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obligation that the parties have not chosen to agree upon. Article 1755 of
the Civil Code provides that "interest shall be due only when it has been
expressly
stipulated."
(Italic
supplied.)
A writing must be interpreted according to the legal meaning of its
language (section 286, Act No. 190, now section 58, Rule 123). and only
when the wording of the written instrument appears to be contrary to the
evident intention of the parties that such intention must prevail. (Article
1281, Civil Code.) There is nothing in the mortgage deed to show that the
terms employed by the parties thereto are at war with their evident intent.
On the contrary, the act of the mortgagee of granting to the mortgagor, on
the same date of the execution of the deed of mortgage, an extension of
one year from the date of maturity within which to make payment, without
making any mention of any interest which the mortgagor should pay
during the additional period (see Exhibit B attached to the complaint),
indicates that the true intention of the parties was that no interest should
be paid during the period of grace. What reasons the parties may have
therefor,
we
need
not
here
seek
to
explore.
Neither has either of the parties shown that, by mutual mistake, the deed
of mortgage fails to express their true agreement, for if such mistake
existed, plaintiff would have undoubtedly adduced evidence to establish it
and asked that the deed be reformed accordingly, under the parcelevidence
rule.
We hold, therefore, that as the contract is clear and unmistakable and the
terms employed therein have not been shown to belie or otherwise fail to
express the true intention of the parties, and that the deed has not been
assailed on the ground of mutual mistake which would require its
reformation, same should be given its full force and effect When a party
sues on a written contract and no attempt is made to show any vice
therein, he cannot be allowed to lay any claim more than what its clear
stipulations accord. His omission, to which the law attaches a definite
meaning as in the instant case, cannot by the courts be arbitrarily supplied
by what their own notions of justice or equity may dictate.
Plaintiff is, therefore, entitled only to the stipulated interest of 12 per cent
on the loan of P2,400 from November 8, 1932 to March 31, 1934. And it
being a fact that extra-judicial demands have been made which we may
assume to have been so made on the expiration of the year of grace, he
shall be entitled to legal interest upon the principal and the accrued
interest
from
April
1,
1935,
until
full
payment.
PARAS,
J.,
Under the facts stated in the decision of the majority, I come to the
conclusion that interest at the rate of 12 per cent per annum should be
paid up to the date of payment of the whole indebtedness is made.
Payment of such interest is expressly stipulated. True, it is stated in the
mortgage contract that interest was to be paid up to March 31, 1934, but
this date was inserted merely because it was the date of maturity. The
extension note is silent as regards interest, but its payment is clearly
implied from the nature of the transaction which is only a renewal of the
old obligation. In my opinion, the ruling of the majority is anomalous and at
war with common practice and everyday business usage. Judgment
modified.
October 4, 1930
CU
UNJIENG
E
vs.
THE
MABALACAT
SUGAR
CO.,
THE MABALACAT SUGAR CO., appellant.
HIJOS, plaintiff-appelle,
ET
Romeo
Mercado
for
Araneta
and
Zaragoza
for
Duran and Lim for defendant-appellee Siuliong and Co.
AL., defendants.
appellant.
plaintiff-appellee.
STREET, J.:
This action was instituted in the Court of First Instance of Pampanga by Cu
Unjieng e Hijos, for the purpose of recovering from the Mabalacat Sugar
Company an indebtedness amounting to more than P163,00, with interest,
and to foreclose a mortgage given by the debtor to secure the same, as
well as to recover stipulated attorney's fee and the sum of P1,206, paid by
the plaintiff for insurance upon the mortgaged property, with incidental
relief. In the complaint Siuliong & Co., Inc., was joined as defendant, as a
surety of the Mabalacat Sugar Company, and as having a third mortgage
on the mortgaged property. The Philippine National Bank was also joined
by reason of its interest as second mortgagee of the land covered by the
mortgage to the plaintiff. After the cause had been brought to issue by the
answers of the several defendants, the cause was heard and judgment
rendered, the dispositive portion of the decision being as follows:
Por las consideraciones expuestas, el Juzgado condena a The Mabalacat
Sugar Company a pagar a la demandante la suma de P163,534.73, con sus
intereses de 12 por ciento al ano, compuestos mensualmente desde el 1.
de mayo de 1929. Tambien se le condena a pagar a dicha demandante la
suma de P2,412 por las primas de seguros abonadas por esta, con sus
intereses de 12 por ciento al ano, compuestos tambien mensualmente
desde el 15 de mayo de 1928, mas la de P7,500 por honorarios de
abogados y las costas del juicio. Y si esta deuda no se pagare dentro del
plazo de tres meses, se ejecutaran los bienes hipotecados de acuerdo con
la ley.
Si del producto de la venta hubiese algun remanente, este se destinara al
pago del credito del Banco Nacional, o sea de P32,704.69, con sus
intereses de 9 por ciento al ano desde el 7 de junio de 1929, sin perjuicio
The trial court was of the opinion that interest could be so charged,
because of the Exhibit 1 of the Mabalacat Sugar Company, which the court
considered as an interpretation by the parties to the contract and a
recognition by the debtor of the propriety of compounding the interest
earned by the capital. But the exhibit referred to is merely a receipt
showing that the sum of P256.28 was, on March 19, 1928, paid by the
debtor to the plaintiff as interest upon interest. But where interest is
improperly charged, at an unlawful rate, the mere voluntary payment of it
to the creditor by the debtor is not binding. Such payment, in the case
before us, was usurious, being in excess of 12 per cent which is allowed to
be charged, under section 2 of the Usury Law, when a debt is secured by
mortgage upon real property. The Exhibit 1 therefore adds no support to
the contention of the plaintiff that interest upon interest can be
accumulated in the manner adopter by the creditor in this case. The point
here ruled is in exact conformity with the decision of this court in Bachrach
Garage and Taxicab Co. vs. Golingco (39 Phil., 192), where this court held
that interest cannot be allowed in the absence of stipulation, or in default
thereof, except when the debt is judicially claimed; and when the debt is
judicially claimed, the interest upon the interest can only be computed at
the rate of 6 per cent per annum.
It results that the appellant's second assignment of error is well taken, and
the compound interest must be eliminated from the judgment. With
respect to the amount improperly charged, we accept the estimate
submitted by the president and manager of the Mabalacat Sugar Company,
who says that the amount improperly included in the computation made by
the plaintiff's bookkeeper is P879.84, in addition to the amount of P256.28
covered by Exhibit 1 of the Mabalacat Sugar Company. But the plaintiff
creditor had the right to charge interest, in the manner adopted by it, upon
insurance premiums which it had paid out; and if any discrepancy of
importance is discoverable by the plaintiff in the result here reached, it will
be at liberty to submit a revised computation in this court, upon motion for
reconsideration, wherein interest shall be computed in accordance with
this opinion, that is to say, that no accumulation of interest will be
permitted at monthly intervals, as regards the capital of the debt, but such
unpaid interest shall draw interest at the rate of 6 per cent from the date of
the institution of the action.
In the third assignment of error the appellant complains, as excessive, of
the attorney's fees allowed by the court in accordance with stipulation in
the mortgage. The allowance made on the principal debt was around 4 per
cent, and about the same upon the fee allowed to the bank. Under the
circumstances we think the debtor has no just cause for complaint upon
this score.
The fourth assignment of error complains of the failure of the trial court to
permit an amendment to be filed by the debtor to its answer, the
application therefore having been made on the day when the cause had
been set for trial, with notice that the period was non-extendible. The point
was a matter in the discretion of the court, and no abuse of discretion is
shown.
From what has been stated, it follows that the appealed judgment must be
modified by deducting the sum of P1,136.12 from the principal debt, so
that the amount of said indebtedness shall be P162,398.61, with interest at
12 per cent per annum, from May 1, 1929. In other respects the judgment
will be affirmed, and it is so ordered, with cost against the appellant.
Avancea, C.J., Malcolm, Villamor, Ostrand, Johns, Romualdez and VillaReal, JJ., concur.
"WHEREAS, on the 4th day of April, 1962, the Mortgagor executed, signed
and delivered a real estate mortgage to and in favor of the Mortgagee on
real estate properties located in the City of Manila, x x x to secure payment
to the mortgages of a loan of Two Hundred Ninety Five Thousand Pesos
(P295,000.00) Philippine Currency, granted by the mortgagee to the
Mortgagors,
x
x
x;
"WHEREAS, the parties herein have agreed as they hereby agree to
increase the aforementioned loan from Two Hundred Ninety Five Thousand
Pesos (P295,000.00) to Three Hundred Fifty Thousand Pesos (P350,000.00),
Philippine
Currency;
"NOW, THEREFORE, for and in consideration of the foregoing premises, the
aforementioned parties have amended and by these presents do hereby
amend the said mortgage dated April 4, 1962, mentioned in the second
paragraph hereof by increasing the loan from Two Hundred Ninety Five
Thousand Pesos (P295,000.00) to Three Hundred Pesos (P350,000.00)
subject
to
this
additional
condition:
"1) That the mortgagor shall pay to the system P4,433.65 monthly
including
principal
and
interest.
"It is hereby expressly understood that with the foregoing amendment, all
other terms and conditions of the said real estate mortgage dated April 4,
1962 insofar as they are not inconsistent herewith, are hereby confirmed,
ratified and continued in full force and effect and that the parties thereto
agree that this amendment be an integral part of said real estate
mortgage." (Rollo, pp. 153- 154).
Upon application by the Medinas, the GSIS Board of Trustees adopted
Resolution No. 121 on January 18, 1963, as amended by Resolution No. 348
dated February 25, 1963, approving an additional loan of P230,000.00 in
favor of the Medinas on the security of the same mortgaged properties and
the additional properties covered by TCT Nos. 49234, 49235 and 49236, to
bear interest at 9% per annum compounded monthly and repayable in ten
years. This additional loan of P230,000.00 was denominated by the GSIS
as
Account
No.
31442.
On March 18, 1963, the Economic Coordinator thru the Auditor General
interposed no objection thereto, subject to the conditions of Resolution No.
121
as
amended
by
Resolution
No.
348
of
the
GSIS.
this
petition.
The Second Division of this Court, in a Resolution dated April 25, 1980
(Rollo, p. 88), resolved to deny the petition for lack of merit.
Petitioner filed on June 26, 1980 a Motion for Reconsideration dated June
17, 1980 (Rollo, pp. 95-103), of the above-stated Resolution and
respondents in a Resolution dated July 9, 1980 (Rollo, p. 105), were
required to comment thereon which comment they filed on August 6,
1980.
(Rollo,
pp.
106-116).
The petition was given due course in the Resolution dated July 6, 1981
(Rollo, p. 128). Petitioner filed its brief on November 26, 1981 (Rollo, pp.
147-177); while private respondents filed their brief on January 27, 1982
(Rollo, pp. 181-224), and the case was considered submitted for decision in
the
Resolution
of
July
19,
1982
(Rollo,
p.
229).
The issues in this case are:
1.
1962, PARTICULARLY
INTEREST;
2.
3.
The
WITH
RESPECT
TO
COMPOUNDING
OF
4.
5.
is
impressed
with
merit.
Banking Corp. (supra), where this Court held that the stipulation about
payment of such additional rate partakes of the nature of a penalty clause,
which is sanctioned by law.
IV. Based on the finding that the GSIS had the legal right to impose an
interest 9% per annum, compounded monthly, on the loans of the Medinas
and an interest of 9%/12% per annum on all due and unpaid amortizations
or installments, there is no question that the Medinas failed to settle their
accounts with the GSIS which as computed by the latter reached an
outstanding balance of P630,130.55 as of April 12, 1975 and that the GSIS
had
a
perfect
right
to
foreclose
the
mortgage.
In the same manner, there is obvious error in invalidating the extra-judicial
foreclosure on the basis of a typographical error in the Sheriff's Certificate
of Sale which stated that the mortgage was foreclosed on May 17, 1963
instead
of
February
17,
1963.
There is merit in GSIS' contention that the Sheriff's Certificate of Sale is
merely provisional in character and is not intended to operate as an
absolute transfer of the subject property, but merely to identify the
property, to show the price paid and the date when the right of redemption
expires (Section 27, Rule 39, Rules of Court, Francisco, The Revised Rules
of Court, 1972 Vol., IV-B, Part I, p. 681). Hence the date of the foreclosed
mortgage is not even a material content of the said Certificate. (Rollo, p.
174).
V. PREMISES CONSIDERED, the decision of the Court of Appeals, in CAG.R. No. 62541-R Medina, et al, v. Government Service Insurance System,
et al. is hereby REVERSED and SET ASIDE, and a new one is hereby
RENDERED, affirming the validity of the extra-judicial foreclosure of the
real estate mortgages of the respondent-appellee spouses Medina dated
April 4, 1962, as amended on July 6, 1962, and February 17, 1963.
SO ORDERED. Feria, (Chairman), Fernan, Alampay, and Gutierrez, Jr., JJ.,
concur.
DECISION
VITUG, J.:
Before the Court is a petition for review on certiorari under Rule 45 of the
Rules of Court, assailing the decision and resolutions of the Court of
Appeals in CA-G.R. CV No. 34594, entitled "Security Bank and Trust Co. vs.
Tolomeo
Ligutan,
et
al."
Petitioners Tolomeo Ligutan and Leonidas dela Llana obtained on 11 May
1981 a loan in the amount of P120,000.00 from respondent Security Bank
and Trust Company. Petitioners executed a promissory note binding
themselves, jointly and severally, to pay the sum borrowed with an interest
of 15.189% per annum upon maturity and to pay a penalty of 5% every
month on the outstanding principal and interest in case of default. In
addition, petitioners agreed to pay 10% of the total amount due by way of
attorneys fees if the matter were indorsed to a lawyer for collection or if a
suit were instituted to enforce payment. The obligation matured on 8
September 1981; the bank, however, granted an extension but only up
until 29 December 1981.
Despite several demands from the bank, petitioners failed to settle the
debt which, as of 20 May 1982, amounted to P114,416.10. On 30
September 1982, the bank sent a final demand letter to petitioners
informing them that they had five days within which to make full payment.
Since petitioners still defaulted on their obligation, the bank filed on 3
November 1982, with the Regional Trial Court of Makati, Branch 143, a
complaint
for
recovery
of
the
due
amount.
After petitioners had filed a joint answer to the complaint, the bank
presented its evidence and, on 27 March 1985, rested its case. Petitioners,
instead of introducing their own evidence, had the hearing of the case
reset on two consecutive occasions. In view of the absence of petitioners
and their counsel on 28 August 1985, the third hearing date, the bank
moved, and the trial court resolved, to consider the case submitted for
decision.
10
September 1988, and on 20 October 1989, it rendered its decision, [1] the
dispositive portion of which read:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and
against the defendants, ordering the latter to pay, jointly and severally, to
the plaintiff, as follows:
xxx
xxx
"2.
"3.
"1.
x x x
xxx
x x x WHEREFORE,
the decision sought to be reconsidered is hereby MODIFIED. The
defendants-appellants Tolomeo Ligutan and Leonidas dela Llana are hereby
ordered to pay the plaintiff-appellee Security Bank and Trust Company the
following:
1.
2.
the
11
II.
III.
IV.
Respondent bank, which did not take an appeal, would, however, have it
that the penalty sought to be deleted by petitioners was even insufficient
to fully cover and compensate for the cost of money brought about by the
radical devaluation and decrease in the purchasing power of the peso,
particularly vis-a-vis the U.S. dollar, taking into account the time frame of
its occurrence. The Bank would stress that only the amount of P5,584.00
had been remitted out of the entire loan of P120,000.00. [9]
A penalty clause, expressly recognized by law, [10] is an accessory
undertaking to assume greater liability on the part of an obligor in case of
12
13
Thirty-Five
On August 29, 1984, respondent CCP filed in the RTC of Manila a complaint
for collection of a sum of money, docketed as Civil Case No. 84-26363,
against the petitioner after the latter failed to settle his said restructured
loan obligation. The petitioner interposed the defense that he merely
accommodated a friend, Wilson Lucmen, who allegedly asked for his help
to obtain a loan from respondent CCP. Petitioner claimed that he has not
been able to locate Wilson Lucmen. While the case was pending in the trial
court, the petitioner filed a Manifestation wherein he proposed to settle his
indebtedness to respondent CCP by proposing to make a down payment of
One Hundred Forty Thousand Pesos (P140,000.00) and to issue twelve (12)
checks every beginning of the year to cover installment payments for one
year, and every year thereafter until the balance is fully paid. However,
respondent CCP did not agree to the petitioner's proposals and so the trial
of
the
case
ensued.
DECISION
DE LEON, JR., J.:
Before us is a petition for review of the Decision [1] dated August 31, 1993
and Resolution[2] dated July 13, 1994 of the Court of Appeals affirming the
Decision[3] dated May 8, 1991 of the Regional Trial Court (RTC) of Manila,
Branch
27.
The
facts
are
as
follows:
On May 14, 1978 and July 6, 1978, petitioner Antonio Tan obtained two (2)
loans each in the principal amount of Two Million Pesos (P2,000,000.00), or
in the total principal amount of Four Million Pesos (P4,000,000.00) from
respondent Cultural Center of the Philippines (CCP, for brevity) evidenced
by two (2) promissory notes with maturity dates on May 14, 1979 and July
6, 1979, respectively. Petitioner defaulted but after a few partial payments
he had the loans restructured by respondent CCP, and petitioner
accordingly executed a promissory note (Exhibit "A") on August 31, 1979 in
the amount of Three Million Four Hundred Eleven Thousand Four Hundred
Twenty-One Pesos and Thirty-Two Centavos (P3,411,421.32) payable in five
(5) installments. Petitioner Tan failed to pay any installment on the said
restructured loan of Three Million Four Hundred Eleven Thousand Four
Hundred Twenty-One Pesos and Thirty-Two Centavos (P3,411,421.32), the
last installment falling due on December 31, 1980. In a letter dated
January 26, 1982, petitioner requested and proposed to respondent CCP a
mode of paying the restructured loan, i.e., (a) twenty percent (20%) of the
principal amount of the loan upon the respondent giving its conformity to
his proposal; and (b) the balance on the principal obligation payable in
thirty-six (36) equal monthly installments until fully paid. On October 20,
1983, petitioner again sent a letter to respondent CCP requesting for a
moratorium on his loan obligation until the following year allegedly due to
a substantial deduction in the volume of his business and on account of the
peso devaluation. No favorable response was made to said letters.
Instead, respondent CCP, through counsel, wrote a letter dated May 30,
1984 to the petitioner demanding full payment, within ten (10) days from
receipt of said letter, of the petitioner's restructured loan which as of April
30, 1984 amounted to Six Million Eighty-Eight Thousand Seven Hundred
Pesos
and
Three
Centavos
(P6,088,735.03).
On May 8, 1991, the trial court rendered a decision, the dispositive portion
of which reads:
WHEREFORE, judgment is hereby rendered in favor of plaintiff and against
defendant, ordering defendant to pay plaintiff, the amount of
P7,996,314.67, representing defendant's outstanding account as of August
28, 1986, with the corresponding stipulated interest and charges thereof,
until fully paid, plus attorney's fees in an amount equivalent to 25% of said
outstanding account, plus P50,000.00, as exemplary damages, plus costs.
Defendant's counterclaims are ordered dismissed, for lack of merit.
SO ORDERED.[4]
The trial court gave five (5) reasons in ruling in favor of respondent CCP.
First, it gave little weight to the petitioner's contention that the loan was
merely for the accommodation of Wilson Lucmen for the reason that the
defense propounded was not credible in itself. Second, assuming,
arguendo, that the petitioner did not personally benefit from the said loan,
he should have filed a third party complaint against Wilson Lucmen, the
alleged accommodated party but he did not. Third, for three (3) times the
petitioner offered to settle his loan obligation with respondent CCP. Fourth,
petitioner may not avoid his liability to pay his obligation under the
promissory note (Exh. "A") which he must comply with in good faith
pursuant to Article 1159 of the New Civil Code. Fifth, petitioner is estopped
14
SO ORDERED.[5]
III
In affirming the decision of the trial court imposing surcharges and interest,
the appellate court held that:
However, the appellate court modified the decision of the trial court by
deleting the award for exemplary damages and reducing the amount of
awarded attorney's fees to five percent (5%), by ratiocinating as follows:
Given the circumstances of the case, plus the fact that plaintiff was
represented by a government lawyer, We believe the award of 25% as
attorney's fees and P500,000.00 as exemplary damages is out of
proportion to the actual damage caused by the non-performance of the
contract and is excessive, unconscionable and iniquitous.
In a Resolution dated July 13, 1994, the appellate court denied the
petitioner's
motion
for
reconsideration
of
the
said
decision.
Hence, this petition anchored on the following assigned errors:
I
Significantly, the petitioner does not question his liability for his
restructured loan under the promissory note marked Exhibit "A". The first
question to be resolved in the case at bar is whether there are contractual
and legal bases for the imposition of the penalty, interest on the penalty
and
attorney's
fees.
The petitioner imputes error on the part of the appellate court in not totally
eliminating the award of attorney's fees and in not reducing the penalties
considering that the petitioner, contrary to the appellate court's findings,
has allegedly made partial payments on the loan. And if penalty is to be
awarded, the petitioner is asking for the non-imposition of interest on the
surcharges inasmuch as the compounding of interest on surcharges is not
provided in the promissory note marked Exhibit "A". The petitioner takes
exception to the computation of the private respondent whereby the
interest, surcharge and the principal were added together and that on the
total sum interest was imposed. Petitioner also claims that there is no
basis in law for the charging of interest on the surcharges for the reason
that the New Civil Code is devoid of any provision allowing the imposition
of
interest
on
surcharges.
