G.R. No.

L-46468

May 27, 1981

FRANCISCO SAURE, petitioner,

vs.
HON. PRUDENCIO S. PENTECOSTES, Municipal Judge of Camiling, Tarlac,
DEPUTY SHERIFF VIVENCIO PALANCIO, SPOUSES TELESFORO
GALANG and NIEVES GALANG, respondents.

FERNANDO, C.J.:1wph1.t
It is readily discernible from the records of this certiorari and prohibition
proceeding why the Citizens Legal Assistance Office of the Ministry of Justice
took such pains to nullify and set aside a decision of respondent Municipal
Judge Prudencio S. Pentecostes of Camiling, Tarlac 1 ejecting petitioner as
lessee from the building owned by private respondents, the spouses Telesforo
and Nieves Galang, 2 as well as his order denying a motion for relief from
judgment. 3 The point stressed, and rightly so, is that respondent Judge
disregarded the plain command of Presidential Decree No. 20 which
suspended indefinitely the filing of ejectment cases except when the lease is
for a definite period and which prohibited the increase in rentals of dwelling
units where the monthly rentals do not exceed P300.00 a month. There is no
evidence whatsoever that disproves the allegation that petitioner Saure is
occupying the premises in question as his residence. The fact that he has a
small photography shop undoubtedly to supplement his income does not
transform it into a commercial establishment. Moreover, no period had been
fixed for the duration of his occupancy. As a matter of fact, it could not be
denied that the only reason of private respondents for seeking his ejectment
was his refusal to submit to an increase in rentals from P50.00 to P180.00, the
Presidential Decree notwithstanding. In the light of the undisputed facts, the
jurisdictional infirmity of the actuation of respondent Judge is quite obvious. It
is surprising how he could have decided the matter the way he did. The
explanation, but not the justification, apparently lies in the fact that the building
in question, a unit of which is the residence of petitioner, is located in the
commercial district of Camiling Tarlac. That does not suffice.
There is merit to the petition.
1.
The ruling in the recent case of Salaria v. Buenviaje, 4 the opinion
being penned by Justice Guerrero, is quite categorical. Where Presidential
Decree No. 20 calls for application, the fact that the lessor needed the
premises for his personal use could not defeat its application. Accordingly, it
was categorically held that the lessee "cannot be ordered to vacate the
premises of the land in question" pursuant to the applicable law. 5 Private
respondents could not even allege such purpose. All they were interested in

was that the rentals be increased, contrary to what is ordained by Presidential

Decree No. 20. The case for petitioner is thus much stronger.
2.
In a still later decision of this Court, Gutierrez v. Cantada, 6 the same
approach was followed. In that case, the decision of the then respondent
Judge Santiago O. Tanada was upheld, a suit for certiorari against him filed by
the lessor being dismissed. Such special civil action was filed in this Court as
a suit for ejectment against the tenant did not prosper. It was pointed out in the
opinion that Presidential Decree No. 20 as well as the previous act regulating
rentals 7 which it amended "had a common objective to remedy the plight of
the lessees, Presidential Decree No. 20, moreover, having a constitutional
sanction in that it is specifically referred to in the fundamental law as part of
'the law of the land.' Under the former statute, actions for ejectment were
'suspended from two years from the effectivity' thereof. ...Such a period was
made indefinite by Presidential Decree No. 20 thus: 'Except when the lease is
for a definite period, the provisions of paragraph (1) of Article 1673 of the Civil
Code of the Philippines insofar as they refer to dwelling unit or land on which
another's dwelling is located shall be suspended until otherwise provided; but
other provisions of the Civil Code and the Rules of Court of the Philippines on
lease contracts, insofar as they are not in conflict with the provisions of this
Act, shall apply.' Under paragraph (1) of Article 1673 of the Civil Code, one of
the grounds for judicially ejecting the lessee is the expiration of the period fixed
for the duration of the lease." 8 It bears repeating that the legislation or decree
of the above character is a police power measure intended to alleviate the
plight of lessees occupying premises with a monthly rental of less than
P300.00. The construction that should be given to it therefore should be of a
liberal character. Otherwise, its beneficent purpose could be frustrated. Nor
could any doubt be entertained that the decree applied to leases entered into
prior to its issuance. There is relevance to this excerpt from Gutierrez v.
Cantada: "The applicability thereof to existing contracts cannot be denied.
From Pangasinan Transportation Co. v. Public Service Commission, such a
doctrine has been repeatedly adhered to by this Court. As was held in
Ongsiako v. Gamboa, decided in 1950, a police power measure being
remedial in character covers existing situations; otherwise, it would be selfdefeating." 9
3.
As was pointed out earlier, the only explanation for this failure to abide
by Presidential Decree No. 20 must have been the belief of respondent Judge
that the premises in question, being located in a commercial section of the
town of Camiling was outside the operation of the Decree. Such a belief is
unjustified. Petitioner was occupying only one of the units in the building in
question, all of which served as the dwelling places of the lessees. They
therefore fall within the explicit language of the Decree. It is not the location
but the use of the premises in question that is decisive. Nor is the application
of the Decree defeated by the fact that there is a small photo shop owned by
petitioner. Again, what calls for the setting aside of a decision is the fact that

respondent Judge disregarded the evidence which showed that petitioner and
his family had lived in such place for the last ten years. Under the
circumstances, to refuse to recognize that the case for petitioner comes within
the operation of the Decree is to disregard and ignore its command. Whatever
doubt there may be on that score is removed by this definition of a residential
unit in Batas Pambansa Blg. 25: "A residential unit refers to an apartment,
house and/or land on which another's dwelling is located used for residential
purposes and shall include not only buildings, parts or units thereof used solely
as dwelling places, except motels, motel rooms, hotels, hotel rooms, boarding
houses, dormitories, rooms and bedspaces for rent, but also those used for
home industries, retail stores or other business purposes if the owner thereof
and his family actually live therein and use it principally for dwelling purposes:
Provided, That in the case of a retail store, home industry or business, the
capitalization thereof shall not exceed five thousand pesos (P5,000.00): and
Provided, further, That in the operation of the store, industry or business, the
owner thereof shall not require the services of any person other than the
immediate members of his family." 10 There is testimony, unrefuted that the
capital of the photo shop was in the amount of P2,500.00. Nor can there be
any doubt that the services of a person other than the immediate members of
petitioner's family were not required.
4.
There is, however, this matter to consider. Petitioner did not deposit
during the pendency of this litigation the monthly rental of P50.00 agreed upon.
It could be argued that in Solaria, there was at least a deposit of P200.00
during the pendency of the litigation. Admittedly, 0such amount was not
enough, as shown by the last sentence of its dispositive portion: "The petitioner
is, however, ordered to pay back rentals for the period of his stay on the land
at the rate of P10.00 a month, which is not covered by the deposit." 11 In this
case, however, the failure of petitioner to deposit the rental is mitigated by the
fact that he did offer to pay the former rental, but private respondents made it
clear that they would not accept. Counsel for petitioner ought to have advised
him to make the necessary consignation. This is one instance however where
the client should not be made to suffer for the omission of counsel. At any rate,
it can be stated legally that the action for ejectment not being allowable in law
at all, and a clear case of jurisdictional infirmity being apparent, such failure
could be considered excusable. Petitioner, however, must pay all the back
rentals due and owing. In according him justice through law, no injustice should
be visited on private respondents.
5.
Moreover, Batas Pambansa Blg. 25 affords private respondents some
degree of relief. As therein set forth: "Upon the effectivity of this Act and for a
duration of five years thereafter the monthly rentals of all residential units and
exceeding three hundred pesos sha00ll not be increased, for any one year
period, by more than ten percent (10%) of the monthly rentals existing at the
time of the approval of this Act. The yearly increases authorized herein shall
be cumulative." 12 The Act took effect on April 10, 1979.

WHEREFORE, the petition for certiorari is granted nullifying the decision of

respondent Judge dated November 17, 1976 and the writ of execution issued
on December 15, 11976 by virtue thereof. The order of March 10, 1977 of
respondent Judge denying the petition for relief from the aforesaid decision is
likewise declared of no force and effect. The writ of prohibition is granted
enjoining respondent Judge and respondent Deputy Sheriff Vivencio Palancio
or any person acting on their stead or behalf from taking any further action in
connection with Civil Case No. 3066 of the Municipal Court of Camiling
between the spouses Telesforo and Nieves Galang, now private respondents,
as plaintiffs, and Francisco Saure, now petitioner, as one of the defendants.
The restraining order issued by this Court on July 18, 1977 is hereby made
permanent. Petitioner Francisco Saure is granted a period of ninety days within
which to pay the back rentals. No costs.
Barredo, Aquino, Abad Santos and De Castro, JJ., concur.1wph1.t
Concepcion Jr., J., is on leave.

G.R. No. L-32116

April 2l, 1981

RURAL BANK OF CALOOCAN, INC. and JOSE O. DESIDERIO, JR.,

petitioners,
vs.
THE COURT OF APPEALS and MAXIMA CASTRO, respondents.

