written contract, we quote from the dissenting opinion of
Chief Justice Cayetano S. Arellano in the case of Government of the Philippine Islands vs. Philippine Sugar Estates
Development Co., which case was appealed to the Supreme Court of the United States and the contention of the Chief
Justice in his dissenting opinion was affirmed and the decision of the Supreme Court of the Philippine Islands was
reversed. (See decision of the Supreme Court of the United States, June 3, 1918.)1 The Chief Justice said in discussing that
question:
According to article 1282 of the Civil Code, in order to judge of the intention of the contracting parties, consideration must
chiefly be paid to those acts executed by said parties which are contemporary with and subsequent to the contract. And
according to article 1283, however general the terms of a contract may be, they must not be held to include things and
cases different from those with regard to which the interested parties agreed to contract. The Supreme Court of the
Philippine Islands held the parol evidence was admissible in that case to vary the terms of the contract between the
Government of the Philippine Islands and the Philippine Sugar Estates Development Co. In the course of the opinion of the
Supreme Court of the United States Mr. Justice Brandeis, speaking for the court, said:
It is well settled that courts of equity will reform a written contract where, owing to mutual mistake, the language used
therein did not fully or accurately express the agreement and intention of the parties. The fact that interpretation or
construction of a contract presents a question of law and that, therefore, the mistake was one of law is not a bar to
granting relief. . . . This court is always disposed to accept the construction which the highest court of a territory or
possession has placed upon a local statute. But that disposition may not be yielded to where the lower court has clearly
erred. Here the construction adopted was rested upon a clearly erroneous assumption as to an established rule of equity. .
. . The burden of proof resting upon the appellant cannot be satisfied by mere preponderance of the evidence. It is settled
that relief by way of reformation will not be granted unless the proof of mutual mistake be of the clearest and most
satisfactory character.
The evidence introduced by the appellant in the present case does not meet with that stringent requirement. There is not
a word, a phrase, a sentence or a paragraph in the entire record, which justifies this court in holding that the said contract
of pacto de retro is a mortgage and not a sale with the right to repurchase. Article 1281 of the Civil Code provides: If the
terms of a contract are clear and leave no doubt as to the intention of the contracting parties, the literal sense of its
stipulations shall be followed. Article 1282 provides: in order to judge as to the intention of the contracting parties,
attention must be paid principally to their conduct at the time of making the contract and subsequently thereto.
We cannot thereto conclude this branch of our discussion of the question involved, without quoting from that very well
reasoned decision of the late Chief Justice Arellano, one of the greatest jurists of his time. He said, in discussing the
question whether or not the contract, in the case of Lichauco vs. Berenguer (20 Phil., 12), was a pacto de retro or a
mortgage:
The public instrument, Exhibit C, in part reads as follows: Don Macarion Berenguer declares and states that he is the
proprietor in fee simple of two parcels of fallow unappropriated crown land situated within the district of his pueblo. The
first has an area of 73 quiones, 8 balitas and 8 loanes, located in the sitio of Batasan, and its boundaries are, etc., etc. The
second is in the sitio of Panantaglay, barrio of Calumpang has as area of 73 hectares, 22 ares, and 6 centares, and is
bounded on the north, etc., etc.
In the executory part of the said instrument, it is stated:
That under condition of right to repurchase (pacto de retro) he sells the said properties to the aforementioned Doa
Cornelia Laochangco for P4,000 and upon the following conditions: First, the sale stipulated shall be for the period of two
years, counting from this date, within which time the deponent shall be entitled to repurchase the land sold upon
payment of its price; second, the lands sold shall, during the term of the present contract, be held in lease by the
undersigned who shall pay, as rental therefor, the sum of 400 pesos per annum, or the equivalent in sugar at the option of
the vendor; third, all the fruits of the said lands shall be deposited in the sugar depository of the vendee, situated in the
district of Quiapo of this city, and the value of which shall be applied on account of the price of this sale; fourth, the
deponent acknowledges that he has received from the vendor the purchase price of P4,000 already paid, and in legal
tender currency of this country . . .; fifth, all the taxes which may be assessed against the lands surveyed by competent
authority, shall be payable by and constitute a charge against the vendor; sixth, if, through any unusual event, such as
flood, tempest, etc., the properties hereinbefore enumerated should be destroyed, wholly or in part, it shall be incumbent
upon the vendor to repair the damage thereto at his own expense and to put them into a good state of cultivation, and
should he fail to do so he binds himself to give to the vendee other lands of the same area, quality and value.
x x x x x x x x x
The opponent maintained, and his theory was accepted by the trial court, that Berenguers contract with Laochangco was
not one of sale with right of repurchase, but merely one of loan secured by those properties, and, consequently, that the
ownership of the lands in questions could not have been conveyed to Laochangco, inasmuch as it continued to be held by
Berenguer, as well as their possession, which he had not ceased to enjoy.
Such a theory is, as argued by the appellant, erroneous. The instrument executed by Macario Berenguer, the text of which
has been transcribed in this decision, is very clear. Berenguers heirs may not go counter to the literal tenor of the
obligation, the exact expression of the consent of the contracting contained in the instrument, Exhibit C. Not because the
lands may have continued in possession of the vendor, not because the latter may have assumed the payment of the taxes
on such properties, nor yet because the same party may have bound himself to substitute by another any one of the
properties which might be destroyed, does the contract cease to be what it is, as set forth in detail in the public
instrument. The vendor continued in the possession of the lands, not as the owner thereof as before their sale, but as the
lessee which he became after its consummation, by virtue of a contract executed in his favor by the vendee in the deed
itself, Exhibit C. Right of ownership is not implied by the circumstance of the lessees assuming the responsibility of the
payment is of the taxes on the property leased, for their payment is not peculiarly incumbent upon the owner, nor is such
right implied by the obligation to substitute the thing sold for another while in his possession under lease, since that
obligation came from him and he continues under another character in its possession-a reason why he guarantees its
integrity and obligates himself to return the thing even in a case of force majeure. Such liability, as a general rule, is
foreign to contracts of lease and, if required, is exorbitant, but possible and lawful, if voluntarily agreed to and such
agreement does not on this account involve any sign of ownership, nor other meaning than the will to impose upon
oneself scrupulous diligence in the care of a thing belonging to another.
The purchase and sale, once consummated, is a contract which by its nature transfers the ownership and other rights in
the thing sold. A pacto de retro, or sale with right to repurchase, is nothing but a personal right stipulated between the
vendee and the vendor, to the end that the latter may again acquire the ownership of the thing alienated.
It is true, very true indeed, that the sale with right of repurchase is employed as a method of loan; it is likewise true that in
practice many cases occur where the consummation of a pacto de retro sale means the financial ruin of a person; it is also,
unquestionable that in pacto de retro sales very important interests often intervene, in the form of the price of the lease of
the thing sold, which is stipulated as an additional covenant. (Manresa, Civil Code, p. 274.)
But in the present case, unlike others heard by this court, there is no proof that the sale with right of repurchase, made by
Berenguer in favor of Laonchangco is rather a mortgage to secure a loan.
We come now to a discussion of the second question presented above, and that is, stating the same in another form: May a
tenant charge his landlord with a violation of the Usury Law upon the ground that the amount of rent he pays, based upon
the real value of the property, amounts to a usurious rate of interest? When the vendor of property under a pacto de retro
rents the property and agrees to pay a rental value for the property during the period of his right to repurchase, he
thereby becomes a tenant and in all respects stands in the same relation with the purchaser as a tenant under any other
contract of lease.
The appellant contends that the rental price paid during the period of the existence of the right to repurchase, or the sum
of P375 per month, based upon the value of the property, amounted to usury. Usury, generally speaking, may be defined
as contracting for or receiving something in excess of the amount allowed by law for the loan or forbearance of money-the
taking of more interest for the use of money than the law allows. It seems that the taking of interest for the loan of money,
at least the taking of excessive interest has been regarded with abhorrence from the earliest times. (Dunham vs. Gould, 16
Johnson [N. Y.], 367.) During the middle ages the people of England, and especially the English Church, entertained the
opinion, then, current in Europe, that the taking of any interest for the loan of money was a detestable vice, hateful to man
and contrary to the laws of God. (3 Cokes Institute, 150; Tayler on Usury, 44.)
Chancellor Kent, in the case of Dunham vs. Gould, supra, said: If we look back upon history, we shall find that there is
scarcely any people, ancient or modern, that have not had usury laws. . . . The Romans, through the greater part of their
history, had the deepest abhorrence of usury. . . . It will be deemed a little singular, that the same voice against usury
should have been raised in the laws of China, in the Hindu institutes of Menu, in the Koran of Mahomet, and perhaps, we
may say, in the laws of all nations that we know of, whether Greek or Barbarian.
The collection of a rate of interest higher than that allowed by law is condemned by the Philippine Legislature (Acts Nos.
2655, 2662 and 2992). But is it unlawful for the owner of a property to enter into a contract with the tenant for the
payment of a specific amount of rent for the use and occupation of said property, even though the amount paid as rent,
based upon the value of the property, might exceed the rate of interest allowed by law? That question has never been
decided in this jurisdiction. It is one of first impression. No cases have been found in this jurisdiction answering that
question. Act No. 2655 is An Act fixing rates of interest upon loans and declaring the effect of receiving or taking
usurious rates.
It will be noted that said statute imposes a penalty upon a loan or forbearance of any money, goods, chattels or credits,
etc. The central idea of said statute is to prohibit a rate of interest on loans. A contract of loan, is very different
contract from that of rent. A loan, as that term is used in the statute, signifies the giving of a sum of money, goods or
credits to another, with a promise to repay, but not a promise to return the same thing. To loan, in general parlance, is to
deliver to another for temporary use, on condition that the thing or its equivalent be returned; or to deliver for temporary
use on condition that an equivalent in kind shall be returned with a compensation for its use. The word loan, however,
as used in the statute, has a technical meaning. It never means the return of the same thing. It means the return of an
equivalent only, but never the same thing loaned. A loan has been properly defined as an advance payment of money,
goods or credits upon a contract or stipulation to repay, not to return, the thing loaned at some future day in accordance
with the terms of the contract. Under the contract of loan, as used in said statute, the moment the contract is completed
the money, goods or chattels given cease to be the property of the former owner and becomes the property of the obligor
to be used according to his own will, unless the contract itself expressly provides for a special or specific use of the same.
At all events, the money, goods or chattels, the moment the contract is executed, cease to be the property of the former
owner and becomes the absolute property of the obligor.
A contract of loan differs materially from a contract of rent. In a contract of rent the owner of the property does not
lose his ownership. He simply loses his control over the property rented during the period of the contract. In a contract of
loan the thing loaned becomes the property of the obligor. In a contract of rent the thing still remains the property of
the lessor. He simply loses control of the same in a limited way during the period of the contract of rent or lease. In a
contract of rent the relation between the contractors is that of landlord and tenant. In a contract of loan of money,
goods, chattels or credits, the relation between the parties is that of obligor and obligee. Rent may be defined as the
compensation either in money, provisions, chattels, or labor, received by the owner of the soil from the occupant thereof.
It is defined as the return or compensation for the possession of some corporeal inheritance, and is a profit issuing out of
lands or tenements, in return for their use. It is that, which is to paid for the use of land, whether in money, labor or other
thing agreed upon. A contract of rent is a contract by which one of the parties delivers to the other some nonconsumable
thing, in order that the latter may use it during a certain period and return it to the former; whereas a contract of loan,
as that word is used in the statute, signifies the delivery of money or other consumable things upon condition of returning
an equivalent amount of the same kind or quantity, in which cases it is called merely a loan. In the case of a contract of
rent, under the civil law, it is called a commodatum.
From the foregoing it will be seen that there is a while distinction between a contract of loan, as that word is used in the
statute, and a contract of rent even though those words are used in ordinary parlance as interchangeable terms.
The value of money, goods or credits is easily ascertained while the amount of rent to be paid for the use and occupation
of the property may depend upon a thousand different conditions; as for example, farm lands of exactly equal productive
capacity and of the same physical value may have a different rental value, depending upon location, prices of
commodities, proximity to the market, etc. Houses may have a different rental value due to location, conditions of
business, general prosperity or depression, adaptability to particular purposes, even though they have exactly the same
original cost. A store on the Escolta, in the center of business, constructed exactly like a store located outside of the
business center, will have a much higher rental value than the other. Two places of business located in different sections
of the city may be constructed exactly on the same architectural plan and yet one, due to particular location or
adaptability to a particular business which the lessor desires to conduct, may have a very much higher rental value than
one not so located and not so well adapted to the particular business. A very cheap building on the carnival ground may
rent for more money, due to the particular circumstances and surroundings, than a much more valuable property located
elsewhere. It will thus be seen that the rent to be paid for the use and occupation of property is not necessarily fixed upon
the value of the property. The amount of rent is fixed, based upon a thousand different conditions and may or may not
have any direct reference to the value of the property rented. To hold that usury can be based upon the comparative
actual rental value and the actual value of the property, is to subject every landlord to an annoyance not contemplated by
the law, and would create a very great disturbance in every business or rural community. We cannot bring ourselves to
believe that the Legislature contemplated any such disturbance in the equilibrium of the business of the country.
In the present case the property in question was sold. It was an absolute sale with the right only to repurchase. During the
period of redemption the purchaser was the absolute owner of the property. During the period of redemption the vendor
was not the owner of the property. During the period of redemption the vendor was a tenant of the purchaser. During the
period of redemption the relation which existed between the vendor and the vendee was that of landlord and tenant. That
relation can only be terminated by a repurchase of the property by the vendor in accordance with the terms of the said
contract. The contract was one of rent. The contract was not a loan, as that word is used in Act No. 2655.
As obnoxious as contracts of pacto de retro are, yet nevertheless, the courts have no right to make contracts for parties.
They made their own contract in the present case. There is not a word, a phrase, a sentence or paragraph, which in the
slightest way indicates that the parties to the contract in question did not intend to sell the property in question
absolutely, simply with the right to repurchase. People who make their own beds must lie thereon.
What has been said above with reference to the right to modify contracts by parol evidence, sufficiently answers the third
questions presented above. The language of the contract is explicit, clear, unambiguous and beyond question. It expresses
the exact intention of the parties at the time it was made. There is not a word, a phrase, a sentence or paragraph found in
said contract which needs explanation. The parties thereto entered into said contract with the full understanding of its
terms and should not now be permitted to change or modify it by parol evidence.
With reference to the improvements made upon said property by the plaintiffs during the life of the contract, Exhibit C,
there is hereby reserved to the plaintiffs the right to exercise in a separate action the right guaranteed to them under
article 361 of the Civil Code.
For all of the foregoing reasons, we are fully persuaded from the facts of the record, in relation with the law applicable
thereto, that the judgment appealed from should be and is hereby affirmed, with costs. So ordered.
Avancea, C. J., Street, Villamor, Romualdez and Villa-Real, JJ., concur.
Separate Opinions
MALCOLM, J., dissenting:
I regret to have to dissent from the comprehensive majority decision. I stand squarely on the proposition that the contract
executed by the parties was merely a clever device to cover up the payment of usurious interest. The fact that the
document purports to be a true sale with right of repurchase means nothing. The fact that the instrument includes a
contract of lease on the property whereby the lessees as vendors apparently bind themselves to pay rent at the rate of
P375 per month and whereby Default in the payment of the rent agreed for two consecutive months will terminate this
lease and will forfeit our right of repurchase, as though the term had expired naturally does mean something, and taken
together with the oral testimony is indicative of a subterfuge hiding a usurious loan. (Usury Law, Act No. 2655, sec. 7, as
amended; Padilla vs. Linsangan [1911], 19 Phil., 65; U. S. vs. Tan Quingco Chua [1919], 39 Phil., 552; Russel vs. Southard
[1851], 53 U. S., 139 Monagas vs. Albertucci y Alvarez [1914], 235 U. S., 81; 10 Manresa, Codigo Civil Espaol, 3rd ed., p.
318.) The transaction should be considered as in the nature of an equitable mortgage. My vote is for a modification of the
judgment of the trial court.





























Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-46240 November 3, 1939
MARGARITA QUINTOS and ANGEL A. ANSALDO, plaintiffs-appellants,
vs.
BECK, defendant-appellee.
Mauricio Carlos for appellants.
Felipe Buencamino, Jr. for appellee.
IMPERIAL, J.:
The plaintiff brought this action to compel the defendant to return her certain furniture which she lent him for his
use. She appealed from the judgment of the Court of First Instance of Manila which ordered that the defendant return to
her the three has heaters and the four electric lamps found in the possession of the Sheriff of said city, that she call for the
other furniture from the said sheriff of Manila at her own expense, and that the fees which the Sheriff may charge for the
deposit of the furniture be paid pro rata by both parties, without pronouncement as to the costs.
The defendant was a tenant of the plaintiff and as such occupied the latter's house on M. H. del Pilar street, No. 1175.
On January 14, 1936, upon the novation of the contract of lease between the plaintiff and the defendant, the former
gratuitously granted to the latter the use of the furniture described in the third paragraph of the stipulation of facts,
subject to the condition that the defendant would return them to the plaintiff upon the latter's demand. The plaintiff sold
the property to Maria Lopez and Rosario Lopez and on September 14, 1936, these three notified the defendant of the
conveyance, giving him sixty days to vacate the premises under one of the clauses of the contract of lease. There after the
plaintiff required the defendant to return all the furniture transferred to him for them in the house where they were
found. On November 5, 1936, the defendant, through another person, wrote to the plaintiff reiterating that she may
call for the furniture in the ground floor of the house. On the 7th of the same month, the defendant wrote another letter to
the plaintiff informing her that he could not give up the three gas heaters and the four electric lamps because he would
use them until the 15th of the same month when the lease in due to expire. The plaintiff refused to get the furniture in
view of the fact that the defendant had declined to make delivery of all of them. On November 15th, before vacating
the house, the defendant deposited with the Sheriff all the furniture belonging to the plaintiff and they are now on deposit
in the warehouse situated at No. 1521, Rizal Avenue, in the custody of the said sheriff.
In their seven assigned errors the plaintiffs contend that the trial court incorrectly applied the law: in holding that
they violated the contract by not calling for all the furniture on November 5, 1936, when the defendant placed them at
their disposal; in not ordering the defendant to pay them the value of the furniture in case they are not delivered; in
holding that they should get all the furniture from the Sheriff at their expenses; in ordering them to pay-half of the
expenses claimed by the Sheriff for the deposit of the furniture; in ruling that both parties should pay their respective
legal expenses or the costs; and in denying pay their respective legal expenses or the costs; and in denying the motions for
reconsideration and new trial. To dispose of the case, it is only necessary to decide whether the defendant complied with
his obligation to return the furniture upon the plaintiff's demand; whether the latter is bound to bear the deposit fees
thereof, and whether she is entitled to the costs of litigation.lawphi1.net
The contract entered into between the parties is one of commadatum, because under it the plaintiff gratuitously
granted the use of the furniture to the defendant, reserving for herself the ownership thereof; by this contract the
defendant bound himself to return the furniture to the plaintiff, upon the latters demand (clause 7 of the contract, Exhibit
A; articles 1740, paragraph 1, and 1741 of the Civil Code). The obligation voluntarily assumed by the defendant to return
the furniture upon the plaintiff's demand, means that he should return all of them to the plaintiff at the latter's residence
or house. The defendant did not comply with this obligation when he merely placed them at the disposal of the plaintiff,
retaining for his benefit the three gas heaters and the four eletric lamps. The provisions of article 1169 of the Civil Code
cited by counsel for the parties are not squarely applicable. The trial court, therefore, erred when it came to the legal
conclusion that the plaintiff failed to comply with her obligation to get the furniture when they were offered to her.
As the defendant had voluntarily undertaken to return all the furniture to the plaintiff, upon the latter's demand, the
Court could not legally compel her to bear the expenses occasioned by the deposit of the furniture at the defendant's
behest. The latter, as bailee, was not entitled to place the furniture on deposit; nor was the plaintiff under a duty to accept
the offer to return the furniture, because the defendant wanted to retain the three gas heaters and the four electric lamps.
As to the value of the furniture, we do not believe that the plaintiff is entitled to the payment thereof by the
defendant in case of his inability to return some of the furniture because under paragraph 6 of the stipulation of facts, the
defendant has neither agreed to nor admitted the correctness of the said value. Should the defendant fail to deliver some
of the furniture, the value thereof should be latter determined by the trial Court through evidence which the parties may
desire to present.
The costs in both instances should be borne by the defendant because the plaintiff is the prevailing party (section
487 of the Code of Civil Procedure). The defendant was the one who breached the contract ofcommodatum, and without
any reason he refused to return and deliver all the furniture upon the plaintiff's demand. In these circumstances, it is just
and equitable that he pay the legal expenses and other judicial costs which the plaintiff would not have otherwise
defrayed.
The appealed judgment is modified and the defendant is ordered to return and deliver to the plaintiff, in the
residence to return and deliver to the plaintiff, in the residence or house of the latter, all the furniture described in
paragraph 3 of the stipulation of facts Exhibit A. The expenses which may be occasioned by the delivery to and deposit of
the furniture with the Sheriff shall be for the account of the defendant. the defendant shall pay the costs in both instances.
So ordered.
Avancea, C.J., Villa-Real, Laurel, Concepcion and Moran, JJ., concur.


























Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-20240 December 31, 1965
REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,
vs.
JOSE GRIJALDO, defendant-appellant.
Office of the Solicitor General for plaintiff-appellee.
Isabelo P. Samson for defendant-appellant.
ZALDIVAR, J.:
In the year 1943 appellant Jose Grijaldo obtained five loans from the branch office of the Bank of Taiwan, Ltd. in Bacolod
City, in the total sum of P1,281.97 with interest at the rate of 6% per annum, compounded quarterly. These loans are
evidenced by five promissory notes executed by the appellant in favor of the Bank of Taiwan, Ltd., as follows: On June 1,
1943, P600.00; on June 3, 1943, P159.11; on June 18, 1943, P22.86; on August 9, 1943,P300.00; on August 13, 1943,
P200.00, all notes without due dates, but because the loans were due one year after they were incurred. To secure the
payment of the loans the appellant executed a chattel mortgage on the standing crops on his land, Lot No. 1494 known as
Hacienda Campugas in Hinigiran, Negros Occidental.
By virtue of Vesting Order No. P-4, dated January 21, 1946, and under the authority provided for in the Trading with the
Enemy Act, as amended, the assets in the Philippines of the Bank of Taiwan, Ltd. were vested in the Government of the
United States. Pursuant to the Philippine Property Act of 1946 of the United States, these assets, including the loans in
question, were subsequently transferred to the Republic of the Philippines by the Government of the United States under
Transfer Agreement dated July 20, 1954. These assets were among the properties that were placed under the
administration of the Board of Liquidators created under Executive Order No. 372, dated November 24, 1950, and in
accordance with Republic Acts Nos. 8 and 477 and other pertinent laws.
On September 29, 1954 the appellee, Republic of the Philippines, represented by the Chairman of the Board of
Liquidators, made a written extrajudicial demand upon the appellant for the payment of the account in question. The
record shows that the appellant had actually received the written demand for payment, but he failed to pay.
The aggregate amount due as principal of the five loans in question, computed under the Ballantyne scale of values as of
the time that the loans were incurred in 1943, was P889.64; and the interest due thereon at the rate of 6% per annum
compounded quarterly, computed as of December 31, 1959 was P2,377.23.
On January 17, 1961 the appellee filed a complaint in the Justice of the Peace Court of Hinigaran, Negros Occidental, to
collect from the appellant the unpaid account in question. The Justice of the Peace Of Hinigaran, after hearing, dismissed
the case on the ground that the action had prescribed. The appellee appealed to the Court of First Instance of Negros
Occidental and on March 26, 1962 the court a quo rendered a decision ordering the appellant to pay the appellee the sum
of P2,377.23 as of December 31, 1959, plus interest at the rate of 6% per annum compounded quarterly from the date of
the filing of the complaint until full payment was made. The appellant was also ordered to pay the sum equivalent to 10%
of the amount due as attorney's fees and costs.
The appellant appealed directly to this Court. During the pendency of this appeal the appellant Jose Grijaldo died. Upon
motion by the Solicitor General this Court, in a resolution of May 13, 1963, required Manuel Lagtapon, Jacinto Lagtapon,
Ruben Lagtapon and Anita L. Aguilar, who are the legal heirs of Jose Grijaldo to appear and be substituted as appellants in
accordance with Section 17 of Rule 3 of the Rules of Court.
In the present appeal the appellant contends: (1) that the appellee has no cause of action against the appellant; (2) that if
the appellee has a cause of action at all, that action had prescribed; and (3) that the lower court erred in ordering the
appellant to pay the amount of P2,377.23.
In discussing the first point of contention, the appellant maintains that the appellee has no privity of contract with the
appellant. It is claimed that the transaction between the Taiwan Bank, Ltd. and the appellant, so that the appellee,
Republic of the Philippines, could not legally bring action against the appellant for the enforcement of the obligation
involved in said transaction. This contention has no merit. It is true that the Bank of Taiwan, Ltd. was the original creditor
and the transaction between the appellant and the Bank of Taiwan was a private contract of loan. However, pursuant to
the Trading with the Enemy Act, as amended, and Executive Order No. 9095 of the United States; and under Vesting Order
No. P-4, dated January 21, 1946, the properties of the Bank of Taiwan, Ltd., an entity which was declared to be under the
jurisdiction of the enemy country (Japan), were vested in the United States Government and the Republic of the
Philippines, the assets of the Bank of Taiwan, Ltd. were transferred to and vested in the Republic of the Philippines. The
successive transfer of the rights over the loans in question from the Bank of Taiwan, Ltd. to the United States Government,
and from the United States Government to the government of the Republic of the Philippines, made the Republic of the
Philippines the successor of the rights, title and interest in said loans, thereby creating a privity of contract between the
appellee and the appellant. In defining the word "privy" this Court, in a case, said:
The word "privy" denotes the idea of succession ... hence an assignee of a credit, and one subrogated to it, etc.
will be privies; in short, he who by succession is placed in the position of one of those who contracted the
judicial relation and executed the private document and appears to be substituting him in the personal rights
and obligation is a privy (Alpurto vs. Perez, 38 Phil. 785, 790).
The United States of America acting as a belligerent sovereign power seized the assets of the Bank of Taiwan, Ltd. which
belonged to an enemy country. The confiscation of the assets of the Bank of Taiwan, Ltd. being an involuntary act of war,
and sanctioned by international law, the United States succeeded to the rights and interests of said Bank of Taiwan, Ltd.
over the assets of said bank. As successor in interest in, and transferee of, the property rights of the United States of
America over the loans in question, the Republic of the Philippines had thereby become a privy to the original contracts of
loan between the Bank of Taiwan, Ltd. and the appellant. It follows, therefore, that the Republic of the Philippines has a
legal right to bring the present action against the appellant Jose Grijaldo.
The appellant likewise maintains, in support of his contention that the appellee has no cause of action, that because the
loans were secured by a chattel mortgage on the standing crops on a land owned by him and these crops were lost or
destroyed through enemy action his obligation to pay the loans was thereby extinguished. This argument is untenable.
The terms of the promissory notes and the chattel mortgage that the appellant executed in favor of the Bank of Taiwan,
Ltd. do not support the claim of appellant. The obligation of the appellant under the five promissory notes was not to
deliver a determinate thing namely, the crops to be harvested from his land, or the value of the crops that would be
harvested from his land. Rather, his obligation was to pay a generic thing the amount of money representing the total
sum of the five loans, with interest. The transaction between the appellant and the Bank of Taiwan, Ltd. was a series of
five contracts of simple loan of sums of money. "By a contract of (simple) loan, one of the parties delivers to another ...
money or other consumable thing upon the condition that the same amount of the same kind and quality shall be paid."
(Article 1933, Civil Code) The obligation of the appellant under the five promissory notes evidencing the loans in
questions is to pay the value thereof; that is, to deliver a sum of money a clear case of an obligation to deliver, a generic
thing. Article 1263 of the Civil Code provides:
In an obligation to deliver a generic thing, the loss or destruction of anything of the same kind does not
extinguish the obligation.
The chattel mortgage on the crops growing on appellant's land simply stood as a security for the fulfillment of appellant's
obligation covered by the five promissory notes, and the loss of the crops did not extinguish his obligation to pay, because
the account could still be paid from other sources aside from the mortgaged crops.
In his second point of contention, the appellant maintains that the action of the appellee had prescribed. The appellant
points out that the loans became due on June 1, 1944; and when the complaint was filed on January 17,1961 a period of
more than 16 years had already elapsed far beyond the period of ten years when an action based on a written contract
should be brought to court.
This contention of the appellant has no merit. Firstly, it should be considered that the complaint in the present case was
brought by the Republic of the Philippines not as a nominal party but in the exercise of its sovereign functions, to protect
the interests of the State over a public property. Under paragraph 4 of Article 1108 of the Civil Code prescription, both
acquisitive and extinctive, does not run against the State. This Court has held that the statute of limitations does not run
against the right of action of the Government of the Philippines (Government of the Philippine Islands vs. Monte de
Piedad, etc., 35 Phil. 738-751).Secondly, the running of the period of prescription of the action to collect the loan from the
appellant was interrupted by the moratorium laws (Executive Orders No. 25, dated November 18, 1944; Executive Order
No. 32. dated March 10, 1945; and Republic Act No. 342, approved on July 26, 1948). The loan in question, as evidenced
by the five promissory notes, were incurred in the year 1943, or during the period of Japanese occupation of the
Philippines. This case is squarely covered by Executive Order No. 25, which became effective on November 18, 1944,
providing for the suspension of payments of debts incurred after December 31, 1941. The period of prescription was,
therefore, suspended beginning November 18, 1944. This Court, in the case of Rutter vs. Esteban (L-3708, May 18, 1953,
93 Phil. 68), declared on May 18, 1953 that the Moratorium Laws, R.A. No. 342 and Executive Orders Nos. 25 and 32, are
unconstitutional; but in that case this Court ruled that the moratorium laws had suspended the prescriptive period until
May 18, 1953. This ruling was categorically reiterated in the decision in the case of Manila Motors vs. Flores, L-9396,
August 16, 1956. It follows, therefore, that the prescriptive period in the case now before US was suspended from
November 18,1944, when Executive Orders Nos. 25 and 32 were declared unconstitutional by this Court. Computed
accordingly, the prescriptive period was suspended for 8 years and 6 months. By the appellant's own admission, the cause
of action on the five promissory notes in question arose on June 1, 1944. The complaint in the present case was filed on
January 17, 1961, or after a period of 16 years, 6 months and 16 days when the cause of action arose. If the prescriptive
period was not interrupted by the moratorium laws, the action would have prescribed already; but, as We have stated, the
prescriptive period was suspended by the moratorium laws for a period of 8 years and 6 months. If we deduct the period
of suspension (8 years and 6 months) from the period that elapsed from the time the cause of action arose to the time
when the complaint was filed (16 years, 6 months and 16 days) there remains a period of 8 years and 16 days. In other
words, the prescriptive period ran for only 8 years and 16 days. There still remained a period of one year, 11 months and
14 days of the prescriptive period when the complaint was filed.
In his third point of contention the appellant maintains that the lower court erred in ordering him to pay the amount of
P2,377.23. It is claimed by the appellant that it was error on the part of the lower court to apply the Ballantyne Scale of
values in evaluating the Japanese war notes as of June 1943 when the loans were incurred, because what should be done
is to evaluate the loans on the basis of the Ballantyne Scale as of the time the loans became due, and that was in June 1944.
This contention of the appellant is also without merit.
The decision of the court a quo ordered the appellant to pay the sum of P2,377.23 as of December 31, 1959, plus interest
rate of 6% per annum compounded quarterly from the date of the filing of the complaint. The sum total of the five loans
obtained by the appellant from the Bank of Taiwan, Ltd. was P1,281.97 in Japanese war notes. Computed under the
Ballantyne Scale of values as of June 1943, this sum of P1,281.97 in Japanese war notes in June 1943 is equivalent to
P889.64 in genuine Philippine currency which was considered the aggregate amount due as principal of the five loans,
and the amount of P2,377.23 as of December 31, 1959 was arrived at after computing the interest on the principal sum of
P889.64 compounded quarterly from the time the obligations were incurred in 1943.
It is the stand of the appellee that the Ballantyne scale of values should be applied as of the time the obligation was
incurred, and that was in June 1943. This stand of the appellee was upheld by the lower court; and the decision of the
lower court is supported by the ruling of this Court in the case of Hilado vs. De la Costa (G.R. No. L-150, April 30, 1949; 46
O.G. 5472), which states:
... Contracts stipulating for payments presumably in Japanese war notes may be enforced in our Courts after the
liberation to the extent of the just obligation of the contracting parties and, as said notes have become worthless,
in order that justice may be done and the party entitled to be paid can recover their actual value in Philippine
Currency, what the debtor or defendant bank should return or pay is the value of the Japanese military notes in
relation to the peso in Philippine Currency obtaining on the date when and at the place where the obligation was
incurred unless the parties had agreed otherwise. ... . (italics supplied)
IN VIEW OF THE FOREGOING, the decision appealed from is affirmed, with costs against the appellant. Inasmuch as the
appellant Jose Grijaldo died during the pendency of this appeal, his estate must answer in the execution of the judgment in
the present case.
Bengzon, C.J., Concepcion, Barrera, Regala, Bautista Angelo, Reyes, J.B.L., Makalintal and Bengzon, J.P., JJ.,concur.


















Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
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.
D E C I S I O N
AUSTRIA-MARTINEZ, J.:
Before us is a Petition for Review on Certiorari filed by Bobie Rose V. Frias represented by her Attorney-in-fact, Marie
Regine F. Fujita (petitioner) seeking to annul the Decision
1
dated June 18, 2002 and the Resolution
2
dated September 11,
2002 of the Court of Appeals (CA) in CA-G.R. CV No. 52839.
Petitioner is the owner of a house and lot located at No. 589 Batangas East, Ayala Alabang, Muntinlupa, Metro Manila,
which she acquired from Island Masters Realty and Development Corporation (IMRDC) by virtue of a Deed of Sale dated
Nov. 16, 1990.
3
The property is covered by TCT No. 168173 of the Register of Deeds of Makati in the name of IMRDC.
4

On December 7, 1990, petitioner, as the FIRST PARTY, and Dra. Flora San Diego-Sison (respondent), as the SECOND
PARTY, entered into a Memorandum of Agreement
5
over the property with the following terms:
NOW, THEREFORE, for and in consideration of the sum of THREE MILLION PESOS (P3,000,000.00) receipt of which is
hereby acknowledged by the FIRST PARTY from the SECOND PARTY, the parties have agreed as follows:
1. That the SECOND PARTY has a period of Six (6) months from the date of the execution of this contract within
which to notify the FIRST PARTY of her intention to purchase the aforementioned parcel of land together within
(sic) the improvements thereon at the price of SIX MILLION FOUR HUNDRED THOUSAND PESOS
(P6,400,000.00). Upon notice to the FIRST PARTY of the SECOND 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.
3. That in case the FIRST PARTY has no other buyer within the first six months from the execution of this
contract, no interest shall be charged by the SECOND PARTY on the P3 million however, in the event that on the
sixth month the SECOND PARTY would decide not to purchase the aforementioned property, the FIRST PARTY
has a period of another six months within which to pay the sum of P3 million pesos provided that the said
amount shall earn compounded bank interest for the last six months only. Under this circumstance, the amount
of P3 million given by the SECOND PARTY shall be treated as [a] loan and the property shall be considered as the
security for the mortgage which can be enforced in accordance with law.
x x x x.
6

Petitioner received from respondent two million pesos in cash and one million pesos in a post-dated check dated
February 28, 1990, instead of 1991, which rendered said check stale.
7
Petitioner then gave respondent TCT No. 168173 in
the name of IMRDC and the Deed of Absolute Sale over the property between petitioner and IMRDC.
Respondent decided not to purchase the property and notified petitioner through a letter
8
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 complaint
10
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 report
11
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 petition
12
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 Order
13
dated August 31, 1991; that said
Order was subsequently set aside in an Order dated April 10, 1992
14
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.
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 Answer
16
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:
WHEREFORE, judgment is hereby RENDERED:
1) Ordering defendant to pay plaintiff the sum of P2 Million plus interest thereon at the rate of thirty two (32%)
per cent per annum beginning December 7, 1991 until fully paid.
2) Ordering defendant to pay plaintiff the sum of P70,000.00 representing premiums paid by plaintiff on the
attachment bond with legal interest thereon counted from the date of this decision until fully paid.
3) Ordering defendant to pay plaintiff the sum of P100,000.00 by way of moral, corrective and exemplary
damages.
4) Ordering defendant to pay plaintiff attorneys fees of P100,000.00 plus cost of litigation.
18

The RTC found that petitioner was under obligation to pay respondent the amount of two million pesos with compounded
interest pursuant to their Memorandum of Agreement; that the fraudulent scheme employed by petitioner to deprive
respondent of her only security to her loaned money when petitioner executed an affidavit of loss and instituted a petition
for the issuance of an 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 ofP30,000.00 as premium for the
issuance of the attachment bond, P20,000.00 for its renewal in 1994, andP20,000.00 for the renewal in 1995, thus
plaintiff should be reimbursed considering that she was compelled to go to court and ask for a writ of preliminary
attachment to protect her rights under the agreement.
Petitioner filed her appeal with the CA. In a Decision dated June 18, 2002, the CA affirmed the RTC decision with
modification, the dispositive portion of which reads:
WHEREFORE, premises considered, the decision appealed from is MODIFIED in the sense that the rate of interest is
reduced from 32% to 25% per annum, effective June 7, 1991 until fully paid.
19

The CA found that: petitioner gave the one million pesos to Atty. Lozada partly as her commission and partly as a loan;
respondent did not replace the mistakenly dated check of one million pesos because she had decided not to buy the
property and petitioner knew of her decision as early as April 1991; the award of moral damages was warranted since
even granting petitioner had no hand in the filing of the petition for the issuance of an 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.
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,
1991
20
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.
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:
(A) WHETHER OR NOT THE COMPOUNDED BANK INTEREST SHOULD BE LIMITED TO SIX (6) MONTHS AS
CONTAINED IN THE MEMORANDUM OF AGREEMENT.
(B) WHETHER OR NOT THE RESPONDENT IS ENTITLED TO MORAL DAMAGES.
(C) WHETHER OR NOT THE GRANT OF CORRECTIVE AND EXEMPLARY DAMAGES AND ATTORNEYS FEES IS
PROPER EVEN IF NOT MENTIONED IN THE TEXT OF THE DECISION.
22

Petitioner contends that the interest, whether at 32% per annum awarded by the trial court or at 25% per annum as
modified by the CA which should run from June 7, 1991 until fully paid, is contrary to the parties Memorandum of
Agreement; that the agreement provides that if respondent would decide not to purchase the property, petitioner has the
period of another six months to pay the loan with compounded bank interest for the last six months only; that the 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.
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 controversy.
24
The general rule is that if the terms of an agreement are clear
and leave no doubt as to the intention of the contracting parties, the literal meaning of its stipulations shall prevail.
25
It is
further required that the various stipulations of a contract shall be interpreted together, attributing to the doubtful ones
that sense which may result from all of them taken jointly.
26

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

The agreement that the amount given shall bear compounded bank interest for the last six months only, i.e., referring to
the second six-month period, does not mean that interest will no longer be charged after the second six-month period
since such stipulation was made on the logical and reasonable expectation that such amount would be paid within the
date stipulated. Considering that petitioner failed to pay the amount given which under the Memorandum of Agreement
shall be considered as a loan, the monetary interest for the last six months continued to accrue until actual payment of the
loaned amount.
The payment of regular interest constitutes the price or cost of the use of money and thus, until the principal sum due is
returned to the creditor, regular interest continues to accrue since the debtor continues to use such principal amount.
28
It
has been held that for a debtor to continue in possession of the principal of the loan and to continue to use the same after
maturity of the loan without payment of the monetary interest, would constitute unjust enrichment on the part of the
debtor at the expense of the creditor.
29

Petitioner and respondent stipulated that the loaned amount shall earn compounded bank interests, and per the
certification issued by Prudential Bank, the interest rate for loans in 1991 ranged from 25% to 32% per annum. The CA
reduced the interest rate to 25% instead of the 32% awarded by the trial court which petitioner no longer
assailed.1awphi1.nt
In Bautista v. Pilar Development Corp.,
30
we upheld the validity of a 21% per annum interest on a P142,326.43 loan.
In Garcia v. Court of Appeals,
31
we sustained the agreement of the parties to a 24% per annum interest on
an P8,649,250.00 loan. Thus, the interest rate of 25% per annum awarded by the CA to a P2 million loan is fair and
reasonable.
Petitioner next claims that moral damages were awarded on the erroneous finding that she used a fraudulent scheme to
deprive respondent of her security for the loan; that such finding is baseless since petitioner was acquitted in the case for
perjury and false testimony filed by respondent against her.
We are not persuaded.
Article 31 of the Civil Code provides that when the civil action is based on an obligation not arising from the act or
omission complained of as a felony, such civil action may proceed independently of the criminal proceedings and
regardless of the result of the latter.
32

While petitioner was acquitted in the false testimony and perjury cases filed by respondent against her, those actions are
entirely distinct from the collection of sum of money with damages filed by respondent against petitioner.
We agree with the findings of the trial court and the CA that 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 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 petitioner's claim that the title
was returned by Atty. Lozada in view of Ynfante's testimony that after the brown envelope was given to petitioner, the
latter passed it on to her and she placed it in petitioners attach case
36
and did not bother to look at the envelope.
37

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.
The entitlement to moral damages having been established, the award of exemplary damages is proper.
38
Exemplary
damages may be imposed upon petitioner by way of example or correction for the public good.
39
The RTC awarded the
amount of P100,000.00 as moral and exemplary damages. While the award of moral and exemplary damages in an
aggregate amount may not be the usual way of awarding said damages,
40
no error has been committed by CA. There is no
question that respondent is entitled to moral and exemplary damages.
Petitioner argues that the CA erred in awarding 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.
Article 2208
41
of the New Civil Code enumerates the instances where such may be awarded and, in all cases, it must be
reasonable, just and equitable if the same were to be granted.
42
Attorney's fees as part of damages are not meant to enrich
the winning party at the expense of the losing litigant. They are not awarded every time a party prevails in a suit because
of the policy that no premium should be placed on the right to litigate.
43
The award of attorney's fees is the exception
rather than the general rule. As such, it is necessary for the trial court to make findings of facts and law that would bring
the case within the exception and justify the grant of such award. The matter of attorney's fees cannot be mentioned only
in the dispositive portion of the decision.
44
They must be clearly explained and justified by the trial court in the body of its
decision. On appeal, the CA is precluded from supplementing the bases for awarding attorneys fees when the trial court
failed to discuss in its Decision the reasons for awarding the same. Consequently, the award of attorney's fees should be
deleted.
WHEREFORE, in view of all the foregoing, the Decision dated June 18, 2002 and the Resolution dated September 11, 2002
of the Court of Appeals in CA-G.R. CV No. 52839 are AFFIRMED with MODIFICATION that the award of attorneys fees
is DELETED.
No pronouncement as to costs. SO ORDERED





























Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-25704 April 24, 1968
ANGEL JOSE WAREHOUSING CO., INC., plaintiff-appellee,
vs.
CHELDA ENTERPRISES and DAVID SYJUECO, defendants-appellants.
Luis A. Guerrero for plaintiff-appellee.
Burgos and Sarte for defendants-appellants.
BENGZON, J.P., J.:
Plaintiff corporation filed suit in the Court of First Instance of Manila on May 29, 1964 against the partnership Chelda
Enterprises and David Syjueco, its capitalist partner, for recovery of alleged unpaid loans in the total amount of
P20,880.00, with legal interest from the filing of the complaint, plus attorney's fees of P5,000.00. Alleging that post dated
checks issued by defendants to pay said account were dishonored, that defendants' industrial partner, Chellaram I.
Mohinani, had left the country, and that defendants have removed or disposed of their property, or are about to do so,
with intent to defraud their creditors, preliminary attachment was also sought.
Answering, defendants averred that they obtained four loans from plaintiff in the total amount of P26,500.00, of which
P5,620.00 had been paid, leaving a balance of P20,880.00; that plaintiff charged and deducted from the loan usurious
interests thereon, at rates of 2% and 2.5% per month, and, consequently, plaintiff has no cause of action against
defendants and should not be permitted to recover under the law. A counterclaim for P2,000.00 attorney's fees was
interposed.
Plaintiff filed on June 25, 1964 an answer to the counterclaim, specifically denying under oath the allegations of usury.
After trial, decision was rendered, on November 10, 1965. The court found that there remained due from defendants an
unpaid principal amount of P20,287.50; that plaintiff charged usurious interests, of which P1,048.15 had actually been
deducted in advance by plaintiff from the loan; that said amount of P1,048.15 should therefore be deducted from the
unpaid principal of P20,287.50, leaving a balance of P19,247.35
1
still payable to the plaintiff. Said court held that
notwithstanding the usurious interests charged, plaintiff is not barred from collecting the principal of the loan or its
balance of P19,247.35. Accordingly, it stated, in the dispositive portion of the decision, thus:
WHEREFORE, judgment is hereby rendered, ordering the defendant partnership to pay to the plaintiff the
amount of P19,247.35, with legal interest thereon from May 29, 1964 until paid, plus an additional sum of
P2,000.00 as damages for attorney's fee; and, in case the assets of defendant partnership be insufficient to
satisfy this judgment in full, ordering the defendant David Syjueco to pay to the plaintiff one-half (1/2) of the
unsatisfied portion of this judgment.
With costs against the defendants.1wph1.t
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 attorney's fees be awarded in plaintiff's favor?
To refute the lower court's decision which is based on the doctrine laid down by this Court in Lopez v. El Hogar Filipino, 47
Phil. 249, holding that a contract of loan with usurious interest is valid as to the loan but void as to the usurious interest,
appellants argue that in light of the New Civil Code provisions said doctrine no longer applies. In support thereof, they cite
the case decided by the Court of Appeals in Sebastian v. Bautista, 58 O.G. No. 15, p. 3146.
The Sebastian case was an action for recovery of a parcel of land. The Court of First Instance therein decided in plaintiff's
favor, on the ground that the so-called sale with pacto de retro of said land was in fact only an equitable mortgage. In
affirming the trial court, the writer of the opinion of the Court of Appeals went further to state the view that the loan
secured by said mortgage was usurious in nature, and, thus, totally void. Such reasoning of the writer, however, was not
concurred in by the other members of the Court, who concurred in the result and voted for affirmance on the grounds
stated by the trial court. Furthermore, the affirmance of the existence of equitable mortgage necessarily implies the
existence of a valid contract of loan, because the former is an accessory contract to the latter.
Great reliance is made by appellants on Art. 1411 of the New Civil Code which states:
Art. 1411. When the nullity proceeds from the illegality of the cause or object of the contract, and the act
constitutes criminal offense, both parties being in pari delicto, they shall have no action against each other, and
both shall be prosecuted. Moreover, the provisions of the Penal Code relative to the disposal of effects or
instruments of a crime shall be applicable to the things or the price of the contract.
This rule shall be applicable when only one of the parties is guilty; but the innocent one may claim what he has
given, and shall not be bound to comply with his promise.
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." (Emphasis ours.)
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.
True, as stated in Article 1411 of the New Civil Code, the rule of pari delicto applies where a contract's nullity proceeds
from illegality of the cause or object of said contract.
However, appellants 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.
2

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.
Neither is there a conflict between the New Civil Code and the Usury Law. Under the latter, in Sec. 6, any person who for a
loan shall have paid a higher rate or greater sum or value than is allowed in said law, may recover thewhole interest paid.
The New Civil Code, in Article 1413 states: "Interest paid in excess of the interest allowed by the usury laws may be
recovered by the debtor, with interest thereon from the date of payment." Article 1413, in speaking of "interest paid in
excess of the interest allowed by the usury laws" means the whole usurious interest; that is, in a loan of P1,000, with
interest of P20% per annum P200 for one year, if the borrower pays said P200, the whole P200 is the usurious interest, not
just that part thereof in excess of the interest allowed by law. It is in this case that the law does not allow division. The
whole stipulation as to interest is void, since payment of said interest is the cause or object and said interest is illegal. The
only change effected, therefore, by Article 1413, New Civil Code, is not to provide for the recovery of the interest paid in
excess of that allowed by law, which the Usury Law already provided for, but to add that the same can be recovered "with
interest thereon from the date of payment."
The foregoing interpretation is reached with the philosophy of usury legislation in mind; to discourage stipulations on
usurious interest, said stipulations are treated as wholly void, so that the loan becomes one without stipulation as to
payment of interest. It should not, however, be interpreted to mean forfeiture even of the principal, for this would
unjustly enrich the borrower at the expense of the lender. Furthermore, penal sanctions are available against a usurious
lender, as a further deterrence to usury.
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.
As regards, however, the attorney's fees, the court a quo stated no basis for its award, beyond saying that as a result of
defendants' refusal to pay the amount of P19,247.35 notwithstanding repeated demands, plaintiff was obliged to retain
the services of counsel. The rule as to attorney's fees is that the same are not recoverable, in the absence of stipulation.
Several exceptions to this rule are provided (Art. 2208, Civil Code). Unless shown to fall under an exception, the act of
plaintiff in engaging counsel's services due to refusal of defendants to pay his demand, does not justify award of attorney's
fees (Estate of Buan v. Camaganacan, L-21569, Feb. 28, 1966). Defendants, moreover, had reason to resist the claim, since
there was yet no definite ruling of this Court on the point of law involved herein in light of the New Civil Code. Said award
should therefore be deleted.
WHEREFORE, with the modification that the award of attorney's fees in plaintiff's favor is deleted therefrom, and the
correction of the clerical error as to the principal still recoverable, from P19,247.35 to P19,239.35, the appealed judgment
is hereby affirmed. No costs. So ordered.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC

G.R. No. 97412 July 12, 1994
EASTERN SHIPPING LINES, INC., petitioner,
vs.
HON. COURT OF APPEALS AND MERCANTILE INSURANCE COMPANY, INC., respondents.
Alojada & Garcia and Jimenea, Dala & Zaragoza for petitoner.
Zapa Law Office for private respondent.
VITUG, J.:
The issues, albeit not completely novel, are: (a) whether or not a claim for damage sustained on a shipment of goods can
be a solidary, or joint and several, liability of the common carrier, the arrastre operator and the customs broker; (b)
whether the payment of legal interest on an award for loss or damage is to be computed from the time the complaint is
filed or from the date the decision appealed from is rendered; and (c) whether the applicable rate of interest, referred to
above, is twelve percent (12%) or six percent (6%).
The findings of the court a quo, adopted by the Court of Appeals, on the antecedent and undisputed facts that have led to
the controversy are hereunder reproduced:
This is an action against defendants shipping company, arrastre operator and broker-forwarder for
damages sustained by a shipment while in defendants' custody, filed by the insurer-subrogee who paid
the consignee the value of such losses/damages.
On December 4, 1981, two fiber drums of riboflavin were shipped from Yokohama, Japan for delivery
vessel "SS EASTERN COMET" owned by defendant Eastern Shipping Lines under Bill of Lading
No. YMA-8 (Exh. B). The shipment was insured under plaintiff's Marine Insurance Policy No. 81/01177
for P36,382,466.38.
Upon arrival of the shipment in Manila on December 12, 1981, it was discharged unto the custody of
defendant Metro Port Service, Inc. The latter excepted to one drum, said to be in bad order, which
damage was unknown to plaintiff.
On January 7, 1982 defendant Allied Brokerage Corporation received the shipment from defendant
Metro Port Service, Inc., one drum opened and without seal (per "Request for Bad Order Survey." Exh.
D).
On January 8 and 14, 1982, defendant Allied Brokerage Corporation made deliveries of the shipment to
the consignee's warehouse. The latter excepted to one drum which contained spillages, while the rest
of the contents was adulterated/fake (per "Bad Order Waybill" No. 10649, Exh. E).
Plaintiff contended that due to the losses/damage sustained by said drum, the consignee suffered
losses totaling P19,032.95, due to the fault and negligence of defendants. Claims were presented
against defendants who failed and refused to pay the same (Exhs. H, I, J, K, L).
As a consequence of the losses sustained, plaintiff was compelled to pay the consignee P19,032.95
under the aforestated marine insurance policy, so that it became subrogated to all the rights of action
of said consignee against defendants (per "Form of Subrogation", "Release" and Philbanking check,
Exhs. M, N, and O). (pp. 85-86, Rollo.)
There were, to be sure, other factual issues that confronted both courts. Here, the appellate court said:
Defendants filed their respective answers, traversing the material allegations of the complaint
contending that: As for defendant Eastern Shipping it alleged that the shipment was discharged in good
order from the vessel unto the custody of Metro Port Service so that any damage/losses incurred after
the shipment was incurred after the shipment was turned over to the latter, is no longer its liability (p.
17, Record); Metroport averred that although subject shipment was discharged unto its custody,
portion of the same was already in bad order (p. 11, Record); Allied Brokerage alleged that plaintiff has
no cause of action against it, not having negligent or at fault for the shipment was already in damage
and bad order condition when received by it, but nonetheless, it still exercised extra ordinary care and
diligence in the handling/delivery of the cargo to consignee in the same condition shipment was
received by it.
From the evidence the court found the following:
The issues are:
1. Whether or not the shipment sustained losses/damages;
2. Whether or not these losses/damages were sustained while in the custody of
defendants (in whose respective custody, if determinable);
3. Whether or not defendant(s) should be held liable for the losses/damages (see
plaintiff's pre-Trial Brief, Records, p. 34; Allied's pre-Trial Brief, adopting plaintiff's
Records, p. 38).
As to the first issue, there can be no doubt that the shipment sustained
losses/damages. The two drums were shipped in good order and condition, as
clearly shown by the Bill of Lading and Commercial Invoice which do not indicate
any damages drum that was shipped (Exhs. B and C). But when on December 12,
1981 the shipment was delivered to defendant Metro Port Service, Inc., it excepted
to one drum in bad order.
Correspondingly, as to the second issue, it follows that the losses/damages were
sustained while in the respective and/or successive custody and possession of
defendants carrier (Eastern), arrastre operator (Metro Port) and broker (Allied
Brokerage). This becomes evident when the Marine Cargo Survey Report (Exh. G),
with its "Additional Survey Notes", are considered. In the latter notes, it is stated
that when the shipment was "landed on vessel" to dock of Pier # 15, South Harbor,
Manila on December 12, 1981, it was observed that "one (1) fiber drum (was) in
damaged condition, covered by the vessel's Agent's Bad Order Tally Sheet No. 86427."
The report further states that when defendant Allied Brokerage withdrew the
shipment from defendant arrastre operator's custody on January 7, 1982, one drum
was found opened without seal, cello bag partly torn but contents intact. Net
unrecovered spillages was
15 kgs. The report went on to state that when the drums reached the consignee, one
drum was found with adulterated/faked contents. It is obvious, therefore, that these
losses/damages occurred before the shipment reached the consignee while under
the successive custodies of defendants. Under Art. 1737 of the New Civil Code, the
common carrier's duty to observe extraordinary diligence in the vigilance of goods
remains in full force and effect even if the goods are temporarily unloaded and
stored in transit in the warehouse of the carrier at the place of destination, until the
consignee has been advised and has had reasonable opportunity to remove or
dispose of the goods (Art. 1738, NCC). Defendant Eastern Shipping's own exhibit,
the "Turn-Over Survey of Bad Order Cargoes" (Exhs. 3-Eastern) states that on
December 12, 1981 one drum was found "open".
and thus held:
WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered:
A. Ordering defendants to pay plaintiff, jointly and severally:
1. The amount of P19,032.95, with the present legal interest of 12% per annum from
October 1, 1982, the date of filing of this complaints, until fully paid (the liability of
defendant Eastern Shipping, Inc. shall not exceed US$500 per case or the CIF value
of the loss, whichever is lesser, while the liability of defendant Metro Port Service,
Inc. shall be to the extent of the actual invoice value of each package, crate box or
container in no case to exceed P5,000.00 each, pursuant to Section 6.01 of the
Management Contract);
2. P3,000.00 as attorney's fees, and
3. Costs.
B. Dismissing the counterclaims and crossclaim of
defendant/cross-claimant Allied Brokerage Corporation.
SO ORDERED. (p. 207, Record).
Dissatisfied, defendant's recourse to US.
The appeal is devoid of merit.
After a careful scrutiny of the evidence on record. We find that the conclusion drawn therefrom is
correct. As there is sufficient evidence that the shipment sustained damage while in the successive
possession of appellants, and therefore they are liable to the appellee, as subrogee for the amount it
paid to the consignee. (pp. 87-89, Rollo.)
The Court of Appeals thus affirmed in toto the judgment of the court
a quo.
In this petition, Eastern Shipping Lines, Inc., the common carrier, attributes error and grave abuse of discretion on the
part of the appellate court when
I. IT HELD PETITIONER CARRIER JOINTLY AND SEVERALLY LIABLE WITH THE ARRASTRE
OPERATOR AND CUSTOMS BROKER FOR THE CLAIM OF PRIVATE RESPONDENT AS GRANTED IN THE
QUESTIONED DECISION;
II. IT HELD THAT THE GRANT OF INTEREST ON THE CLAIM OF PRIVATE RESPONDENT SHOULD
COMMENCE FROM THE DATE OF THE FILING OF THE COMPLAINT AT THE RATE OF TWELVE
PERCENT PER ANNUM INSTEAD OF FROM THE DATE OF THE DECISION OF THE TRIAL COURT AND
ONLY AT THE RATE OF SIX PERCENT PER ANNUM, PRIVATE RESPONDENT'S CLAIM BEING
INDISPUTABLY UNLIQUIDATED.
The petition is, in part, granted.
In this decision, we have begun by saying that the questions raised by petitioner carrier are not all that novel. Indeed, we
do have a fairly good number of previous decisions this Court can merely tack to.
The common carrier's duty to observe the requisite diligence in the shipment of goods lasts from the time the articles are
surrendered to or unconditionally placed in the possession of, and received by, the carrier for transportation until
delivered to, or until the lapse of a reasonable time for their acceptance by, the person entitled to receive them (Arts.
1736-1738, Civil Code; Ganzon vs. Court of Appeals, 161 SCRA 646; Kui Bai vs. Dollar Steamship Lines, 52 Phil. 863).
When the goods shipped either are lost or arrive in damaged condition, a presumption arises against the carrier of its
failure to observe that diligence, and there need not be an express finding of negligence to hold it liable (Art. 1735, Civil
Code; Philippine National Railways vs. Court of Appeals, 139 SCRA 87; Metro Port Service vs. Court of Appeals, 131 SCRA
365). There are, of course, exceptional cases when such presumption of fault is not observed but these cases, enumerated
in Article 1734
1
of the Civil Code, are exclusive, not one of which can be applied to this case.
The question of charging both the carrier and the arrastre operator with the obligation of properly delivering the goods to
the consignee has, too, been passed upon by the Court. In Fireman's Fund Insurance vs. Metro Port Services (182 SCRA
455), we have explained, in holding the carrier and the arrastre operator liable in solidum,thus:
The legal relationship between the consignee and the arrastre operator is akin to that of a depositor
and warehouseman (Lua Kian v. Manila Railroad Co., 19 SCRA 5 [1967]. The relationship between the
consignee and the common carrier is similar to that of the consignee and the arrastre operator
(Northern Motors, Inc. v. Prince Line, et al., 107 Phil. 253 [1960]). Since it is the duty of the ARRASTRE
to take good care of the goods that are in its custody and to deliver them in good condition to the
consignee, such responsibility also devolves upon the CARRIER. Both the ARRASTRE and the CARRIER
are therefore charged with the obligation to deliver the goods in good condition to the consignee.
We do not, of course, imply by the above pronouncement that the arrastre operator and the customs broker are
themselves always and necessarily liable solidarily with the carrier, or vice-versa, nor that attendant facts in a given case
may not vary the rule. The instant petition has been brought solely by Eastern Shipping Lines, which, being the carrier
and not having been able to rebut the presumption of fault, is, in any event, to be held liable in this particular case. A
factual finding of both the court a quo and the appellate court, we take note, is that "there is sufficient evidence that the
shipment sustained damage while in the successive possession of appellants" (the herein petitioner among them).
Accordingly, the liability imposed on Eastern Shipping Lines, Inc., the sole petitioner in this case, is inevitable regardless
of whether there are others solidarily liable with it.
It is over the issue of legal interest adjudged by the appellate court that deserves more than just a passing remark.
Let us first see a chronological recitation of the major rulings of this Court:
The early case of Malayan Insurance Co., Inc., vs. Manila Port
Service,
2
decided
3
on 15 May 1969, involved a suit for recovery of money arising out of short deliveries and pilferage of
goods. In this case, appellee Malayan Insurance (the plaintiff in the lower court) averred in its complaint that the total
amount of its claim for the value of the undelivered goods amounted to P3,947.20. This demand, however, was neither
established in its totality nor definitely ascertained. In the stipulation of facts later entered into by the parties, in lieu of
proof, the amount of P1,447.51 was agreed upon. The trial court rendered judgment ordering the appellants (defendants)
Manila Port Service and Manila Railroad Company to pay appellee Malayan Insurance the sum of P1,447.51 with legal
interest thereon from the date the complaint was filed on 28 December 1962 until full payment thereof. The appellants then
assailed, inter alia, the award of legal interest. In sustaining the appellants, this Court ruled:
Interest upon an obligation which calls for the payment of money, absent a stipulation, is the legal rate.
Such interest normally is allowable from the date of demand, judicial or extrajudicial. The trial court
opted for judicial demand as the starting point.
But then upon the provisions of Article 2213 of the Civil Code, interest "cannot be recovered upon
unliquidated claims or damages, except when the demand can be established with reasonable
certainty." And as was held by this Court in Rivera vs. Perez,
4
L-6998, February 29, 1956, if the suit were
for damages, "unliquidated and not known until definitely ascertained, assessed and determined by the
courts after proof (Montilla c.Corporacion de P.P. Agustinos, 25 Phil. 447; Lichauco v. Guzman,
38 Phil. 302)," then, interest "should be from the date of the decision." (Emphasis supplied)
The case of Reformina vs. Tomol,
5
rendered on 11 October 1985, was for "Recovery of Damages for Injury to Person and
Loss of Property." After trial, the lower court decreed:
WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and third party defendants and
against the defendants and third party plaintiffs as follows:
Ordering defendants and third party plaintiffs Shell and Michael, Incorporated to pay jointly and
severally the following persons:
xxx xxx xxx
(g) Plaintiffs Pacita F. Reformina and Francisco Reformina the sum of P131,084.00 which is the value of
the boat F B Pacita III together with its accessories, fishing gear and equipment minus P80,000.00
which is the value of the insurance recovered and the amount of P10,000.00 a month as the estimated
monthly loss suffered by them as a result of the fire of May 6, 1969 up to the time they are actually paid
or already the total sum of P370,000.00 as of June 4, 1972 with legal interest from the filing of the
complaint until paid and to pay attorney's fees of P5,000.00 with costs against defendants and third
party plaintiffs. (Emphasis supplied.)
On appeal to the Court of Appeals, the latter modified the amount of damages awarded but sustained the trial
court in adjudging legal interest from the filing of the complaint until fully paid. When the appellate court's
decision became final, the case was remanded to the lower court for execution, and this was when the trial court
issued its assailed resolution which applied the 6% interest per annum prescribed in Article 2209 of the Civil
Code. In their petition for review on certiorari, the petitioners contended that Central Bank Circular
No. 416, providing thus
By virtue of the authority granted to it under Section 1 of Act 2655, as amended, Monetary Board in its
Resolution No. 1622 dated July 29, 1974, has prescribed that the rate of interest for the loan, or
forbearance of any money, goods, or credits and the rate allowed in judgments, in the absence of
express contract as to such rate of interest, shall be twelve (12%) percent per annum. This Circular
shall take effect immediately. (Emphasis found in the text)
should have, instead, been applied. This Court
6
ruled:
The judgments spoken of and referred to are judgments in litigations involving loans or forbearance of
any money, goods or credits. Any other kind of monetary judgment which has nothing to do with, nor
involving loans or forbearance of any money, goods or credits does not fall within the coverage of the
said law for it is not within the ambit of the authority granted to the Central Bank.
xxx xxx xxx
Coming to the case at bar, the decision herein sought to be executed is one rendered in an Action for
Damages for injury to persons and loss of property and does not involve any loan, much less
forbearances of any money, goods or credits. As correctly argued by the private respondents, the law
applicable to the said case is Article 2209 of the New Civil Code which reads
Art. 2209. If the obligation consists in the payment of a sum of money, and the
debtor incurs in delay, the indemnity for damages, there being no stipulation to the
contrary, shall be the payment of interest agreed upon, and in the absence of
stipulation, the legal interest which is six percent per annum.
The above rule was reiterated in Philippine Rabbit Bus Lines, Inc., v. Cruz,
7
promulgated on 28 July 1986. The case was for
damages occasioned by an injury to person and loss of property. The trial court awarded private respondent Pedro
Manabat actual and compensatory damages in the amount of P72,500.00 with legal interest thereon from the filing of the
complaint until fully paid. Relying on the Reformina v. Tomol case, this Court
8
modified the interest award from 12% to 6%
interest per annum but sustained the time computation thereof, i.e., from the filing of the complaint until fully paid.
In Nakpil and Sons vs. Court of Appeals,
9
the trial court, in an action for the recovery of damages arising from the collapse
of a building, ordered,
inter alia, the "defendant United Construction Co., Inc. (one of the petitioners)
. . . to pay the plaintiff, . . . , the sum of P989,335.68 with interest at the legal rate from November 29, 1968, the date of the
filing of the complaint until full payment . . . ." Save from the modification of the amount granted by the lower court, the
Court of Appeals sustained the trial court's decision. When taken to this Court for review, the case, on 03 October 1986,
was decided, thus:
WHEREFORE, the decision appealed from is hereby MODIFIED and considering the special and
environmental circumstances of this case, we deem it reasonable to render a decision imposing, as We
do hereby impose, upon the defendant and the third-party defendants (with the exception of Roman
Ozaeta) a solidary (Art. 1723, Civil Code, Supra.
p. 10) indemnity in favor of the Philippine Bar Association of FIVE MILLION (P5,000,000.00) Pesos to
cover all damages (with the exception to attorney's fees) occasioned by the loss of the building
(including interest charges and lost rentals) and an additional ONE HUNDRED THOUSAND
(P100,000.00) Pesos as and for attorney's fees, the total sum being payable upon the finality of this
decision. Upon failure to pay on such finality, twelve (12%) per cent interest per annum shall be imposed
upon aforementioned amounts from finality until paid. Solidary costs against the defendant and third-
party defendants (Except Roman Ozaeta). (Emphasis supplied)
A motion for reconsideration was filed by United Construction, contending that "the interest of twelve (12%)
per cent per annum imposed on the total amount of the monetary award was in contravention of law." The
Court
10
ruled out the applicability of the Reformina and Philippine Rabbit Bus Lines cases and, in its resolution
of 15 April 1988, it explained:
There should be no dispute that the imposition of 12% interest pursuant to Central Bank Circular No.
416 . . . is applicable only in the following: (1) loans; (2) forbearance of any money, goods or credit;
and
(3) rate allowed in judgments (judgments spoken of refer to judgments involving loans or forbearance
of any money, goods or credits. (Philippine Rabbit Bus Lines Inc. v. Cruz, 143 SCRA 160-161 [1986];
Reformina v. Tomol, Jr., 139 SCRA 260 [1985]). It is true that in the instant case, there is neither a loan
or a forbearance, but then no interest is actually imposed provided the sums referred to in the judgment
are paid upon the finality of the judgment. It is delay in the payment of such final judgment, that will
cause the imposition of the interest.
It will be noted that in the cases already adverted to, the rate of interest is imposed on the total sum,
from the filing of the complaint until paid; in other words, as part of the judgment for damages. Clearly,
they are not applicable to the instant case. (Emphasis supplied.)
The subsequent case of American Express International, Inc., vs. Intermediate Appellate Court
11
was a petition for review
on certiorari from the decision, dated 27 February 1985, of the then Intermediate Appellate Court reducing the amount of
moral and exemplary damages awarded by the trial court, to P240,000.00 and P100,000.00, respectively, and its
resolution, dated 29 April 1985, restoring the amount of damages awarded by the trial court, i.e., P2,000,000.00 as moral
damages and P400,000.00 as exemplary damages with interest thereon at 12% per annum from notice of judgment, plus
costs of suit. In a decision of 09 November 1988, this Court, while recognizing the right of the private respondent to
recover damages, held the award, however, for moral damages by the trial court, later sustained by the IAC, to be
inconceivably large. The Court
12
thus set aside the decision of the appellate court and rendered a new one, "ordering the
petitioner to pay private respondent the sum of One Hundred Thousand (P100,000.00) Pesos as moral damages, with
six (6%) percent interest thereon computed from the finality of this decision until paid. (Emphasis supplied)
Reformina came into fore again in the 21 February 1989 case of Florendo v. Ruiz
13
which arose from a breach of
employment contract. For having been illegally dismissed, the petitioner was awarded by the trial court moral and
exemplary damages without, however, providing any legal interest thereon. When the decision was appealed to the Court
of Appeals, the latter held:
WHEREFORE, except as modified hereinabove the decision of the CFI of Negros Oriental dated October
31, 1972 is affirmed in all respects, with the modification that defendants-appellants, except
defendant-appellant Merton Munn, are ordered to pay, jointly and severally, the amounts stated in the
dispositive portion of the decision, including the sum of P1,400.00 in concept of compensatory
damages, with interest at the legal rate from the date of the filing of the complaint until fully
paid(Emphasis supplied.)
The petition for review to this Court was denied. The records were thereupon transmitted to the trial court, and
an entry of judgment was made. The writ of execution issued by the trial court directed that only compensatory
damages should earn interest at 6% per annum from the date of the filing of the complaint. Ascribing grave
abuse of discretion on the part of the trial judge, a petition for certiorari assailed the said order. This Court said:
. . . , it is to be noted that the Court of Appeals ordered the payment of interest "at the legal rate" from
the time of the filing of the complaint. . . Said circular [Central Bank Circular No. 416] does not apply to
actions based on a breach of employment contract like the case at bar. (Emphasis supplied)
The Court reiterated that the 6% interest per annum on the damages should be computed from the time the
complaint was filed until the amount is fully paid.
Quite recently, the Court had another occasion to rule on the matter. National Power Corporation vs. Angas,
14
decided on
08 May 1992, involved the expropriation of certain parcels of land. After conducting a hearing on the complaints
for eminent domain, the trial court ordered the petitioner to pay the private respondents certain sums of money as just
compensation for their lands so expropriated "with legal interest thereon . . . until fully paid." Again, in applying the 6%
legal interest per annum under the Civil Code, the Court
15
declared:
. . . , (T)he transaction involved is clearly not a loan or forbearance of money, goods or credits but
expropriation of certain parcels of land for a public purpose, the payment of which is without
stipulation regarding interest, and the interest adjudged by the trial court is in the nature of indemnity
for damages. The legal interest required to be paid on the amount of just compensation for the
properties expropriated is manifestly in the form of indemnity for damages for the delay in the
payment thereof. Therefore, since the kind of interest involved in the joint judgment of the lower court
sought to be enforced in this case is interest by way of damages, and not by way of earnings from loans,
etc. Art. 2209 of the Civil Code shall apply.
Concededly, there have been seeming variances in the above holdings. The cases can perhaps be classified into two
groups according to the similarity of the issues involved and the corresponding rulings rendered by the court. The "first
group" would consist of the cases of Reformina v. Tomol (1985), Philippine Rabbit Bus Lines v. Cruz(1986), Florendo
v. Ruiz (1989)
and National Power Corporation v. Angas (1992). In the "second group" would be Malayan Insurance Company v.Manila
Port Service (1969), Nakpil and Sons v. Court of Appeals (1988), and American Express International v.Intermediate
Appellate Court (1988).
In the "first group", the basic issue focuses on the application of either the 6% (under the Civil Code) or 12% (under the
Central Bank Circular) interest per annum. It is easily discernible in these cases that there has been a consistent holding
that the Central Bank Circular imposing the 12% interest per annum applies only to loans or forbearance
16
of money,
goods or credits, as well as to judgments involving such loan or forbearance of money, goods or credits, and that the 6%
interest under the Civil Code governs when the transaction involves the payment of indemnities in the concept of damage
arising from the breach or a delay in the performance of obligations in general. Observe, too, that in these cases, a
common time frame in the computation of the 6% interest per annum has been applied, i.e., from the time the complaint is
filed until the adjudged amount is fully paid.
The "second group", did not alter the pronounced rule on the application of the 6% or 12% interest per
annum,
17
depending on whether or not the amount involved is a loan or forbearance, on the one hand, or one of indemnity
for damage, on the other hand. Unlike, however, the "first group" which remained consistent in holding that the running
of the legal interest should be from the time of the filing of the complaint until fully paid, the "second group" varied on the
commencement of the running of the legal interest.
Malayan held that the amount awarded should bear legal interest from the date of the decision of the court a quo,explaining
that "if the suit were for damages, 'unliquidated and not known until definitely ascertained, assessed and determined by
the courts after proof,' then, interest 'should be from the date of the decision.'" American Express International
v. IAC, introduced a different time frame for reckoning the 6% interest by ordering it to be "computed from the finality of
(the) decision until paid." The Nakpil and Sons case ruled that 12% interest per annum should be imposed from the finality
of the decision until the judgment amount is paid.
The ostensible discord is not difficult to explain. The factual circumstances may have called for different applications,
guided by the rule that the courts are vested with discretion, depending on the equities of each case, on the award of
interest. Nonetheless, it may not be unwise, by way of clarification and reconciliation, to suggest the following rules of
thumb for future guidance.
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts
18
is breached,
the contravenor can be held liable for damages.
19
The provisions under Title XVIII on "Damages" of the Civil Code govern
in determining the measure of recoverable damages.
20