We find no merit in the petitioner's contention. Article 1226 of the New
Civil Code provides that:
15
In the case at bar, the promissory note (Exhibit "A") expressly provides for
the imposition of both interest and penalties in case of default on the part
of the petitioner in the payment of the subject restructured loan. The
pertinent[6] portion of the promissory note (Exhibit "A") imposing interest
and penalties provides that:
For value received, I/We jointly and severally promise to pay to the
CULTURAL CENTER OF THE PHILIPPINES at its office in Manila, the sum of
THREE MILLION FOUR HUNDRED ELEVEN THOUSAND FOUR HUNDRED +
PESOS
(P3,411,421.32)
Philippine
Currency,
xxx.
xxx
xxx
xxx
With interest at the rate of FOURTEEN per cent (14%) per annum from the
date hereof until paid. PLUS THREE PERCENT (3%) SERVICE CHARGE.
In case of non-payment of this note at maturity/on demand or upon default
of payment of any portion of it when due, I/We jointly and severally agree
to pay additional penalty charges at the rate of TWO per cent (2%) per
month on the total amount due until paid, payable and computed monthly.
Default of payment of this note or any portion thereof when due shall
render all other installments and all existing promissory notes made by us
in favor of the CULTURAL CENTER OF THE PHILIPPINES immediately due
and
demandable.
(Underscoring
supplied)
xxx
xxx
xxx
The stipulated fourteen percent (14%) per annum interest charge until full
payment of the loan constitutes the monetary interest on the note and is
allowed under Article 1956 of the New Civil Code. [7] On the other hand, the
stipulated two percent (2%) per month penalty is in the form of penalty
charge which is separate and distinct from the monetary interest on the
principal
of
the
loan.
The penalty charge of two percent (2%) per month in the case at bar
began to accrue from the time of default by the petitioner. There is no
doubt that the petitioner is liable for both the stipulated monetary interest
and the stipulated penalty charge. The penalty charge is also called
penalty or compensatory interest. Having clarified the same, the next
issue to be resolved is whether interest may accrue on the penalty or
compensatory interest without violating the provisions of Article 1959 of
the
New
Civil
Code,
which
provides
that:
Without prejudice to the provisions of Article 2212, interest due and unpaid
shall not earn interest. However, the contracting parties may by stipulation
capitalize the interest due and unpaid, which as added principal, shall earn
new
interest.
According to the petitioner, there is no legal basis for the imposition of
interest on the penalty charge for the reason that the law only allows
imposition of interest on monetary interest but not the charging of interest
on penalty. He claims that since there is no law that allows imposition of
interest on penalties, the penalties should not earn interest. But as we
have already explained, penalty clauses can be in the form of penalty or
compensatory interest. Thus, the compounding of the penalty or
compensatory interest is sanctioned by and allowed pursuant to the abovequoted provision of Article 1959 of the New Civil Code considering that:
16
P2,838,454.68
576,167.89
Surcharge
P4,581,692.10
P7,996,314.67
The said statement of account also shows that the above amounts stated
therein are net of the partial payments amounting to a total of Four
Hundred Fifty-Two Thousand Five Hundred Sixty-One Pesos and Forty-Three
Centavos (P452,561.43) which were made during the period from May 13,
1983 to September 30, 1983.[14] The petitioner now seeks the reduction of
the penalty due to the said partial payments. The principal amount of the
promissory note (Exhibit "A") was Three Million Four Hundred Eleven
Thousand Four Hundred Twenty-One Pesos and Thirty-Two Centavos
(P3,411,421.32) when the loan was restructured on August 31, 1979. As of
August 28, 1986, the principal amount of the said restructured loan has
been reduced to Two Million Eight Hundred Thirty-Eight Thousand Four
Hundred Fifty-Four Pesos and Sixty-Eight Centavos (P2,838,454.68). Thus,
petitioner contends that reduction of the penalty is justifiable pursuant to
Article 1229 of the New Civil Code which provides that: "The judge shall
equitably reduce the penalty when the principal obligation has been partly
or irregularly complied with by the debtor. Even if there has been no
performance, the penalty may also be reduced by the courts if it is
iniquitous or unconscionable." Petitioner insists that the penalty should be
reduced to ten percent (10%) of the unpaid debt in accordance with
Bachrach
Motor
Company
v.
Espiritu.[15]
There appears to be a justification for a reduction of the penalty charge but
not necessarily to ten percent (10%) of the unpaid balance of the loan as
suggested by petitioner. Inasmuch as petitioner has made partial
payments which showed his good faith, a reduction of the penalty charge
from two percent (2%) per month on the total amount due, compounded
monthly, until paid can indeed be justified under the said provision of
Article
1229
of
the
New
Civil
Code.
In other words, we find the continued monthly accrual of the two percent
(2%) penalty charge on the total amount due to be unconscionable
inasmuch as the same appeared to have been compounded monthly.
Considering petitioner's several partial payments and the fact he is liable
under the note for the two percent (2%) penalty charge per month on the
total amount due, compounded monthly, for twenty-one (21) years since
his default in 1980, we find it fair and equitable to reduce the penalty
charge to a straight twelve percent (12%) per annum on the total amount
17
due starting August 28, 1986, the date of the last Statement of Account
(Exhibits "C" to "C-2"). We also took into consideration the offers of the
petitioner to enter into a compromise for the settlement of his debt by
presenting proposed payment schemes to respondent CCP. The said offers
at compromise also showed his good faith despite difficulty in complying
with his loan obligation due to his financial problems. However, we are not
unmindful of the respondent's long overdue deprivation of the use of its
money
collectible
from
the
petitioner.
The petitioner also imputes error on the part of the appellate court for not
declaring the suspension of the running of the interest during that period
when the respondent allegedly failed to assist the petitioner in applying for
relief from liability. In this connection, the petitioner referred to the private
respondent's letter[16] dated September 28, 1988 addressed to petitioner
which partially reads:
Dear
xxx
Mr.
Tan:
xxx
xxx
xxx
xxx
The petitioner alleges that his obligation to pay the interest and surcharge
should have been suspended because the obligation to pay such interest
and surcharge has become conditional, that is dependent on a future and
uncertain event which consists of whether the petitioner's request for
condonation of interest and surcharge would be recommended by the
Commission on Audit and the Office of the President to the House of
Representatives for approval as required under Section 36 of Presidential
Decree No. 1445. Since the condition has not happened allegedly due to
the private respondent's reneging on its promise, his liability to pay the
interest and surcharge on the loan has not arisen. This is the petitioner's
contention.
It is our view, however, that the running of the interest and surcharge was
not suspended by the private respondent's promise to assist the
petitioners in applying for relief therefrom through the Commission on
Audit
and
the
Office
of
the
President.
First, the letter dated September 28, 1988 alleged to have been sent by
the respondent CCP to the petitioner is not part of the formally offered
documentary evidence of either party in the trial court. That letter cannot
be considered evidence pursuant to Rule 132, Section 34 of the Rules of
Court which provides that: "The court shall consider no evidence which has
not been formally offered xxx." Besides, the said letter does not contain
any categorical agreement on the part of respondent CCP that the
payment of the interest and surcharge on the loan is deemed suspended
while his appeal for condonation of the interest and surcharge was being
processed.
Second, the private respondent correctly asserted that it was the primary
responsibility of petitioner to inform the Commission on Audit and the
Office of the President of his application for condonation of interest and
surcharge. It was incumbent upon the petitioner to bring his
administrative appeal for condonation of interest and penalty charges to
the
attention
of
the
said
government
offices.
On the issue of attorney's fees, the appellate court ruled correctly and
justly in reducing the trial court's award of twenty-five percent (25%)
attorney's fees to five percent (5%) of the total amount due.
WHEREFORE, the assailed Decision of the Court of Appeals is hereby
AFFIRMED with MODIFICATION in that the penalty charge of two percent
(2%) per month on the total amount due, compounded monthly, is hereby
reduced to a straight twelve percent (12%) per annum starting from
August
28,
1986.
With
costs
against
the
petitioner.
SO
ORDERED.
18
NO.
128834.
APRIL
20,
1998]
NO.
128866.
APRIL
20,
1998]
19
as of April 27, 1992, with interest thereon at the rate stipulated in the
respective promissory notes (without surcharges and penalties) per
computation, pp. 14-A, 14-B & 14-C.
After trial, Branch 3 of the Manila RTC rendered judgment in favor of GOYU,
disposing:
FURTHER, the Clerk of Court of the Regional Trial Court of Manila is hereby
ordered to release immediately to the plaintiff the amount of
P50,000,000.00 deposited with the Court by defendant Malayan, together
with all the interests earned thereon.
a.
To pay the plaintiff its fire loss claims in the total amount of
P74,040,518.58 less the amount of P50,000,000.00 which is deposited with
this Court;
b.
To pay the plaintiff damages by way of interest for the duration of
the delay since July 27, 1992 (ninety days after defendant insurers receipt
of the required proof of loss and notice of loss) at the rate of twice the
ceiling prescribed by the Monetary Board, on the following amounts:
WHEREFORE, the decision of the lower court dated June 29, 1994 is hereby
modified as follows:
1)
P50,000,000.00 from July 27, 1992 up to the time said amount
was deposited with this Court on January 7, 1994;
a)
To pay the plaintiff its fire loss claim in the total amount of
P74,040,518.58 less the amount of P50,505,594.60 (per O.R. No. 3649285)
plus deposited in court and damages by way of interest commencing July
27, 1992 until the time Goyu receives the said amount at the rate of thirtyseven (37%) percent per annum which is twice the ceiling prescribed by
the Monetary Board.
2)
P24,040,518.58 from July 27, 1992 up to the time when the
writs of attachments were received by defendant Malayan;
2.
a.
To pay the plaintiff actual and compensatory damages in the amount
of P2,000,000.00;
3.
a.
1)
a)
2)
1.
3)
Costs of suit.
2.
20
4.
And on RCBCs Counterclaim, ordering the plaintiff Goyu & Sons, Inc.
to pay its loan obligation with RCBC in the amount of P68,785,069.04 as of
April 27, 1992 without any interest, surcharges and penalties.
The Clerk of the Court of the Regional Trial Court of Manila is hereby
ordered to immediately release to Goyu& Sons, Inc. the amount of
P50,505,594.60 (per O.R. No. 3649285) deposited with it by Malayan
Insurance Co., Inc., together with all the interests thereon.
(Rollo, p. 200.)
RCBC and MICO are now before us in G.R. No. 128833 and 128866,
respectively, seeking review and consequent reversal of the above
dispositions of the Court of Appeals.
In G.R. No. 128834, RCBC likewise appeals from the decision in C.A. G.R.
No. CV-48376, which case, by virtue of the Court of Appeals resolution
dated August 7, 1996, was consolidated with C.A. G.R. No. CV-46162
(subject of herein G.R. No. 128833). At issue in said petition is RCBCs right
to intervene in the action between Alfredo C. Sebastian (the creditor) and
GOYU (the debtor), where the subject insurance policies were attached in
favor of Sebastian.
After a careful review of the material facts as found by the two courts
below in relation to the pertinent and applicable laws, we find merit in the
submissions of RCBC and MICO.
The several causes of action pursued below by GOYU gave rise to several
related issues which are now submitted in the petitions before us. This
Court, however, discerns one primary and central issue, and this is,
whether or not RCBC, as mortgagee, has any right over the insurance
policies taken by GOYU, the mortgagor, in case of the occurrence of loss.
As earlier mentioned, accordant with the credit facilities extended by RCBC
to GOYU, the latter executed several mortgage contracts in favor of RCBC.
It was expressly stipulated in these mortgage contracts that GOYU shall
insure the mortgaged property with any of the insurance companies
acceptable to RCBC. GOYU indeed insured the mortgaged property with
MICO, an insurance company acceptable to RCBC. Based on their
stipulations in the mortgage contracts, GOYU was supposed to endorse
these insurance policies in favor of, and deliver them, to RCBC. Alchester
Insurance Agency, Inc., MICOs underwriter from whom GOYU obtained the
subject insurance policies, prepared the nine endorsements (see Exh. 1Malayan to 9-Malayan; also Exh. 51-RCBC to 59-RCBC), copies of
which were delivered to GOYU, RCBC, and MICO. However, because these
endorsements do not bear the signature of any officer of GOYU, the trial
court, as well as the Court of Appeals, concluded that the endorsements
are defective.
We do not quite agree.
It is settled that a mortgagor and a mortgagee have separate and distinct
insurable interests in the same mortgaged property, such that each one of
them may insure the same property for his own sole benefit. There is no
question that GOYU could insure the mortgaged property for its own
exclusive benefit. In the present case, although it appears that GOYU
obtained the subject insurance policies naming itself as the sole payee, the
intentions of the parties as shown by their contemporaneous acts, must be
given due consideration in order to better serve the interest of justice and
equity.
It is to be noted that nine endorsement documents were prepared by
Alchester in favor of RCBC. The Court is in a quandary how Alchester could
arrive at the idea of endorsing any specific insurance policy in favor of any
particular beneficiary or payee other than the insured had not such named
payee or beneficiary been specifically disclosed by the insured itself. It is
also significant that GOYU voluntarily and purposely took the insurance
policies from MICO, a sister company of RCBC, and not just from any other
insurance company. Alchester would not have found out that the subject
pieces of property were mortgaged to RCBC had not such information been
voluntarily disclosed by GOYU itself. Had it not been for GOYU, Alchester
would not have known of GOYUs intention of obtaining insurance coverage
in compliance with its undertaking in the mortgage contracts with RCBC,
and verily, Alchester would not have endorsed the policies to RCBC had it
not been so directed by GOYU.
On equitable principles, particularly on the ground of estoppel, the Court is
constrained to rule in favor of mortgagor RCBC. The basis and purpose of
the doctrine was explained in Philippine National Bank vs. Court of Appeals
(94 SCRA 357 [1979]), to wit:
The doctrine of estoppel is based upon the grounds of public policy, fair
dealing, good faith and justice, and its purpose is to forbid one to speak
against his own act, representations, or commitments to the injury of one
to whom they were directed and who reasonably relied thereon. The
doctrine of estoppel springs from equitable principles and the equities in
the case. It is designed to aid the law in the administration of justice where
21
without its aid injustice might result. It has been applied by this Court
wherever and whenever special circumstances of a case so demand.
to designate RCBC as the party for whose benefit the insurance policies
were taken out. Consider thus the following:
(p. 368.)
1.
It is undisputed that the insured pieces of property were the subject
of mortgage contracts entered into between RCBC and GOYU in
consideration of and for securing GOYUs credit facilities from RCBC. The
mortgage contracts contained common provisions whereby GOYU, as
mortgagor, undertook to have the mortgaged property properly covered
against any loss by an insurance company acceptable to RCBC.
2.
GOYU voluntarily procured insurance policies to cover the mortgaged
property from MICO, no less than a sister company of RCBC and definitely
an acceptable insurance company to RCBC.
3.
Endorsement documents were prepared by MICOs underwriter,
Alchester Insurance Agency, Inc., and copies thereof were sent to GOYU,
MICO, and RCBC. GOYU did not assail, until of late, the validity of said
endorsements.
4.
GOYU continued until the occurrence of the fire, to enjoy the benefits
of the credit facilities extended by RCBC which was conditioned upon the
endorsement of the insurance policies to be taken by GOYU to cover the
mortgaged properties.
This Court can not over stress the fact that upon receiving its copies of the
endorsement documents prepared by Alchester, GOYU, despite the
absence of its written conformity thereto, obviously considered said
endorsement to be sufficient compliance with its obligation under the
mortgage contracts since RCBC accordingly continued to extend the
benefits of its credit facilities and GOYU continued to benefit therefrom.
Just as plain too is the intention of the parties to constitute RCBC as the
beneficiary of the various insurance policies obtained by GOYU. The
intention of the parties will have to be given full force and effect in this
particular case. The insurance proceeds may, therefore, be exclusively
applied to RCBC, which under the factual circumstances of the case, is truly
the person or entity for whose benefit the policies were clearly intended.
Moreover, the laws evident intention to protect the interests of the
mortgagee upon the mortgaged property is expressed in Article 2127 of
the Civil Code which states:
ART. 2127. The mortgage extends to the natural accessions, to the
improvements, growing fruits, and the rents or income not yet received
when the obligation becomes due, and to the amount of the indemnity
22
e.
Expiry Date
: April 5, 1993
Amount
b.
f.
c.
d.
None
Expiry Date
: February 9, 1993
g.
Exhibit 1-Malayan
Issue Date
Expiry Date
Issue Date
Expiry Date
Expiry Date
: February 9, 1993
Issue Date
: May 3, 1991
Amount
: P4,307,217.54
Expiry Date
: May 3, 1992
Exhibit 2-Malayan
Amount
Expiry Date
Issue Date
Amount
: P6,603,586.43
Expiry Date
Exhibit 3-Malayan
Amount
Exhibit 8-Malayan
: P32,252,125.20
Issue Date
Expiry Date
: (not legible)
Issue Date
Amount
: P6,603,586.43
Expiry Date
: December 5, 1992
j.
None
: P10,000,000.00
Issue Date
i.
Exhibit 6-Malayan
: P6,000,000.00
Issue Date
h.
Exhibit 7-Malayan
: P24,750,000.00
Amount
Exhibit 4-Malayan
: P9,457,972.76
Amount
: P9,646,224.92
Issue Date
Amount
Exhibit 9-Malayan
23
Amount
: P6,603,586.43
after the fire, but also because the signatures of either GOYU or any its
representative are conspicuously absent. Accordingly, the Court of Appeals
speculated thusly:
Policy Number F-114-07795 [(a) above] has not been endorsed. This fact
was admitted by MICOs witness, Atty. Farolan (tsn, February 16, 1994, p.
25). Likewise, the record shows no endorsement for Policy Number CI/F128-03341 [(h) above]. Also, one of the endorsement documents, Exhibit
5-Malayan, refers to a certain insurance policy number ACIA-F-07066,
which is not among the insurance policies involved in the complaint.
Hence, this Court is inclined to conclude that said promissory notes were
pre-signed by plaintiff in blank terms, as averred by plaintiff, in
contemplation of the speedy grant of future loans, for the same practice of
procedure has always been adopted in its previous dealings with the bank.
The fact that the promissory notes bear dates posterior to the fire does not
necessarily mean that the documents are spurious, for it is presumed that
the ordinary course of business had been followed (Metropolitan Bank and
Trust Company vs. Quilts and All, Inc., 222 SCRA 486 [1993]). The obligor
and not the holder of the negotiable instrument has the burden of proof of
showing that he no longer owes the obligee any amount (Travel-On, Inc.
vs. Court of Appeals, 210 SCRA 351 [1992]).
This brings us to the next relevant issue to be resolved, which is, the
extent of GOYUs outstanding obligation with RCBC which the proceeds of
the 8 insurance policies will discharge and liquidate, or put differently, the
actual amount of GOYUs liability to RCBC.
The Court of Appeals simply echoed the declaration of the trial court
finding that GOYUS total obligation to RCBC was only P68,785,060.04 as of
April 27, 1992, thus sanctioning the trial courts exclusion of Promissory
Note No. 421-92 (renewal of Promissory Note No. 908-91) and Promissory
Note No. 420-92 (renewal of Promissory Note No. 952-91) on the ground
that their execution is highly questionable for not only are these dated
COURT
WITNESS:
Yes, Your Honor, I received all the amounts.
COURT
Indicated in the Promissory Notes?
WITNESS
24
A. The promissory Notes they did not give to me but the amount I asked
which is correct, Your Honor.
COURT
Q: You mean to say the amounts indicated in Exhibits 1 to 29-RCBC is
correct?
A:
by
GOYU
as
of
January
21,
1993:
Interest
Regular
80,535,946.32
FDU
7,548,025.17
____________ _____________
Total: 108,083,971.49
(Exhibit BB.)
LESS:
The Court of Appeals erred in placing much significance on the fact that
the excluded promissory notes are dated after the fire. It failed to consider
that said notes had for their origin transactions consummated prior to the
fire. Thus, careful attention must be paid to the fact that Promissory Notes
No. 420-92 and 421-92 are mere renewals of Promissory Notes No. 908-91
and 952-91, loans already availed of by GOYU.
1)
The two courts below erred in failing to see that the promissory notes
which they ruled should be excluded for bearing dates which are after that
of the fire, are mere renewals of previous ones. The proceeds of the loan
represented by these promissory notes were admittedly received by GOYU.
There is ample factual and legal basis for giving GOYUs judicial admission
of liability in the amount of P116,301,992.60 full force and effect
admitted
8,218,021.11[2]
Proceeds from
Seaboard Eastern
Insurance Company:
2)
6,095,145.81
Proceeds from
Equitable Insurance
Company:
3)
2,756,373.00
Payment from
foreign department
25
negotiation:
203,584.89
9,055,104.70[3]
NET AMOUNT as
107,246,887.90
of
January
21,
1993:
The need for the payment of interest due upon the principal amount of the
obligation, which is the cost of money to RCBC, the primary end and the
ultimate reason for RCBCs existence and being, was duly recognized by
the trial court when it ruled favorably on RCBCs counterclaim, ordering
GOYU to pay its loan obligation with RCBC in the amount of
P68,785,069.04, as of April 27,1992, with interest thereon at the rate
stipulated in the respective promissory notes (without surcharges and
penalties) per computation, pp. 14-A, 14-B, 14-C (Record, p. 479).