DE CASTRO, * J.:
This is a petition for review by way of certiorari of the decision 1 of the Court
of Appeals in CA-G.R. No. 39760-R entitled "Maxima Castro, plaintiff-appellee,
versus Severino Valencia, et al., defendants; Rural Bank of Caloocan, Inc.,
Jose Desiderio, Jr. and Arsenio Reyes, defendants-appellants," which affirmed
in toto the decision of the Court of First Instance of Manila in favor of plaintiffappellee, the herein private respondent Maxima Castro.
On December 7, 1959, respondent Maxima Castro, accompanied by Severino
Valencia, went to the Rural Bank of Caloocan to apply for an industrial loan. It
was Severino Valencia who arranged everything about the loan with the bank
and who supplied to the latter the personal data required for Castro's loan
application. On December 11, 1959, after the bank approved the loan for the
amount of P3,000.00, Castro, accompanied by the Valencia spouses, signed
a promissory note corresponding to her loan in favor of the bank.
On the same day, December 11, 1959, the Valencia spouses obtained from
the bank an equal amount of loan for P3,000.00. They signed a promissory
note (Exhibit "2") corresponding to their loan in favor of the bank and had
Castro affixed thereon her signature as co-maker.
The two loans were secured by a real-estate mortgage (Exhibit "6") on Castro's
house and lot of 150 square meters, covered by Transfer Certificate of Title
No. 7419 of the Office of the Register of Deeds of Manila.
On February 13, 1961, the sheriff of Manila, thru Acting Chief Deputy Sheriff
Basilio Magsambol, sent a notice of sheriff's sale addressed to Castro,
announcing that her property covered by T.C.T. No. 7419 would be sold at
public auction on March 10, 1961 to satisfy the obligation covering the two
promissory notes plus interest and attorney's fees.
Upon request by Castro and the Valencias and with conformity of the bank,
the auction sale that was scheduled for March 10, 1961 was postponed for
April 10, 1961. But when April 10, 1961 was subsequently declared a special
holiday, the sheriff of Manila sold the property covered by T.C.T. No. 7419 at

a public auction sale that was held on April 11, 1961, which was the next
succeeding business day following the special holiday.
Castro alleged that it was only when she received the letter from the Acting
Deputy Sheriff on February 13, 1961, when she learned for the first time that
the mortgage contract (Exhibit "6") which was an encumbrance on her property
was for P6.000.00 and not for P3,000.00 and that she was made to sign as comaker of the promissory note (Exhibit "2") without her being informed of this.
On April 4, 1961, Castro filed a suit denominated "Re: Sum of Money," against
petitioners Bank and Desiderio, the Spouses Valencia, Basilio Magsambol and
Arsenio Reyes as defendants in Civil Case No. 46698 before the Court of First
Instance of Manila upon the charge, amongst others, that thru mistake on her
part or fraud on the part of Valencias she was induced to sign as co-maker of
a promissory note (Exhibit "2") and to constitute a mortgage on her house and
lot to secure the questioned note. At the time of filing her complaint, respondent
Castro deposited the amount of P3,383.00 with the court a quo in full payment
of her personal loan plus interest.
In her amended complaint, Castro prayed, amongst other, for the annulment
as far as she is concerned of the promissory note (Exhibit "2") and mortgage
(Exhibit "6") insofar as it exceeds P3,000.00; for the discharge of her personal
obligation with the bank by reason of a deposit of P3,383.00 with the court a
quo upon the filing of her complaint; for the annulment of the foreclosure sale
of her property covered by T.C.T. No. 7419 in favor of Arsenio Reyes; and for
the award in her favor of attorney's fees, damages and cost.
In their answers, petitioners interposed counterclaims and prayed for the
dismissal of said complaint, with damages, attorney's fees and costs. 2
The pertinent facts arrived from the stipulation of facts entered into by the
parties as stated by respondent Court of Appeals are as follows:
Spawning the present litigation are the facts contained in the following
stipulation of facts submitted by the parties themselves:
1.
That the capacity and addresses of all the parties in this case are
admitted .
2.
That the plaintiff was the registered owner of a residential house and
lot located at Nos. 1268-1270 Carola Street, Sampaloc, Manila, containing an
area of one hundred fifty (150) square meters, more or less, covered by T.C.T.
No. 7419 of the Office of the Register of Deeds of Manila;
3.
That the signatures of the plaintiff appearing on the following
documents are genuine:

a)
Application for Industrial Loan with the Rural Bank of Caloocan, dated
December 7, 1959 in the amount of P3,000.00 attached as Annex A of this
partial stipulation of facts;
b)
Promissory Note dated December 11, 1959 signed by the plaintiff in
favor of the Rural Bank of Caloocan for the amount of P3,000.00 as per Annex
B of this partial stipulation of facts;
c)
Application for Industrial Loan with the Rural Bank of Caloocan, dated
December 11, 1959, signed only by the defendants, Severino Valencia and
Catalina Valencia, attached as Annex C, of this partial stipulation of facts;
d)
Promissory note in favor of the Rural Bank of Caloocan, dated
December 11, 1959 for the amount of P3000.00, signed by the spouses
Severino Valencia and Catalina Valencia as borrowers, and plaintiff Maxima
Castro, as a co-maker, attached as Annex D of this partial stipulation of facts;
e)
Real estate mortgage dated December 11, 1959 executed by plaintiff
Maxima Castro, in favor of the Rural Bank of Caloocan, to secure the obligation
of P6,000.00 attached herein as Annex E of this partial stipulation of facts;
All the parties herein expressly reserved their right to present any evidence
they may desire on the circumstances regarding the execution of the abovementioned documents.
4.
That the sheriff of Manila, thru Acting Chief Deputy Sheriff, Basilio
Magsambol, sent a notice of sheriff's sale, address to the plaintiff, dated
February 13, 1961, announcing that plaintiff's property covered by TCT No.
7419 of the Register of Deeds of the City of Manila, would be sold at public
auction on March 10, 1961 to satisfy the total obligation of P5,728.50, plus
interest, attorney's fees, etc., as evidenced by the Notice of Sheriff's Sale and
Notice of Extrajudicial Auction Sale of the Mortgaged property, attached
herewith as Annexes F and F-1, respectively, of this stipulation of facts;
5.
That upon the request of the plaintiff and defendants-spouses
Severino Valencia and Catalina Valencia, and with the conformity of the Rural
Bank of Caloocan, the Sheriff of Manila postponed the auction sale scheduled
for March 10, 1961 for thirty (30) days and the sheriff re-set the auction sale
for April 10, 1961;
6.
That April 10, 1961 was declared a special public holiday; (Note: No.
7 is omitted upon agreement of the parties.)
8.
That on April 11, 1961, the Sheriff of Manila, sold at public auction
plaintiff's property covered by T.C.T. No. 7419 and defendant, Arsenio Reyes,

was the highest bidder and the corresponding certificate of sale was issued to
him as per Annex G of this partial stipulation of facts;
9.
That on April 16, 1962, the defendant Arsenio Reyes, executed an
Affidavit of Consolidation of Ownership, a copy of which is hereto attached as
Annex H of this partial stipulation of facts;
10.
That on May 9, 1962, the Rural Bank of Caloocan Incorporated
executed the final deed of sale in favor of the defendant, Arsenio Reyes, in the
amount of P7,000.00, a copy of which is attached as Annex I of this partial
stipulation of facts;
11.
That the Register of Deeds of the City of Manila issued the Transfer
Certificate of Title No. 67297 in favor of the defendant, Arsenio Reyes, in lieu
of Transfer Certificate of Title No. 7419 which was in the name of plaintiff,
Maxima Castro, which was cancelled;
12.
That after defendant, Arsenio Reyes, had consolidated his title to the
property as per T.C.T. No. 67299, plaintiff filed a notice of lis pendens with the
Register of Deeds of Manila and the same was annotated in the back of T.C.T.
No. 67299 as per Annex J of this partial stipulation of facts; and
13.
That the parties hereby reserved their rights to present additional
evidence on matters not covered by this partial stipulation of facts.
WHEREFORE, it is respectfully prayed that the foregoing partial stipulation of
facts be approved and admitted by this Honorable Court.
As for the evidence presented during the trial, We quote from the decision of
the Court of Appeals the statement thereof, as follows:
In addition to the foregoing stipulation of facts, plaintiff claims she is a 70-year
old widow who cannot read and write the English language; that she can speak
the Pampango dialect only; that she has only finished second grade (t.s.n., p.
4, December 11, 1964); that in December 1959, she needed money in the
amount of P3,000.00 to invest in the business of the defendant spouses
Valencia, who accompanied her to the defendant bank for the purpose of
securing a loan of P3,000.00; that while at the defendant bank, an employee
handed to her several forms already prepared which she was asked to sign on
the places indicated, with no one explaining to her the nature and contents of
the documents; that she did not even receive a copy thereof; that she was
given a check in the amount of P2,882.85 which she delivered to defendant
spouses; that sometime in February 1961, she received a letter from the Acting
Deputy Sheriff of Manila, regarding the extrajudicial foreclosure sale of her
property; that it was then when she learned for the first time that the mortgage
indebtedness secured by the mortgage on her property was P6,000.00 and