II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of
interest, as well as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money,
the interest due should be that which may have been stipulated in writing.
21
Furthermore, the interest due shall itself
earn legal interest from the time it is judicially demanded.
22
In the absence of stipulation, the rate of interest shall be
12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the
provisions of Article 1169
23
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
24
at the rate of 6% per annum.
25
No interest, however, shall be
adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable
certainty.
26
Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from
the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so
reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of
the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The
actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest,
whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its
satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.
WHEREFORE, the petition is partly GRANTED. The appealed decision is AFFIRMED with the MODIFICATION that the legal
interest to be paid is SIX PERCENT (6%) on the amount due computed from the decision, dated
03 February 1988, of the court a quo. A TWELVE PERCENT (12%) interest, in lieu of SIX PERCENT (6%), shall be imposed
on such amount upon finality of this decision until the payment thereof.
SO ORDERED.




















































Republic of the Philippines
Supreme Court
Manila

THIRD DIVISION


MARIA SOLEDAD TOMIMBANG,
Petitioner,




-versus -




ATTY. JOSE TOMIMBANG,
Respondent.
G.R. No. 165116

Present:

YNARES-SANTIAGO, J.,
Chairperson,
CHICO-NAZARIO,
VELASCO, JR.,
NACHURA, and
PERALTA, JJ.

Promulgated:
August 4, 2009
x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x


D E C I S I O N


PERALTA, J.:

This resolves the petition for review on certiorari under Rule 45 of the Rules of Court, praying that the
Decision
[1]
dated July 1, 2004 and Resolution
[2]
dated August 31, 2004 promulgated by the Court of Appeals (CA), be
reversed and set aside.

The antecedent facts are as follows.

Petitioner and respondent are siblings. Their parents donated to petitioner an eight-door apartment located at 149
Santolan Road, Murphy, Quezon City, with the condition that during the parents' lifetime, they shall retain control over the
property and petitioner shall be the administrator thereof.

In 1995, petitioner applied for a loan from PAG-IBIG Fund to finance the renovations on Unit H, of said apartment
which she intended to use as her residence. Petitioner failed to obtain a loan from PAG-IBIG Fund, hence, respondent
offered to extend a credit line to petitioner on the following conditions: (1) petitioner shall keep a record of all the
advances; (2) petitioner shall start paying the loan upon the completion of the renovation; (3) upon completion of the
renovation, a loan and mortgage agreement based on the amount of the advances made shall be executed by petitioner
and respondent; and (4) the loan agreement shall contain comfortable terms and conditions which petitioner could have
obtained from PAG-IBIG.
[3]


Petitioner accepted respondent's offer of a credit line and work on the apartment units began. Renovations on Units
B to G were completed, and the work has just started on Unit A when an altercation broke out between herein parties. In
view of said conflict, respondent and petitioner, along with some family members, held a meeting in the house of their
brother Genaro sometime in the second quarter of 1997. Respondent and petitioner entered into a new agreement
whereby petitioner was to start making monthly payments on her loan. Upon respondent's demand, petitioner turned
over to respondent all the records of the cash advances for the renovations. Subsequently, or from June to October of
1997, petitioner made monthly payments of P18,700.00, or a total of P93,500.00. Petitioner never denied the fact that
she started making such monthly payments.

In October of 1997, a quarrel also occurred between respondent and another sister, Maricion, who was then
defending the actions of petitioner. Because of said incident, they had a hearing at the Barangay. At said hearing,
respondent had the occasion to remind petitioner of her monthly payment. Petitioner allegedly answered, Kalimutan mo
na ang pera mo wala tayong pinirmahan. Hindi ako natatakot sa 'yo! Thereafter, petitioner left Unit H and could no
longer be found. Petitioner being the owner of the apartments, renovations on Unit A were discontinued when her
whereabouts could not be located. She also stopped making monthly payments and ignored the demand letter
dated December 2, 1997 sent by respondent's counsel.

On February 2, 1998, respondent filed a Complaint against petitioner, demanding the latter to pay the former the net
amount of P3,989,802.25 plus interest of 12% per annum from date of default.

At the pre-trial conference, the issues were narrowed down as follows:

1. Whether or not a loan was duly constituted between the plaintiff and the
defendant in connection with the improvements or renovations on
apartment units A-H, which is in the name of the defendant [herein
petitioner];

2. Assuming that such a loan was duly constituted in favor of plaintiff [herein
respondent], whether or not the same is already due and payable;

3. Assuming that said loan is already due and demandable, whether or not it
is to be paid out of the rental proceeds from the apartment units
mentioned, presuming that such issue was raised in the Answer of the
Defendant;

4. Assuming that the said loan was duly constituted in favor of plaintiff
[herein respondent], whether or not it is in the amount of P3,909,802.20
and whether or not it will earn legal interest at the rate of 12% per annum,
compounded, as provided in Article 2212 of the Civil Code of the
Philippines, from the date of the extrajudicial demand; and

5. Whether or not the plaintiff [herein respondent] is entitled to the reliefs
prayed for in his Complaint or whether or not it is the defendant [herein
petitioner] who is entitled to the reliefs prayed for in her Answer with
Counterclaim.
[4]


On November 15, 2002, the Regional Trial Court (RTC) of Quezon City, Branch 82, rendered a Decision,
[5]
the
dispositive portion of which reads as follows:

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

1. The sum of P3,989,802.25 with interest thereon at the legal rate of 12%
per annum computed from the date of default until the whole obligation is
fully paid;

2. The sum of P50,000.00 as and by way of attorney's fees; and

3. The cost of suit.

SO ORDERED.
[6]



Petitioner appealed the foregoing RTC Decision to the CA, but on July 1, 2004, the Court of Appeals promulgated its
Decision affirming in toto said RTC judgment. A motion for reconsideration of the CA Decision was denied per Resolution
dated August 31, 2004.

Hence, this petition where petitioner alleges that:

I.

THE COURT OF APPEALS ACTED NOT IN ACCORD WITH LAW AND APPLICABLE
JURISPRUDENCE OF THE SUPREME COURT WHEN IT AFFIRMED THELOWER
COURT'S FINDING THAT THE LOAN BETWEEN PETITIONER AND RESPONDENT IS
ALREADY DUE AND DEMANDABLE.

II.

THE COURT OF APPEALS ERRED BY DEPARTING FROM THE ACCEPTED AND
USUAL COURSE OF JUDICIAL PROCEEDINGS OF AFFIRMING THE DUE AND
DEMANDABILITY OF THE LOAN CONTRARY TO THE EVIDENCE PRESENTED IN
THE LOWER COURT AND SANCTIONING SUCH DEPARTURE BY THE LOWER
COURT IN THE INSTANT CASE.

III.

THE COURT OF APPEALS ERRED FROM THE ACCEPTED AND USUAL COURSE OF
JUDICIAL PROCEEDINGS OF AFFIRMING THE AWARD OF ATTORNEY'S FEES TO
THE RESPONDENT WITHOUT ANY BASIS AND SANCTIONING SUCH DEPARTURE
BY THE LOWER COURT IN THE INSTANT CASE.
[7]


The main issues in this case boil down to (1) whether petitioner's obligation is due and demandable; (2) whether
respondent is entitled to attorney's fees; and (3) whether interest should be imposed on petitioner's indebtedness and, if
in the affirmative, at what rate.

Petitioner does not deny that she obtained a loan from respondent. She, however, contends that the loan is not yet
due and demandable because the suspensive condition the completion of the renovation of the apartment units - has not
yet been fulfilled. She also assails the award of attorney's fees to respondent as baseless.

For his part, respondent admits that initially, they agreed that payment of the loan shall be made upon completion of
the renovations. However, respondent claims that during their meeting with some family members in the house of their
brother Genaro sometime in the second quarter of 1997, he and petitioner entered into a new agreement whereby
petitioner was to start making monthly payments on her loan, which she did from June to October of 1997. In
respondent's view, there was a novation of the original agreement, and under the terms of their new agreement,
petitioner's obligation was already due and demandable.

Respondent also maintains that when petitioner disappeared from the family compound without leaving information
as to where she could be found, making it impossible to continue the renovations, petitioner thereby prevented the
fulfillment of said condition. He claims that Article 1186 of the Civil Code, which provides that the condition shall be
deemed fulfilled when the obligor voluntarily prevents its fulfillment, is applicable to this case.