Inexplicably, the Court of Appeals, without even laying down the factual or
legal justification for its ruling, modified the trial courts ruling and ordered
GOYU to pay the principal amount of P68,785,069.04 without any interest,
surcharges and penalties (Rollo, p. 200).
It is to be noted in this regard that even the trial court hedgingly and with
much uncertainty deleted the payment of additional interest, penalties,
and charges, in this manner:
Regarding defendant RCBCs commitment not to charge additional interest,
penalties and surcharges, the same does not require that it be embodied in
a document or some form of writing to be binding and enforceable. The
principle is well known that generally a verbal agreement or contract is no
less binding and effective than a written one. And the existence of such a
verbal agreement has been amply established by the evidence in this case.
In any event, regardless of the existence of such verbal agreement, it
would still be unjust and inequitable for defendant RCBC to charge the
plaintiff with surcharges and penalties considering the latters pitiful
situation. (Emphasis supplied.)
(Record, p. 476)
The essence or rationale for the payment of interest or cost of money is
separate and distinct from that of surcharges and penalties. What may
justify a court in not allowing the creditor to charge surcharges and
penalties despite express stipulation therefor in a valid agreement, may
not equally justify non-payment of interest. The charging of interest for
loans forms a very essential and fundamental element of the banking
business, which may truly be considered to be at the very core of its
26
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.
(pp. 95-97.)
There being written stipulations as to the rate of interest owing on each
specific promissory note as summarized and tabulated by the trial court in
its decision (pp.470 and 471, Record) such agreed interest rates must be
followed. This is very clear from paragraph II, sub-paragraph 1 quoted
above.
On the issue of payment of surcharges and penalties, we partly agree that
GOYUs pitiful situation must be taken into account. We do not agree,
however, that payment of any amount as surcharges and penalties should
altogether be deleted. Even assuming that RCBC, through its responsible
officers, herein petitioners Eli Lao and Uy Chun Bing, may have relayed its
assurance for assistance to GOYU immediately after the occurrence of the
fire, we cannot accept the lower courts finding that RCBC had thereby ipso
facto effectively waived collection of any additional interests, surcharges,
and penalties from GOYU. Assurances of assistance are one thing, but
waiver of additional interests, surcharges, and penalties is another.
Surcharges and penalties agreed to be paid by the debtor in case of default
partake of the nature of liquidated damages, covered by Section 4, Chapter
3, Title XVIII of the Civil Code. Article 2227 thereof provides:
ART. 2227. Liquidated damages, whether intended as a indemnity or
penalty, shall be equitably reduced if they are iniquitous and
unconscionable.
In exercising this vested power to determine what is iniquitous and
unconscionable, the Court must consider the circumstances of each case.
It should be stressed that the Court will not make any sweeping ruling that
surcharges and penalties imposed by banks for non-payment of the loans
extended by them are generally iniquitous and unconscionable. What may
be iniquitous and unconscionable in one case, may be totally just and
equitable in another. This provision of law will have to be applied to the
established facts of any given case. Given the circumstances under which
GOYU found itself after the occurrence of the fire, the Court rules the
surcharges rates ranging anywhere from 9% to 27%, plus the penalty
27
pending appeal before the same Court of Appeals in CA G.R CV No. 46247,
the case having been elevated by RCBC.
In finding that the foreclosure suit cannot prosper, the Fifteenth Division of
the Court of Appeals pre-empted the resolution of said foreclosure case
which is not before it. This is plain reversible error if not grave abuse of
discretion.
As held in Pea vs. Court of Appeals (245 SCRA 691[1995]):
It should have been enough, nonetheless, for the appellate court to merely
set aside the questioned orders of the trial court for having been issued by
the latter with grave abuse of discretion. In likewise enjoining permanently
herein petitioner from entering in and interfering with the use or
occupation and enjoyment of petitioners (now private respondent)
residential house and compound, the appellate court in effect,
precipitately resolved with finality the case for injunction that was yet to be
heard on the merits by the lower court. Elevated to the appellate court, it
might be stressed, were mere incidents of the principal case still pending
with the trial court. In Municipality of Bian, Laguna vs. Court of Appeals,
219 SCRA 69, we ruled that the Court of Appeals would have no
jurisdiction in a certiorari proceeding involving an incident in a case to rule
on the merits of the main case itself which was not on appeal before it.
(pp. 701-702.)
Anent the right of RCBC to intervene in Civil Case No. 1073, before the
Zamboanga Regional Trial Court, since it has been determined that RCBC
has the right to the insurance proceeds, the subject matter of intervention
is rendered moot and academic. Respondent Sebastian must, however,
yield to the preferential right of RCBC over the MICO insurance policies. It is
basic and fundamental that the first mortgagee has superior rights over
junior mortgagees or attaching creditors (Alpha Insurance & Surety Co. vs.
Reyes, 106 SCRA 274 [1981]; Sun Life Assurance Co. of Canada vs.
Gonzales Diaz, 52 Phil. 271 [1928]).
WHEREFORE, the petitions are hereby GRANTED and the decision and
resolution of December 16, 1996 and April 3, 1997 in CA-G.R. CV No.
46162 are hereby REVERSED and SET ASIDE, and a new one entered:
1.
Dismissing the Complaint of private respondent GOYU in Civil Case
No. 93-65442 before Branch 3 of the Manila Regional Trial Court for lack of
merit;
[1] 1
ART. 1253. If debt produces interest, payment of the principal shall not be
deemed to have been made until the interests have been covered.
28
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:
There were, to be sure, other factual issues that confronted both courts.
Here, the appellate court said:
29
3.
Whether or not defendant(s) should be held liable for the
losses/damages (see plaintiffs pre-Trial Brief, Records, p. 34; Allieds preTrial Brief, adopting plaintiffs 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.
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 attorneys fees, and
3. Costs.
30
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.
31
xxx
xxx
xxx
32
33
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 x
x x until fully paid. Again, in applying the 6% legal interest per annum
under the Civil Code, the Court[15] declared:
x x x, (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
34
ORDERED.
Narvasa, C.J., Cruz, Feliciano, Padilla, Bidin, Regalado, Davide, Jr., Romero,
Bellosillo,
Melo,
Quiason,
Puno,
and
Kapunan,
JJ.,
concur.
Mendoza, J., no part.
35
This is a petition for review on certiorari assailing the Decision [1] dated
September 23, 2008 of the Court of Appeals (CA) in CA-G.R. SP No. 98591,
and the Resolution[2] dated October 9, 2009 denying petitioners motion for
reconsideration.
factual
Length of Service
P198.00 x 26 days x 8
months
PERALTA, J.:
The
Date of Decision
antecedents
are
undisputed.
Date Hired
= August 1990
Rate
= P198/day
= P41,184
.00
BACKWAGES
Date Dismissed
= P196.00
Date of Decisions
a) 1/24/97
to
2/5/98 = 12.36 mos.
P196.00/day x 12.36
mos.
= P62,986.
56
b) 2/6/98
to
8/18/98 = 6.4 months
Prevailing
day
per
= P62,986.
00
P198.00 x 26 days x
6.4 mos.
= P32,947.
20
TOTAL
= P95.933.
76
Rate
36
1.
To pay jointly and severally the complainant the amount of sixtytwo thousand nine hundred eighty-six pesos and 56/100
(P62,986.56) Pesos representing his separation pay;
2.
3.
SO ORDERED.[4]
Respondents appealed to the NLRC, but it was dismissed for lack of merit
in the Resolution[5] dated February 29, 2000. Accordingly, the NLRC
sustained the decision of the Labor Arbiter. Respondents filed a motion for
reconsideration,
but
it
was
denied.[6]
The records of the case were again forwarded to the Computation and
Examination Unit for recomputation, where the judgment award of
petitioner was reassessed to be in the total amount of only P147,560.19.
On January 14, 2003, the Labor Arbiter issued an Alias Writ of Execution to
satisfy the judgment award that was due to petitioner in the amount of
P147,560.19,
which
petitioner
eventually
received.
Petitioner then filed a Manifestation and Motion praying for the recomputation of the monetary award to include the appropriate interests. [19]
On May 10, 2005, the Labor Arbiter issued an Order [20] granting the motion,
but only up to the amount of P11,459.73. The Labor Arbiter reasoned that
it is the October 15, 1998 Decision that should be enforced considering
that it was the one that became final and executory. However, the Labor
Arbiter reasoned that since the decision states that the separation pay and
backwages are computed only up to the promulgation of the said decision,
it is the amount of P158,919.92 that should be executed. Thus, since
petitioner already received P147,560.19, he is only entitled to the balance
of
P11,459.73.
37
Petitioner then appealed before the NLRC,[21] which appeal was denied by
the NLRC in its Resolution [22] dated September 27, 2006. Petitioner filed a
Motion for Reconsideration, but it was likewise denied in the Resolution [23]
dated
January
31,
2007.
Aggrieved, petitioner then sought recourse before the CA, docketed as CAG.R.
SP
No.
98591.
On September 23, 2008, the CA rendered a Decision [24] denying the
petition. The CA opined that since petitioner no longer appealed the
October 15, 1998 Decision of the Labor Arbiter, which already became final
and executory, a belated correction thereof is no longer allowed. The CA
stated that there is nothing left to be done except to enforce the said
judgment. Consequently, it can no longer be modified in any respect,
except
to
correct
clerical
errors
or
mistakes.
Petitioner filed a Motion for Reconsideration, but it was denied in the
Resolution[25]
dated
October
9,
2009.
Hence, the petition assigning the lone error:
I
entitled to the payment of interest from the finality of the decision until full
payment
by
the
respondents.
On their part, respondents assert that since only separation pay and
limited backwages were awarded to petitioner by the October 15, 1998
decision of the Labor Arbiter, no more recomputation is required to be
made of said awards. Respondents insist that since the decision clearly
stated that the separation pay and backwages are computed only up to
[the] promulgation of this decision, and considering that petitioner no
longer appealed the decision, petitioner is only entitled to the award as
computed by the Labor Arbiter in the total amount of P158,919.92.
Respondents added that it was only during the execution proceedings that
the petitioner questioned the award, long after the decision had become
final and executory. Respondents contend that to allow the further
recomputation of the backwages to be awarded to petitioner at this point
of the proceedings would substantially vary the decision of the Labor
Arbiter as it violates the rule on immutability of judgments.
The
petition
is
meritorious.
The instant case is similar to the case of Session Delights Ice Cream and
Fast Foods v. Court of Appeals (Sixth Division),[27] wherein the issue
submitted to the Court for resolution was the propriety of the computation
of the awards made, and whether this violated the principle of immutability
of judgment. Like in the present case, it was a distinct feature of the
judgment of the Labor Arbiter in the above-cited case that the decision
already provided for the computation of the payable separation pay and
backwages due and did not further order the computation of the monetary
awards up to the time of the finality of the judgment. Also in Session
Delights, the dismissed employee failed to appeal the decision of the labor
arbiter. The Court clarified, thus:
In concrete terms, the question is whether a re-computation in the course
of execution of the labor arbiter's original computation of the awards
made, pegged as of the time the decision was rendered and confirmed
with modification by a final CA decision, is legally proper. The question is
posed, given that the petitioner did not immediately pay the awards stated
in the original labor arbiter's decision; it delayed payment because it
continued with the litigation until final judgment at the CA level.
A source of misunderstanding in implementing the final decision in this
case proceeds from the way the original labor arbiter framed his decision.
38
The
decision
consists
essentially
of
two
parts.
The first is that part of the decision that cannot now be disputed because it
has been confirmed with finality. This is the finding of the illegality of the
dismissal and the awards of separation pay in lieu of reinstatement,
backwages,
attorney's
fees,
and
legal
interests.
The second part is the computation of the awards made. On its face, the
computation the labor arbiter made shows that it was time-bound as can
be seen from the figures used in the computation. This part, being merely
a computation of what the first part of the decision established and
declared, can, by its nature, be re-computed. This is the part, too, that the
petitioner now posits should no longer be re-computed because the
computation is already in the labor arbiter's decision that the CA had
affirmed. The public and private respondents, on the other hand, posit that
a re-computation is necessary because the relief in an illegal dismissal
decision goes all the way up to reinstatement if reinstatement is to be
made, or up to the finality of the decision, if separation pay is to be given
in
lieu
reinstatement.
That the labor arbiter's decision, at the same time that it found that an
illegal dismissal had taken place, also made a computation of the award, is
understandable in light of Section 3, Rule VIII of the then NLRC Rules of
Procedure which requires that a computation be made. This Section in part
states:
[T]he Labor Arbiter of origin, in cases involving monetary awards and at all
events, as far as practicable, shall embody in any such decision or order
the detailed and full amount awarded.
Clearly implied from this original computation is its currency up to the
finality of the labor arbiter's decision. As we noted above, this implication
is apparent from the terms of the computation itself, and no question
would have arisen had the parties terminated the case and implemented
the
decision
at
that
point.
However, the petitioner disagreed with the labor arbiter's findings on all
counts - i.e., on the finding of illegality as well as on all the consequent
awards made. Hence, the petitioner appealed the case to the NLRC which,
in turn, affirmed the labor arbiter's decision. By law, the NLRC decision is
final, reviewable only by the CA on jurisdictional grounds.
The petitioner appropriately sought to nullify the NLRC decision on
39
That the amount respondents shall now pay has greatly increased is a
consequence that it cannot avoid as it is the risk that it ran when it
continued to seek recourses against the Labor Arbiter's decision. Article
279 provides for the consequences of illegal dismissal in no uncertain
terms, qualified only by jurisprudence in its interpretation of when
separation pay in lieu of reinstatement is allowed. When that happens, the
finality of the illegal dismissal decision becomes the reckoning point
instead of the reinstatement that the law decrees. In allowing separation
pay, the final decision effectively declares that the employment
relationship ended so that separation pay and backwages are to be
computed
up
to
that
point.[31]
The Monetary Board, in its Resolution No. 796 dated 16 May 2013,
approved the following revisions governing the rate of interest in the
absence of stipulation in loan contracts, thereby amending Section 2 of
Circular No. 905, Series of 1982:
Recently, however, the Bangko Sentral ng Pilipinas Monetary Board (BSPMB), in its Resolution No. 796 dated May 16, 2013, approved the
amendment of Section 2[34] of Circular No. 905, Series of 1982 and,
accordingly, issued Circular No. 799,[35] Series of 2013, effective July 1,
2013, the pertinent portion of which reads:
Section 1. The rate of interest for the loan or forbearance of any money,
goods or credits and the rate allowed in judgments, in the absence of an
express contract as to such rate of interest, shall be six percent (6%) per
annum.
Section 2. In view of the above, Subsection X305.1 [36] of the Manual of
Regulations for Banks and Sections 4305Q.1, [37] 4305S.3[38] and 4303P.1[39]
of the Manual of Regulations for Non-Bank Financial Institutions are hereby
amended
accordingly.
This Circular shall take effect on 1 July 2013.
Thus, from the foregoing, in the absence of an express stipulation as to the
rate of interest that would govern the parties, the rate of legal interest for
loans or forbearance of any money, goods or credits and the rate allowed
in judgments shall no longer be twelve percent (12%) per annum - as
reflected in the case of Eastern Shipping Lines[40] and Subsection X305.1 of
the Manual of Regulations for Banks and Sections 4305Q.1, 4305S.3 and
4303P.1 of the Manual of Regulations for Non-Bank Financial Institutions,
before its amendment by BSP-MB Circular No. 799 - but will now be six
percent (6%) per annum effective July 1, 2013. It should be noted,
nonetheless, that the new rate could only be applied prospectively and not
retroactively. Consequently, the twelve percent (12%) per annum legal
interest shall apply only until June 30, 2013. Come July 1, 2013 the new
rate of six percent (6%) per annum shall be the prevailing rate of interest
40
when
applicable.
Corollarily, in the recent case of Advocates for Truth in Lending, Inc. and
Eduardo B. Olaguer v. Bangko Sentral Monetary Board,[41] this Court
affirmed the authority of the BSP-MB to set interest rates and to issue and
enforce Circulars when it ruled that the BSP-MB may prescribe the
maximum rate or rates of interest for all loans or renewals thereof or the
forbearance of any money, goods or credits, including those for loans of
low priority such as consumer loans, as well as such loans made by
pawnshops, finance companies and similar credit institutions. It even
authorizes the BSP-MB to prescribe different maximum rate or rates for
different types of borrowings, including deposits and deposit substitutes, or
loans
of
financial
intermediaries.
Nonetheless, with regard to those judgments that have become final and
executory prior to July 1, 2013, said judgments shall not be disturbed and
shall continue to be implemented applying the rate of interest fixed
therein.
To recapitulate and for future guidance, the guidelines laid down
in the case of Eastern Shipping Lines[42] are accordingly modified to
embody
BSP-MB
Circular
No.
799,
as
follows:
I. When an obligation, regardless of its source, i.e., law, contracts, quasicontracts, delicts or quasi-delicts is breached, the contravenor can be held
liable for damages. The provisions under Title XVIII on Damages of the
Civil Code govern in determining the measure of recoverable damages.
II. With regard particularly to an award of interest in the concept of actual
and compensatory damages, the rate of interest, as well as the accrual
thereof, is imposed, as follows:
1.
2.
3.
And, in addition to the above, judgments that have become final and
executory prior to July 1, 2013, shall not be disturbed and shall continue to
be implemented applying the rate of interest fixed therein.
WHEREFORE, premises considered, the Decision dated September 23,
2008 of the Court of Appeals in CA-G.R. SP No. 98591, and the Resolution
dated October 9, 2009 are REVERSED and SET ASIDE. Respondents are
Ordered
to
Pay
petitioner:
(1) backwages computed from the time petitioner was illegally dismissed
on January 24, 1997 up to May 27, 2002, when the Resolution of this Court
in
G.R.
No.
151332
became
final
and
executory;
(2) separation pay computed from August 1990 up to May 27, 2002 at the
rate
of
one
month
pay
per
year
of
service;
and
(3) interest of twelve percent (12%) per annum of the total monetary
awards, computed from May 27, 2002 to June 30, 2013 and six percent
(6%) per annum from July 1, 2013 until their full satisfaction.
The Labor Arbiter is hereby ORDERED to make another recomputation of
the total monetary benefits awarded and due to petitioner in accordance
41
with
SO
this
Decision.
ORDERED.
Sereno, C.J., Carpio, Velasco, Jr., Leonardo-De Castro, Brion, Bersamin, Del
Castillo, Abad, Villarama, Jr., Perez, Mendoza, Reyes, Perlas-Bernabe, and
Leonen, JJ., concur.
42
On appeal, the Court of Appeals (CA) reversed and set aside the decision of
the court a quo, the dispositive portion of which reads:
IN VIEW OF ALL THE FOREGOING, the appealed decision is REVERSED and
SET ASIDE and a new one entered: (1) ordering First Fil-Sin Lending
Corporation to return the amount of P114,000.00 to Gloria D. Padillo, and
(2) deleting the award of attorneys fees in favor of appellee. Other claims
and counterclaims are dismissed for lack of sufficient causes. No
pronouncement
as
to
cost.
SO ORDERED.[6]
The appellate court ruled that, based on the disclosure statements
executed by respondent, the interest rates should be imposed on a
monthly basis but only for the 3-month term of the loan. Thereafter, the
legal interest rate will apply. The CA also found the penalty charges
pegged at 1% per day of delay highly unconscionable as it would translate
to 365% per annum. Thus, it was reduced to 1% per month or 12% per
annum.
Hence, the instant petition on the following assignment of errors:
I. THE COURT OF APPEALS ERRED IN FINDING THAT THE APPLICABLE
INTEREST SHOULD BE THE LEGAL INTEREST OF TWELVE PER CENT (12%)
PER ANNUM DESPITE THE CLEAR AGREEMENT OF THE PARTIES ON
ANOTHER APPLICABLE RATE.
II. THE COURT OF APPEALS ERRED IN IMPOSING A PENALTY COMPUTED AT
THE RATE OF TWELVE PER CENT (12%) PER ANNUM DESPITE THE CLEAR
AGREEMENT OF THE PARTIES ON ANOTHER APPLICABLE RATE.
III. THE COURT OF APPEALS ERRED IN DELETING THE ATTORNEYS FEES
AWARDED BY THE REGIONAL TRIAL COURT.[7]
Petitioner maintains that the trial court and the CA are correct in ruling that
the interest rates are to be imposed on a monthly and not on a per annum
basis. However, it insists that the 4.5% and 5% monthly interest shall be
imposed until the outstanding obligations have been fully paid.
As to the penalty charges, petitioner argues that the 12% per annum
penalty imposed by the CA in lieu of the 1% per day as agreed upon by the
parties violates their freedom to stipulate terms and conditions as they
may
deem
proper.
43
Petitioner finally contends that the CA erred in deleting the trial courts
award of attorneys fees arguing that the same is anchored on sound and
legal
ground.
Respondent, on the other hand, avers that the interest on the loans is per
annum as expressly stated in the promissory notes and disclosure
statements. The provision as to annual interest rate is clear and requires
no room for interpretation. Respondent asserts that any ambiguity in the
promissory notes and disclosure statements should not favor petitioner
since
the
loan
documents
were
prepared
by
the
latter.
We
agree
with
respondent.
given full force and effect. The expressed intention of the parties as laid
down
on
the
loan
documents
controls.