not P3,000.00; that upon investigation of her lawyer, it was found that the
papers she was made to sign were:
(a)
Application for a loan of P3,000.00 dated December 7, 1959 (Exh. B1 and Exh. 1);
(b)
Promissory note dated December 11, 1959 for the said loan of
P3,000.00 (Exh- B-2);
(c)
Promissory note dated December 11, 1959 for P3,000.00 with the
defendants Valencia spouses as borrowers and appellee as co-maker (Exh.
B-4 or Exh. 2).
The auction sale set for March 10, 1961 was postponed co April 10, 1961 upon
the request of defendant spouses Valencia who needed more time within
which to pay their loan of P3,000.00 with the defendant bank; plaintiff claims
that when she filed the complaint she deposited with the Clerk of Court the
sum of P3,383.00 in full payment of her loan of P3,000.00 with the defendant
bank, plus interest at the rate of 12% per annum up to April 3, 1961 (Exh. D).
As additional evidence for the defendant bank, its manager declared that
sometime in December, 1959, plaintiff was brought to the Office of the Bank
by an employee- (t.s.n., p 4, January 27, 1966). She wept, there to inquire if
she could get a loan from the bank. The claims he asked the amount and the
purpose of the loan and the security to he given and plaintiff said she would
need P3.000.00 to be invested in a drugstore in which she was a partner (t.s.n.,
p. 811. She offered as security for the loan her lot and house at Carola St.,
Sampaloc, Manila, which was promptly investigated by the defendant bank's
inspector. Then a few days later, plaintiff came back to the bank with the wife
of defendant Valencia A date was allegedly set for plaintiff and the defendant
spouses for the processing of their application, but on the day fixed, plaintiff
came without the defendant spouses. She signed the application and the other
papers pertinent to the loan after she was interviewed by the manager of the
defendant. After the application of plaintiff was made, defendant spouses had
their application for a loan also prepared and signed (see Exh. 13). In his
interview of plaintiff and defendant spouses, the manager of the bank was able
to gather that plaintiff was in joint venture with the defendant spouses wherein
she agreed to invest P3,000.00 as additional capital in the laboratory owned
by said spouses (t.s.n., pp. 16-17) 3
The Court of Appeals, upon evaluation of the evidence, affirmed in toto the
decision of the Court of First Instance of Manila, the dispositive portion of which
reads:
FOR ALL THE FOREGOING CONSIDERATIONS, the Court renders
judgment and:

(1)
Declares that the promissory note, Exhibit '2', is invalid as against
plaintiff herein;
(2)
Declares that the contract of mortgage, Exhibit '6', is null and void, in
so far as the amount thereof exceeds the sum of P3,000.00 representing the
principal obligation of plaintiff, plus the interest thereon at 12% per annum;
(3)
Annuls the extrajudicial foreclosure sale at public auction of the
mortgaged property held on April 11, 1961, as well as all the process and
actuations made in pursuance of or in implementation thereto;
(4)
Holds that the total unpaid obligation of plaintiff to defendant Rural
Bank of Caloocan, Inc., is only the amount of P3,000.00, plus the interest
thereon at 12% per annum, as of April 3, 1961, and orders that plaintiff's
deposit of P3,383.00 in the Office of the Clerk of Court be applied to the
payment thereof;
(5)
Orders defendant Rural Bank of Caloocan, Inc. to return to defendant
Arsenio Reyes the purchase price the latter paid for the mortgaged property at
the public auction, as well as reimburse him of all the expenses he has incurred
relative to the sale thereof;
(6)
Orders defendants spouses Severino D. Valencia and Catalina
Valencia to pay defendant Rural Bank of Caloocan, Inc. the amount of
P3,000.00 plus the corresponding 12% interest thereon per annum from
December 11, 1960 until fully paid; and
Orders defendants Rural Bank of Caloocan, Inc., Jose Desiderio, Jr. and
spouses Severino D. Valencia and Catalina Valencia to pay plaintiff, jointly and
severally, the sum of P600.00 by way of attorney's fees, as well as costs.
In view of the conclusion that the court has thus reached, the counterclaims of
defendant Rural Bank of Caloocan, Inc., Jose Desiderio, Jr. and Arsenio
Reyes are hereby dismissed, as a corollary
The Court further denies the motion of defendant Arsenio Reyes for an Order
requiring Maxima Castro to deposit rentals filed on November 16, 1963,
resolution of which was held in abeyance pending final determination of the
case on the merits, also as a consequence of the conclusion aforesaid. 4
Petitioners Bank and Jose Desiderio moved for the reconsideration 5 of
respondent court's decision. The motion having been denied, 6 they now come
before this Court in the instant petition, with the following Assignment of Errors,
to wit:

VI

THE COURT OF APPEALS ERRED IN UPHOLDING THE PARTIAL

ANNULMENT OF THE PROMISSORY NOTE, EXHIBIT 2, AND THE
MORTGAGE, EXHIBIT 6, INSOFAR AS THEY AFFECT RESPONDENT
MAXIMA CASTRO VIS-A-VIS PETITIONER BANK DESPITE THE TOTAL
ABSENCE OF EITHER ALLEGATION IN THE COMPLAINT OR
COMPETENT PROOF IN THE EVIDENCE OF ANY FRAUD OR OTHER
UNLAWFUL CONDUCT COMMITTED OR PARTICIPATED IN BY
PETITIONERS IN PROCURING THE EXECUTION OF SAID CONTRACTS
FROM RESPONDENT CASTRO.

THE COURT OF APPEALS ERRED IN NOT DECLARING AS VALID AND

BINDING UPON RESPONDENT CASTRO THE HOLDING OF THE SALE ON
FORECLOSURE ON THE BUSINESS DAY NEXT FOLLOWING THE
ORIGINALLY SCHEDULED DATE THEREFOR WHICH WAS DECLARED A
HOLIDAY WITHOUT NECESSITY OF FURTHER NOTICE THEREOF.

II
THE COURT OF APPEALS ERRED IN IMPUTING UPON AND
CONSIDERING PREJUDICIALLY AGAINST PETITIONERS, AS BASIS FOR
THE PARTIAL ANNULMENT OF THE CONTRACTS AFORESAID ITS
FINDING OF FRAUD PERPETRATED BY THE VALENCIA SPOUSES UPON
RESPONDENT CASTRO IN UTTER VIOLATION OF THE RES INTER ALIOS
ACTA RULE.
III
THE COURT OF APPEAL ERRED IN NOT HOLDING THAT, UNDER THE
FACTS FOUND BY IT, RESPONDENT CASTRO IS UNDER ESTOPPEL TO
IMPUGN THE REGULARITY AND VALIDITY OF HER QUESTIONED
TRANSACTION WITH PETITIONER BANK.

The issue raised in the first three (3) assignment of errors is whether or not
respondent court correctly affirmed the lower court in declaring the promissory
note (Exhibit 2) invalid insofar as they affect respondent Castro vis-a-vis
petitioner bank, and the mortgage contract (Exhibit 6) valid up to the amount
of P3,000.00 only.
Respondent court declared that the consent of Castro to the promissory note
(Exhibit 2) where she signed as co-maker with the Valencias as principal
borrowers and her acquiescence to the mortgage contract (Exhibit 6) where
she encumbered her property to secure the amount of P6,000.00 was obtained
by fraud perpetrated on her by the Valencias who had abused her confidence,
taking advantage of her old age and ignorance of her financial need.
Respondent court added that "the mandate of fair play decrees that she should
be relieved of her obligation under the contract" pursuant to Articles 24 7 and
1332 8 of the Civil Code.
The decision in effect relieved Castro of any liability to the promissory note
(Exhibit 2) and the mortgage contract (Exhibit 6) was deemed valid up to the
amount of P3,000.00 only which was equivalent to her personal loan to the
bank.

IV
THE COURT OF APPEALS ERRED IN NOT FINDING THAT, BETWEEN
PETITIONERS AND RESPONDENT CASTRO, THE LATTER SHOULD
SUFFER THE CONSEQUENCES OF THE FRAUD PERPETRATED BY THE
VALENCIA SPOUSES, IN AS MUCH AS IT WAS THRU RESPONDENT
CASTRO'S NEGLIGENCE OR ACQUIESCENSE IF NOT ACTUAL
CONNIVANCE THAT THE PERPETRATION OF SAID FRAUD WAS MADE
POSSIBLE.
V
THE COURT OF APPEALS ERRED IN UPHOLDING THE VALIDITY OF THE
DEPOSIT BY RESPONDENT CASTRO OF P3,383.00 WITH THE COURT
BELOW AS A TENDER AND CONSIGNATION OF PAYMENT SUFFICIENT
TO DISCHARGE SAID RESPONDENT FROM HER OBLIGATION WITH
PETITIONER BANK.

Petitioners argued that since the Valencias were solely declared in the
decision to be responsible for the fraud against Castro, in the light of the res
inter alios acta rule, a finding of fraud perpetrated by the spouses against
Castro cannot be taken to operate prejudicially against the bank. Petitioners
concluded that respondent court erred in not giving effect to the promissory
note (Exhibit 2) insofar as they affect Castro and the bank and in declaring that
the mortgage contract (Exhibit 6) was valid only to the extent of Castro's
personal loan of P3,000.00.
The records of the case reveal that respondent court's findings of fraud against
the Valencias is well supported by evidence. Moreover, the findings of fact by
respondent court in the matter is deemed final. 9 The decision declared the
Valencias solely responsible for the defraudation of Castro. Petitioners'
contention that the decision was silent regarding the participation of the bank
in the fraud is, therefore, correct.