In his Comment to the present petition, respondent raised for the first time, the issue that the loan contract between
him and petitioner is actually one with a period, not one with a suspensive condition. In his view, when petitioner began
to make partial payments on the loan, the latter waived the benefit of the term, making the loan immediately
demandable.

Respondent also believes that he is entitled to attorney's fees, as petitioner allegedly showed bad faith by absconding
and compelling him to litigate.

The Court finds the petition unmeritorious.

It is undisputed that herein parties entered into a valid loan contract. The only question is, has petitioner's obligation
become due and demandable? The Court resolves the question in the affirmative.

The evidence on record clearly shows that after renovation of seven out of the eight apartment units had been
completed, petitioner and respondent agreed that the former shall already start making monthly payments on the loan
even if renovation on the last unit (Unit A) was still pending. Genaro Tomimbang, the younger brother of herein parties,
testified that a meeting was held among petitioner, respondent, himself and their eldest sister Maricion, sometime during
the first or second quarter of 1997, wherein respondent demanded payment of the loan, and petitioner agreed to
pay. Indeed, petitioner began to make monthly payments from June to October of 1997 totalling P93,500.00.
[8]
In fact,
petitioner even admitted in her Answer with Counterclaim that she had started to make payments to plaintiff [herein
respondent] as the same was in accord with her commitment to pay whenever she was able; x x x .
[9]


Evidently, by virtue of the subsequent agreement, the parties mutually dispensed with the condition that petitioner
shall only begin paying after the completion of all renovations. There was, in effect, a modificatory or partial novation, of
petitioner's obligation. Article 1291 of the Civil Code provides, thus:

Art. 1291. Obligations may be modified by:
(1) Changing their object or principal conditions;
(2) Substituting the person of the debtor;
(3) Subrogating a third person in the rights of the creditor. (Emphasis supplied)

In Iloilo Traders Finance, Inc. v. Heirs of Sps. Soriano,
[10]
the Court expounded on the nature of novation, to wit:

Novation may either be extinctive or modificatory, much being dependent on the nature
of the change and the intention of the parties. Extinctive novation is never presumed; there must be
an express intention to novate; x x x .

An extinctive novation would thus have the twin effects of, first, extinguishing an existing
obligation and, second, creating a new one in its stead. This kind of novation presupposes a confluence
of four essential requisites: (1) a previous valid obligation; (2) an agreement of all parties concerned to
a new contract; (3) the extinguishment of the old obligation; and (4) the birth of a new valid
obligation. Novation is merely modificatory where the change brought about by any subsequent
agreement is merely incidental to the main obligation (e.g., a change in interest rates or an
extension of time to pay); in this instance, the new agreement will not have the effect of
extinguishing the first but would merely supplement it or supplant some but not all of its
provisions.
[11]



In Ong v. Bogalbal,
[12]
the Court also stated, thus:

x x x the effect of novation may be partial or total. There is partial novation when there is
only a modification or change in some principal conditions of the obligation. It is total, when the
obligation is completely extinguished. Also, the term principal conditions in Article 1291 should be
construed to include a change in the period to comply with the obligation. Such a change in the period
would only be a partial novation since the period merely affects the performance, not the creation of
the obligation.
[13]


As can be gleaned from the foregoing, the aforementioned four essential elements and the requirement that
there be total incompatibility between the old and new obligation, apply only to extinctive novation. In partial novation,
only the terms and conditions of the obligation are altered, thus, the main obligation is not changed and it remains in
force.

Petitioner stated in her Answer with Counterclaim
[14]
that she agreed and complied with respondent's demand for
her to begin paying her loan, since she believed this was in accordance with her commitment to pay whenever she was
able. Her partial performance of her obligation is unmistakable proof that indeed the original agreement between her and
respondent had been novated by the deletion of the condition that payments shall be made only after completion of
renovations. Hence, by her very own admission and partial performance of her obligation, there can be no other
conclusion but that under the novated agreement, petitioner's obligation is already due and demandable.

With the foregoing finding that petitioner's obligation is due and demandable, there is no longer any need to discuss
whether petitioner's disappearance from the family compound prevented the fulfillment of the original condition,
necessitating application of Article 1186 of the Civil Code, or whether the obligation is one with a condition or a period.

As to attorney's fees, however, the award therefor cannot be allowed by the Court. It is an oft-repeated rule that the
trial court is required to state the factual, legal or equitable justification for awarding attorney's fees.
[15]
The Court
explained in Buing v. Santos,
[16]
to wit:

x x x While Article 2208 of the Civil Code allows attorney's fees to be awarded if the
claimant is compelled to litigate with third persons or to incur expenses to protect his
interest by reason of an unjustified act or omission of the party from whom it is sought,

there
must be a showing that the losing party acted willfully or in bad faith and practically
compelled the claimant to litigate and incur litigation expenses. In view of the
declared policy of the law that awards of attorney's fees are the exception rather than
the rule, it is necessary for the trial court to make express findings of facts and law that
would bring the case within the exception and justify the grant of such award. x x x.

Thus, the matter of attorney's fees cannot be touched upon only in the dispositive
portion of the decision. The text itself must state the reasons why attorney's fees are being
awarded. x x x
[17]


In the above-quoted case, there was a finding that defendants therein had no intention of fulfilling their obligation in
complete disregard of the plaintiffs right, and yet, the Court did not deem this as sufficient justification for the award of
attorney's fees. Verily, in the present case, where it is understandable that some misunderstanding could arise as to when
the obligation was indeed due and demandable, the Court must likewise disallow the award of attorney's fees.

We now come to a discussion of whether interest should be imposed on petitioner's indebtedness. In Royal Cargo
Corp. v. DFS Sports Unlimited, Inc.,
[18]
the Court reiterated the settled rule on imposition of interest, thus:

As to computation of legal interest, the seminal ruling in Eastern Shipping Lines, Inc. v.
Court of Appeals controls, to wit:
x x x x

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

1. When an 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.



The foregoing rule on legal interest was explained in Sunga-Chan v. Court of Appeals,
[19]
in this wise:

Eastern Shipping Lines, Inc. synthesized the rules on the imposition of interest, if proper,
and the applicable rate, as follows: The 12% per annum rate under CB Circular No. 416
shall apply only to loans or forbearance of money, goods, or credits, as well as to
judgments involving such loan or forbearance of money, goods, or credit, while the 6% per
annum under Art. 2209 of the Civil Code applies when the transaction involves the payment of
indemnities in the concept of damage arising from the breach or a delay in the performance of
obligations in general, with the application of both rates reckoned from the time the
complaint was filed until the [adjudged] amount is fully paid. In either instance, the reckoning
period for the commencement of the running of the legal interest shall be subject to the
condition that the courts are vested with discretion, depending on the equities of each case, on
the award of interest.
[20]



In accordance with the above ruling, since the obligation in this case involves a loan and there is no stipulation in writing
as to interest due, the rate of interest shall be 12% per annum computed from the date of extrajudicial demand.

IN VIEW OF THE FOREGOING, the petition is AFFIRMED with the MODIFICATION that the award for attorney's
fees is DELETED.

SO ORDERED.














Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. 126890 March 9, 2010
UNITED PLANTERS SUGAR MILLING CO., INC. (UPSUMCO), Petitioner,
vs.
THE HONORABLE COURT OF APPEALS, PHILIPPINE NATIONAL BANK (PNB) and ASSET PRIVATIZATION TRUST
(APT), AS TRUSTEE OF THE REPUBLIC OF THE PHILIPPINES Respondents.
R E S O L U T I O N
PERALTA, J.:
For consideration is the Motion for Reconsideration of petitioner United Planters Sugar Milling Company, Inc. (UPSUMCO)
seeking to reverse and set aside the Resolution of the Court dated April 2, 2009 which granted both Second Motions for
Reconsideration filed by respondents Privatization and Management Office (PMO), formerly Asset Privatization Trust
(APT), and Philippine National Bank (PNB), and reinstated the Decision of the Court of Appeals dated February 29, 1996
which, in turn, reversed and set aside the Decision of the Regional Trial Court, Branch 45, Bais, Negros Oriental. The
dispositive portion of the CA Decision reads:
WHEREFORE, the appealed decision is hereby set aside and judgment is herein rendered declaring that the subject Deed
of Assignment has not condoned all of UPSUMCOs obligations to APT as assignee of PNB.
To determine how much APT is entitled to recover on its counterclaim, it is required to render an accounting before the
Regional Trial Court on the total payments made by UPSUMCO on its obligations including the following amounts:
(1) The sum seized from it by APT whether in cash or in kind (from UPSUMCOs bank deposits as well as sugar
and molasses proceeds):
(2) The total obligations covered by the following documents:
(a) Credit agreement dated November 05, 1974 (Exh. "1," Record p. 528); and
(b)
(c) The Restructuring Agreements dated (i) June 24, 1982, (ii) December 10, 1982, and (3) May 9, 1984
and
(3) The P450,000,000.00 proceeds of the foreclosure
Should there be any deficiency due APT after deducting the foregoing amounts from UPSUMCOs total obligation in the
amount of (P2,137,076,433.15), the latter is hereby ordered to pay the same. However, if after such deduction there
should be any excess payment, the same should be turned over to UPSUMCO.
The Regional Trial Court is hereby directed to receive APTs accounting and thereafter, to render the proper disposal of
this case in accordance with the foregoing findings and disposition.
Costs against appellees.
SO ORDERED.
Petitioner prefaces its arguments that it is the aggrieved party, not the government as represented by respondent APT
(now the PMO), as its deposits with respondent PNB were taken without its prior knowledge and that it was reluctant to
give assent to the desire of the government to forego redemption of its assets by reason of uncontested foreclosure.
Facts showed that in 1974, petitioner, engaged in the business of milling sugar, obtained "takeoff loans" from respondent
PNB to finance the construction of a sugar milling plant which were covered by a Credit Agreement dated November 5,
1974. The said loans were thrice restructured through Restructuring Agreements dated June 24, 1982, December 10,
1982, and May 9, 1984. The takeoff loans were secured by a real estate mortgage over two parcels of land where the
milling plant stood and chattel mortgages over certain machineries and equipment. Also included in the condition for the
takeoff loans, petitioner agreed to "open and/or maintain a deposit account with [respondent PNB] and the bank is
authorized at its option to apply to the payment of any unpaid obligations of the client any/and all monies, securities
which may be in its hands on deposit."
From 1984 to 1987, petitioner contracted another set of loans from respondent PNB, denominated as"operational
loans," for the purpose of financing its operations, which also contained setoff clauses relative to the application of
payments from petitioners bank accounts. They were likewise secured by pledge contracts whereby petitioner assigned
to respondent PNB all its sugar produce for the latter to sell and apply the proceeds to satisfy the indebtedness arising
from the operational loans.
Later, respondent APT and petitioner agreed to an "uncontested" or "friendly foreclosure" of the mortgaged assets, in
exchange for petitioners waiver of its right of redemption. On July 28, 1987, respondent PNB (as mortgagee) and
respondent APT (as assignee and transferee of PNBs rights, titles and interests) filed a Petition for Extrajudicial
Foreclosure Sale with the Ex-Officio Regional Sheriff of Dumaguete City, seeking to foreclose on the real estate and chattel
mortgages which were executed to secure the takeoff loans. The foreclosure sale was conducted on August 27, 1987
whereby respondent APT purchased the auctioned properties forP450,000,000.00.
Seven (7) days after the foreclosure sale, or on September 3, 1987, petitioner executed a Deed of Assignment assigned to
respondent APT its right to redeem the foreclosed properties, in exchange for or in consideration of respondent APT
"condoning any deficiency amount it may be entitled to recover from the Petitioner under the Credit Agreement dated
November 5, 1974, and the Restructuring Agreements[s] dated June 24 and December 10, 1982, and May 9, 1984,
respectively, executed between [UPSUMCO] and PNB" On the same day, the Board of Directors of petitioner approved
the Board Resolution authorizing Joaquin Montenegro, its President, to enter into said Deed of Assignment.1avvphi1
Despite the Deed of Assignment, petitioner filed a complaint on March 10, 1989 for sum of money and damages against
respondents PNB and APT before the Regional Trial Court (RTC) of Bais City alleging therein that respondents had
illegally appropriated funds belonging to petitioner, through the following means: (1) withdrawals made from the bank
accounts opened by petitioner beginning August 27, 1987 until February 12, 1990; (2) the application of the proceeds
from the sale of the sugar of petitioner beginning August 27, 1987 until December 4, 1987; (3) the payment from the
funds of petitioner with respondent PNB for the operating expenses of the sugar mill after September 3, 1987, allegedly
upon the instruction of respondent APT and with the consent of respondent PNB.
The RTC rendered judgment in favor of the petitioner. On appeal, the CA reversed and set aside the RTC Decision and
ruled that only the "takeoff" loans and not the operational loans were condoned by the Deed of Assignment. In a Decision
dated November 28, 2006 and Resolution dated July 11, 2007, the Court (Third Division) reversed and set aside the CA
Decision. The case was thereafter referred to the Court en banc which reversed the ruling of the Third Division.
In its Motion for Reconsideration, petitioner raises the following grounds:
1. The order of the Honorable Court En Banc reinstating the decision of the Honorable Court of Appeals would
be inconsistent with the facts of the case and the findings of this Honorable Court.
2. There is no valid ground to conclude that APT has still the right to the deposit of UPSUMCO after the August
27, 1987 friendly foreclosure, and the withdrawal of P80,200,806.41 as payment could be applied either as
repayment on the Take-off Loans or for the Operational Loans.
3. The findings that the condonation took effect only after the execution of the Deed of Assignment hence
upholds the validity of APTs taking of the deposit of P80,200,806.41 in UPSUMCOs PNB account as payment of
the deficiency is without basis.
4. The admission of the case by Honorable Court En Banc after the denial of the Second Division of the Second
Motion for Reconsideration and the referral of the case to the Honorable Court En Banc appear not to be in
accordance with the Rules of Procedure.
5. The basis for admission of the case to the Honorable Court En Banc are belated issues which have no other
purpose but to give apparent reasons for the elevation of the case.
6. There is no legal basis for the withdrawals of UPSUMCOs deposit on the ground of conventional
compensation.
7. Since the amount of P17,773,185.24 could not be the subject of conventional compensation, it should be
returned to petitioner immediately by respondents.
After a careful review of the arguments in the petitioners motion for reconsideration, the Court finds the same to be mere
rehash of the main points already set forth in the Courts En Banc Resolution of April 2, 2009 and, hence, denies the same
for lack of merit. The pertinent portions of the decision read as follows:
The rulings of the lower courts, as well as the petition itself, are not clear as to the amount extended by way of takeoff
loans by PNB to UPSUMCO. However, the Court of Appeals did enumerate the following transactions consisting of the
operational loans, to wit:
(1) Trust Receipts dated August 26, 1987; February 5, 1987; and July 10, 1987;
(2) Deed of Assignment By Way of Payment dated November 16, 1984 (Exh. 3 [PNB]; Exh. 12 [APT]; Record, p.
545);
(3) Two (2) documents of Pledge both dated February 19, 1987;
(4) Sugar Quedans (Exh. 13 to 16; Record, pp 548 to 551);
(5) Credit Agreements dated February 19, 1987 (Exhs. "2" [PNB] & "4" [APT]; Record, pp. 541-544) and April 29,
1987 (Exh. "11" [APT]; Record, pp. 314-317).
(6) Promissory Notes dated February 20, 1987 (Exh. "17"; Record, p. 573); March 2, 1987 (Exh. "18"; Record, p.
574); March 3, 1987 (Exh. "19"; Record, p. 575); March 27, 1987; (Exh. "20"; Record, p. 576); March 30,
1987(Exh. "21"; Record, p. 577); April 7, 1987 (Exh. "22"; Record, p. 578); May 22, 1987 (Exh. "23"; Record, p.
579); and July 30, 1987 (Exh. "24"; record p. 580).
On 27 February 1987, through a Deed of Transfer, PNB assigned to the Government its "rights" titles and interests over
UPSUMCO, among several other assets. The Deed of Transfer acknowledged that said assignment was being undertaken
"in compliance with Presidential Proclamation No. 50." The Government subsequently transferred these "rights" titles
and interests" over UPSUMCO to respondent Asset and Privatization Trust (APT), [now PMO].
x x x x
This much is clear. The Deed of Assignment condoned only the take-off loans, and not the operational loans. The Deed of
Assignment in its operative part provides, thus:
That United Planter[s] Sugar Milling Co., Inc. (the "Corporation") pursuant to a resolution passed by its board of
Directors on September 3, 1087, and confirmed by the Corporations stockholders in a stockholders Meeting held on the
same (date), for and in consideration of the Asset Privatization Trust ("APT") condoning any deficiency amount it may be
entitled to recover from the Corporation under the Credit Agreement dated November 5, 1974 and the Restructuring
Agreement[s] dated June 24, and December 10, 1982, and May 9, 1984, respectively, executed between the Corporation
and the Philippine National Bank ("PNB"), which financial claims have been assigned to APT, through the National
Government, by PNB, hereby irrevocably sells, assigns and transfer to APT its right to redeem the foreclosed real
properties covered by Transfer Certificates of Titles Nos. T-16700 and T-16701.
IN WITNESS WHEREOF, the Corporation has caused this instrument to be executed on its behalf by Mr. Joaquin S.
Montenegro, thereunto duly authorized, this 3rd day of September, 1997.
x x x x
This notwithstanding, the RTC Decision was based on the premise that all of UPSUMCOs loans were condoned in the Deed
of Assignment. In contrast, the Court of Appeals acknowledged that only the take-off loans were condoned, and thus ruled
that APT was entitled to have the funds from UPSUMCOSs accounts transferred to its own account "to the extent of
UPSUMCOs remaining obligation, less the amount condoned in the Deed of Assignment and the 450,000,000.00 proceeds
of the foreclosure."
The challenged acts of respondents all occurred on or after 27 August 1987, the day of the execution sale.
UPSUMCO argues that after that date, respondents no longer had the right to collect monies from the PNB bank
accounts which UPSUMCO had opened and maintained as collateral for its operational take-off loans. UPSUMCO is
wrong. After 27 August 1987, there were at least two causes for the application of payments from UPSUMCOs
PNB accounts. The first was for the repayment of the operational loans, which were never condoned. The second
was for the repayment of the take-off loans which APT could obtain until 3 September 1987, the day the
condonation took effect.
The error of the Courts earlier rulings, particularly the Resolution dated 11 July 2007, was in assuming that the non-
condonation of the operational loans was immaterial to the application of payments made in favor of APT from
UPSUMCOSs PNB accounts that occurred after 27 August 1987. For as long as there remained outstanding obligations
due to APT (as PNBs successor-in-interest), APT would be entitled to apply payments from the bank accounts of PNB.
That right had been granted in favor of PNB, whether on account of the take-off loans or the operational loans.
Petitioner filed with the RTC the complaint which alleged that "among the conditions of the friendly foreclosure are: (A)
That all the accounts of [United Planters] are condoned, including the JSS notes at the time of the public bidding." It was
incumbent on petitioner, not respondents, to prove that particular allegation in its complaint. Was petitioner able to
establish that among the conditions of the "friendly foreclosure was that "all its accounts are condoned"? It did not, as it
is now agreed by all that only the take-off loans were condoned.
This point is material, since the 2007 Resolution negated the findings that only the take-off loans were condoned by
faulting respondents for failing to establish that there remained outstanding operational loans on which APT could apply
payments from UPSUMCOs bank accounts. By the very language of the Deed of Assignment, it was evident that
UPSUMCOs allegation in its complaint that all of its accounts were condoned was not proven. Even if neither PNB nor APT
had filed an answer, there would have been no basis in fact for the trial court to conclude that all of UPSUMCOs loans
were condoned (as the RTC in this case did), or issue reliefs as if all the loans were condoned (as the 2007 Resolution did).
As noted earlier, APT had the right to apply payments from UPSUMCOs bank accounts, by virtue of the terms of the
operational loan agreements. Considering that UPSUMCO was spectacularly unable to repay the take-off loans it had
earlier transacted, it simply beggars belief to assume that it had fully paid its operational loans. Moreover, APT had the
right to obtain payment of the operational loans by simply applying payments from UPSUMCOs bank accounts, without
need of filing an action for collection with the courts. The bank accounts were established precisely to afford PNB (and
later APT) extrajudicial and legal means to obtain repayment of UPSUMCOs outstanding loans without hassle.
B.
There is no question that the Deed of Assignment condoned the outstanding take-off loans of UPSUMCO due then to APT.
The Deed of Assignment was executed on 3 September 1987 as was the UPSUMCO Board Resolution authorizing its
President to sign the Deed of Assignment. However, despite the absence of any terms to that effect in the Deed of
Assignment, it is UPSUMCOs position that the condonation actually had retroacted to 27 August 1987. The previous
rulings of the Court unfortunately upheld that position.
It is easy to see why UPSUMCO would pose such an argument. It appears that between 27 August 1987 and 3 September
1987. APT applied payments from UPSOMCOs bank accounts in the amount of around 80 Million Pesos. UPSUMCO
obviously desires the return of the said amount. But again, under the terms of the loan arguments, APT as successor-in-
interest of PNB, had the right to seize any amounts deposited in UPSUMCOS bank accounts as long as UPSUMCO remained
indebted under the loan agreements. Since UPSUMCO was released from its take-off loans only on 3 September 1987, as
indicated in the Deed of Assignment, then APTs application of payments is perfectly legal.
The earlier rulings of the Court were predicated on a finding that there was a "friendly foreclosure" agreement between
APT and UPSUMCO, whereby APT agreed to condone all of UPSUMCOs outstanding obligations in exchange for
UPSUMCOs waiver of its right to redeem the foreclosed property. However, no such agreement to the effect was ever
committed to writing or presented in evidence. The written agreement actually set forth was not as contended by
UPSUMCO. For one, not all of the outstanding loans were condoned by APT since the take-off loans were left extant. For
another, the agreement itself did not indicate any date of effectivity other than the date of the execution of the agreement,
namely 3 September 1987.
It is argued that the use of the word "any" in "any deficiency amount" sufficiently establishes the retroactive nature of the
condonation. The argument hardly convinces. The phrase "any deficiency amount" could refer not only to the remaining
deficiency amount after the 27 August foreclosure sale, but also the remaining deficiency amount as of 3 September 1987,
when the Deed of Assignment was executed and after APT had exercised its right as creditor to apply payments from
petitioners PNB accounts. The Deed of Assignment was not cast in intractably precise terms, and both interpretations can
certainly be accommodated.
It is in that context that the question of parol evidence comes into play. The parol evidence rule states that generally,
when the terms of an agreement have been reduced into writing, it is considered as containing all the terms agreed upon
and there can be no evidence of such terms other than the contents of the written agreement. Assuming that the Deed of
Assignment failed to accurately reflect an intent of the parties to retroact the effect of condonation to the date of the
foreclosure sale, none of the parties, particularly UPSUMCO, availed of its right to seek the reformation of the instrument
to the end that such true intention may be expressed. As there is nothing in the text of Deed of Assignment that clearly
gives retroactive effect to the condonation, the parol evidence rule generally bars any other evidence of such terms other
than the contents of the written agreement, such as evidence that the said Deed had retroactive effect.
It is argued that under Section 9, Rule 130, a party may present evidence to modify, explain or add to the terms of the
written agreement if it is put in issue in the pleading, "[t]he failure of the written agreement to express the true intent and
the agreement of the parties thereto."
Petitioner did not exactly state in its Amended Complaint that the condonation effected in the Deed of Assignment had
retroacted to the date of the foreclosure sale. What petitioner contented in its amended complaint was that the Deed of
Assignment "released and discharged plaintiff from any and all obligations due the defendant PNB and defendant APT,"
that "after the foreclosure by PNB/APT plaintiff is entitled to all the funds it deposited or being held by PNB in all its
branches," and that "among the conditions of the friendly foreclosure are that all the accounts of the plaintiff are
condoned." It remains unclear whether petitioner had indeed alleged in its Amended Complaint that the Deed of
Assignment executed on 3 September1987 had retroacted effect as of the foreclosure sale, or on 27 August 1987. If
petitioner were truly mindful to invoke the exception to the parol evidence rule and intent on claiming that the
condonation had such retroactive effect, it should have employed more precise language to the effect in their original and
amended complaints.
x x x x
The right of respondent PNB to set-off payments from UPSUMCO arose from conventional compensation rather than legal
compensation, even if all the requisites for legal compensation were present between those two parties. The
determinative factor is the mutual agreement between PNB and UPSUMCO to set-off payments. Even without an express
agreement stipulating compensation, PNB and UPSUMCO would have been entitled to set-off of payments, as the legal
requisites for compensation under Article 1279 were present.
As soon as PNB assigned its credit to APT, the mutual creditor-debtor relation between PNB and UPSUMCO ceased to
exist. However, PNB and UPSUMCO had agreed to a conventional compensation, a relationship which does not require the
presence of all the requisites under Article 1279. And PNB too had assigned all its rights as creditor to APT, including its
rights under conventional compensation. The absence of the mutual creditor-debtor relation between the new creditor
APT and UPSUMCO cannot negate the conventional compensation. Accordingly, APT, as the assignee of credit of PNB, had
the right to set-off the outstanding obligations of UPSUMCO on the basis of conventional compensation before the
condonation took effect on 3 September 1987.
V.
The conclusions are clear. First. Between 27 August to 3 September 1987, APT had the right to apply payments from
UPSUMCOs bank accounts maintained with PNB as repayment for the take-off loans and/or the operational loans.
Considering that as of 30 June 1987, the total indebtedness of UPSUMCO as to the take-off loans amounted to
P2,137,076,433.15, and because the foreclosed properties were sold during the execution sale for only 450 Million Pesos,
it is safe to conclude that the total amount of P80,200,806.41 debited from UPSUMCOs bank accounts from 27 August to 3
September 1987 was very well less than the then outstanding indebtedness for the take-off loans. It was only on 3
September 1987 that the take-off loans were condoned by APT, which lost only on that date too the right to apply
payments from UPSUMCOS bank accounts to pay the take-off loans.
Second. After 3 September 1987, APT retained the right to apply payments from the bank accounts of UPSUMCO with PNB
to answer for the outstanding indebtedness under the operational loan agreements. It appears that the amount of
P17,773,185.24 was debited from UPSUMCOs bank accounts after 3 September. At the same time, it remains unclear
what were the amounts of outstanding indebtedness under the operational loans at the various points after 3 September
1987 when the bank accounts of UPSUMCO were debited.
The Court of Appeals ordered the remand of the case to the trial court, on the premise that it was unclear how much APT
was entitled to recover by way of counterclaim. It is clear that the amount claimed by APT by way of counterclaim over
1.6 Billion Pesos is over and beyond what it can possibly be entitled to, since it is clear that the take-off loans were
actually condoned as of 3 September 1987. At the same time, APT was still entitled to repayment of UPSUMCOs
operational loans. It is not clear to what extent, if at all, the amounts debited from UPSUMCOs bank accounts after 3
September 1987 covered UPSUMCOs outstanding indebtedness under the operational loans. Said amounts could be
insufficient, just enough, or over and beyond what UPSUMCO actually owed, in which case the petitioner should be
entitled to that excess amount debited after 3 September 1987. Because it is not evident from the voluminous records
what was the outstanding balance of the operational loans at the various times post-September 3 UPSUMCOs bank
accounts were debited, the remand ordered by the Court of Appeal is ultimately the wisest and fairest recourse.
1

Petitioner insists that the Court should not have taken cognizance of the respondents second motions for reconsideration
with the prayer that the case be referred to the Court en banc as the same appear not to be in accordance with the rules.
Generally, under Section 3 of the Courts Circular No. 2-89, effective March 1, 1989, the referral to the Court en banc of
cases assigned to a Division is to be denied on the ground that the Court en banc is not an Appellate Court to which
decisions or resolutions of a Division may be appealed. Moreover, a second motion for reconsideration of a judgment or
final resolution shall not be entertained for being a prohibited pleading under Section 2, Rule 52, in relation to Section 4,
Rule 56 of the Rules of Court, except for extraordinarily persuasive reasons and only after an express leave shall have first
been obtained.
2
Accordingly, the Court, in the exercise of its sound discretion, determines the issues which are of
transcendental importance, as in the present case, which necessitates it to accept the referral of a Division case before it
and the grant of a second motion for reconsideration.
In sum, the Resolution of the Court En Banc reinstating the Decision of the CA categorically ruled that only its takeoff
loans, not the operational loans, were condoned by the Deed of Assignment dated September 3, 1987. The Deed of
Assignment expressly stipulated the particular loan agreements which were covered therein. As such, respondent APT
was entitled to have the funds from petitioners savings accounts with respondent PNB transferred to its own account, to
the extent of petitioners remaining obligations under the operational loans, less the amount condoned in the Deed of
Assignment and the P450,000,000.00 proceeds of the foreclosure. As the En Banc Resolution explained, respondent APT
had a right to go after the bank deposits of petitioner, in its capacity as the creditor of the latter. Likewise, respondent
PNB had the right to apply the proceeds of the sale of petitioners sugar and molasses, in satisfaction of petitioners
obligations. Respondent PNB never waived these rights and the same were transferred to respondent APT (now PMO) by
virtue of the Deed of Transfer executed between them. Moreover, there was no conventional subrogation since such
requires the consent of the original parties and of the third persons and there was no evidence that the consent of
petitioner (as debtor) was secured when respondent PNB assigned its rights to respondent APT, and that the assignment
by respondent PNB to respondent APT arose by mandate of law and not by the volition of the parties. Accordingly, the
remand of the case to the RTC for computation of the parties remaining outstanding balances was proper.
The doctrine of stare decisis et no quieta movere
3
or principle of adherence to precedents does not apply to the present
case so as to bar the Court en banc from taking cognizance over the case which rectified the disposition of the case and
reversed and set aside the Decision rendered by a Division thereof.
WHEREFORE, the Motion for Reconsideration filed by petitioner United Planters Sugar Milling Company, Inc. (UPSUMCO)
is DENIED WITH FINALITY for lack of merit.
SO ORDERED.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
ILEANA DR. MACALINAO,
Petitioner,

- versus -


BANK OF THE PHILIPPINEISLANDS,
Respondent.

.

G.R. No. 175490

Present:

YNARES-SANTIAGO, J.,
Chairperson,
CHICO-NAZARIO,
VELASCO, JR.,
NACHURA, and
PERALTA, JJ.

Promulgated:

September 17, 2009
x-----------------------------------------------------------------------------------------x


D E C I S I O N
VELASCO, JR., J.:

The Case
Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court seeking to reverse and set
aside the June 30, 2006 Decision
[1]
of the Court of Appeals (CA) and its November 21, 2006 Resolution
[2]
denying
petitioners motion for reconsideration.
The Facts
Petitioner Ileana Macalinao was an approved cardholder of BPI Mastercard, one of the credit card facilities
of respondent Bank of the Philippine Islands (BPI).
[3]
Petitioner Macalinao made some purchases through the use of
the said credit card and defaulted in paying for said purchases. She subsequently received a letter dated January 5,
2004 from respondent BPI, demanding payment of the amount of one hundred forty-one thousand five hundred
eighteen pesos and thirty-four centavos (PhP 141,518.34), as follows:
Statement
Date
Previous
Balance
Purchases
(Payments)
Penalty
Interest
Finance
Charges
Balance
Due
10/27/2002 94,843.70 559.72 3,061.99 98,456.41
11/27/2002 98,465.41 (15,000) 0 2,885.61 86,351.02
12/31/2002 86,351.02 30,308.80 259.05 2,806.41 119,752.28
1/27/2003 119,752.28 618.23 3,891.07 124,234.58
2/27/2003 124,234.58 990.93 4,037.62 129,263.13
3/27/2003 129,263.13 (18,000.00) 298.72 3,616.05 115,177.90
4/27/2003 115,177.90 644.26 3,743.28 119,565.44
5/27/2003 119,565.44 (10,000.00) 402.95 3,571.71 113,540.10
6/29/2003 113,540.10 8,362.50
(7,000.00)
323.57 3,607.32 118,833.49
7/27/2003 118,833.49 608.07 3,862.09 123,375.65
8/27/2003 123,375.65 1,050.20 4,009.71 128,435.56
9/28/2003 128,435.56 1,435.51 4,174.16 134,045.23
10/28/2003
11/28/2003
12/28/2003
1/27/2004 141,518.34 8,491.10 4,599.34 154,608.78