Also, reformation cannot be resorted to as the documents have not been
assailed on the ground of mutual mistake. When a party sues on a written
contract and no attempt is made to show any vice therein, he cannot be
allowed to lay claim for more than what its clear stipulations accord. His
omission cannot be arbitrarily supplied by the courts by what their own
notions
of
justice
or
equity
may
dictate. [10]
Notably, petitioner even admitted that it was solely responsible for the
preparation of the loan documents, and that it failed to correct the pro
forma note p.a. to per month. [11] Since the mistake is exclusively
attributed to petitioner, the same should be charged against it. This
unilateral mistake cannot be taken against respondent who merely affixed
her signature on the pro forma loan agreements. As between two parties
to a written agreement, the party who gave rise to the mistake or error in
the provisions of the same is estopped from asserting a contrary intention
to that contained therein. The checks issued by respondent do not clearly
and convincingly prove that the real intent of the parties is to apply the
interest rates on a monthly basis. Absent any proof of vice of consent, the
promissory notes and disclosure statements remain the best evidence to
ascertain
the
real
intent
of
the
parties.
The same promissory note provides that x x x any and all remaining
amount due on the principal upon maturity hereof shall earn interest at the
rate of _____ from date of maturity until fully paid. The CA thus properly
imposed the legal interest of 12% per annum from the time the loans
matured until the same has been fully paid on February 2, 1999. As
decreed in Eastern Shipping Lines, Inc. v. Court of Appeals,[12] in the
absence of stipulation, the rate of interest shall be 12% per annum to be
computed
from
default.
As regards the penalty charges, we agree with the CA in ruling that the 1%
penalty per day of delay is highly unconscionable. Applying Article 1229 of
the Civil Code, courts shall equitably reduce the penalty when the principal
obligation has been partly or irregularly complied with, or if it is iniquitous
or
unconscionable.
With regard to the attorneys fees, the CA correctly deleted the award in
favor of petitioner since the trial courts decision does not reveal any
explicit basis for such an award. Attorneys fees are not automatically
44
ORDERED.
Davide, Jr., C.J., (Chairman), Quisumbing, Carpio, and Azcuna, JJ., concur.
G.R. No. 60705, June 28, 1989
INTEGRATED REALTY CORPORATION AND RAUL L. SANTOS,
PETITIONERS, VS. PHILIPPINE NATIONAL BANK, OVERSEAS BANK
OF MANILA AND THE HON. COURT OF APPEALS, RESPONDENTS.
[G.R.
No.
60907.
June
28,
1989]
under the time deposit certificates Nos. 2308 and 2367 with 6 1/2 (sic)
interest per annum from date of issue until fully paid, the appealed
decision is affirmed in all other respects."
In G.R. No. 60705, petitioners Integrated Realty Corporation (hereafter,
IRC) and Raul L. Santos (hereafter, Santos) seek the dismissal of the
complaint filed by the Philippine National Bank (hereafter, PNB), or in the
event that they be held liable thereunder, to revive and affirm that portion
of the decision of the trial court ordering Overseas Bank of Manila
(hereafter, OBM) to pay IRC and Santos whatever amounts the latter will
pay PNB, with interest from the date of Payment.[2]
On the other hand, in G.R. No. 60907, petitioner OBM challenges the
decision of respondent court insofar as it holds OBM liable for interest on
the time deposit with it of Santos corresponding to the period of its closure
by order of the Central Bank.[3]
In its assailed decision, the respondent Court of Appeals, quoting from the
decision of the lower court,[4] narrated the antecedents of this case in this
wise:
The facts of this case are not seriously disputed by any of the parties.
They are set forth in the decision of the trial court as follows:
Under date 11 January 1967 defendant Raul L. Santos made a time deposit
with defendant OBM in the amount of P500,000.00. (Exhibit-10 OBM) and
was issued a Certificate of Time Deposit No. 2308 (Exhibit 1-Santos, Exhibit
D). Under date 6 February 1967 defendant Raul L. Santos also made a time
deposit with defendant OBM in the amount of P200,000.00 (Exhibit 11OBM) and was issued certificate of Time Deposit No. 2367 (Exhibit 2Santos, Exhibit E).
Under date 9 February 1967 defendant IRC, thru its President - defendant
Raul L. Santos, applied for a loan and/ or credit line (Exhibit A) in the
amount of P700,000.00 with plaintiff bank. To secure the said loan,
defendant Raul L. Santos executed on August 11, 1967 a Deed of
Assignment (Exhibit C) of the two time deposits (Exhibit 1-Santos and
Exhibit 2-Santos, also Exhibits D and E) in favour of plaintiff. Defendant
OBM gave its conformity to the assignment thru letter dated 11 August
1967 (Exhibit F). On the same date, defendant IRC, thru its President Raul
L. Santos, also executed a Deed of Conformity to Loan Conditions (Exhibit
G).
45
The defendant OBM, after the due dates of the time deposit certificates,
did not pay plaintiff PNB. Plaintiff demanded payment from defendants IRC
and Raul L. Santos (Exhibit K) and from defendant OBM (Exhibit L).
Defendants IRC and Raul L. Santos replied that the obligation (loan) of
defendant IRC was deemed paid with the irrevocable assignment of the
time deposit certificates (Exhibits 5-Santos, 6-Santos and 7-Santos).
"On April 6, 1969 (sic) *PNB filed a complaint to collect from IRC and Santos
the loan of P700,000.00 with interest as well as attorney's fees. It
impleaded OBM as a defendant to compel it to redeem and pay to it
Santos' time deposit certificates with interest, plus exemplary and
corrective damages, attorney's fees, and costs.
"In their answer to the complaint, IRC and Santos alleged that PNB has no
cause of action against them because their obligation to PNB was fully paid
or extinguished upon the 'irrevocable' assignment of the time deposit
certificates, and that they are not answerable for the insolvency of OBM.
They filed a-counterclaim for damages against PNB and a cross-claim
against OBM, alleging that OBM acted fraudulently in refusing to pay the
time deposit certificates to PNB resulting in the filing of the suit against
them by PNB, and that, therefore, OBM should pay them whatever amount
they may be ordered by the court to pay PNB with interest. They also
asked that OBM be ordered to pay them compensatory, moral, exemplary
and corrective damages.
"In its answer to the complaint, OBM denied knowledge of the time deposit
certificates because the alleged time deposit of Santos 'does not appear' in
its books of account.
"Whereupon, IRC and Santos, with leave of court, filed a third-party
complaint against Emerito B. Ramos, Jr., president of OBM, and Rodolfo R.
Sunico, treasurer of said bank, who allegedly received the time deposits of
Santos and issued the certificates therefor.
"Answering the third-party complaint, Ramos and Sunico alleged that IRC
and Santos have no cause of action against them because they received
and signed the time deposit certificates as officers of OBM, that the time
deposits are recorded in the subsidiary ledgers of the bank and are 'civil
liabilities of the defendant OBM.'
"On November 18, 1970, OBM filed an amended or supplemental answer to
the complaint, acknowledging the certificates of time deposit that it issued
to Santos, and admitting its failure to pay the same due to its distressed
46
How.] 240 L. Ed. 404; See also Michie, Vol. 5B Banks and Banking, p.
200)."[7]
1. The first issue posed before Us for resolution is whether the liability of
IRC and Santos with PNB should be deemed to have been paid by virtue of
the deed of assignment made by the former in favor of PNB, which reads:
XXX
XXX
"It is also understood that the herein Assignor/s shall remain liable for any
outstanding balance of his/their obligation if the Bank is unable to actually
receive or collect the above assigned sums, monies or properties resulting
from any agreements, orders or decisions of the court or for any other
cause whatsoever."[6]
XXX
XXX
XXX
47
Philamgen under the surety bond, Lopez executed on the same day not
only an indemnity agreement but also a stock assignment.
"The indemnity agreement and stock assignment must be considered
together as related transactions because in order to judge the intention of
the contracting parties, their contemporaneous and subsequent acts shall
be principally considered. (Article 1371, New Civil Code). Thus, considering
that the indemnity agreement connotes a continuing obligation of Lopez
towards Philamgen while the stock assignment indicates a complete
discharge of the same obligation, the existence of the indemnity
agreement whereby Lopez had to pay a premium of Pl ,000.00 for a period
of one year and agreed at all times to indemnify Philamgen of any and all
kinds of losses which the latter might sustain by reason of it becoming a
surety, is inconsistent with the theory of an absolute sale for and in
consideration of the same undertaking of Philamgen. There would have
been no necessity for the execution of the indemnity agreement if the
stock assignment was really intended as an absolute conveyance, x x x"
Along the same vein, in the case at bar it would not have been necessary
on the part of IRC and Santos to execute promissory notes in favor of PNB
if the assignment of the time deposits of Santos was really intended as an
absolute conveyance.
There are cogent reasons to conclude that the parties intended said deed
of assignment to complement the promissory notes. In declaring that the
deed of assignment did not operate as payment of the loan so as to
extinguish the obligations of IRC and Santos with PNB, the trial court
advanced several valid bases, to wit:
"a. It is clear from the Deed of Assignment that it was only by way of
security;
XXX
XXX
XXX
"b. The promissory notes (Exhibits H and I) were executed on August 16,
1967. If defendants IRC and Raul L. Santos, upon executing the Deed of
Assignment on August 11, 1967 had already paid their loan of P700,000.00
or otherwise extinguished the same, why were the promissory notes made
on August 16, 1967 still executed by IRC and signed by Raul L. Santos as
President?
For all intents and purposes, the deed of assignment in this case is actually
a pledge. Adverting again to the Court's pronouncements in Lopez, supra,
we quote therefrom:
"The character of the transaction between the parties is to be determined
by their intention, regardless of what language was used or what the form
of the transfer was. If it was intended to secure the payment of money, it
must be construed as a pledge; but if there was some other intention, it is
not a pledge. However, even though a transfer, if regarded by itself,
appears to have been absolute, its object and character might still be
qualified and explained by a contemporaneous writing declaring it to have
been a deposit of the property as collateral security. It has been said that a
transfer of property by the debtor to a creditor, even if sufficient on its face
to make an absolute conveyance, should be treated as a pledge if the debt
continues in existence and is not discharged by the transfer, and that
accordingly, the use of the terms ordinarily importing conveyance, of
absolute ownership will not be given that effect in such a transaction if
they are also commonly used in pledges and mortgages and therefore do
not unqualifiedly indicate a transfer of absolute ownership, in the absence
of clear and unambiguous language or other circumstances excluding an
intent to pledge."[10]
The facts and circumstances leading to the execution of the deed of
assignment, as found by the court a quo and the respondent court, yield
said conclusion that it is in fact a pledge. The deed of assignment has
satisfied the requirements of a contract of pledge (1) that it be constituted
to secure the fulfillment of a principal obligation; (2) that the pledgor be
the absolute owner of the thing pledged; (3) that the persons constituting
the pledge have the free disposal of their property, and in the absence
thereof, that they be legally authorized for the purpose. [11] The further
requirement that the thing pledged be placed in the possession of the
creditor, or of a third person by common agreement [12] was complied with
by the execution of the deed of assignment in favor of PNB.
It must also be emphasized that Santos, as assignor, made an express
undertaking that he would remain liable for any outstanding balance of his
obligation should PNB be unable to actually receive or collect the assigned
sums resulting from any agreements, orders or decisions of the court or for
any other cause whatsoever. The term "for any cause whatsoever" is broad
enough to include the situation involved in the present case.
"c. In the application for a credit line (Exhibit A), the time deposits were
offered as collateral."[9]
48
crippled from then on from earning the income needed to meet its
obligations to its depositors. Tf such a situation cannot, strictly speaking,
be legally denominated as 'force majeure,' as maintained by private
respondent, We hold it is a matter of simple equity that it be treated as
such."
The Court further adjured that:
"Parenthetically, We may add for the guidance of those who might be
concerned, and so that unnecessary litigations be avoided from further
clogging the dockets of the courts, that in the light of the considerations
expounded in the above opinion, the same formula that exempts petitioner
from the payment of interest to its depositors during the whole period of
factual stoppage of its operations by orders of the Central Bank, modified
in effect by the decision as well as the approval of a formula of
rehabilitation by this*Court, should be, as a matter of consistency,
applicable or followed in respect to all other obligations of petitioner which
could not be paid during the period of its actual complete closure."
We cannot accept the holding of the respondent Court of Appeals that the
above-cited decisions apply only where the bank is in a state of liquidation.
In the very case aforecited, this issue was likewise raised and We resolved:
"Thus, Our task is narrowed down to the resolution of the legal problem of
whether or not, for purposes of the payment of the interest here in
question, stoppage of the operations of a bank by a legal order of
liquidation may be equated with actual cessation of the bank's operation,
not different, factually speaking, in its effects, from legal liquidation the
factual cessation having been ordered by the Central Bank.
"In the case of Chinese Grocer's Association, et al, vs. American
Apothecaries, 65 Phil. 395, this Court held:
'As to the second assignment of error, this Court, in G.R. No. 43682, In re
Liquidation of the Mercantile Bank of China, Tan Tiong Tick, claimant and
appellant, vs. American Apothecaries, C, et al., claimants and appellees,
through Justice Imperial, held the following:
'4. The court held that the appellant is not entitled to charge interest on
the amounts of his claims, and this is the object of the second assignment
of error. Upon this point a distinction must be made between the interest
which the deposits should earn from their existence until the bank ceased
49
to operate, and that which they may earn from the time the bank's
operations were stopped until the date of payment of the deposits. As to
the first class, we hold that it should be paid because such interest has
been earned in the ordinary course of the bank's business and before the
latter has been declared in a state of liquidation. Moreover, the bank being
authorized by law to make use of the deposits with the limitation stated, to
invest the same in its business and other operations, it may be presumed
that it bound itself to pay interest to the depositors as in fact it paid
interest prior to the dates of the said claims. As to the interest which may
be charged from the date the bank ceased to do business because it was
declared in a state of liquidation, we hold that the said interest should not
be paid.'
"The Court of Appeals considered this ruling inapplicable to the instant
case, precisely because, as contended by private respondent, the said
Apothecaries case had in fact in contemplation a valid order of liquidation
of the bank concerned, whereas here, the order of the Central Bank of
August 13, 1968 completely forbidding herein petitioner to do business
preparatory to its liquidation was first restrained and then nullified by this
Supreme Court. In other words, as far as private respondent is concerned,
it is the legal reason for cessation of operations, not the actual cessation
thereof, that matters and is decisive insofar as his right to the continued
payment of the interest on his deposit during the period of cessation is
concerned.
"In the light of the peculiar circumstances of this particular case, We
disagree. It is Our considered view, after mature deliberation, that it is
utterly unfair to award private respondent his prayer for payment of
interest on his deposit during the period that petitioner bank was not
allowed by the Central Bank to operate."
4. Lastly, IRC and Santos claim that OBM should reimburse them for
whatever amounts they may be adjudged to pay PNB by way of
compensation for damages incurred, pursuant to Articles 1170 and 2201 of
the Civil Code.
It appears that as early as April, 1967, the financial situation of OBM had
already caused mounting concern in the Central Bank. [14] On December
5,1967, new directors and officers drafted from the Central Bank (CB)
itself, the Philippine National Bank (PNB) and the Development Bank of the
Philippines (DBP) were elected and installed and they took over the
management and control of the Overseas Bank. [15] However, it was only on
July 31. 1968 when OBM was excluded from clearing with the CB under
50
We reject the proposition of IRC and Santos that OBM should reimburse
them the entire amount they may be adjudged to pay PNB. It must be
noted that their liability to pay the various interests of nine percent (9%)
on the principal obligation, one and one-half percent (1 1/2) additional
interest and one percent (1%) penalty interest is an offshoot of their failure
to pay under the terms of the two promissory notes executed in favor of
PNB. OBM was never a party to said promissory notes. There is, therefore,
no privity of contract between OBM and PNB which will justify the
imposition of the aforesaid interests upon OBM whose liability should be
strictly confined to and within the provisions of the certificates of time
deposit involved in this case. In fact, as noted by respondent court, when
OBM assigned as error that portion of the judgment of the court a quo
requiring OBM to make the disputed reimbursement, IRC and Santos did
not dispute that objection of OBM. Besides, IRC and Santos are not without
fault. They likewise acted in bad faith when they refused to comply with
their obligations under the promissory notes, thus incurring liability for all
damages reasonably attributable to the non-payment of said obligations.24
51
2.
pronouncement
as
to
cost.
SO ORDERED.[2]
Petitioner Bataan Seedling Association, Inc. (BSAI for brevity) entered into
a Community Based Reforestation Contract on October 26, 1990 with the
Republic of the Philippines, represented by the Department of Environment
and Natural Resources (DENR). Under said contract, BSAI, in consideration
of the amount of Nine Hundred Seventy Five Thousand One Hundred
Twenty Six Pesos and Sixty One Centavos (P975,126.61), bound itself to
undertake the reforestation of a fifty-hectare open/denuded forest land in
Barangay Liyang, Pilar, Bataan within a period of three (3) years. [3] BSAI
likewise undertook to report to the DENR any event or condition which
delays or may delay or prevent completion of the work, [4] and submit
progress billings and accomplishment reports. [5] Concomitant with the
52
the
petition
for
review
on
certiorari.
during the first (1st) year of the program as their commitment under clause
1.1.9 of the Reforestation Contract was to turn-over to the DENR at the
end of the third (3rd) year the contracted area of fifty hectares, fully planted
and properly maintained. Petitioners also refute the finding that they
abandoned the project area, arguing that the investigation conducted by
the PENCO/CENRO Monitoring and Evaluation Team is suspect; and that its
report ignored the fact that a forest fire occurred sometime in December
1991 destroying the plants and seedlings already introduced in the area.
Petitioners further claim that their failure to immediately report the fire and
submit progress reports is not a substantial breach of their undertaking to
warrant the cancellation of the contract; and that they cannot be made to
refund the balance of the mobilization fund because these correspond to
the work already done in the area. Finally, petitioners object to the award
of exemplary damages for being without legal and factual basis. [16]
On the issue of whether or not respondent had sufficient basis to cancel
the contract, both the trial and appellate courts found that there was basis
for the cancellation. A perusal of the records of this case confirms such
finding.
True, under the reforestation contract, petitioners were to turn over at the
end of the third year the project area fully planted and properly
maintained.[17] However, the Project Development Plan, appended and
made integral part of the contract, [18] specifically defines and details
petitioners undertaking. Under the Plan, the following tasks were to be
completed during the first year of the project: (1) survey and mapping of
the whole fifty (50) hectares; (2) nursery operations for fast-growth,
medium-growing, and slow-growth species; (3) plantation establishment,
including site preparation, spot hoeing, staking, holing, and planting and
seed transporting of 83,333 pieces, medium-sized seedlings and sucklers
in planting holes; and (4) infrastructure work, including the development of
footpath, graded trail, plantation road, bunkhouse and look-out tower. [19]
Spread out during the three-year period is the annual maintenance,
protection, administration and supervision, and, monitoring and evaluation
of the project area. [20] Clearly, based on said schedule, petitioners were to
undertake the principal task of planting the fifty (50) hectare-project area
during the 1st year of the project. What is to be carried out during the
entire 3-year period is the maintenance and aftercare of the project site,
and petitioners were to turn over the project at the end of the third year
fully planted and established. Therefore, petitioners argument that they
are not bound to fully plant/establish the whole fifty (50) hectares during
the
1st
year
of
operations
is
without
merit.
53
contract
Moreover, contrary to petitioners posture, there was a material breach of
the contract warranting its cancellation. One (1) year after the
commencement of the project or sometime in December, 1991, a fire
razed the reforestation area. As admitted by petitioners, they failed to
inform respondent of said incident. Neither did they attempt to submit
progress reports on the project, which duties were expressly required of
them under the contract. Thus, the appellate court correctly observed, viz.:
x x x The Appellant BSAI unabashedly admitted failing to establish/plant
the project area. Under Section 1.1.5 of the Contract, the Appellant BSAI
was obliged to report to the DENR any event or condition which delayed or
may delay the progress or prevent the completion, of the work under the
time-table set forth under the contract or any relevant facts known to the
Appellant BSAI. A fire in the area which gutted the improvements in
contract area occurred in December, 1991. However, the Appellant BSAI
never informed the DENR of said fire. Worse, the Appellant BSAI did not
anymore conduct any replanting activities on the area, thus accounting, in
part, for the failure of the said Appellant to submit periodic progress
reports on its activities in said area. Even before the fire occurred, in
December 1991, the Appellant BSAI already failed to submit any periodic
reports of progress of its activities in the area. This prompted the DENR to
conduct an on the site inspection of the subject project area. Indeed,
Carlos Valencia and Hernani Salaya Jr., even ignored the requests of DENR
for them to be present during the said inspections. The DENR inspection
team found and discovered that the Appellant BSAI failed to fully establish
planting on the subject project area. Instead of planting the seedlings on
the project area, the Appellant BSAI sold some of the seedlings because of
its failure to pay the nursery owner, Anilao Satellite Nursery, located in
Pilar, Bataan for said seedlings. x x x[21]
Petitioners attempt to trivialize their lapse, but the Court believes that this
is not merely a slight or casual breach, but a substantial one giving
sanction to the cancellation. Under Clause 4.1 of the contract, respondents
shall have the right to suspend, terminate or cancel the contract upon
petitioners substantial failure to fulfill their obligations, or a willful violation
of the material conditions, stipulations and covenants thereof. It can be
concluded from the tenor of said clause that the parties intended
mandatory compliance with all the provisions of the contract. As stated
previously, among such provisions requiring strict adherence are the
submission of progress reports and the reporting of such event which may
delay or prevent the project. Hence, upon petitioners failure to comply
with said obligations, respondent was well within its right to cancel the
by
express
grant
of
Clause
4.1.