We cannot agree with the contention of petitioners that the bank was
defrauded by the Valencias. For one, no claim was made on this in the lower
court. For another, petitioners did not submit proof to support its contention.
At any rate, We observe that while the Valencias defrauded Castro by making
her sign the promissory note (Exhibit 2) and the mortgage contract (Exhibit 6),
they also misrepresented to the bank Castro's personal qualifications in order
to secure its consent to the loan. This must be the reason which prompted the
bank to contend that it was defrauded by the Valencias. But to reiterate, We
cannot agree with the contention for reasons above-mentioned. However, if
the contention deserves any consideration at all, it is in indicating the
admission of petitioners that the bank committed mistake in giving its consent
to the contracts.
Thus, as a result of the fraud upon Castro and the misrepresentation to the
bank inflicted by the Valencias both Castro and the bank committed mistake
in giving their consents to the contracts. In other words, substantial mistake
vitiated their consents given. For if Castro had been aware of what she signed
and the bank of the true qualifications of the loan applicants, it is evident that
they would not have given their consents to the contracts.

Castro, such mention is not essential in order that the promissory note (Exhibit
2) may be declared of no binding effect between them and the mortgage
(Exhibit 6) valid up to the amount of P3,000.00 only. The reason is that the
mistake they mutually suffered was a mere consequence of the fraud
perpetrated by the Valencias against them. Thus, the fraud particularly averred
in the complaint, having been proven, is deemed sufficient basis for the
declaration of the promissory note (Exhibit 2) invalid insofar as it affects Castro
vis-a-vis the bank, and the mortgage contract (Exhibit 6) valid only up to the
amount of P3,000.00.
The second issue raised in the fourth assignment of errors is who between
Castro and the bank should suffer the consequences of the fraud perpetrated
by the Valencias.
In attributing to Castro an consequences of the loss, petitioners argue that it
was her negligence or acquiescence if not her actual connivance that made
the fraud possible.
Petitioners' argument utterly disregards the findings of respondent Court of
Appeals wherein petitioners' negligence in the contracts has been aptly
demonstrated, to wit:

Pursuant to Article 1342 of the Civil Code which provides:

Art. 1342.
Misrepresentation by a third person does not vitiate consent,
unless such misrepresentation has created substantial mistake and the same
is mutual.
We cannot declare the promissory note (Exhibit 2) valid between the bank and
Castro and the mortgage contract (Exhibit 6) binding on Castro beyond the
amount of P3,000.00, for while the contracts may not be invalidated insofar as
they affect the bank and Castro on the ground of fraud because the bank was
not a participant thereto, such may however be invalidated on the ground of
substantial mistake mutually committed by them as a consequence of the fraud
and misrepresentation inflicted by the Valencias. Thus, in the case of Hill vs.
Veloso, 10 this Court declared that a contract may be annulled on the ground
of vitiated consent if deceit by a third person, even without connivance or
complicity with one of the contracting parties, resulted in mutual error on the
part of the parties to the contract.
Petitioners argued that the amended complaint fails to contain even a general
averment of fraud or mistake, and its mention in the prayer is definitely not a
substantial compliance with the requirement of Section 5, Rule 8 of the Rules
of Court. The records of the case, however, will show that the amended
complaint contained a particular averment of fraud against the Valencias in full
compliance with the provision of the Rules of Court. Although, the amended
complaint made no mention of mistake being incurred in by the bank and

A witness for the defendant bank, Rodolfo Desiderio claims he had subjected
the plaintiff-appellee to several interviews. If this were true why is it that her
age was placed at 61 instead of 70; why was she described in the application
(Exh. B-1-9) as drug manufacturer when in fact she was not; why was it placed
in the application that she has income of P20,000.00 when according to
plaintiff-appellee, she his not even given such kind of information -the true fact
being that she was being paid P1.20 per picul of the sugarcane production in
her hacienda and 500 cavans on the palay production. 11
From the foregoing, it is evident that the bank was as much , guilty as Castro
was, of negligence in giving its consent to the contracts. It apparently relied on
representations made by the Valencia spouses when it should have directly
obtained the needed data from Castro who was the acknowledged owner of
the property offered as collateral. Moreover, considering Castro's personal
circumstances her lack of education, ignorance and old age she cannot be
considered utterly neglectful for having been defrauded. On the contrary, it is
demanded of petitioners to exercise the highest order of care and prudence in
its business dealings with the Valencias considering that it is engaged in a
banking business a business affected with public interest. It should have
ascertained Castro's awareness of what she was signing or made her
understand what obligations she was assuming, considering that she was
giving accommodation to, without any consideration from the Valencia
spouses.

Petitioners further argue that Castro's act of holding the Valencias as her agent
led the bank to believe that they were authorized to speak and bind her. She
cannot now be permitted to deny the authority of the Valencias to act as her
agent for one who clothes another with apparent authority as her agent is not
permitted to deny such authority.
The authority of the Valencias was only to follow-up Castro's loan application
with the bank. They were not authorized to borrow for her. This is apparent
from the fact that Castro went to the Bank to sign the promissory note for her
loan of P3,000.00. If her act had been understood by the Bank to be a grant of
an authority to the Valencia to borrow in her behalf, it should have required a
special power of attorney executed by Castro in their favor. Since the bank did
not, We can rightly assume that it did not entertain the notion, that the Valencia
spouses were in any manner acting as an agent of Castro.
When the Valencias borrowed from the Bank a personal loan of P3,000.00
evidenced by a promissory note (Exhibit 2) and mortgaged (Exhibit 6) Castro's
property to secure said loan, the Valencias acted for their own behalf.
Considering however that for the loan in which the Valencias appeared as
principal borrowers, it was the property of Castro that was being mortgaged to
secure said loan, the Bank should have exercised due care and prudence by
making proper inquiry if Castro's consent to the mortgage was without any taint
or defect. The possibility of her not knowing that she signed the promissory
note (Exhibit 2) as co-maker with the Valencias and that her property was
mortgaged to secure the two loans instead of her own personal loan only, in
view of her personal circumstances ignorance, lack of education and old age
should have placed the Bank on prudent inquiry to protect its interest and
that of the public it serves. With the recent occurrence of events that have
supposedly affected adversely our banking system, attributable to laxity in the
conduct of bank business by its officials, the need of extreme caution and
prudence by said officials and employees in the discharge of their functions
cannot be over-emphasized.
Question is, likewise, raised as to the propriety of respondent court's decision
which declared that Castro's consignation in court of the amount of P3,383.00
was validly made. It is contended that the consignation was made without prior
offer or tender of payment to the Bank, and it therefore, not valid. In holding
that there is a substantial compliance with the provision of Article 1256 of the
Civil Code, respondent court considered the fact that the Bank was holding
Castro liable for the sum of P6,000.00 plus 12% interest per annum, while the
amount consigned was only P3,000.00 plus 12% interest; that at the time of
consignation, the Bank had long foreclosed the mortgage extrajudicially and
the sale of the mortgage property had already been scheduled for April 10,
1961 for non-payment of the obligation, and that despite the fact that the Bank
already knew of the deposit made by Castro because the receipt of the deposit
was attached to the record of the case, said Bank had not made any claim of

such deposit, and that therefore, Castro was right in thinking that it was futile
and useless for her to make previous offer and tender of payment directly to
the Bank only in the aforesaid amount of P3,000.00 plus 12% interest. Under
the foregoing circumstances, the consignation made by Castro was valid. if not
under the strict provision of the law, under the more liberal considerations of
equity.
The final issue raised is the validity or invalidity of the extrajudicial foreclosure
sale at public auction of the mortgaged property that was held on April 11,
1961.
Petitioners contended that the public auction sale that was held on April 11,
1961 which was the next business day after the scheduled date of the sale on
April 10, 1961, a special public holiday, was permissible and valid pursuant to
the provisions of Section 31 of the Revised Administrative Code which ordains:
Pretermission of holiday. Where the day, or the last day, for doing any act
required or permitted by law falls on a holiday, the act may be done on the next
succeeding business day.
Respondent court ruled that the aforesaid sale is null and void, it not having
been carried out in accordance with Section 9 of Act No. 3135, which provides:
Section 9. Notice shall be given by posting notices of the sale for not less
than twenty days in at least three public places of the municipality or city where
the property is situated, and if such property is worth more than four hundred
pesos, such notice shall also be published once a week for at least three
consecutive weeks in a newspaper of general circulation in the municipality or
city.
We agree with respondent court. The pretermission of a holiday applies only
"where the day, or the last day for doing any act required or permitted by law
falls on a holiday," or when the last day of a given period for doing an act falls
on a holiday. It does not apply to a day fixed by an office or officer of the
government for an act to be done, as distinguished from a period of time within
which an act should be done, which may be on any day within that specified
period. For example, if a party is required by law to file his answer to a
complaint within fifteen (15) days from receipt of the summons and the last day
falls on a holiday, the last day is deemed moved to the next succeeding
business day. But, if the court fixes the trial of a case on a certain day but the
said date is subsequently declared a public holiday, the trial thereof is not
automatically transferred to the next succeeding business day. Since April 10,
1961 was not the day or the last day set by law for the extrajudicial foreclosure
sale, nor the last day of a given period but a date fixed by the deputy sheriff,
the aforesaid sale cannot legally be made on the next succeeding business

day without the notices of the sale on that day being posted as prescribed in
Section 9, Act No. 3135.
WHEREFORE, finding no reversible error in the judgment under review, We
affirm the same in toto. No pronouncement as to cost.
SO ORDERED.

G.R. No. L-57552

October 10, 1986

LUISA F. MCLAUGHLIN, petitioner,

vs.
THE COURT OF APPEALS AND RAMON FLORES, respondents.
R.C. Domingo Jr. & Associates for private respondent.