Under the Terms and Conditions Governing the Issuance and Use of the BPI Credit and BPI Mastercard, the
charges or balance thereof remaining unpaid after the payment due date indicated on the monthly Statement of
Accounts shall bear interest at the rate of 3% per month and an additional penalty fee equivalent to another 3% per
month. Particularly:
8. PAYMENT OF CHARGES BCC shall furnish the Cardholder a monthly Statement of Account
(SOA) and the Cardholder agrees that all charges made through the use of the CARD shall be paid by
the Cardholder as stated in the SOA on or before the last day for payment, which is twenty (20) days
from the date of the said SOA, and such payment due date may be changed to an earlier date if the
Cardholders account is considered overdue and/or with balances in excess of the approved credit
limit, or to such other date as may be deemed proper by the CARD issuer with notice to the Cardholder
on the same monthly SOA. If the last day fall on a Saturday, Sunday or a holiday, the last day for the
payment automatically becomes the last working day prior to said payment date. However,
notwithstanding the absence or lack of proof of service of the SOA of the Cardholder, the latter shall
pay any and all charges made through the use of the CARD within thirty (30) days from date or dates
thereof. Failure of the Cardholder to pay the charges made through the CARD within the payment
period as stated in the SOA or within thirty (30) days from actual date or dates of purchase whichever
occur earlier, shall render him in default without the necessity of demand from BCC, which the
Cardholder expressly waives. The charges or balance thereof remaining unpaid after the payment
due date indicated on the monthly Statement of Accounts shall bear interest at the rate of 3%
per month for BPI Express Credit, BPI Gold Mastercard and an additional penalty fee equivalent
to another 3% of the amount due for every month or a fraction of a months delay. PROVIDED
that if there occurs any change on the prevailing market rates, BCC shall have the option to adjust the
rate of interest and/or penalty fee due on the outstanding obligation with prior notice to the
cardholder. The Cardholder hereby authorizes BCC to correspondingly increase the rate of such
interest [in] the event of changes in the prevailing market rates, and to charge additional service fees as
may be deemed necessary in order to maintain its service to the Cardholder. A CARD with outstanding
balance unpaid after thirty (30) days from original billing statement date shall automatically be
suspended, and those with accounts unpaid after ninety (90) days from said original billing/statement
date shall automatically be cancel (sic), without prejudice to BCCs right to suspend or cancel any card
anytime and for whatever reason. In case of default in his obligation as provided herein, Cardholder
shall surrender his/her card to BCC and in addition to the interest and penalty charges aforementioned
, pay the following liquidated damages and/or fees (a) a collection fee of 25% of the amount due if the
account is referred to a collection agency or attorney; (b) service fee for every dishonored check issued
by the cardholder in payment of his account without prejudice, however, to BCCs right of considering
Cardholders account, and (c) a final fee equivalent to 25% of the unpaid balance, exclusive of litigation
expenses and judicial cost, if the payment of the account is enforced though court action. Venue of all
civil suits to enforce this Agreement or any other suit directly or indirectly arising from the
relationship between the parties as established herein, whether arising from crimes, negligence or
breach thereof, shall be in the process of courts of the City of Makati or in other courts at the option of
BCC.
[4]
(Emphasis supplied.)

For failure of petitioner Macalinao to settle her obligations, respondent BPI filed with the Metropolitan Trial
Court (MeTC) of Makati City a complaint for a sum of money against her and her husband, Danilo SJ. Macalinao. This
was raffled to Branch 66 of the MeTC and was docketed as Civil Case No. 84462 entitled Bank of the
Philippine Islandsvs. Spouses Ileana Dr. Macalinao and Danilo SJ. Macalinao.
[5]

In said complaint, respondent BPI prayed for the payment of the amount of one hundred fifty-four thousand
six hundred eight pesos and seventy-eight centavos (PhP 154,608.78) plus 3.25% finance charges and late payment
charges equivalent to 6% of the amount due from February 29, 2004 and an amount equivalent to 25% of the total
amount due as attorneys fees, and of the cost of suit.
[6]

After the summons and a copy of the complaint were served upon petitioner Macalinao and her husband,
they failed to file their Answer.
[7]
Thus, respondent BPI moved that judgment be rendered in accordance with Section
6 of the Rule on Summary Procedure.
[8]
This was granted in an Order dated June 16, 2004.
[9]
Thereafter, respondent
BPI submitted its documentary evidence.
[10]

In its Decision dated August 2, 2004, the MeTC ruled in favor of respondent BPI and ordered petitioner
Macalinao and her husband to pay the amount of PhP 141,518.34 plus interest and penalty charges of 2% per month,
to wit:
WHEREFORE, finding merit in the allegations of the complaint supported by documentary
evidence, judgment is hereby rendered in favor of the plaintiff, Bank of the Philippine Islands and
against defendant-spouses Ileana DR Macalinao and Danilo SJ Macalinao by ordering the latter to
pay the former jointly and severally the following:
1. The amount of PESOS: ONE HUNDRED FORTY ONE THOUSAND FIVE HUNDRED
EIGHTEEN AND 34/100 (P141,518.34) plus interest and penalty charges of 2% per month
from January 05, 2004 until fully paid;
2. P10,000.00 as and by way of attorneys fees; and
3. Cost of suit.

SO ORDERED.
[11]


Only petitioner Macalinao and her husband appealed to the Regional Trial Court (RTC) of Makati City, their
recourse docketed as Civil Case No. 04-1153. In its Decision dated October 14, 2004, the RTC affirmed in toto the
decision of the MeTC and held:
In any event, the sum of P141,518.34 adjudged by the trial court appeared to be the result of a
recomputation at the reduced rate of 2% per month. Note that the total amount sought by the plaintiff-
appellee was P154,608.75 exclusive of finance charge of 3.25% per month and late payment charge of
6% per month.

WHEREFORE, the appealed decision is hereby affirmed in toto.

No pronouncement as to costs.

SO ORDERED.
[12]



Unconvinced, petitioner Macalinao filed a petition for review with the CA, which was docketed as CA-G.R. SP
No. 92031. The CA affirmed with modification the Decision of the RTC:
WHEREFORE, the appealed decision is AFFIRMED but MODIFIED with respect to the total
amount due and interest rate. Accordingly, petitioners are jointly and severally ordered to pay
respondent Bank of the Philippine Islands the following:

1. The amount of One Hundred Twenty Six Thousand Seven Hundred Six
Pesos and Seventy Centavos plus interest and penalty charges of 3% per
month from January 5, 2004 until fully paid;
2. P10,000.00 as and by way of attorneys fees; and
3. Cost of Suit.

SO ORDERED.
[13]


Although sued jointly with her husband, petitioner Macalinao was the only one who filed the petition before the
CA since her husband already passed away on October 18, 2005.
[14]

In its assailed decision, the CA held that the amount of PhP 141,518.34 (the amount sought to be satisfied in the
demand letter of respondent BPI) is clearly not the result of the re-computation at the reduced interest rate as previous
higher interest rates were already incorporated in the said amount. Thus, the said amount should not be made as basis in
computing the total obligation of petitioner Macalinao. Further, the CA also emphasized that respondent BPI should not
compound the interest in the instant case absent a stipulation to that effect. The CA also held, however, that the MeTC
erred in modifying the amount of interest rate from 3% monthly to only 2% considering that petitioner Macalinao freely
availed herself of the credit card facility offered by respondent BPI to the general public. It explained that contracts of
adhesion are not invalid per se and are not entirely prohibited.
Petitioner Macalinaos motion for reconsideration was denied by the CA in its Resolution dated November 21,
2006. Hence, petitioner Macalinao is now before this Court with the following assigned errors:
I.
THE REDUCTION OF INTEREST RATE, FROM 9.25% TO 2%, SHOULD BE UPHELD SINCE THE
STIPULATED RATE OF INTEREST WAS UNCONSCIONABLE AND INIQUITOUS, AND THUS ILLEGAL.
II.
THE COURT OF APPEALS ARBITRARILY MODIFIED THE REDUCED RATE OF INTEREST FROM 2% TO
3%, CONTRARY TO THE TENOR OF ITS OWN DECISION.

III.
THE COURT A QUO, INSTEAD OF PROCEEDING WITH A RECOMPUTATION, SHOULD HAVE DISMISSED
THE CASE FOR FAILURE OF RESPONDENT BPI TO PROVE THE CORRECT AMOUNT OF PETITIONERS
OBLIGATION, OR IN THE ALTERNATIVE, REMANDED THE CASE TO THE LOWER COURT FOR
RESPONDENT BPI TO PRESENT PROOF OF THE CORRECT AMOUNT THEREOF.
Our Ruling
The petition is partly meritorious.
The Interest Rate and Penalty Charge of 3% Per Month or 36% Per Annum Should Be Reduced to 2% Per Month
or 24% Per Annum
In its Complaint, respondent BPI originally imposed the interest and penalty charges at the rate of 9.25% per
month or 111% per annum. This was declared as unconscionable by the lower courts for being clearly excessive, and was
thus reduced to 2% per month or 24% per annum. On appeal, the CA modified the rate of interest and penalty charge and
increased them to 3% per month or 36% per annum based on the Terms and Conditions Governing the Issuance and Use
of the BPI Credit Card, which governs the transaction between petitioner Macalinao and respondent BPI.
In the instant petition, Macalinao claims that the interest rate and penalty charge of 3% per month imposed by
the CA is iniquitous as the same translates to 36% per annum or thrice the legal rate of interest.
[15]
On the other hand,
respondent BPI asserts that said interest rate and penalty charge are reasonable as the same are based on the Terms and
Conditions Governing the Issuance and Use of the BPI Credit Card.
[16]

We find for petitioner. We are of the opinion that the interest rate and penalty charge of 3% per month should
be equitably reduced to 2% per month or 24% per annum.
Indeed, in the Terms and Conditions Governing the Issuance and Use of the BPI Credit Card, there was a
stipulation on the 3% interest rate. Nevertheless, it should be noted that this is not the first time that this Court has
considered the interest rate of 36% per annum as excessive and unconscionable. We held in Chua vs. Timan:
[17]

The stipulated interest rates of 7% and 5% per month imposed on respondents loans must
be equitably reduced to 1% per month or 12% per annum. We need not unsettle the principle we
had affirmed in a plethora of cases that stipulated interest rates of 3% per month and higher
are excessive, iniquitous, unconscionable and exorbitant. Such stipulations are void for being
contrary to morals, if not against the law. While C.B. Circular No. 905-82, which took effect on
January 1, 1983, effectively removed the ceiling on interest rates for both secured and unsecured loans,
regardless of maturity, nothing in the said circular could possibly be read as granting carte
blanche authority to lenders to raise interest rates to levels which would either enslave their
borrowers or lead to a hemorrhaging of their assets. (Emphasis supplied.)


Since the stipulation on the interest rate is void, it is as if there was no express contract thereon. Hence, courts
may reduce the interest rate as reason and equity demand.
[18]

The same is true with respect to the penalty charge. Notably, under the Terms and Conditions Governing the
Issuance and Use of the BPI Credit Card, it was also stated therein that respondent BPI shall impose an additional penalty
charge of 3% per month. Pertinently, Article 1229 of the Civil Code states:
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.
In exercising this power to determine what is iniquitous and unconscionable, courts must consider the
circumstances of each case since what may be iniquitous and unconscionable in one may be totally just and equitable in
another.
[19]

In the instant case, the records would reveal that petitioner Macalinao made partial payments to respondent
BPI, as indicated in her Billing Statements.
[20]
Further, the stipulated penalty charge of 3% per month or 36% per annum,
in addition to regular interests, is indeed iniquitous and unconscionable.
Thus, under the circumstances, the Court finds it equitable to reduce the interest rate pegged by the CA at 1.5%
monthly to 1% monthly and penalty charge fixed by the CA at 1.5% monthly to 1% monthly or a total of 2% per month or
24% per annum in line with the prevailing jurisprudence and in accordance with Art. 1229 of the Civil Code.

There Is No Basis for the Dismissal of the Case,
Much Less a Remand of the Same for Further Reception of Evidence


Petitioner Macalinao claims that the basis of the re-computation of the CA, that is, the amount of PhP 94,843.70
stated on the October 27, 2002 Statement of Account, was not the amount of the principal obligation. Thus, this allegedly
necessitates a re-examination of the evidence presented by the parties. For this reason, petitioner Macalinao further
contends that the dismissal of the case or its remand to the lower court would be a more appropriate disposition of the
case.
Such contention is untenable. Based on the records, the summons and a copy of the complaint were served upon
petitioner Macalinao and her husband on May 4, 2004. Nevertheless, they failed to file their Answer despite such service.
Thus, respondent BPI moved that judgment be rendered accordingly.
[21]
Consequently, a decision was rendered by the
MeTC on the basis of the evidence submitted by respondent BPI. This is in consonance with Sec. 6 of the Revised Rule on
Summary Procedure, which states:
Sec. 6. Effect of failure to answer. Should the defendant fail to answer the complaint
within the period above provided, the court, motu proprio, or on motion of the plaintiff, shall
render judgment as may be warranted by the facts alleged in the complaint and limited to what
is prayed for therein: Provided, however, that the court may in its discretion reduce the amount of
damages and attorneys fees claimed for being excessive or otherwise unconscionable. This is without
prejudice to the applicability of Section 3(c), Rule 10 of the Rules of Court, if there are two or more
defendants. (As amended by the 1997 Rules of Civil Procedure; emphasis supplied.)


Considering the foregoing rule, respondent BPI should not be made to suffer for petitioner Macalinaos failure to
file an answer and concomitantly, to allow the latter to submit additional evidence by dismissing or remanding the case
for further reception of evidence. Significantly, petitioner Macalinao herself admitted the existence of her obligation to
respondent BPI, albeit with reservation as to the principal amount. Thus, a dismissal of the case would cause great
injustice to respondent BPI. Similarly, a remand of the case for further reception of evidence would unduly prolong the
proceedings of the instant case and render inutile the proceedings conducted before the lower courts.
Significantly, the CA correctly used the beginning balance of PhP 94,843.70 as basis for the re-computation of the
interest considering that this was the first amount which appeared on the Statement of Account of petitioner Macalinao.
There is no other amount on which the re-computation could be based, as can be gathered from the evidence on
record. Furthermore, barring a showing that the factual findings complained of are totally devoid of support in the record
or that they are so glaringly erroneous as to constitute serious abuse of discretion, such findings must stand, for this Court
is not expected or required to examine or contrast the evidence submitted by the parties.
[22]

In view of the ruling that only 1% monthly interest and 1% penalty charge can be applied to the beginning
balance of PhP 94,843.70, this Court finds the following computation more appropriate:

Statement
Date
Previous
Balance
Purchases
(Payment
s)
Balance Interest
(1%)
Penalty
Charge
(1%)
Total
Amount
Due for
the Month
10/27/20
02
94,843.7
0
94,843.7
0
948.44 948.44 96,740.58
11/27/20
02
94,843.7
0
(15,000) 79,843.7
0
798.44 798.44 81,440.58
12/31/20
02
79,843.7
0
30,308.80 110,152.
50
1,101.53 1,101.53 112,355.5
6
1/27/200
3
110,152.
50
110,152.
50
1,101.53 1,101.53 112,355.5
6
2/27/200
3
110,152.
50
110,152.
50
1,101.53 1,101.53 112,355.5
6
3/27/200
3
110,152.
50
(18,000.0
0)
92,152.5
0
921.53 921.53 93,995.56
4/27/200
3
92,152.5
0
92,152.5
0
921.53 921.53 93,995.56
5/27/200
3
92,152.5
0
(10,000.0
0)
82,152.5
0
821.53 821.53 83,795.56
6/29/200
3
82,152.5
0
8,362.50
(7,000.00
)
83,515.0
0
835.15 835.15 85,185.30
7/27/200
3
83,515.0
0
83,515.0
0
835.15 835.15 85,185.30
8/27/200
3
83,515.0
0
83,515.0
0
835.15 835.15 85,185.30
9/28/200
3
83,515.0
0
83,515.0
0
835.15 835.15 85,185.30
10/28/20
03
83,515.0
0
83,515.0
0
835.15 835.15 85,185.30
11/28/20
03
83,515.0
0
83,515.0
0
835.15 835.15 85,185.30
12/28/20
03
83,515.0
0
83,515.0
0
835.15 835.15 85,185.30
1/27/200
4
83,515.0
0
83,515.0
0
835.15 835.15 85,185.30
TOTAL

83,515.0
0
14,397.
26
14,397.
26
112,309.
52
WHEREFORE, the petition is PARTLY GRANTED. The CA Decision dated June 30, 2006 in CA-G.R. SP No. 92031
is hereby MODIFIED with respect to the total amount due, interest rate, and penalty charge. Accordingly, petitioner
Macalinao is ordered to pay respondent BPI the following:

(1) The amount of one hundred twelve thousand three hundred nine pesos and fifty-two centavos (PhP
112,309.52) plus interest and penalty charges of 2% per month from January 5, 2004 until fully paid;
(2) PhP 10,000 as and by way of attorneys fees; and
(3) Cost of suit.
SO ORDERED.