54
SO
1)
2)
ORDERED.
55
56
antecedents
of
this
case
are
as
follows:
On December 28, 1972, the original owner, Aniana Galang, leased a threestorey building situated at Quirino Avenue, Baclaran, Paraaque, Metro
Manila, to the Bank of the Philippine Islands (BPI) for a period of about
fifteen (15) years, to expire on June 20, 1986. During the existence of the
lease, BPI subleased the ground floor of said building to respondent Doris
Hao.
On August 24, 1984, Galang and respondent executed a contract of lease
on the second and third floors of the building. The lease was for a term of
four (4) years commencing on August 15, 1984 and ending on August 15,
1988. On August 15, 1986, petitioner spouses Ernesto and Mina Catungal
bought
the
property
from
Aniana
Galang.
Invoking her "right of first refusal" purportedly based on the lease contract
between her and Aniana Galang, respondent filed a complaint for
Annulment of Sale with Damages docketed as Civil Case No. 88-491 of the
Regional
Trial
Court
(RTC)
of
Makati,
Metro
Manila.
Meanwhile, the lease agreement between BPI and Galang expired.
Upon expiration of the lease agreements, petitioner spouses sent demand
letters to respondent for her to vacate the building. The demand letters
were unheeded by respondent causing petitioners to file two complaints for
ejectment, docketed as Civil Cases Nos. 7666 and 7667 of the Metropolitan
Trial
Court
(MeTC)
of
Paraaque,
Metro
Manila.
57
amount of P8,000.00 a month in Civil Case No. 7666 for the use and
occupancy of the first floor of the premises in question from June 28, 1998
until she finally vacates the premises and to pay the plaintiff a rental of
P5,000.00 a month in Civil Case No. 7667 from June 28, 1988, until she
finally vacates the premises and to pay attorney's fees of P20,000.00. With
costs
against
defendant.
So ordered.[5]
Petitioners sought reconsideration of the above order, praying that
respondent be ordered to pay P20,000.00 monthly for the use and
occupancy of the ground floor and P10,000.00 each monthly for the second
and
third
floors.
Respondent,
on
the
other
hand,
filed
notice
of
appeal.
1997.
Respondent elevated her case to the Court of Appeals. The CA rendered
the Decision subject of this petition the dispositive portion thereof reads:
Wherefore, the decision appealed from is hereby modified by reducing the
amount of rentals for both the second and third floors from P20,000.00 to
P10,000.00 monthly. With this modification, the judgment below is
AFFIRMED in all other respects.[8]
The parties filed their respective motions for reconsideration to the Court
of Appeals. Petitioners asked that the decision of the Regional Trial Court
fixing the total monthly rentals at P40,000.00 be sustained. On the other
hand, respondent sought a revival of the decision of the MeTC on the
ground that since petitioners did not interpose an appeal from the
amended judgment of the MeTC, the RTC could not validly increase the
amount
of
rentals
awarded
by
the
former.
In its Resolution dated 30 July 1998, the Court of Appeals resolved the
parties' motions for reconsideration in favor of the respondent. It ruled that
the motion for reconsideration filed by the petitioners before the MeTC was
a prohibited pleading under the Rules of Summary Procedure. Such being
the case, said motion for reconsideration did not produce any legal effect
and thus the amended judgment of the MeTC had become final and
executory insofar as the petitioners are concerned. The dispositive portion
of the CA's resolution reads as follows:
WHEREFORE, the decision appealed from is hereby MODIFIED by reducing
the monthly rentals for the first/ground floor from P20,000.00 to P8,000.00
and for the second and third floors from P10,000.00 each to P5,000.00 for
both floors. With this modification the judgment below is AFFIRMED in all
other
respects.
No
pronouncement
as
to
costs.
So ordered.[9]
Petitioners now come before this Court assigning the following errors:
A.
IN THE ASSAILED DECISION, THE HONORABLE COURT OF APPEALS GRAVELY
ERRED IN REVERSING THE FINDINGS OF THE REGIONAL TRIAL COURT BY
58
2.
3.
There is no question that after the expiration of the lease contracts which
respondent contracted with Aniana Galang and BPI, she lost her right to
possess the property since, as early as the actual expiration date of the
lease contract, petitioners were not negligent in enforcing their right of
ownership
over
the
property.
While respondent was finally evicted from the leased premises, the amount
59
the former owner and herein defendant-appellant had already expired, the
amount of rentals as laid down in the Clarificatory Order dated 3 March
1997
is
inadequate,
if
not
unreasonable.
The Court a quo misappreciated the nature of the property, its location and
the business practice in the vicinity and indeed committed an error in
fixing the amount of rentals in the aforementioned Order. Said premises is
situated along Quirino Avenue, a main thoroughfare in Barangay Baclaran,
Paraaque, Metro Manila, a fully developed commercial area and the place
where the famous shrine of the Mother of Perpetual Help stands. Withal,
devotees, traders, tourists and practically people from all walks of life visit
said barangay making it suitable for commerce, not to mention thousand
of residents therein. Needless to say, every square meter of said
community is valuable for all kinds of business or commerce of man.
We find that the RTC correctly applied and construed the legal concept of
judicial notice in the case at bench. Judicial knowledge may be defined as
the cognizance of certain facts which a judge under rules of legal
procedure or otherwise may properly take or act upon without proof
because they are already known to him, or is assumed to have, by virtue of
his office.[16] Judicial cognizance is taken only of those matters that are
"commonly" known. The power of taking judicial notice is to be exercised
by courts with caution; care must be taken that the requisite notoriety
exists; and every reasonable doubt on the subject should be promptly
resolved in the negative.[17] Matters of judicial notice have three material
requisites: (1) the matter must be one of common and general knowledge;
(2) it must be well and authoritatively settled and not doubtful or
uncertain; and (3) it must be known to be within the limits of jurisdiction of
the
court.
Further, considering that the questioned property has three floors and
strategically located along the main road and consistent with the prevailing
rental rates in said business area which is between P20,000.00 and
P30,000.00 as testified to by Divina Q. Roco, a real estate agent and Mina
Catungal, this Court finds the amount of P20,000.00 a month for the
ground floor and P10,000.00 a month each for the second floor and third
floor or a total of P40,000.00 monthly rentals as appropriate and
reasonable rentals for the use and occupation of said premises.
The RTC correctly took judicial notice of the nature of the leased property
subject of the case at bench based on its location and the commercial
viability. The above quoted assessment by the RTC of the Baclaran area,
where
the
subject
property
is
located,
is
fairly
grounded.
The RTC rightly modified the rental award from P13,000.00 to P40,000.00,
considering that it is settled jurisprudence that courts may take judicial
notice of the general increase in rentals of lease contract renewals much
more with business establishments. Thus, We held in Manila Bay Club
Corporation vs. Court of Appeals:[18]
It is worth stressing at this juncture that the trial court had the authority to
fix the reasonable value for the continued use and occupancy of the leased
premises after the termination of the lease contract, and that it was not
bound by the stipulated rental in the contract of lease since it is equally
settled that upon termination or expiration of the Contract of Lease, the
rental stipulated therein may no longer be the reasonable value for the use
and occupation of the premises as a result or by reason of the change or
rise in values. Moreover, the trial court can take judicial notice of the
general increase in rentals of real estate especially of business
establishments like the leased building owned by the private respondents.
It is worth stressing at this juncture that the trial court had the authority to
fix the reasonable value for the continued use and occupancy of the leased
premises after the termination of the lease contract, and that it was not
bound by the stipulated rental in the contract of lease since it is equally
settled that upon termination or expiration of the contract of lease, the
rental stipulated therein may no longer be the reasonable value for the use
and occupation of the premises as a result or by reason of the change or
rise in values. Moreover, the trial court can take judicial notice of the
general increase in rentals of real estate especially of business
establishments like the leased building owned by the private respondent.
[15]
[19]
Furthermore, the RTC also had factual basis in arriving at the said
conclusion, the same being based on testimonies of witnesses, such as real
estate broker Divina Roco and the petitioner Mina Catungal.
60
The increased award of rentals ruled by the RTC is reasonable given the
circumstances of the case at bench. We note that respondent was able to
deny petitioners the benefits, including possession, of their rightful
ownership over the subject property for almost a decade.
The Court of Appeals failed to justify its reduction of the P40,000.00 fair
rental value as determined by the RTC. Neither has respondent shown that
the rental pegged by the RTC is exorbitant or unconscionable. This is
because the burden of proof to show that the rental demanded is
unconscionable or exorbitant rests upon private respondent as the lessee.
[20]
Here, respondent neither discharged this burden when she omitted to
present any evidence at all on what she considers to be fair rental value,
nor did she controvert the evidence submitted by petitioners by way of
testimonies of the real estate broker and petitioner Mina Catungal. Thus, in
Sia v. CA, we ruled:
xxx On the contrary, the records bear out that the P5,000.00 monthly
rental is a reasonable amount, considering that the subject lot is prime
commercial real property whose value has significantly increased and that
P5,000.00 is within the range of prevailing rental rates in that vicinity.
Moreover, petitioner has not proffered controverting evidence to support
what he believes to be the fair rental value of the leased building since the
burden of proof to show that the rental demanded is unconscionable or
exorbitant rests upon the lessee. Thus, here and now we rule, as we did in
the case of Manila Bay Club v. Court of Appeals, that petitioner having
failed to prove its claim of excessive rentals, the valuation made by the
Regional Trial Court, as affirmed by the respondent Court of Appeals,
stands.[21]
The Court of Appeals merely anchored its decision to reduce the
P40,000.00 rental on procedural grounds. According to the Court of
Appeals, the motion for reconsideration filed by petitioners before the
MeTC is a prohibited pleading under the Rule on Summary Procedure and
did not have any effect in stalling the running of the period to appeal the
decision nor could it be considered as notice of appeal and consequently
this affected the elevation of the case to the RTC. Not having appealed the
case to the RTC, the amended judgment of the MeTC fixing the rental rate
at P13,000.00 is final and executory as far as petitioners are concerned.
We disagree. A reading of the order issued by the MeTC will show that said
court elevated the issue on the amount of rentals raised by the petitioner
to the RTC because the appeal of respondent had already been perfected,
thus:
Considering the Motion for Reconsideration of the Order of this Court dated
March 3, 1997 and the Comment and Opposition thereto of the counsel for
the defendant, the Court finds the said Motion for Reconsideration should
already be addressed to the Regional Trial Court considering that whatever
disposition that this Court will award will still be subject to the appeal taken
by the defendant and considering further that the supersedeas bond
posted
by
the
defendant
covered
the
increased
rental.
In order that this case will be immediately forwarded to the Regional Trial
Court in view of the appeal of the defendant, the Court deemed it wise not
to act on the said motion for reconsideration and submit the matter to the
Regional Trial Court who has the final say on whether the rental or the
premises
in
question
will
be
raised
or
not.
It will be to the advantage of both parties that this Court refrain from
acting on the said Motion for Reconsideration so as to expedite the
remanding (sic) of this Court to the Regional Trial Court. [22]
When the MeTC referred petitioners' motion to the RTC for its disposition,
respondent could have opposed such irregularity in the proceeding.
This respondent failed to do. Before this Court, respondent now insists that
the petition should be denied on the ground that the Motion for
Reconsideration filed before the MeTC is a prohibited pleading and hence
could not be treated as a notice of appeal. Respondent is precluded by
estoppel from doing so. To grant respondent's prayer will not only do
injustice to the petitioners, but also it will make a mockery of the judicial
process as it will result in the nullity of the entire proceedings already had
on a mere technicality, a practice frowned upon by the Court. Our ruling in
Martinez, et al. vs. De la Merced, et al.[23] is illustrative :
xxx In fine, these are acts amounting to a waiver of the irregularity of the
proceedings. For it has been consistently held by this Court that while lack
of jurisdiction may be assailed at any stage, a party's active participation
in the proceedings before a court without jurisdiction will estop such party
from assailing such lack of jurisdiction.
The Court of Appeals in the assailed Decision correctly observed that the
"peculiar circumstances attendant to the ejectment cases warrant
departure" from the presumption that a party who did not interject an
appeal is satisfied with the adjudication made by the lower court:
61
Neither petitioner nor respondent spouses assailed the above order. In fact,
in their appeal memorandum, respondent spouses reiterated their claim,
first ventilated in their motion for reconsideration dated March 24, 1997,
that the MTC grievously erred in finding that plaintiffs-appellees are only
entitled to a meager monthly rental of P8,000.00 for the ground floor and
P5,000.00
for
the
second
and
third
floors.
Hence, while the entrenched procedure in this jurisdiction is that a party
who has not himself appealed cannot obtain from the appellate court
affirmative relief other than those granted in the decision of the lower
court, the peculiar circumstances attendant to the ejectment cases warrant
a departure therefrom. The rule is premised on the presumption that a
party who did not interpose an appeal is satisfied with the adjudication
made by the lower court. Respondent spouses, far from showing
satisfaction with the clarificatory order of March 3, 1997, assailed it in their
motion for reconsideration which, however, was referred to the RTC for
appropriate action in view of the appeal taken by the petitioner. Clearly,
the increase in the damages/rentals awarded by the MTC was an issue the
RTC could validly resolve in the ejectment cases. [24]
Respondent, argues that ejectment cases are tried under the Revised Rule
on Summary Procedure,[25] hence, the motion for reconsideration filed by
petitioner was a prohibited pleading and could not take the place of the
required
notice
of
appeal.
The argument by respondent is misleading. Simply because the case was
one for ejectment does not automatically mean that the same was triable
under the Rules of Summary Procedure. At the time of the filing of the
complaint by petitioner in 1989, said Rules provide:
SECTION 1. SCOPE - THIS RULE SHALL GOVERN THE PROCEDURE IN THE
METROPOLITAN TRIAL COURTS, THE MUNICIPAL CIRCUIT TRIAL COURTS IN
THE
A.
FOLLOWING
CIVIL
CASES:
CASES:
62
2.
3.
4.
SO
ORDERED.
Davide, Jr., C.J., (Chairman), Puno, Pardo, and Ynares-Santiago, JJ., concur.
xxx
II With regard particularly to an award of interest in the concept of actual
and compensatory damages, the rate of interest, as well as the accrual
thereof, is imposed, as follows:
1.
63
DECISION
GONZAGA-REYES, J.:
64
latter forthwith filed, on April 3, 1979, a petition, with the Provincial Sheriff,
for the extrajudicial foreclosure of Appellees "Real Esate Mortgage" in
favor of the Appellant for the amount of P342,798.00 inclusive of the 17%
per annum which purportedly was the totality of Appellees account with
the Appellant on their loans. The Appellant was the purchaser of the
property at public auction for the aforesaid amount of P324,798.00. On
May 25, 1979, the Sheriff executed a "Certificate of Sale" over the
aforesaid properties in favor of the Appellant for the aforesaid amount
(pages
37-38,
Records).
The Appellant filed a "Petition for a Writ of Possession" with the Regional
Trial Court entitled "Banco Filipino Savings and Mortgage Bank vs. Elsa
Arcilla, et al., LRC Case No. P-7757-P". On February 28, 1980, the Court
rendered a Decision granting the Petition of the Appellant. The Appellees
appealed to the Court of Appeals but the latter Court, on June 29, 1985,
promulgated a Decision affirming the Decision of the Regional Trial Court
(pages
190-198,
Records).
In the meantime, the FGU Insurance Corporation, Inc., redeemed the
aforesaid properties from the Appellant by paying to the latter the amount
of P389,289.41 inclusive of interest computed at 17% per annum. The
Appellant and FGU Insurance Corp., Inc., executed, on May 27, 1980, a
"Deed
of
Redemption"
(pages
126-129,
Records).
On September 2, 1985, the Appellees filed a complaint in the Court a quo
for the "Annulment of the Loan Contracts, Foreclose Sale with Prohibition
and Injunction, Etc." entitled "Calvin Arcilla, et al. vs. Banco Filipino Savings
and
Mortgage
Bank,
et
al."
(pages
1-38,
Records).
The Appellees averred, in their complaint, inter alia, that the loan contracts
and mortgages between the Appellees and the Appellant were null and
void because: (a) the interests, charges, etc., were deducted in advance
from the face value of the "Promissory Notes" executed by the Appellees;
and (b) the rate of interests charged by the Appellant were usurious. The
Appellees prayed that judgment be rendered in their favor as follows:
"x
c)
After trial
1)
2)
3)
4)
PLAINTIFFS further pray for such other reliefs and remedies just and
equitable in the premises." (pages 88-89, Records)
In its Answer to the Complaint, the Appellant averred that the interests
charged by it on Appellees loan accounts and that the said loan contracts
and mortgages were lawful. The Appellant further averred that the
Appellees
action
had
already
prescribed.
In the interim, the Supreme Court promulgated its Decision in the
precedent - setting case of "Banco Filipino Savings and Mortgage Bank vs.
Hon. Miguel Navarro, et al., 152 SCRA 346" where it declared that Central
Bank Circular No. 494 was not the "law" envisaged in the mortgage deeds
of borrowers of the Bank; that the escalation clause incorporated in said
deeds giving authority to the Appellant to increase the rate of interests
without the corresponding deescalation clause should not be given effect
because of its one-sidedness in favor of the Appellant; that the aforesaid
Central Bank Circular did not apply to loans secured by real estate
mortgages, and that, therefore, the Appellant cannot rely said Circular as
authority for it to unilaterally increase the rate of interests on loans
secured
by
Real
Estate
Mortgages.
In the meantime, the FGU Insurance Corp., Inc., filed a "Motion for
65
Substitution" with the Regional Trial Court, in LRC Case No. Pq-7757-P
praying that it be substituted as the Petitioner in said case (pages 354-356,
Records). The Appellees were served with a copy of said motion and filed
their Opposition thereto. However, on November 10, 1987, the Regional
Trial Court rendered a Decision granting the motion of FGU Insurance
Company
(page
369,
Records)
On December 3, 1987, the Appellees filed a Motion, with the Court a quo,
for leave to file an "Amended Complaint" to implead FGU Insurance
Corporation as party defendant (pages 83-129, Records). The Court
granted said motion and admitted Appellees Amended Complaint.
After the requisite pre-trial, the Court a quo issued a Pre-Trial Order which
defined, inter alia, Appellees action against the Appellant, and the latters
defenses, to wit:
"x
On the part of the defendants Banco Filipino Savings to simplify the case, it
seeks to declare as null and void plaintiffs loan contract with Banco Filipino
obtained in May 1974, on the ground that the interest agreed in the
contract was usurious. Plaintiffs also seek to declare as null and void the
foreclosure of their mortgage by Banco Filipino on the ground that the loan
with
the
said
mortgagee
foreclosure
maybe
validly
done.
DEFENSES
1.
Prescription
2.
Laches
3.
66
Their Motion for Reconsideration[4] was denied hence this petition where
the petitioner assigns the following errors:
"I. THE HONORABLE COURT OF APPEALS ERRED WHEN IT HELD THAT THE
CAUSE OF ACTION OF THE PRIVATE RESPONDENTS ACCRUED ON OCTOBER
30, 1978, AND THEREFORE THE FILING OF THEIR COMPLAINT FOR
ANNULMENT OF THEIR LOAN CONTRACTS WITH THE PETITIONER IN 1985
WAS
NOT
YET
BARRED
BY
PRESCRIPTION.
II. THE HONORABLE COURT OF APPEALS ERRED WHEN IT HELD THAT THE
MATERIAL ALLEGATIONS OF THE PRIVATE RESPONDENTS COMPLAINT WERE
SUFFICIENT TO WARRANT THE RELIEFS GRANTED TO THEM BY THE LOWER
COURT, PATICULARLY THE REFUND OF P126,139.00 REPRESENTING
ALLEGED
EXCESS
INTEREST
PAID
ON
THEIR
LOAN.
III. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE
PRIVATE RESPONDENTS WERE ENTITLED TO THE SAID REFUND OF
P126,139.00 CLAIMED BY THEM."[5]
The petitioner maintains that the complaint filed by herein private
respondents was an action for Annulment of Loan Contracts, foreclosure
sale with prohibition and injunction. It is contended that these causes of
action accrued on the date of the execution of the promissory note and
deed of mortgage on January 15, 1975 and not October 30, 1978 as found
by the Court of Appeals. Thus, private respondents cause of action has
already prescribed inasmuch as the case was filed on September 2, 1985
or more than ten years thereafter. Petitioner further contends that private
respondents cannot rely on the ruling in the case of Banco Filipino Savings
& Mortgage Bank vs. Navarro[6] considering that they were not parties to
said case. Petitioner also maintains that the order of the lower court, which
was affirmed by the Court of Appeals ordering the petitioner to refund the
excess interest paid by private respondents in the amount of P126,318.00
was without any legal basis since private respondents never raised the
issue of interest nor prayed for any relief with respect thereto. Moreover,
the private respondents never paid said amount to the petitioner. While the
amount was included in the bid price of the bank when it bought the
mortgaged properties during the public auction, said bid price did not
prejudice the private respondents because when the private respondents
repurchased the properties, the amount they paid was different and
independent of the redemption price of the bank. Besides, the agreement
between the private respondents and FGU Insurance Corporation was one
of sale and not redemption. Thus, any amount paid by the private
respondents to FGU was voluntarily entered into by them and was not a
consequence
of
the
foreclosure
of
the
mortgage
properties.