As agreed upon, private respondent paid P50,000.00 upon the signing of the
agreement and in addition he also paid an "escalation cost" of P25,000.00.
Under paragraph 3 of the Compromise Agreement, private respondent agreed
to pay one thousand (P l,000.00) pesos monthly rental beginning December
5, 1979 until the obligation is duly paid, for the use of the property subject
matter of the deed of conditional sale.
Paragraphs 6 and 7 of the Compromise Agreement further state:

FERIA, Actg. C.J.

This is an appeal by certiorari from the decision of the Court of Appeals, the
dispositive part of which reads as follows:
IN VIEW OF THE FOREGOING PREMISES, the petition for certiorari and
mandamus is hereby GRANTED and the Orders of respondent court dated
November 21 and 27 both 1980 are hereby nullified and set aside and
respondent Judge is ordered to order private respondent to accept petitioner's
Pacific Banking Corporation certified manager's Check No. MC-A-000311
dated November 17, 1980 in the amount of P76,059.71 in full settlement of
petitioner's obligation, or another check of equivalent kind and value, the
earlier check having become stale.
On February 28, 1977, petitioner Luisa F. McLaughlin and private respondent
Ramon Flores entered into a contract of conditional sale of real property.
Paragraph one of the deed of conditional sale fixed the total purchase price of
P140,000.00 payable as follows: a) P26,550.00 upon the execution of the
deed; and b) the balance of P113,450.00 to be paid not later than May 31,
1977. The parties also agreed that the balance shall bear interest at the rate
of 1% per month to commence from December 1, 1976, until the full purchase
price was paid.
On June 19, 1979, petitioner filed a complaint in the then Court of First Instance
of Rizal (Civil Case No. 33573) for the rescission of the deed of conditional
sale due to the failure of private respondent to pay the balance due on May
31, 1977.
On December 27, 1979, the parties submitted a Compromise Agreement on
the basis of which the court rendered a decision on January 22, 1980. In said
compromise agreement, private respondent acknowledged his indebtedness
to petitioner under the deed of conditional sale in the amount of P119,050.71,
and the parties agreed that said amount would be payable as follows: a)
P50,000.00 upon signing of the agreement; and b) the balance of P69,059.71
in two equal installments on June 30, 1980 and December 31, 1980.

That the parties are agreed that in the event the defendant (private
respondent) fails to comply with his obligations herein provided, the plaintiff
(petitioner) will be entitled to the issuance of a writ of execution rescinding the
Deed of Conditional Sale of Real Property. In such eventuality, defendant
(private respondent) hereby waives his right to appeal to (from) the Order of
Rescission and the Writ of Execution which the Court shall render in
accordance with the stipulations herein provided for.
That in the event of execution all payments made by defendant (private
respondent) will be forfeited in favor of the plaintiff (petitioner) as liquidated
damages.
On October 15, 1980, petitioner wrote to private respondent demanding that
the latter pay the balance of P69,059.71 on or before October 31, 1980. This
demand included not only the installment due on June 30, 1980 but also the
installment due on December 31, 1980.
On October 30, 1980, private respondent sent a letter to petitioner signifying
his willingness and intention to pay the full balance of P69,059.71, and at the
same time demanding to see the certificate of title of the property and the tax
payment receipts.
Private respondent states on page 14 of his brief that on November 3, 1980,
the first working day of said month, he tendered payment to petitioner but this
was refused acceptance by petitioner. However, this does not appear in the
decision of the Court of Appeals.
On November 7, 1980, petitioner filed a Motion for Writ of Execution alleging
that private respondent failed to pay the installment due on June 1980 and that
since June 1980 he had failed to pay the monthly rental of P l,000.00. Petitioner
prayed that a) the deed of conditional sale of real property be declared
rescinded with forfeiture of all payments as liquidated damages; and b) the
court order the payment of Pl,000.00 back rentals since June 1980 and the
eviction of private respondent.
On November 14, 1980, the trial court granted the motion for writ of execution.

On November 17, 1980, private respondent filed a motion for reconsideration

tendering at the same time a Pacific Banking Corporation certified manager's
check in the amount of P76,059.71, payable to the order of petitioner and
covering the entire obligation including the installment due on December 31,
1980. However, the trial court denied the motion for reconsideration in an order
dated November 21, 1980 and issued the writ of execution on November 25,
1980.
In an order dated November 27, 1980, the trial court granted petitioner's exparte motion for clarification of the order of execution rescinding the deed of
conditional sale of real property.
On November 28, 1980, private respondent filed with the Court of Appeals a
petition for certiorari and prohibition assailing the orders dated November 21
and 27, 1980.
As initially stated above, the appellate court nullified and set aside the disputed
orders of the lower court. In its decision, the appellate court ruled in part as
follows:
The issue here is whether respondent court committed a grave abuse of
discretion in issuing the orders dated November 21, 1980 and November
27,1980.
The general rule is that rescission will not be permitted for a slight or casual
breach of the contract, but only for such breaches as are substantial and
fundamental as to defeat the object of the parties in making the agreement.
(Song Fo & Co. vs. Hawaiian-Philippine Co., 47 Phil. 821)
In aforesaid case, it was held that a delay in payment for a small quantity of
molasses, for some twenty days is not such a violation of an essential condition
of the contract as warrants rescission for non-performance.
In Universal Food Corp. vs. Court of Appeals, 33 SCRA 1, the Song Fo ruling
was reaffirmed.
In the case at bar, McLaughlin wrote Flores on October 15, 1980 demanding
that Flores pay the balance of P69,059.71 on or before October 31, 1980. Thus
it is undeniable that despite Flores' failure to make the payment which was due
on June 1980, McLaughlin waived whatever right she had under the
compromise agreement as incorporated in the decision of respondent court,
to demand rescission.
xxx

xxx

xxx

It is significant to note that on November 17, 1980, or just seventeen (17) days
after October 31, 1980, the deadline set by McLaughlin, Flores tendered the
certified manager's check. We hold that the Song Fo ruling is applicable herein
considering that in the latter case, there was a 20-day delay in the payment of
the obligation as compared to a 17-day delay in the instant case.
Furthermore, as held in the recent case of New Pacific Timber & Supply Co.,
Inc. vs. Hon. Alberto Seneris, L-41764, December 19, 1980, it is the accepted
practice in business to consider a cashier's or manager's check as cash and
that upon certification of a check, it is equivalent to its acceptance (Section
187, Negotiable Instrument Law) and the funds are thereby transferred to the
credit of the creditor (Araneta v. Tuason, 49 O.G. p. 59).
In the New Pacific Timber & Supply Co., Inc. case, the Supreme Court further
held that the object of certifying a check is to enable the holder thereof to use
it as money, citing the ruling in PNB vs. National City Bank of New York, 63
Phil. 711.
In the New Pacific Timber case, it was also ruled that the exception in Section
63 of the Central Bank Act that the clearing of a check and the subsequent
crediting of the amount thereof to the account of the creditor is equivalent to
delivery of cash, is applicable to a payment through a certified check.
Considering that Flores had already paid P101,550.00 under the contract to
sell, excluding the monthly rentals paid, certainly it would be the height of
inequity to have this amount forfeited in favor McLaughlin. Under the
questioned orders, McLaughlin would get back the property and still keep
P101,550.00.
Petitioner contends that the appellate court erred in not observing the
provisions of Article No. 1306 of the Civil Code of the Philippines and in having
arbitrarily abused its judicial discretion by disregarding the penal clause
stipulated by the parties in the compromise agreement which was the basis of
the decision of the lower court.
We agree with the appellate court that it would be inequitable to cancel the
contract of conditional sale and to have the amount of P101,550.00 (P
l48,126.97 according to private respondent in his brief) already paid by him
under said contract, excluding the monthly rentals paid, forfeited in favor of
petitioner, particularly after private respondent had tendered the amount of
P76,059.71 in full payment of his obligation.
In the analogous case of De Guzman vs. Court of Appeals, this Court
sustained the order of the respondent judge denying the petitioners' motion for
execution on the ground that the private respondent had substantially complied
with the terms and conditions of the compromise agreement, and directing the

petitioners to immediately execute the necessary documents transferring to

the private respondent the title to the properties (July 23, 1985, 137 SCRA
730). In the case at bar, there was also substantial compliance with the
compromise agreement.
Petitioner invokes the ruling of the Court in its Resolution of November 16,
1978 in the case of Luzon Brokerage Co., Inc. vs. Maritime Building Co., Inc.,
to the effect that Republic Act 6552 (the Maceda Law) "recognizes and
reaffirms the vendor's right to cancel the contract to sell upon breach and nonpayment of the stipulated installments but requires a grace period after at least
two years of regular installment payments ... . " (86 SCRA 305, 329)
On the other hand, private respondent also invokes said law as an expression
of public policy to protect buyers of real estate on installments against onerous
and oppressive conditions (Section 2 of Republic Act No. 6552).
Section 4 of Republic Act No. 6552 which took effect on September 14, 1972
provides as follows:
In case where less than two years of installments were paid, the seller shall
give the buyer a grace period of not less than sixty days from the date the
installment became due. If the buyer fails to pay the installments due at the
expiration of the grace period, the seller may cancel the contract after thirty
days from receipt by the buyer of the notice of the cancellation or the demand
for rescission of the contract by a notarial act.
Section 7 of said law provides as follows:
Any stipulation in any contract hereafter entered into contrary to the provisions
of Sections 3, 4, 5 and 6, shall be null and void.
The spirit of these provisions further supports the decision of the appellate
court. The record does not contain the complete text of the compromise
agreement dated December 20, 1979 and the decision approving it. However,
assuming that under the terms of said agreement the December 31, 1980
installment was due and payable when on October 15, 1980, petitioner
demanded payment of the balance of P69,059.71 on or before October 31,
1980, petitioner could cancel the contract after thirty days from receipt by
private respondent of the notice of cancellation. Considering petitioner's
motion for execution filed on November 7, 1980 as a notice of cancellation,
petitioner could cancel the contract of conditional sale after thirty days from
receipt by private respondent of said motion. Private respondent's tender of
payment of the amount of P76,059.71 together with his motion for
reconsideration on November 17, 1980 was, therefore, well within the thirtyday period grants by law..