Conversely, private respondents allege that their action has not prescribed
considering that prescription begins to run from the day the action may be
brought; the date their right of action accrued. It is their contention that
the period of prescription of their action should commence to run from
October 30, 1978 when the petitioner unilaterally increased the rate of
interest on private respondents loan to 17% per annum. Thus, when
private respondents filed their action against the petitioner on September
2, 1985 or almost eight years thereafter, their action had not yet
prescribed. Moreover, private respondents aver that they are entitled to
the refund inasmuch as the escalation clause incorporated in the loan
contracts do not have a corresponding de-escalation clause and is
therefore
illegal.
The
appeal
is
unmeritorious.
There are only two issues, which must be resolved in the present appeal.
First, has the action of the private respondents prescribed; and second, are
the respondents entitled to the refund of the alleged interest
overpayments.
Petitioners claim that the action of the private respondents has prescribed
is bereft of merit. Under Article 1150 of the Civil Code, the time for
prescription of all kinds of actions, when there is no special provision which
ordains otherwise, shall be counted from the day they may be brought.
Thus, the period of prescription of any cause of action is reckoned only
from the date the cause of action accrued. [7] And a cause of action arises
when that which should have been done is not done, or that which should
not have been done is done.[8] The period should not be made to retroact
to the date of the execution of the contract on January 15, 1975 as claimed
by the petitioner for at that time, there would be no way for the
respondents to know of the violation of their rights. [9] The Court of Appeals
therefore correctly found that respondents cause of action accrued on
October 30, 1978, the date they received the statement of account
showing the increased rate of interest, for it was only from that moment
that they discovered the petitioners unilateral increase thereof. We quote
with approval the pertinent portions of the Court of Appeals decision as
follows:
"It is the legal possibility of bringing the action that determines the starting
point for the computation of the period of prescription (Constancia C.
Telentino vs. Court of Appeals, et al., 162 SCRA 66). In fine, the ten-year
67
that the contracts of loan entered into by them and the petitioner were
contrary to and signed in violation of the Usury Law [14] and consequentially
pray that said contracts be declared null and void. The amended complaint
reads:
"6. The aforementioned loans granted by defendant Banco Filipino to the
plaintiffs as stated on the face of the promissory note and real estate
mortgage (Annexes "B" to "D", inclusive) were not actually received by the
plaintiffs because interests, charges, etc. were deducted in advance from
the face value of the loans not in accordance with the contracts;
7. Even the loan contracts (Annexes "B" to "D", inclusive) required by
defendant Banco Filipino to be signed by the plaintiffs were contrary to and
in
violation
of
the
then
Usury
Law,
as
amended;
8. Assuming arguendo that the loan contracts between plaintiffs and
defendant Banco Filipino are valid, the extra-judicial foreclosure of the
properties of the plaintiffs on May 24, 1979 was null and void for having
been conducted in clear violation of the law (Act 3135), namely: a) lack of
roper notice to the plaintiffs; b) lack of proper publication and posting as
required by law; c) the alleged sale was conducted at the place other than
that
prescribed
by
law,
among
others;
9. On May 27, 1990, defendant
favor of defendant FGU Insurance
the foreclosed properties of the
latter, as evidenced by the said
hereto
attached
and
10. The Deed of Redemption (Annex "F") is clearly null and void for having
been executed in violation of Rule 39, Rules of Court, and other related
provisions of the Rules of Court."[15]
The loan contracts with real estate mortgage entered into by and between
the petitioner and respondent stated that the petitioner may increase the
interest on said loans, within the limits allowed by law, as petitioners
Board of Directors may prescribe for its borrowers. At the time the
contracts were entered into, said escalation clause was valid. [16] It was only
pursuant to P.D. No. 1684 which became effective March 17, 1980 wherein
to be valid, escalation clauses should provide: 1.) that there can be an
increase in interest if increased by law or by the Monetary Board; and 2.) in
order for such stipulation to be valid, it must include a provision for the
reduction of the stipulated interest in the event that the maximum rate of
68
interest
is
reduced
by
law
or
by
the
Monetary
Board. [17]
Given the validity of the escalation clause, could the petitioner increase the
stipulated interest pursuant to the Central Bank Circular 494 from 12% to
17%.
We
rule
that
it
may
not.
69
YNARES-SANTIAGO, J.:
The instant petition for review seeks to partially set aside the July 26, 1993
Decision[1] of respondent Court of Appeals in CA-G.R. CV No. 29950, insofar
as it orders petitioner to reimburse respondent Continental Cement
Corporation the amount of P490,228.90 with interest thereon at the legal
rate from July 26, 1988 until fully paid. The petition also seeks to set aside
the March 8, 1994 Resolution [2] of respondent Court of Appeals denying its
Motion
for
Reconsideration.
facts
1)
trust
2)
Whether or not the interest rates charged against the defendants
by the plaintiff are proper under the letter of credit, trust receipt and under
existing
rules
or
regulations
of
the
Central
Bank;
DECISION
The
are
as
follows:
3)
Whether or not the plaintiff properly applied the previous
payment of P300,456.27 by the defendant corporation on July 13, 1982 as
payment
for
the
latter's
account;
and
4)
Whether or not the defendants are personally liable under the
transaction sued for in this case. [4] On September 17, 1990, the trial court
rendered its Decision,[5] dismissing the Complaint and ordering petitioner to
pay respondents the following amounts under their counterclaim:
P490,228.90 representing overpayment of respondent Corporation, with
interest thereon at the legal rate from July 26, 1988 until fully paid;
P10,000.00 as attorney's fees; and costs.
Both parties appealed to the Court of Appeals, which partially modified the
Decision by deleting the award of attorney's fees in favor of respondents
and, instead, ordering respondent Corporation to pay petitioner P37,469.22
as
and
for
attorney's
fees
and
litigation
expenses.
Hence, the instant petition raising the following issues:
1.
WHETHER OR NOT THE RESPONDENT APPELLATE COURT ACTED
INCORRECTLY OR COMMITTED REVERSIBLE ERROR IN HOLDING THAT
THERE WAS OVERPAYMENT BY PRIVATE RESPONDENTS TO THE PETITIONER
IN THE AMOUNT OF P490,228.90 DESPITE THE ABSENCE OF ANY
COMPUTATION MADE IN THE DECISION AND THE ERRONEOUS APPLICATION
OF PAYMENTS WHICH IS IN VIOLATION OF THE NEW CIVIL CODE.
2.
WHETHER OR NOT THE MANNER OF COMPUTATION OF THE
MARGINAL DEPOSIT BY THE RESPONDENT APPELLATE COURT IS IN
ACCORDANCE
WITH
BANKING
PRACTICE.
3.
THE
70
charges on the face value of the letter of credit which the petitioner issued,
without first crediting or setting off the marginal deposit which the
respondent Corporation paid to it. Compensation is proper and should take
effect by operation of law because the requisites in Article 1279 of the Civil
Code are present and should extinguish both debts to the concurrent
amount.[8] Hence, the interests and other charges on the subject letter of
credit should be computed only on the balance of P681,075.93, which was
the portion actually loaned by the bank to respondent Corporation.
5.
WHETHER OR NOT THE RESPONDENT APPELLATE COURT
GRIEVOUSLY ERRED IN NOT HOLDING PRIVATE RESPONDENT SPOUSES
LIABLE UNDER THE TRUST RECEIPT TRANSACTION. [6]
Neither do we find error when the lower court and the Court of Appeals set
aside as invalid the floating rate of interest exhorted by petitioner to be
applicable. The pertinent provision in the trust receipt agreement of the
parties
fixing
the
interest
rate
states:
The
petition
must
be
denied.
On the first issue respecting the fact of overpayment found by both the
lower court and respondent Court of Appeals, we stress the time-honored
rule that findings of fact by the Court of Appeals especially if they affirm
factual findings of the trial court will not be disturbed by this Court, unless
these findings are not supported by evidence. [7] Petitioner decries the lack
of computation by the lower court as basis for its ruling that there was an
overpayment made. While such a computation may not have appeared in
the Decision itself, we note that the trial court's finding of overpayment is
supported by evidence presented before it. At any rate, we painstakingly
reviewed and computed the payments together with the interest and
penalty charges due thereon and found that the amount of overpayment
made by respondent Bank to petitioner, i.e., P563,070.13, was more than
what was ordered reimbursed by the lower court. However, since
respondents did not file an appeal in this case, the amount ordered
reimbursed
by
the
lower
court
should
stand.
Moreover, petitioner's contention that the marginal deposit made by
respondent Corporation should not be deducted outright from the amount
of the letter of credit is untenable. Petitioner argues that the marginal
deposit should be considered only after computing the principal plus
accrued interests and other charges. However, to sustain petitioner on this
score would be to countenance a clear case of unjust enrichment, for while
a marginal deposit earns no interest in favor of the debtor-depositor, the
bank is not only able to use the same for its own purposes, interest-free,
but is also able to earn interest on the money loaned to respondent
Corporation. Indeed, it would be onerous to compute interest and other
71
Information
charges
Petitioners
with
intent
to
defraud
misappropriating the money for their personal use. The mala prohibita
nature of the alleged offense notwithstanding, intent as a state of mind
was not proved to be present in Petitioners' situation. Petitioners
employed no artifice in dealing with PBC and never did they evade
payment of their obligation nor attempt to abscond. Instead, Petitioners
sought
favorable
terms
precisely
to
meet
their
obligation.
Also noteworthy is the fact that Petitioners are not importers acquiring the
goods for re-sale, contrary to the express provision embodied in the trust
receipt. They are contractors who obtained the fungible goods for their
construction project. At no time did title over the construction materials
pass to the bank, but directly to the Petitioners from CM Builders Centre.
This impresses upon the trust receipt in question vagueness and
ambiguity, which should not be the basis for criminal prosecution in the
event
of
violation
of
its
provisions.
The practice of banks of making borrowers sign trust receipts to facilitate
collection of loans and place them under the threats of criminal
prosecution should they be unable to pay it may be unjust and inequitable,
if not reprehensible. Such agreements are contracts of adhesion which
borrowers have no option but to sign lest their loan be disapproved. The
resort to this scheme leaves poor and hapless borrowers at the mercy of
banks, and is prone to misinterpretation, as had happened in this case.
Eventually, PBC showed its true colors and admitted that it was only after
collection of the money, as manifested by its Affidavit of Desistance.
and
72
A-
answered.
ATTY. BAAGA:
That is why I made a follow up question asking ownership of the
bunker fuel oil.
Upon purchase of the bunker fuel oil and upon the requests of the
defendant possession of the bunker fuel oil were transferred to
them.
COURT:
Proceed.
Q-
A-
ATTY. BAAGA:
Q-
Who owns the bunker fuel oil after purchase from Petrophil Corp.?
Q-
A-
A-
Q-
ATTY. RACHON:
Objection already answered.
COURT:
Give time to the other counsel to object.
ATTY. RACHON:
He has testified that ownership was acknowledged in favor of
Continental Cement Corp. so that question has already been
By all indications, then, it is apparent that there was really no trust receipt
transaction that took place. Evidently, respondent Corporation was
required to sign the trust receipt simply to facilitate collection by petitioner
of
the
loan
it
had
extended
to
the
former.
Finally, we are not convinced that respondent Gregory T. Lim and his
spouse should be personally liable under the subject trust receipt.
Petitioner's argument that respondent Corporation and respondent Lim and
his spouse are one and the same cannot be sustained. The transactions
sued upon were clearly entered into by respondent Lim in his capacity as
Executive Vice President of respondent Corporation. We stress the
hornbook law that corporate personality is a shield against personal
liability of its officers. Thus, we agree that respondents Gregory T. Lim and
his spouse cannot be made personally liable since respondent Lim entered
into and signed the contract clearly in his official capacity as Executive
Vice President. The personality of the corporation is separate and distinct
73
from
the
persons
composing
it. [16]
WHEREFORE, in view of all the foregoing, the instant Petition for Review is
DENIED. The Decision of the Court of Appeals dated July 26, 1993 in CAG.R.
CV
No.
29950
is
AFFIRMED.
SO
Davide, Jr., C.J.,
Pardo J., no part.
ORDERED.
(Chairman),
Puno,
and
Kapunan,
JJ.,
concur.
74
covering the Five Hundred Thousand Pesos (P500,000.00) credit line, one
dated March 8, 1979 for Three Hundred Ten Thousand Pesos
(P310,000.00); another dated March 30, 1979 for Forty Thousand Pesos
(P40,000.00); and the last dated September 27, 1979 for One Hundred Fifty
Thousand Pesos (P150,000.00). The said 1979 promissory notes uniformly
stipulated: "with interest thereon at the rate of 12% per annum, until paid,
which interest rate the Bank may, at any time, without notice, raise within
the
limits
allowed
by
law
xxx." [5]
Petitioner made use of his LC/TR line to purchase raw materials from
foreign importers. He signed a total of eleven (11) documents
denominated as "Application and Agreement for Commercial Letter of
Credit,"[6] on various dates from February 8 to September 11, 1979, which
uniformly contained the following clause: "Interest shall be at the rate of
9% per annum from the date(s) of the draft(s) to the date(s) of arrival of
payment therefor in New York. The Bank, however, reserves the right to
raise the interest charges at any time depending on whatever policy it may
follow
in
the
future."[7]
In a letter dated January 3, 1980 and signed by Branch Manager Fil S.
Carreon Jr., respondent PNB advised petitioner Mendoza that effective
December 1, 1979, the bank raised its interest rates to 14% per annum, in
line with Central Bank's Monetary Board Resolution No. 2126 dated
November
29,
1979.
On March 9, 1981, he wrote a letter to respondent PNB requesting for the
restructuring of his past due accounts into a five-year term loan and for an
additional LC/TR line of Two Million Pesos (P2,000,000.00). [8] According to
the letter, because of the shut-down of his end-user companies and the
huge amount spent for the expansion of his business, petitioner failed to
pay to respondent bank his LC/TR accounts as they became due and
demandable.
Ceferino D. Cura, Branch Manager of PNB Mandaluyong replied on behalf of
the respondent bank and required petitioner to submit the following
documents before the bank would act on his request: 1) Audited Financial
Statements for 1979 and 1980; 2) Projected cash flow (cash in - cash out)
for five (5) years detailed yearly; and 3) List of additional machinery and
equipment and proof of ownership thereof. Cura also suggested that
petitioner reduce his total loan obligations to Three Million Pesos
(P3,000,000.00) "to give us more justification in recommending a plan of
payment or restructuring of your accounts to higher authorities of the
75
Bank."[9]
On September 25, 1981, petitioner sent another letter addressed to PNB
Vice-President Jose Salvador, regarding his request for restructuring of his
loans. He offered respondent PNB the following proposals: 1) the disposal
of some of the mortgaged properties, more particularly, his house and lot
and a vacant lot in order to pay the overdue trust receipts; 2) capitalization
and conversion of the balance into a 5-year term loan payable semiannually or on annual installments; 3) a new Two Million Pesos
(P2,000,000.00) LC/TR line in order to enable Atlantic Exchange Philippines
to operate at full capacity; 4) assignment of all his receivables to PNB from
all domestic and export sales generated by the LC/TR line; and 5)
maintenance of the existing Five Hundred Thousand Pesos (P500,000.00)
credit
line.
The petitioner testified that respondent PNB Mandaluyong Branch found his
proposal favorable and recommended the implementation of the
agreement. However, Fernando Maramag, PNB Executive Vice-President,
disapproved the proposed release of the mortgaged properties and
reduced the proposed new LC/TR line to One Million Pesos (P1,000,000.00).
[10]
Petitioner claimed he was forced to agree to these changes and that he
was required to submit a new formal proposal and to sign two (2) blank
promissory
notes.
In a letter dated July 2, 1982, petitioner offered the following revised
proposals to respondent bank: 1) the restructuring of past due accounts
including interests and penalties into a 5-year term loan, payable semiannually with one year grace period on the principal; 2) payment of Four
Hundred Thousand Pesos (P400,000.00) upon the approval of the proposal;
3) reduction of penalty from 3% to 1%; 4) capitalization of the interest
component with interest rate at 16% per annum; 5) establishment of a One
Million Pesos (P1,000,000.00) LC/TR line against the mortgaged properties;
6) assignment of all his export proceeds to respondent bank to guarantee
payment
of
his
loans.
According to petitioner, respondent PNB approved his proposal. He further
claimed that he and his wife were asked to sign two (2) blank promissory
note forms. According to petitioner, they were made to believe that the
blank promissory notes were to be filled out by respondent PNB to conform
with the 5-year restructuring plan allegedly agreed upon. The first
Promissory Note,[11] No. 127/82, covered the principal while the second
Promissory Note,[12] No. 128/82, represented the accrued interest.
It appears from the record that the subject Promissory Notes Nos. 127/82
and 128/82 superseded and novated the three (3) 1979 promissory notes
and the eleven (11) 1979 "Application and Agreement for Commercial
Letter of Credit" which the petitioner executed in favor of respondent PNB.
According to the petitioner, sometime in June 1983 the new PNB
Mandaluyong Branch Manager Bayani A. Bautista suggested that he sell
the coco-chemical plant so that he could keep up with the semi-annual
amortizations. On three (3) occasions, Bautista even showed up at the
plant with some unidentified persons who claimed that they were
interested
in
buying
the
plant.
76
77
the due maturity date "December 29, 1984" were filled out fraudulently by
respondent PNB, and contrary to his verbal agreement with respondent
PNB; hence, his indebtedness to respondent PNB was not yet due and the
extrajudicial foreclosure of his real estate and chattel mortgages was
premature. On the other hand, respondent PNB denies that petitioner's
loan obligations were restructured to five (5) years and maintains that the
subject two (2) Promissory Notes Nos. 127/82 and 128/82 were filled out
regularly and became due as of December 29, 1984 as shown on the face
thereof.
Respondent Court of Appeals held that there is no evidence of a promise
from respondent PNB, admittedly a banking corporation, that it had
accepted the proposals of the petitioner to have a five-year restructuring of
his overdue loan obligations. It found and held, on the basis of the
evidence adduced, that "appellee's (Mendoza) communications were mere
proposals while the bank's responses were not categorical that the
appellee's request had been favorably accepted by the bank."
Contending that respondent PNB had allegedly approved his proposed fiveyear restructuring plan, petitioner presented three (3) documents executed
by respondent PNB officials. The first document is a letter dated March 16,
1981 addressed to the petitioner and signed by Ceferino D. Cura, Branch
Manager of PNB Mandaluyong, which states:
x x x In order to study intelligently the feasibility of your above request,
please submit the following documents/papers within thirty (30) days from
the date thereof, viz:
The second document is a letter dated May 11, 1981 addressed to Mr. S. Pe
Benito, Jr., Managing Director of the Technological Resources Center and
signed by said PNB Branch Manager, Ceferino D. Cura. According to
petitioner, this letter showed that respondent PNB seriously considered the
restructuring of his loan obligations to a five-year term loan, to wit:
xxx
At the request of our client, we would like to furnish you with the following
information pertinent to his accounts with us:
xxx
We are currently evaluating the proposal of the client to re-structure his
accounts
with
us
into
a
five-year
plan.
We hope that the above information will guide you in evaluating the
proposals of Mr. Danilo Mendoza.
xxx
The third document is a letter dated July 8, 1981 addressed to petitioner
and signed by PNB Assistant Vice-President Apolonio B. Francisco.
xxx
1.
2.
Projected cash flow (cash in - cash out) for five years detailed
yearly; and
We feel certain that Mr. Cura will be pleased to discuss matters of mutual
interest with you.
3.
xxx
We would strongly suggest, however, that you reduce your total obligations
to at least P3 million (principal and interest and other charges) to give us
more justification in recommending a plan of payment or restructuring of
your accounts to higher authorities of this bank.
Sir:
78
xxx
disagree.
79
Mendoza
signed
them
(Rollo,
p.
14).
80
Besides the petitioner executed not only a chattel mortgage but also a real
estate mortgage to secure his loan obligations to respondent bank.
A stipulation in the mortgage, extending its scope and effect to afteracquired property is valid and binding where the after-acquired property is
in renewal of, or in substitution for, goods on hand when the mortgage was
executed, or is purchased with the proceeds of the sale of such goods. [30]
As earlier pointed out, the petitioner did not present any proof as to when
the
subject
movables
were
acquired.
More importantly, respondent bank makes a valid argument for the
retention of the subject movables. Respondent PNB asserts that those
movables were in fact "immovables by destination" under Art. 415 (5) of
the Civil Code.[31] It is an established rule that a mortgage constituted on
an immovable includes not only the land but also the buildings, machinery
and accessories installed at the time the mortgage was constituted as well
as the buildings, machinery and accessories belonging to the mortgagor,
installed
after
the
constitution
thereof. [32]
Petitioner also contends that respondent PNB's bid prices for this
foreclosed properties in the total amount of Three Million Seven Hundred
Ninety Eight Thousand Seven Hundred Nineteen Pesos and Fifty Centavos
(P3,798,719.50), were allegedly "unconscionable and shocking to the
conscience of men". He claims that the fair market appraisal of his
foreclosed plant site together with the improvements thereon located in
Pasig, Metro Manila amounted to Five Million Four Hundred Forty One
Thousand Six Hundred Fifty Pesos (P5,441,650.00) while that of his house
and lot in Quezon City amounted to Seven Hundred Twenty Two Thousand
Pesos (P722,000.00) per the appraisal report dated September 20, 1990 of
Cuervo Appraisers, Inc.[33] That contention is not well taken considering
that:
1.
2.
81
Finally, the record shows that petitioner did not even attempt to tender any
redemption price to respondent PNB, as highest bidder of the said
foreclosed real estate properties, during the one-year redemption period.
In view of all the foregoing, it is our view and we hold that the extrajudicial
foreclosure of petitioner's real estate and chattel mortgages was not
premature
and
that
it
was
in
fact
legal
and
valid.
WHEREFORE, the petition is hereby DENIED. The challenged Decision of
the Court of Appeals in CA-G.R. CV No. 38036 is AFFIRMED with
modification that the increase in the stipulated interest rates of 21% per
annum and 18% per annum appearing on Promissory Notes Nos. 127/82
and 128/82 respectively is hereby declared null and void.
SO
ORDERED.
82
facts
of
the
case
are
as
follows:
together with all the penalties, fees, expenses or charges thereon until the
unpaid balance is fully paid, plus attorney's fees equivalent to twenty-five
(25%) percent of the sum sought to be recovered, which in no case shall be
less than Twenty Thousand Pesos (P20,000.00) if the services of a lawyer
were
hired.[6]
In accordance with the terms of the Loan Agreement, respondent Este del
Sol executed several documents[7] as security for payment, among them,
(a) a Real Estate Mortgage dated January 31, 1978 over two (2) parcels of
land being utilized as the site of its development project with an area of
approximately One Million Twenty-Eight Thousand and Twenty-Nine
(1,028,029) square meters and particularly described in TCT Nos. N-24332
and N-24356 of the Register of Deeds of Rizal, inclusive of all
improvements, as well as all the machineries, equipment, furnishings and
furnitures existing thereon; and (b) individual Continuing Suretyship
agreements by co-respondents Valentin S. Daez, Jr., Manuel Q. Salientes,
Ma. Rocio A. De Vega, Alexander G. Asuncion, Alberto M. Ladores, Vicente
M. De Vera, Jr. and Felipe B. Sese, all dated February 2, 1978, to guarantee
the payment of all the obligations of respondent Este del Sol up to the
aggregate sum of Seven Million Five Hundred Thousand Pesos (P7,500,000
00)
each.[8]
Respondent Este del Sol also executed, as provided for by the Loan
Agreement, an Underwriting Agreement on January 31, 1978 whereby
petitioner FMIC shall underwrite on a best-efforts basis the public offering
of One Hundred Twenty Thousand (120,000) common shares of respondent
Este del Sol's capital stock for a one-time underwriting fee of Two Hundred
Thousand Pesos (P200,000.00). In addition to the underwriting fee, the
Underwriting Agreement provided that for supervising the public offering of
the shares, respondent Este del Sol shall pay petitioner FMIC an annual
supervision fee of Two Hundred Thousand Pesos (P200,000.00) per annum
for a period of four (4) consecutive years. The Underwriting Agreement
also stipulated for the payment by respondent Este del Sol to petitioner
FMIC a consultancy fee of Three Hundred Thirty-Two Thousand Five
Hundred Pesos (P332,500.00) per annum for a period of four (4)
consecutive years. Simultaneous with the execution of and in accordance
with the terms of the Underwriting Agreement, a Consultancy Agreement
was also executed on January 31, 1978 whereby respondent Este del Sol
engaged the services of petitioner FMIC for a fee as consultant to render
general
consultancy
services.[9]
In three (3) letters all dated February 22, 1978 petitioner billed respondent
83
Este del Sol for the amounts of [a] Two Hundred Thousand Pesos
(P200,000.00) as the underwriting fee of petitioner FMIC in connection with
the public offering of the common shares of stock of respondent Este del
Sol; [b] One Million Three Hundred Thirty Thousand Pesos (P1,330,000.00)
as consultancy fee for a period of four (4) years; and [c] Two Hundred
Thousand Pesos (P200,000.00) as supervision fee for the year beginning
February, 1978, in accordance to the Underwriting Agreement. [10] The said
amounts of fees were deemed paid by respondent Este del Sol to petitioner
FMIC which deducted the same from the first release of the loan.
Since respondent Este del Sol failed to meet the schedule of repayment in
accordance with a revised Schedule of Amortization, it appeared to have
incurred a total obligation of Twelve Million Six Hundred Seventy-Nine
Thousand Six Hundred Thirty Pesos and Ninety-Eight Centavos
(P12,679,630.98) per the petitioner's Statement of Account dated June 23,
1980,[11] to wit:
Agreement
1,481,879.93
1,200,714.10
4,964.00
----------------------
STATEMENT OF ACCOUNT OF
Total Amount Due and Collectible as of June 23,
1980
PARTICULARS
AMOUNT
P7,999,631.4
2
327,096.04
Balance
8,326,727.46
1,665,345.49
P12,679,63
0.98
84
FMIC on the loan of respondent Este del Sol; and that the stipulated
penalties, liquidated damages and attorney's fees were "excessive,
iniquitous, unconscionable and revolting to the conscience," and declared
that in lieu thereof, the stipulated one time twenty (20%) percent penalty
on the amount due and ten (10%) percent of the amount due as attorney's
fees would be reasonable and suffice to compensate petitioner FMIC for
those items. Thus, the appellate court dismissed the complaint as against
the individual respondents sureties and ordered petitioner FMIC to pay or
reimburse respondent Este del Sol the amount of Nine Hundred SeventyOne Thousand Pesos (P971,000.00) representing the difference between
what is due to the petitioner and what is due to respondent Este del Sol,
based on the following computation:[17]
"A: DUE TO THE [PETITIONER]
P7,382,500
.00
Principal of Loan
Add:
time
20%
one-
Penalty
1,476,500.
00
Attorney's
fees
900,000.00
P9,759,000
.00
Les Proceeds
of
s: foreclosure
Sale
Deficiency
9,000,000.0
0
P
759,000.00
85
fee
Consultanc
1,330,000.00
y fee
Total
amount
due Este
P
1,730,000.0
0
The appellee is, therefore, obliged to return to the appellant Este del Sol
the difference of P971,000.00 or (P1,730,000.00 less P759,000.00)."
Petitioner moved for reconsideration of the appellate court's adverse
decision. However, this was denied in a Resolution [18] dated February 9,
2000
of
the
appellate
court.
Hence, the instant petition anchored on the following assigned errors: [19]
THE APPELLATE COURT HAS DECIDED QUESTIONS OF SUBSTANCE
IN A WAY NOT IN ACCORD WITH LAW AND WITH APPLICABLE
DECISIONS OF THIS HONORABLE COURT WHEN IT:
a] HELD THAT ALLEGEDLY THE UNDERWRITING AND CONSULTANCY
AGREEMENTS SHOULD NOT BE CONSIDERED SEPARATE AND
DISTINCT FROM THE LOAN AGREEMENT, AND INSTEAD, THEY
SHOULD
BE
CONSIDERED
AS
A
SINGLE
CONTRACT.
b]
HELD
THAT
THE
UNDERWRITING
AND
CONSULTANCY
AGREEMENTS ARE "MERE SUBTERFUGES TO CAMOUFLAGE THE
USURIOUS
INTEREST
CHARGED"
BY
THE
PETITIONER.
c] REFUSED TO CONSIDER THE TESTIMONIES OF PETITIONER'S
WITNESSES ON THE SERVICES PERFORMED BY PETITIONER.
d] REFUSED TO CONSIDER THE FACT [i] THAT RESPONDENTS HAD
WAIVED THEIR RIGHT TO SEEK RECOVERY OF THE AMOUNTS THEY
PAID TO PETITIONER, AND [ii] THAT RESPONDENTS HAD ADMITTED
THE VALIDITY OF THE UNDERWRITING AND CONSULTANCY
AGREEMENTS.
e] MADE AN ERRONEOUS COMPUTATION ON SUPPOSEDLY "WHAT IS
DUE TO EACH PARTY AFTER THE FORECLOSURE SALE", AS SHOWN
IN PP. 34-35 OF THE ASSAILED DECISION, EVEN GRANTING JUST
86
87
Art. 1229. The judge shall equitably reduce the penalty when the principal
obligation has been partly or irregularly complied with by the debtor. Even
if there has been no performance, the penalty may also be reduced by the
courts
if
it
is
iniquitous
or
unconscionable.
Art. 2227. Liquidated damages, whether intended as an indemnity or a
penalty, shall be equitably reduced if they are iniquitous or
unconscionable.
In the case at bar, the amount of Three Million One Hundred Eighty-Eight
Thousand Six Hundred Thirty Pesos and Seventy-Five Centavos
(P3,188,630.75) for the stipulated attorney's fees equivalent to twenty-five
(25%) percent of the alleged amount due, as of the date of the auction sale
on June 23, 1980, is manifestly exorbitant and unconscionable.
Accordingly, we agree with the appellate court that a reduction of the
attorney's fees to ten (10%) percent is appropriate and reasonable under
the
facts
and
circumstances
of
this
case.
Lastly, there is no merit to petitioner FMIC's contention that the appellate
court erred in awarding an amount allegedly not asked nor prayed for by
respondents. Whether the exact amount of the relief was not expressly
prayed for is of no moment for the reason that the relief was plainly
warranted by the allegations of the respondents as well as by the facts as
found by the appellate court. A party is entitled to as much relief as the
facts
may
warrant.[47]
In view of all the foregoing, the Court is convinced that the appellate court
committed
no
reversible
error
in
its
challenged
Decision.
WHEREFORE, the instant petition is hereby DENIED, and the assailed
Decision of the Court of Appeals is AFFIRMED. Costs against petitioner.
SO
ORDERED.
88
89
For the third loan availment on July 15, 1997, in the amount of 3.9 million,
the interest rate was initially pegged at 35% p.a., but this was decreased
to 21% p.a. from August 14 until September 11, 1997. The rate
increased slightly to 23% p.a. on September 12, 1997, and surged to
27% p.a. on October 13, 1997. The rate went down slightly to 27% p.a.
for the month of November, and to 26% p.a. for the month of December.
The rate, however, again surged to 30% p.a. on January 12, 1998 before
settling
at
29%
p.a.
for
the
month
of
February.
It is [Permanent's] stand that SOLIDBANK unilaterally and arbitrarily
accelerated the interest rates without any declared basis of such increases,
of which PERMANENT HOMES had not agreed to, or at the very least, been
informed of. This is contrary to their earlier agreement that any interest
rate changes will be subject to mutual agreement of the parties.
PERMANENT HOMES further admits that it was not able to protest such
arbitrary increases at the time they were imposed by SOLIDBANK, for fear
that SOLIDBANK might cut off the credit facility it extended to PERMANENT
HOMES. Permanent was then in the midst of the construction of its project
in Merville, Paraaque City, and SOLIDBANK knew that it was relying
substantially on the credit facility the latter extended to it.
[Permanent] thus filed a case before the trial court seeking the following:
(1) the annulment of the increases in interest rates on the loans it obtained
from SOLIDBANK, on the ground that it was violative of the principle of
mutuality of agreement of the parties, as enunciated in Article 1409 of the
New Civil Code, (2) the fixing of the interest rates at the applicable interest
rate, and (3) for the trial court to order SOLIDBANK to make an accounting
of the payments it made, so as to determine the amount of refund
PERMANENT is entitled to, as well as to order SOLIDBANK to release the
remaining available balance of the loan it extended to PERMANENT. In
addition, [Permanent] prays for the payment of compensatory, moral and
exemplary
damages.
SOLIDBANK, on the other hand, avers that PERMANENT HOMES has no
cause of action against it, in view of the pertinent provisions of the
Omnibus Credit Line and the promissory notes agreed to and signed by
PERMANENT HOMES. Thus, in accordance with said provisions, SOLIDBANK
was authorized to, upon due notice, periodically adjust the interest rates
on PERMANENT HOMES' loan availments during the monthly interest
repricing dates, depending on the changes in prevailing interest rates in
the local and international capital markets. In fact, SOLIDBANK avers that
four (4) days before July 15, 1997, the Bangko Sentral ng Pilipinas (BSP)
declared that it could no longer support the Philippine currency from
external speculative forces, hence, the local currency was allowed to seek
its own exchange rate level. As a result of the volatile exchange rate ratio,
banks were then hesitant to extend loans, and in some instances that it
granted loans, they had to ensure that they will not be at the losing end of
the deal, so to speak, by the repricing of the interest rates every month.
SOLIDBANK insists that PERMANENT HOMES should not be allowed to
renege on its contractual obligations, as it freely and voluntarily bound
itself to the provisions of the Omnibus Credit Line and the promissory
notes.
PERMANENT HOMES presented as witnesses Jacqueline S. Lim, its Vice
President and Chief Financial Officer, Engr. Rey A. Romasanta, its Executive
Vice President and Chief Operating Officer, and Martha Julia Flores, its
Treasury
Officer.
On March 24, 1998, the trial court issued a
(TRO), after a summary hearing, which
implementing and collecting the increases
initiating any action, including the foreclosure
90
The appellate court granted Permanent's appeal, and set aside the trial
court's ruling. The appellate court not only recognized the validity of
escalation clauses, but also underscored the necessity of a basis for the
increase in interest rates and of the principle of mutuality of contracts.
The dispositive portion of the appellate court's decision reads, thus:
THE FOREGOING CONSIDERED, the instant appeal is hereby GRANTED, the
assailed decision dated July 5, 2002 is REVERSED and SET ASIDE, and a
new
one
is
hereby
entered
as
follows:
91
(C) Whether the Honorable Court of Appeals was correct in ruling that
[Permanent] is entitled to attorney's fees notwithstanding the absence of
bad faith or malice on the part of [Solidbank].[8]
pronouncement
as
to
costs.
SO ORDERED.[6]
to
deny
Solidbank's
Motion
for
The Issues
(A) Whether the Honorable Court of Appeals was correct in ruling that the
increases in the interest rates on [Permanent's] loans are void for having
been
unilaterally
imposed
without
basis.
(B) Whether the Honorable Court of Appeals was correct in ordering the
parties to enter into an express agreement regarding the applicable
interest rates on Permanent's loan availments subsequent to the initial
thirty-day
(30)
period.
The
petition
has
merit.
The Usury Law had been rendered legally ineffective by Resolution No. 224
dated 3 December 1982 of the Monetary Board of the Central Bank, and
later by Central Bank Circular No. 905 which took effect on 1 January
1983. These circulars removed the ceiling on interest rates for secured
and unsecured loans regardless of maturity. The effect of these circulars is
to allow the parties to agree on any interest that may be charged on a
loan. The virtual repeal of the Usury Law is within the range of judicial
notice which courts are bound to take into account. [9] Although interest
rates are no longer subject to a ceiling, the lender still does not have an
unbridled license to impose increased interest rates. The lender and the
borrower should agree on the imposed rate, and such imposed rate should
be
in
writing.
The three promissory notes between Solidbank and Permanent all contain
the following provisions:
5. We/I irrevocably authorize Solidbank to increase or decrease at any time
the interest rate agreed in this Note or Loan on the basis of, among others,
prevailing rates in the local or international capital markets. For this
purpose, We/I authorize Solidbank to debit any deposit or placement
account with Solidbank belonging to any one of us. The adjustment of the
interest rate shall be effective from the date indicated in the written notice
sent to us by the bank, or if no date is indicated, from the time the notice
was
sent.
6. Should We/I disagree to the interest rate adjustment, We/I shall prepay
all amounts due under this Note or Loan within thirty (30) days from the
receipt by anyone of us of the written notice. Otherwise, We/I shall be
deemed to have given our consent to the interest rate adjustment.
The stipulations on interest rate repricing are valid because (1) the parties
92
mutually agreed on said stipulations; (2) repricing takes effect only upon
Solidbank's written notice to Permanent of the new interest rate; and (3)
Permanent has the option to prepay its loan if Permanent and Solidbank do
not agree on the new interest rate. The phrases "irrevocably authorize," "at
any time" and "adjustment of the interest rate shall be effective from the
date indicated in the written notice sent to us by the bank, or if no date is
indicated, from the time the notice was sent," emphasize that Permanent
should receive a written notice from Solidbank as a condition for the
adjustment
of
the
interest
rates.
26.0%
28.0%
27.0%
30.0%
29.0%
30.0%
25.0%
27.0%
25.0%
27.0%
In order that obligations arising from contracts may have the force of law
between the parties, there must be a mutuality between the parties based
on their essential equality. [10] A contract containing a condition which
makes its fulfillment dependent exclusively upon the uncontrolled will of
one of the contracting parties is void. [11] There was no showing that either
Solidbank or Permanent coerced each other to enter into the loan
agreements. The terms of the Omnibus Line Agreement and the
promissory notes were mutually and freely agreed upon by the parties.
24.0%
27.0%
23.0%
26.0%
2.0%
23.0%
34.0%
10.0%
23.0%
32.0%
8.0%
24.0%
30.0%
5.0%
25.0%
30.0%
3.5%
25.0%
30.0%
3.5%
Feb. 9, 1998
27.0%
24.0%
30.0%
3.5%
24.0%
29.0%
4.5%
24.0%
30.0%
4.5%
Low
22.0%
23.0%
24.0%
24.0%
23.0%
22.5%
93
officers over the phone at the start of the period. Solidbank did not
present any written memorandum to support its allegation that it promptly
advised Permanent of the change in interest rates. [13] Solidbank advised
Permanent on the repriced interest rate applicable for the 30-day interest
period only after the period had begun. Permanent presented a tabulation
which showed that Solidbank either did not send a billing statement, or
sent a billing statement 6 to 33 days late. [14] We reproduce the tabulation
below:
PN #969 - P18MM
PN #435 - P19.6MM
Reference Interest Period
No.
Date
Billing Number of days
Statements were Billing Statement
faxed
to was Late
Permanent
03/20/97
04/18/97
04/17/97
28
04/18/97
05/19/97
05/16/97
28
05/19/97
06/19/97
Date
Billing Number of days
Statements were Billing Statement
faxed
to was Late
Permanent
06/24/97
07/24/97
07/12/97
18
07/24/97
08/22/97
08/05/97
12
08/22/97
09/22/97
09/10/97
19
09/22/97
10/22/97
10/06/97
14
10/22/97
11/21/97
11/11/97
20
11/21/97
12/22/97
12/12/97
21
12/22/97
01/22/98
01/09/98
18
01/22/98
02/12/97
02/12/98
02/20/98
no
statement
received
no
statement
received
06/19/97
07/18/97
07/12/97
23
07/18/97
08/18/97
08/05/97
18
08/18/97
09/17/97
09/10/97
23
09/17/97
10/17/97
10/06/97
19
PN #1077 - P3.9MM
10/17/97
11/17/97
11/11/97
25
11/17/97
12/17/97
12/12/97
25
12/17/97
01/16/98
01/09/98
23
Date
Billing Number of days
Statements were Billing Statement
faxed
to was Late
Permanent
14
01/16/98
02/20/98
02/18/98
33
10
07/15/97
08/14/97
08/14/97
30
11
08/14/97
08/26/97
08/26/97
12
14
02/18/98
94
95
96
08/26/97
09/12/97
09/10/97
15
09/12/97
10/13/97
10/06/97
24
10/13/97
11/12/97
11/11/97
29
12
11/12/97
12/12/97
12/10/97
28
12/12/97
01/12/98
01/09/98
28
13
01/12/98
02/09/98
02/09/98
28
02/09/98
02/11/98
02/11/98
03/13/98
14
no
statement
received
02/18/98
ORDERED.
97
SILOS,
BANK,
PETITIONERS, VS.
RESPONDENT.
Antecedents
Spouses Eduardo and Lydia Silos (petitioners) have been in business for
about two decades of operating a department store and buying and selling
of ready-to-wear apparel. Respondent Philippine National Bank (PNB) is a
banking corporation organized and existing under Philippine laws.
To secure a one-year revolving credit line of P150,000.00 obtained from
PNB, petitioners constituted in August 1987 a Real Estate Mortgage[5]
over a 370-square meter lot in Kalibo, Aklan covered by Transfer Certificate
of Title No. (TCT) T-14250. In July 1988, the credit line was increased to
P1.8 million and the mortgage was correspondingly increased to P1.8
million.[6] And in July 1989, a Supplement to the Existing Real Estate
Mortgage[7] was executed to cover the same credit line, which was
increased to P2.5 million, and additional security was given in the form of a
134-square meter lot covered by TCT T-16208. In addition, petitioners
issued eight Promissory Notes[8] and signed a Credit Agreement.[9]
This July 1989 Credit Agreement contained a stipulation on interest which
provides as follows:
1.03. Interest. (a) The Loan shall be subject to interest at the rate of
19.5% per annum. Interest shall be payable in advance every one
hundred twenty days at the rate prevailing at the time of the renewal.
(b) The Borrower agrees that the Bank may modify the interest
rate in the Loan depending on whatever policy the Bank may
98
adopt in the future, including without limitation, the shifting from the
floating interest rate system to the fixed interest rate system, or vice
versa. Where the Bank has imposed on the Loan interest at a rate per
annum, which is equal to the Banks spread over the current floating
interest rate, the Borrower hereby agrees that the Bank may,
without need of notice to the Borrower, increase or decrease its
spread over the floating interest rate at any time depending on
whatever policy it may adopt in the future.[10] (Emphases supplied)
The eight Promissory Notes, on the other hand, contained a stipulation
granting PNB the right to increase or reduce interest rates within the
limits allowed by law or by the Monetary Board.[11] The Real Estate
Mortgage agreement provided the same right to increase or reduce
interest rates at any time depending on whatever policy PNB may adopt
in
the
future.[12]
Petitioners religiously paid interest on the notes at the following rates:
1.
2.
3.
4.
5.
6.
7.
8.
2.
3.
4.
5.
6.
7.
8.
9.