The tender made by private respondent of a certified bank manager's check

payable to petitioner was a valid tender of payment. The certified check
covered not only the balance of the purchase price in the amount of
P69,059.71, but also the arrears in the rental payments from June to
December, 1980 in the amount of P7,000.00, or a total of P76,059.71. On this
point the appellate court correctly applied the ruling in the case of New Pacific
Timber & Supply Co., Inc. vs. Seneris (101 SCRA 686, 692-694) to the case
at bar.
Moreover, Section 49, Rule 130 of the Revised Rules of Court provides that:
An offer in writing to pay a particular sum of money or to deliver a written
instrument or specific property is, if rejected, equivalent to the actual
production and tender of the money, instrument, or property.
However, although private respondent had made a valid tender of payment
which preserved his rights as a vendee in the contract of conditional sale of
real property, he did not follow it with a consignation or deposit of the sum due
with the court. As this Court has held:
The rule regarding payment of redemption prices is invoked. True that
consignation of the redemption price is not necessary in order that the vendor
may compel the vendee to allow the repurchase within the time provided by
law or by contract. (Rosales vs. Reyes and Ordoveza, 25 Phil. 495.) We have
held that in such cases a mere tender of payment is enough, if made on time,
as a basis for action against the vendee to compel him to resell. But that tender
does not in itself relieve the vendor from his obligation to pay the price when
redemption is allowed by the court. In other words, tender of payment is
sufficient to compel redemption but is not in itself a payment that relieves the
vendor from his liability to pay the redemption price. " (Paez vs. Magno, 83
Phil. 403, 405)
On September 1, 1986, the Court issued the following resolution
Considering the allegation in petitioner's reply brief that the Manager's Check
tendered by private respondent on November 17, 1980 was subsequently
cancelled and converted into cash, the Court RESOLVED to REQUIRE the
parties within ten (10) days from notice to inform the Court whether or not the
amount thereof was deposited in court and whether or not private respondent
continued paying the monthly rental of P1,000.00 stipulated in the
Compromise Agreement.
In compliance with this resolution, both parties submitted their respective
manifestations which confirm that the Manager's Check in question was
subsequently withdrawn and replaced by cash, but the cash was not deposited
with the court.

According to Article 1256 of the Civil Code of the Philippines, if the creditor to
whom tender of payment has been made refuses without just cause to accept
it, the debtor shall be released from responsibility by the consignation of the
thing or sum due, and that consignation alone shall produce the same effect
in the five cases enumerated therein; Article 1257 provides that in order that
the consignation of the thing (or sum) due may release the obligor, it must first
be announced to the persons interested in the fulfillment of the obligation; and
Article 1258 provides that consignation shall be made by depositing the thing
(or sum) due at the disposal of the judicial authority and that the interested
parties shall also be notified thereof.
As the Court held in the case of Soco vs. Militante, promulgated on June 28,
1983, after examining the above-cited provisions of the law and the
jurisprudence on the matter:
Tender of payment must be distinguished from consignation. Tender is the
antecedent of consignation, that is, an act preparatory to the consignation,
which is the principal, and from which are derived the immediate
consequences which the debtor desires or seeks to obtain. Tender of payment
may be extrajudicial, while consignation is necessarily judicial, and the priority
of the first is the attempt to make a private settlement before proceeding to the
solemnities of consignation. (8 Manresa 325). (123 SCRA 160,173)
In the above-cited case of De Guzman vs. Court of Appeals (137 SCRA 730),
the vendee was released from responsibility because he had deposited with
the court the balance of the purchase price. Similarly, in the above-cited case
of New Pacific Timber & Supply Co., Inc. vs. Seneris (101 SCRA 686), the
judgment debtor was released from responsibility by depositing with the court
the amount of the judgment obligation.
In the case at bar, although as above stated private respondent had preserved
his rights as a vendee in the contract of conditional sale of real property by a
timely valid tender of payment of the balance of his obligation which was not
accepted by petitioner, he remains liable for the payment of his obligation
because of his failure to deposit the amount due with the court.
In his manifestation dated September 19, 1986, private respondent states that
on September 16, 1980, he purchased a Metrobank Cashier's Check No. CC
004233 in favor of petitioner Luisa F. McLaughlin in the amount of P76,059.71,
a photocopy of which was enclosed and marked as Annex "A- 1;" but that he
did not continue paying the monthly rental of Pl,000.00 because, pursuant to
the decision of the appellate court, petitioner herein was ordered to accept the
aforesaid amount in full payment of herein respondent's obligation under the
contract subject matter thereof.

However, inasmuch as petitioner did not accept the aforesaid amount, it was
incumbent on private respondent to deposit the same with the court in order to
be released from responsibility. Since private respondent did not deposit said
amount with the court, his obligation was not paid and he is liable in addition
for the payment of the monthly rental of Pl,000.00 from January 1, 1981 until
said obligation is duly paid, in accordance with paragraph 3 of the Compromise
Agreement. Upon full payment of the amount of P76,059.71 and the rentals in
arrears, private respondent shall be entitled to a deed of absolute sale in his
favor of the real property in question.
WHEREFORE, the decision of the Court of Appeals is AFFIRMED with the
following modifications:
(a)
Petitioner is ordered to accept from private respondent the Metrobank
Cashier's Check No. CC 004233 in her favor in the amount of P76,059.71 or
another certified check of a reputable bank drawn in her favor in the same
amount;
(b)
Private respondent is ordered to pay petitioner, within sixty (60) days
from the finality of this decision, the rentals in arrears of P l,000.00 a month
from January 1, 1981 until full payment thereof; and
(c)
Petitioner is ordered to execute a deed of absolute sale in favor of
private respondent over the real property in question upon full payment of the
amounts as provided in paragraphs (a) and (b) above. No costs.
SO ORDERED.

EQUITABLE PCI BANK,* G.R. No. 171545

AIMEE YU and BEJAN
LIONEL APAS,
Petitioners, Present:
PUNO, C.J., Chairperson,
- v e r s u s - SANDOVAL-GUTIERREZ,
CORONA,
AZCUNA and
LEONARDO-DE CASTRO, JJ.
NG SHEUNG NGOR** doing
business under the name
and style KEN MARKETING, Promulgated:
KEN APPLIANCE DIVISION,
INC. and BENJAMIN E. GO,
Respondents. December 19, 2007

mutuality of contracts.[12] Nevertheless, it took judicial notice of the steep

depreciation of the peso during the intervening period[13] and declared the
existence of extraordinary deflation.[14] Consequently, the RTC ordered the
use of the 1996 dollar exchange rate in computing respondents' dollardenominated loans.[15] Lastly, because the business reputation of
respondents was (allegedly) severely damaged when Equitable froze their
accounts,[16] the trial court awarded moral and exemplary damages to
them.[17]
The dispositive portion of the February 5, 2004 RTC decision[18] provided:
WHEREFORE, premises considered, judgment is hereby rendered:
A) Ordering [Equitable] to reinstate and return the amount of [respondents']
deposit placed on hold status;
B) Ordering [Equitable] to pay [respondents] the sum of P12 [m]illion [p]esos
as moral damages;

x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -- - - - - - - x
DECISION
CORONA, J.:
This petition for review on certiorari[1] seeks to set aside the decision[2] of the
Court of Appeals (CA) in CA-G.R. SP No. 83112 and its resolution[3] denying
reconsideration.
On October 7, 2001, respondents Ng Sheung Ngor,[4] Ken Appliance Division,
Inc. and Benjamin E. Go filed an action for annulment and/or reformation of
documents and contracts[5] against petitioner Equitable PCI Bank (Equitable)
and its employees, Aimee Yu and Bejan Lionel Apas, in the Regional Trial
Court (RTC), Branch 16 of Cebu City.[6] They claimed that Equitable induced
them to avail of its peso and dollar credit facilities by offering low interest
rates[7] so they accepted Equitable's proposal and signed the bank's preprinted promissory notes on various dates beginning 1996. They, however,
were unaware that the documents contained identical escalation clauses
granting Equitable authority to increase interest rates without their consent.[8]

C) Ordering [Equitable] to pay [respondents] the sum of P10 [m]illion [p]esos

as exemplary damages;
D)
Ordering defendants Aimee Yu and Bejan [Lionel] Apas to pay
[respondents], jointly and severally, the sum of [t]wo [m]illion [p]esos as moral
and exemplary damages;
E)
Ordering [Equitable, Aimee Yu and Bejan Lionel Apas], jointly and
severally, to pay [respondents'] attorney's fees in the sum of P300,000;
litigation expenses in the sum of P50,000 and the cost of suit;
F) Directing plaintiffs Ng Sheung Ngor and Ken Marketing to pay [Equitable]
the unpaid principal obligation for the peso loan as well as the unpaid
obligation for the dollar denominated loan;
G) Directing plaintiff Ng Sheung Ngor and Ken Marketing to pay [Equitable]
interest as follows:
1)

12% per annum for the peso loans;

Equitable, in its answer, asserted that respondents knowingly accepted all the
terms and conditions contained in the promissory notes.[9] In fact, they
continuously availed of and benefited from Equitable's credit facilities for five
years.[10]

2)
8% per annum for the dollar loans. The basis for the payment of the
dollar obligation is the conversion rate of P26.50 per dollar availed of at the
time of incurring of the obligation in accordance with Article 1250 of the Civil
Code of the Philippines;

After trial, the RTC upheld the validity of the promissory notes. It found that, in
2001 alone, Equitable restructured respondents' loans amounting to
US$228,200 and P1,000,000.[11] The trial court, however, invalidated the
escalation clause contained therein because it violated the principle of

H)
Dismissing [Equitable's] counterclaim except the payment of the
aforestated unpaid principal loan obligations and interest.
SO ORDERED.[19]

Equitable and respondents filed their respective notices of appeal.[20]

In the March 1, 2004 order of the RTC, both notices were denied due course
because Equitable and respondents failed to submit proof that they paid their
respective appeal fees.[21]
WHEREFORE, premises considered, the appeal interposed by defendants
from the Decision in the above-entitled case is DENIED due course. As of
February 27, 2004, the Decision dated February 5, 2004, is considered final
and executory in so far as [Equitable, Aimee Yu and Bejan Lionel Apas] are
concerned.[22] (emphasis supplied)
Equitable moved for the reconsideration of the March 1, 2004 order of the
RTC[23] on the ground that it did in fact pay the appeal fees. Respondents, on
the other hand, prayed for the issuance of a writ of execution.[24]
On March 24, 2004, the RTC issued an omnibus order denying Equitable's
motion for reconsideration for lack of merit[25] and ordered the issuance of a
writ of execution in favor of respondents.[26] According to the RTC, because
respondents did not move for the reconsideration of the previous order
(denying due course to the parties notices of appeal),[27] the February 5, 2004
decision became final and executory as to both parties and a writ of execution
against Equitable was in order.[28]
A writ of execution was thereafter issued[29] and three real properties of
Equitable were levied upon.[30]
On March 26, 2004, Equitable filed a petition for relief in the RTC from the
March 1, 2004 order.[31] It, however, withdrew that petition on March 30,
2004[32] and instead filed a petition for certiorari with an application for an
injunction in the CA to enjoin the implementation and execution of the March
24, 2004 omnibus order.[33]
On June 16, 2004, the CA granted Equitable's application for injunction. A writ
of preliminary injunction was correspondingly issued.[34]
Notwithstanding the writ of injunction, the properties of Equitable previously
levied upon were sold in a public auction on July 1, 2004. Respondents were
the highest bidders and certificates of sale were issued to them.[35]
On August 10, 2004, Equitable moved to annul the July 1, 2004 auction sale
and to cite the sheriffs who conducted the sale in contempt for proceeding with
the auction despite the injunction order of the CA.[36]

On October 28, 2005, the CA dismissed the petition for certiorari.[37] It found
Equitable guilty of forum shopping because the bank filed its petition for
certiorari in the CA several hours before withdrawing its petition for relief in the
RTC.[38] Moreover, Equitable failed to disclose, both in the statement of
material dates and certificate of non-forum shopping (attached to its petition
for certiorari in the CA), that it had a pending petition for relief in the RTC.[39]
Equitable moved for reconsideration[40] but it was denied.[41] Thus, this
petition.
Equitable asserts that it was not guilty of forum shopping because the petition
for relief was withdrawn on the same day the petition for certiorari was filed.[42]
It likewise avers that its petition for certiorari was meritorious because the RTC
committed grave abuse of discretion in issuing the March 24, 2004 omnibus
order which was based on an erroneous assumption. The March 1, 2004 order
denying its notice of appeal for non payment of appeal fees was erroneous
because it had in fact paid the required fees.[43] Thus, the RTC, by issuing its
March 24, 2004 omnibus order, effectively prevented Equitable from appealing
the patently wrong February 5, 2004 decision.[44]
This petition is meritorious.

EQUITABLE WAS NOT GUILTY OF FORUM SHOPPING

Forum shopping exists when two or more actions involving the same
transactions, essential facts and circumstances are filed and those actions
raise identical issues, subject matter and causes of action.[45] The test is
whether, in two or more pending cases, there is identity of parties, rights or
causes of actions and reliefs.[46]
Equitable's petition for relief in the RTC and its petition for certiorari in the CA
did not have identical causes of action. The petition for relief from the denial of
its notice of appeal was based on the RTCs judgment or final order preventing
it from taking an appeal by fraud, accident, mistake or excusable
negligence.[47] On the other hand, its petition for certiorari in the CA, a special
civil action, sought to correct the grave abuse of discretion amounting to lack
of jurisdiction committed by the RTC.[48]
In a petition for relief, the judgment or final order is rendered by a court with
competent jurisdiction. In a petition for certiorari, the order is rendered by a
court without or in excess of its jurisdiction.

Moreover, Equitable substantially complied with the rule on non-forum

shopping when it moved to withdraw its petition for relief in the RTC on the
same day (in fact just four hours and forty minutes after) it filed the petition for
certiorari in the CA. Even if Equitable failed to disclose that it had a pending
petition for relief in the RTC, it rectified what was doubtlessly a careless
oversight by withdrawing the petition for relief just a few hours after it filed its
petition for certiorari in the CA a clear indication that it had no intention of
maintaining the two actions at the same time.
THE TRIAL COURT COMMITTED GRAVE ABUSE OF DISCRETION IN
ISSUING ITS MARCH 1, 2004 AND MARCH 24, 2004 ORDERS

The March 1, 2004 order denied due course to the notices of appeal of both
Equitable and respondents. However, it declared that the February 5, 2004
decision was final and executory only with respect to Equitable.[50] As
expected, the March 24, 2004 omnibus order denied Equitable's motion for
reconsideration and granted respondents' motion for the issuance of a writ of
execution.[51]
The March 1, 2004 and March 24, 2004 orders of the RTC were obviously
intended to prevent Equitable, et al. from appealing the February 5, 2004
decision. Not only that. The execution of the decision was undertaken with
indecent haste, effectively obviating or defeating Equitable's right to avail of
possible legal remedies. No matter how we look at it, the RTC committed grave
abuse of discretion in rendering those orders.

Section 1, Rule 65 of the Rules of Court provides:

Section 1. Petition for Certiorari. When any tribunal, board or officer exercising
judicial or quasi-judicial function has acted without or in excess of its or his
jurisdiction, or with grave abuse of discretion amounting to lack or excess of
jurisdiction, and there is no appeal, nor any plain, speedy or adequate remedy
in the ordinary course of law, a person aggrieved thereby may file a verified
petition in the proper court, alleging the facts with certainty and praying that
judgment be rendered annulling or modifying the proceedings of such tribunal,
board or officer, and granting such incidental reliefs as law and justice may
require.

With regard to whether Equitable had a plain, speedy and adequate remedy in
the ordinary course of law, we hold that there was none. The RTC denied due
course to its notice of appeal in the March 1, 2004 order. It affirmed that denial
in the March 24, 2004 omnibus order. Hence, there was no way Equitable
could have possibly appealed the February 5, 2004 decision.[52]
Although Equitable filed a petition for relief from the March 24, 2004 order, that
petition was not a plain, speedy and adequate remedy in the ordinary course
of law.[53] A petition for relief under Rule 38 is an equitable remedy allowed
only in exceptional circumstances or where there is no other available or
adequate remedy.[54]

The petition shall be accompanied by a certified true copy of the judgment,

order or resolution subject thereof, copies of all pleadings and documents
relevant and pertinent thereto, and a sworn certificate of non-forum shopping
as provided in the third paragraph of Section 3, Rule 46.

Thus, we grant Equitable's petition for certiorari and consequently give due
course to its appeal.

There are two substantial requirements in a petition for certiorari. These are:

EQUITABLE RAISED PURE QUESTIONS OF LAW IN ITS PETITION FOR

REVIEW

1.
that the tribunal, board or officer exercising judicial or quasi-judicial
functions acted without or in excess of his or its jurisdiction or with grave abuse
of discretion amounting to lack or excess of jurisdiction; and
2.
that there is no appeal or any plain, speedy and adequate remedy in the
ordinary course of law.
For a petition for certiorari premised on grave abuse of discretion to prosper,
petitioner must show that the public respondent patently and grossly abused
his discretion and that abuse amounted to an evasion of positive duty or a
virtual refusal to perform a duty enjoined by law or to act at all in contemplation
of law, as where the power was exercised in an arbitrary and despotic manner
by reason of passion or hostility.[49]

The jurisdiction of this Court in Rule 45 petitions is limited to questions of

law.[55] There is a question of law when the doubt or controversy concerns
the correct application of law or jurisprudence to a certain set of facts; or when
the issue does not call for the probative value of the evidence presented, the
truth or falsehood of facts being admitted.[56]
Equitable does not assail the factual findings of the trial court. Its arguments
essentially focus on the nullity of the RTCs February 5, 2004 decision.
Equitable points out that that decision was patently erroneous, specially the
exorbitant award of damages, as it was inconsistent with existing law and
jurisprudence.[57]

THE PROMISSORY NOTES WERE VALID

The RTC upheld the validity of the promissory notes despite respondents
assertion that those documents were contracts of adhesion.
A contract of adhesion is a contract whereby almost all of its provisions are
drafted by one party.[58] The participation of the other party is limited to affixing
his signature or his adhesion to the contract.[59] For this reason, contracts of
adhesion are strictly construed against the party who drafted it.[60]

principle of mutuality of contracts.[66] Article 1308[67] of the Civil Code holds

that a contract must bind both contracting parties; its validity or compliance
cannot be left to the will of one of them.[68]
For this reason, we have consistently held that a valid escalation clause
provides:
1.
that the rate of interest will only be increased if the applicable
maximum rate of interest is increased by law or by the Monetary Board; and

It is erroneous, however, to conclude that contracts of adhesion are invalid per

se. They are, on the contrary, as binding as ordinary contracts. A party is in
reality free to accept or reject it. A contract of adhesion becomes void only
when the dominant party takes advantage of the weakness of the other party,
completely depriving the latter of the opportunity to bargain on equal
footing.[61]

2.
that the stipulated rate of interest will be reduced if the applicable
maximum rate of interest is reduced by law or by the Monetary Board (deescalation clause).[69]

That was not the case here. As the trial court noted, if the terms and conditions
offered by Equitable had been truly prejudicial to respondents, they would have
walked out and negotiated with another bank at the first available instance. But
they did not. Instead, they continuously availed of Equitable's credit facilities
for five long years.

If subject promissory note is extended, the interest for subsequent extensions

shall be at such rate as shall be determined by the bank.[70]

While the RTC categorically found that respondents had outstanding dollarand peso-denominated loans with Equitable, it, however, failed to ascertain
the total amount due (principal, interest and penalties, if any) as of July 9, 2001.
The trial court did not explain how it arrived at the amounts of US$228,200 and
P1,000,000.[62] In Metro Manila Transit Corporation v. D.M. Consunji,[63] we
reiterated that this Court is not a trier of facts and it shall pass upon them only
for compelling reasons which unfortunately are not present in this case.[64]
Hence, we ordered the partial remand of the case for the sole purpose of
determining the amount of actual damages.[65]

The RTC found that Equitable's promissory notes uniformly stated:

Equitable dictated the interest rates if the term (or period for repayment) of the
loan was extended. Respondents had no choice but to accept them. This was
a violation of Article 1308 of the Civil Code. Furthermore, the assailed
escalation clause did not contain the necessary provisions for validity, that is,
it neither provided that the rate of interest would be increased only if allowed
by law or the Monetary Board, nor allowed de-escalation. For these reasons,
the escalation clause was void.
With regard to the proper rate of interest, in New Sampaguita Builders v.
Philippine National Bank[71] we held that, because the escalation clause was
annulled, the principal amount of the loan was subject to the original or
stipulated rate of interest. Upon maturity, the amount due was subject to legal
interest at the rate of 12% per annum.[72]
Consequently, respondents should pay Equitable the interest rates of 12.66%
p.a. for their dollar-denominated loans and 20% p.a. for their pesodenominated loans from January 10, 2001 to July 9, 2001. Thereafter,
Equitable was entitled to legal interest of 12% p.a. on all amounts due.

ESCALATION CLAUSE VIOLATED THE PRINCIPLE OF MUTUALITY OF

CONTRACTS

THERE WAS NO EXTRAORDINARY DEFLATION

Escalation clauses are not void per se. However, one which grants the creditor
an unbridled right to adjust the interest independently and upwardly,
completely depriving the debtor of the right to assent to an important
modification in the agreement is void. Clauses of that nature violate the

Extraordinary inflation exists when there is an unusual decrease in the

purchasing power of currency (that is, beyond the common fluctuation in the
value of currency) and such decrease could not be reasonably foreseen or
was manifestly beyond the contemplation of the parties at the time of the

obligation. Extraordinary deflation, on the other hand, involves an inverse

situation.[73]
Article 1250 of the Civil Code provides:
Article 1250. In case an extraordinary inflation or deflation of the currency
stipulated should intervene, the value of the currency at the time of the
establishment of the obligation shall be the basis of payment, unless there is
an agreement to the contrary.
For extraordinary inflation (or deflation) to affect an obligation, the following
requisites must be proven:
1.
that there was an official declaration of extraordinary inflation or deflation
from the Bangko Sentral ng Pilipinas (BSP);[74]
2.

that the obligation was contractual in nature;[75] and

3.
that the parties expressly agreed to consider the effects of the
extraordinary inflation or deflation.[76]
Despite the devaluation of the peso, the BSP never declared a situation of
extraordinary inflation. Moreover, although the obligation in this instance arose
out of a contract, the parties did not agree to recognize the effects of
extraordinary inflation (or deflation).[77] The RTC never mentioned that there
was a such stipulation either in the promissory note or loan agreement.
Therefore, respondents should pay their dollar-denominated loans at the
exchange rate fixed by the BSP on the date of maturity.[78]
THE AWARD OF MORAL AND EXEMPLARY DAMAGES LACKED BASIS

4.
The case is predicated on any of the instances expressed or envisioned
by Article 2219[80] and 2220[81]. [82]
In culpa contractual or breach of contract, moral damages are recoverable only
if the defendant acted fraudulently or in bad faith or in wanton disregard of his
contractual obligations.[83] The breach must be wanton, reckless, malicious
or in bad faith, and oppressive or abusive.[84]
The RTC found that respondents did not pay Equitable the interest due on
February 9, 2001 (or any month thereafter prior to the maturity of the loan)[85]
or the amount due (principal plus interest) due on July 9, 2001.[86]
Consequently, Equitable applied respondents' deposits to their loans upon
maturity.
The relationship between a bank and its depositor is that of creditor and
debtor.[87] For this reason, a bank has the right to set-off the deposits in its
hands for the payment of a depositor's indebtedness.[88]
Respondents indeed defaulted on their obligation. For this reason, Equitable
had the option to exercise its legal right to set-off or compensation. However,
the RTC mistakenly (or, as it now appears, deliberately) concluded that
Equitable acted fraudulently or in bad faith or in wanton disregard of its
contractual obligations despite the absence of proof. The undeniable fact was
that, whatever damage respondents sustained was purely the consequence of
their failure to pay their loans. There was therefore absolutely no basis for the
award of moral damages to them.
Neither was there reason to award exemplary damages. Since respondents
were not entitled to moral damages, neither should they be awarded
exemplary damages.[89] And if respondents were not entitled to moral and
exemplary damages, neither could they be awarded attorney's fees and
litigation expenses.[90]

Moral damages are in the category of an award designed to compensate the

claimant for actual injury suffered, not to impose a penalty to the
wrongdoer.[79] To be entitled to moral damages, a claimant must prove:

ACCORDINGLY, the petition is hereby GRANTED.

1.
That he or she suffered besmirched reputation, or physical, mental or
psychological suffering sustained by the claimant;

The March 24, 2004 omnibus order of the Regional Trial Court, Branch 16,
Cebu City in Civil Case No. CEB-26983 is hereby ANNULLED for being
rendered with grave abuse of discretion amounting to lack or excess of
jurisdiction. All proceedings undertaken pursuant thereto are likewise declared
null and void.

2.

That the defendant committed a wrongful act or omission;

3.
That the wrongful act or omission was the proximate cause of the
damages the claimant sustained;

The October 28, 2005 decision and February 3, 2006 resolution of the Court
of Appeals in CA-G.R. SP No. 83112 are hereby REVERSED and SET ASIDE.

The March 1, 2004 order of the Regional Trial Court, Branch 16 of Cebu City
in Civil Case No. CEB-26983 is hereby SET ASIDE. The appeal of petitioners

Equitable PCI Bank, Aimee Yu and Bejan Lionel Apas is therefore given due
course.
The February 5, 2004 decision of the Regional Trial Court, Branch 16 of Cebu
City in Civil Case No. CEB-26983 is accordingly SET ASIDE. New judgment
is hereby entered:
1.
ordering respondents Ng Sheung Ngor, doing business under the
name and style of Ken Marketing, Ken Appliance Division, Inc. and Benjamin
E. Go to pay petitioner Equitable PCI Bank the principal amount of their dollarand peso-denominated loans;
2.
ordering respondents Ng Sheung Ngor, doing business under the
name and style of Ken Marketing, Ken Appliance Division, Inc. and Benjamin
E. Go to pay petitioner Equitable PCI Bank interest at:
a)
12.66% p.a. with respect to their dollar-denominated loans from
January 10, 2001 to July 9, 2001;
b)
20% p.a. with respect to their peso-denominated loans from
January 10, 2001 to July 9, 2001;[91]
c)
pursuant to our ruling in Eastern Shipping Lines v. Court of
Appeals,[92] the total amount due on July 9, 2001 shall earn legal interest at
12% p.a. from the time petitioner Equitable PCI Bank demanded payment,
whether judicially or extra-judicially; and
d)
after this Decision becomes final and executory, the applicable
rate shall be 12% p.a. until full satisfaction;
3.
all other claims and counterclaims are dismissed.
As a starting point, the Regional Trial Court, Branch 16 of Cebu City shall
compute the exact amounts due on the respective dollar-denominated and
peso-denominated loans, as of July 9, 2001, of respondents Ng Sheung Ngor,
doing business under the name and style of Ken Marketing, Ken Appliance
Division and Benjamin E. Go.
SO ORDERED.