99
Principal
P 2,500,000.00
Interest
538,874.94
Penalties
581,666.66
Total
P 3,620,541.60
Despite demand, petitioners failed to pay the foregoing amount. Thus, PNB
foreclosed on the mortgage, and on January 14, 1999, TCTs T-14250 and T16208 were sold to it at auction for the amount of P4,324,172.96. [21] The
sheriffs certificate of sale was registered on March 11, 1999.
More than a year later, or on March 24, 2000, petitioners filed Civil Case
No. 5975, seeking annulment of the foreclosure sale and an accounting of
the PNB credit. Petitioners theorized that after the first promissory note
where they agreed to pay 19.5% interest, the succeeding stipulations for
the payment of interest in their loan agreements with PNB which
allegedly left to the latter the sole will to determine the interest rate
became null and void. Petitioners added that because the interest rates
were fixed by respondent without their prior consent or agreement, these
rates are void, and as a result, petitioners should only be made liable for
interest at the legal rate of 12%. They claimed further that they overpaid
interests on the credit, and concluded that due to this overpayment of
steep interest charges, their debt should now be deemed paid, and the
foreclosure and sale of TCTs T-14250 and T-16208 became unnecessary
and wrongful. As for the imposed penalty of P581,666.66, petitioners
alleged that since the Real Estate Mortgage and the Supplement thereto
did not include penalties as part of the secured amount, the same should
be excluded from the foreclosure amount or bid price, even if such
penalties are provided for in the final Promissory Note, or PN 9707237. [22]
In addition, petitioners sought to be reimbursed an alleged overpayment of
P848,285.00 made during the period August 21, 1991 to March 5, 1998,
resulting from respondents imposition of the alleged illegal and steep
interest rates. They also prayed to be awarded P200,000.00 by way of
attorneys
fees.[23]
In its Answer,[24] PNB denied that it unilaterally imposed or fixed interest
rates; that petitioners agreed that without prior notice, PNB may modify
interest rates depending on future policy adopted by it; and that the
imposition of penalties was agreed upon in the Credit Agreement. It added
that the imposition of penalties is supported by the all-inclusive clause in
the Real Estate Mortgage agreement which provides that the mortgage
shall stand as security for any and all other obligations of whatever kind
and nature owing to respondent, which thus includes penalties imposed
upon default or non-payment of the principal and interest on due date.
100
b) That PNB sent, and petitioners received, a March 10, 2000 demand
letter.[26]
During trial, petitioner Lydia Silos (Lydia) testified that the Credit
Agreement, the Amendment to Credit Agreement, Real Estate Mortgage
and the Supplement thereto were all prepared by respondent PNB and
were presented to her and her husband Eduardo only for signature; that
she was told by PNB that the latter alone would determine the interest
rate; that as to the Amendment to Credit Agreement, she was told that
PNB would fill up the interest rate portion thereof; that at the time the
parties executed the said Credit Agreement, she was not informed about
the applicable spread that PNB would impose on her account; that the
interest rate portion of all Promissory Notes she and Eduardo issued were
always left in blank when they executed them, with respondents mere
assurance that it would be the one to enter or indicate thereon the
prevailing interest rate at the time of availment; and that they agreed to
such arrangement. She further testified that the two Real Estate Mortgage
agreements she signed did not stipulate the payment of penalties; that she
and Eduardo consulted with a lawyer, and were told that PNBs actions
were improper, and so on March 20, 2000, they wrote to the latter seeking
a recomputation of their outstanding obligation; and when PNB did not
oblige,
they
instituted
Civil
Case
No.
5975. [27]
On cross-examination, Lydia testified that she has been in business for 20
years; that she also borrowed from other individuals and another bank;
that it was only with banks that she was asked to sign loan documents with
no indicated interest rate; that she did not bother to read the terms of the
loan documents which she signed; and that she received several PNB
statements of account detailing their outstanding obligations, but she did
not complain; that she assumed instead that what was written therein is
correct.[28]
of
the
Regional
Trial
Court
On February 28, 2003, the trial court rendered judgment dismissing Civil
Case No. 5975.[30] It ruled that:
1.
2.
Banks are allowed to stipulate that interest rates on loans need not
be fixed and instead be made dependent on prevailing rates upon
which to peg such variable interest rates;[33]
3.
4.
5.
For his part, PNB Kalibo Branch Manager Diosdado Aspa, Jr. (Aspa), the sole
witness for respondent, stated on cross-examination that as a practice, the
101
6.
SO ORDERED.[41]
against
the
petitioners.
as
to
costs.
of
Appeals
SO ORDERED.[40]
Ruling
of
On the other hand, respondent did not appeal the June 4, 2003 Order of
the trial court which reduced its award of attorneys fees. It simply raised
the issue in its appellees brief in the CA, and included a prayer for the
reversal
of
said
Order.
In effect, the CA limited petitioners appeal to the following issues:
SO ORDERED.[38]
No
the bid price of P377,505.99 which is the difference between the total
amount
due
[PNB]
and
the
amount
of
its
bid
price.
the
Court
Petitioners appealed to the CA, which issued the questioned Decision with
the following decretal portion:
WHEREFORE, in view of the foregoing, the instant appeal is PARTLY
GRANTED. The modified Decision of the Regional Trial Court per Order
dated June 4, 2003 is hereby AFFIRMED with MODIFICATIONS, to wit:
1. [T]hat the interest rate to be applied after the expiration of the first 30day interest period for PN. No. 9707237 should be 12% per annum;
2.
3.
102
The CA believes that the 24% penalty is covered by the phrase and other
obligations owing by the mortgagor to the mortgagee and should thus be
added
to
the
amount
secured
by
the
mortgages.[44]
The CA then proceeded to declare valid the foreclosure and sale of
properties covered by TCTs T-14250 and T-16208, which came as a
necessary result of petitioners failure to pay the outstanding obligation
upon demand.[45] The CA saw fit to increase the trial courts award of 1% to
10%, finding the latter rate to be reasonable and citing the Real Estate
Mortgage agreement which authorized the collection of the higher rate. [46]
Finally, the CA ruled that petitioners are entitled to P377,505.09 surplus,
which is the difference between PNBs bid price of P4,324,172.96 and
petitioners total computed obligation as of January 14, 1999, or the date
of
the
auction
sale,
in
the
amount
of
P3,946,667.87. [47]
Hence, the present Petition.
Issues
II
THE COURT OF APPEALS AND THE LOWER COURT ERRED IN HOLDING THAT
PENALTIES ARE INCLUDED IN THE SECURED AMOUNT, SUBJECT TO
FORECLOSURE, WHEN NO PENALTIES ARE MENTIONED [NOR] PROVIDED
FOR IN THE REAL ESTATE MORTGAGE AS A SECURED AMOUNT AND
THEREFORE THE AMOUNT OF PENALTIES SHOULD HAVE BEEN EXCLUDED
FROM [THE] FORECLOSURE AMOUNT.
III
A.
Arguments
Petitioners insist that the interest rate provision in the Credit Agreement
and the Amendment to Credit Agreement should be declared null and void,
for they relegated to PNB the sole power to fix interest rates based on
arbitrary criteria or factors such as bank policy, profitability, cost of money,
foreign currency values, and bank administrative costs; spaces for interest
rates in the two Credit Agreements and the promissory notes were left
blank for PNB to unilaterally fill, and their consent or agreement to the
103
interest rates imposed thereafter was not obtained; the interest rate, which
consists of the prime rate plus the bank spread, is determined not by
agreement of the parties but by PNBs Treasury Department in Manila.
Petitioners conclude that by this method of fixing the interest rates, the
principle of mutuality of contracts is violated, and public policy as well as
Circular 905[49] of the then Central Bank had been breached.
Petitioners question the CAs application of the principle of estoppel, saying
that no estoppel can proceed from an illegal act. Though they failed to
timely question the imposition of the alleged illegal interest rates and
continued to pay the loan on the basis of these rates, they cannot be
deemed to have acquiesced, and hence could recover what they
erroneously
paid.[50]
Petitioners argue that if the interest rates were nullified, then their
obligation to PNB is deemed extinguished as of July 1997; moreover, it
would appear that they even made an overpayment to the bank in the
amount
of
P984,287.00.
Next, petitioners suggest that since the Real Estate Mortgage agreements
did not include nor specify, as part of the secured amount, the penalty of
24% authorized in PN 9707237, such amount of P581,666.66 could not be
made answerable by or collected from the mortgages covering TCTs T14250 and T-16208. Claiming support from Philippine Bank of
Communications [PBCom] v. Court of Appeals,[51] petitioners insist that the
phrase and other obligations owing by the mortgagor to the
mortgagee[52] in the mortgage agreements cannot embrace the
P581,666.66 penalty, because, as held in the PBCom case, [a] penalty
charge does not belong to the species of obligations enumerated in the
mortgage, hence, the said contract cannot be understood to secure the
penalty;[53] while the mortgages are the accessory contracts, what items
are secured may only be determined from the provisions of the mortgage
contracts, and not from the Credit Agreement or the promissory notes.
Finally, petitioners submit that the trial courts award of 1% attorneys fees
should be maintained, given that in foreclosures, a lawyers work consists
merely in the preparation and filing of the petition, and involves minimal
study.[54] To allow the imposition of a staggering P396,211.00 for such work
would be contrary to equity. Petitioners state that the purpose of attorneys
fees in cases of this nature is not to give respondent a larger
compensation for the loan than the law already allows, but to protect it
against any future loss or damage by being compelled to retain counsel x x
x to institute judicial proceedings for the collection of its credit. [55] And
because the instant case involves a simple extrajudicial foreclosure,
attorneys
fees
may
be
equitably
tempered.
Respondents
Arguments
For its part, respondent disputes petitioners claim that interest rates were
unilaterally fixed by it, taking relief in the CA pronouncement that
petitioners are deemed estopped by their failure to question the imposed
rates and their continued payment thereof without opposition. It adds that
because the Credit Agreement and promissory notes contained both an
escalation clause and a de-escalation clause, it may not be said that the
bank violated the principle of mutuality. Besides, the increase or decrease
in interest rates have been mutually agreed upon by the parties, as shown
by petitioners continuous payment without protest. Respondent adds that
the alleged unilateral imposition of interest rates is not a proper subject for
review by the Court because the issue was never raised in the lower court.
As for petitioners claim that interest rates imposed by it are null and void
for the reasons that 1) the Credit Agreements and the promissory notes
were signed in blank; 2) interest rates were at short periods; 3) no interest
rates could be charged where no agreement on interest rates was made in
writing; 4) PNB fixed interest rates on the basis of arbitrary policies and
standards left to its choosing; and 5) interest rates based on prime rate
plus applicable spread are indeterminate and arbitrary PNB counters:
a.
b.
104
c.
d.
e.
Respondent directs the attention of the Court to its petition in G.R. No.
181046,[63] where the propriety of the CAs ruling on the following issues is
squarely raised:
1.
That the interest rate to be applied after the expiration of the first
30-day interest period for PN 9707237 should be 12% per annum;
and
2.
That PNB should reimburse petitioners the excess in the bid price
of P377,505.99 which is the difference between the total amount
due to PNB and the amount of its bid price.
Our Ruling
The
Court
grants
the
Petition.
Before anything else, it must be said that it is not the function of the Court
to re-examine or re-evaluate evidence adduced by the parties in the
proceedings below. The rule admits of certain well-recognized exceptions,
though, as when the lower courts findings are not supported by the
evidence on record or are based on a misapprehension of facts, or when
certain relevant and undisputed facts were manifestly overlooked that, if
properly considered, would justify a different conclusion. This case falls
within
such
exceptions.
The Court notes that on March 5, 2008, a Resolution was issued by the
Courts First Division denying respondents petition in G.R. No. 181046, due
to late filing, failure to attach the required affidavit of service of the
petition on the trial court and the petitioners, and submission of a
defective verification and certification of non-forum shopping. On June 25,
2008, the Court issued another Resolution denying with finality
respondents motion for reconsideration of the March 5, 2008 Resolution.
And on August 15, 2008, entry of judgment was made. This thus settles the
issues, as above-stated, covering a) the interest rate or 12% per annum
that applies upon expiration of the first 30 days interest period provided
under PN 9707237, and b) the CAs decree that PNB should reimburse
petitioner
the
excess
in
the
bid
price
of
P377,505.09.
It appears that respondents practice, more than once proscribed by the
Court, has been carried over once more to the petitioners. In a number of
decided cases, the Court struck down provisions in credit documents
issued by PNB to, or required of, its borrowers which allow the bank to
105
increase or decrease interest rates within the limits allowed by law at any
time depending on whatever policy it may adopt in the future. Thus, in
Philippine National Bank v. Court of Appeals,[64] such stipulation and similar
ones were declared in violation of Article 1308 [65] of the Civil Code. In a
second case, Philippine National Bank v. Court of Appeals,[66] the very same
stipulations found in the credit agreement and the promissory notes
prepared and issued by the respondent were again invalidated. The Court
therein said:
The Credit Agreement provided inter alia, that
(a) The BANK reserves the right to increase the interest rate within
the limits allowed by law at any time depending on whatever
policy it may adopt in the future; Provided, that the interest rate on
this accommodation shall be correspondingly decreased in the event that
the applicable maximum interest is reduced by law or by the Monetary
Board. In either case, the adjustment in the interest rate agreed upon shall
take effect on the effectivity date of the increase or decrease in the
maximum interest rate.
The Promissory Note, in turn, authorized the PNB to raise the rate
of interest, at any time without notice, beyond the stipulated rate
of 12% but only within the limits allowed by law.
The
Real
Estate
Mortgage
contract
likewise
provided
that
106
others
consent.
107
Payment
*THREE
of
this
HUNDRED
note
SIXTY
shall
FIVE
be
DAYS*
as
AFTER
follows:
DATE
On the reverse side of the note the following condition was stamped:
All short-term loans to be granted starting January 1, 1978 shall be made
subject to the condition that any and/or all extensions hereof that will leave
any portion of the amount still unpaid after 730 days shall automatically
convert the outstanding balance into a medium or long-term obligation as
the case may be and give the Bank the right to charge the interest
rates prescribed under its policies from the date the account was
originally
granted.
To secure payment of the loan the parties executed a real estate mortgage
contract
which
provided:
(k)
The
promissory
note
contained
the
following
stipulation:
INCREASE
OF
INTEREST
RATE:
That ruling is correct. It is in line with our decision in Banco Filipino Savings
& Mortgage Bank v. Navarro that although P.D. No. 1684 is not to be
retroactively applied to loans granted before its effectivity, there must
nevertheless be a de-escalation clause to mitigate the one-sidedness of
the escalation clause. Indeed because of concern for the unequal status of
borrowers vis-a-vis the banks, our cases after Banco Filipino have
fashioned the rule that any increase in the rate of interest made
pursuant to an escalation clause must be the result of agreement
108
between
the
parties.
109
Verily, all these cases, including the present one, involve identical or
similar provisions found in respondents credit agreements and promissory
notes. Thus, the July 1989 Credit Agreement executed by petitioners and
respondent contained the following stipulation on interest:
1.03. Interest. (a) The Loan shall be subject to interest at the rate of 19.5%
[per annum]. Interest shall be payable in advance every one hundred
twenty days at the rate prevailing at the time of the renewal.
(b) The Borrower agrees that the Bank may modify the interest rate in
the Loan depending on whatever policy the Bank may adopt in the
future, including without limitation, the shifting from the floating interest
rate system to the fixed interest rate system, or vice versa. Where the
Bank has imposed on the Loan interest at a rate per annum which is equal
to the Banks spread over the current floating interest rate, the Borrower
hereby agrees that the Bank may, without need of notice to the
Borrower, increase or decrease its spread over the floating
interest rate at any time depending on whatever policy it may
adopt in the future.[76] (Emphases supplied)
while the eight promissory notes issued pursuant thereto granted PNB the
right to increase or reduce interest rates within the limits allowed by law
or the Monetary Board[77] and the Real Estate Mortgage agreement
included the same right to increase or reduce interest rates at any time
depending on whatever policy PNB may adopt in the future.[78]
should
likewise
fail.
Promissory
2nd
Promissory
3rd
Promissory
4th
Promissory
Note
Note
Note
Note
dated
dated
dated
dated
July
24,
November
March
1989
22,
1989
21,
July
19,
1990
1990
19.5%;
23%;
22%;
24%;
5th
Promissory
Note
dated
December
17,
1990
28%;
6th
Promissory
Note
dated
February
14,
1991
32%;
7th
Promissory
30%;
and
Note
dated
March
1,
1991
110
22nd
Promissory
Note
dated
April
22,
1996
18.5%;
23rd
Promissory
Note
dated
July
22,
1996
18.5%;
Promissory
10th
Promissory
11th
Promissory
Note
Note
Note
November
dated
dated
13th
Promissory
Note
dated
March
14th
Promissory
Note
dated
July
16th
Promissory
17th
Promissory
18th
Promissory
Note
Note
Note
Note
dated
dated
dated
dated
12,
17,
13,
November
April
20th
Promissory
Note
dated
July
December
1991
26%;
1992
25%;
1992
23%;
1992
1993
1993
28,
July
dated
dated
15,
March
Note
Note
10,
November
Promissory
Promissory
11,
November
19th
21st
8,
19,
July
Promissory
Promissory
dated
March
12th
15th
Note
dated
16,
10,
19,
18,
21%;
21%;
1993
17.5%;
21%;
1994
21%;
1994
21%;
1994
1995
1995
1995
16%;
21%;
18.5%;
18.75%;
24th
Promissory
Note
25th
Promissory
Note
dated
dated
November
May
30,
25,
1997
1996
17.5%;
18%;
and
26th Promissory Note (PN 9707237) dated July 30, 1997 25%.[81]
The 9th up to the 17th promissory notes provide for the payment of
interest at the rate the Bank may at any time without notice, raise within
the limits allowed by law x x x.[82] On the other hand, the 18th up to the
26th promissory notes which includes PN 9707237 carried the following
provision:
x x x For this purpose, I/We agree that the rate of interest herein
stipulated may be increased or decreased for the subsequent
Interest Periods, with prior notice to the Borrower in the event of
changes in interest rate prescribed by law or the Monetary Board
of the Central Bank of the Philippines, or in the Banks overall cost
of funds. I/We hereby agree that in the event I/we are not
agreeable to the interest rate fixed for any Interest Period, I/we
shall have the option to prepay the loan or credit facility without
penalty within ten (10) calendar days from the Interest Setting
Date.[83] (Emphasis supplied)
These stipulations must be once more invalidated, as was done in previous
cases. The common denominator in these cases is the lack of agreement of
the parties to the imposed interest rates. For this case, this lack of consent
by the petitioners has been made obvious by the fact that they signed the
promissory notes in blank for the respondent to fill. We find credible the
testimony of Lydia in this respect. Respondent failed to discredit her; in
fact, its witness PNB Kalibo Branch Manager Aspa admitted that interest
rates were fixed solely by its Treasury Department in Manila, which were
then simply communicated to all PNB branches for implementation. If this
were the case, then this would explain why petitioners had to sign the
promissory notes in blank, since the imposable interest rates have yet to
be determined and fixed by respondents Treasury Department in Manila.
Moreover, in Aspas enumeration of the factors that determine the interest
rates PNB fixes such as cost of money, foreign currency values, bank
administrative costs, profitability, and considerations which affect the
111
The Bank reserves the right to increase the interest rate within the limits
allowed by law at any time depending on whatever policy it may adopt in
the future: Provided, that, the interest rate on this accommodation shall be
correspondingly decreased in the event that the applicable maximum
interest rate is reduced by law or by the Monetary Board. In either case,
the adjustment in the interest rate agreed upon shall take effect on the
effectivity date of the increase or decrease in maximum interest rate. [85]
(Emphasis supplied)
What is even more glaring in the present case is that, the stipulations in
question no longer provide that the parties shall agree upon the interest
rate to be fixed; -instead, they are worded in such a way that the borrower
shall agree to whatever interest rate respondent fixes. In credit
agreements covered by the above-cited cases, it is provided that:
THE
JULY
1989
CREDIT
AGREEMENT
(b) The Borrower agrees that the Bank may modify the interest rate on
the Loan depending on whatever policy the Bank may adopt in the future,
including without limitation, the shifting from the floating interest rate
system to the fixed interest rate system, or vice versa. Where the Bank has
imposed on the Loan interest at a rate per annum, which is equal to the
Banks spread over the current floating interest rate, the Borrower
hereby agrees that the Bank may, without need of notice to the
Borrower, increase or decrease its spread over the floating interest rate at
any time depending on whatever policy it may adopt in the future. [86]
(Emphases
supplied)
IN
THE
AUGUST
1991
AMENDMENT
TO
CREDIT
AGREEMENT
112
(3) the difference between the amounts set forth under clauses (1) and
(2);
(4) the charges, individually itemized, which are paid or to be paid by such
person in connection with the transaction but which are not incident to the
extension
of
credit;
(5)
the
total
amount
to
be
financed;
(3) the difference between the amounts set forth under clauses (1) and
(2);
(6) the finance charge expressed in terms of pesos and centavos; and
(4) the charges, individually itemized, which are paid or to be paid by such
person in connection with the transaction but which are not incident to the
extension
of
credit;
(7) the percentage that the finance bears to the total amount to be
financed expressed as a simple annual rate on the outstanding unpaid
balance of the obligation.
(5)
the
total
amount
to
be
financed;
(6) the finance charge expressed in terms of pesos and centavos; and
113
(7) the percentage that the finance bears to the total amount to be
financed expressed as a simple annual rate on the outstanding unpaid
balance of the obligation.
The rationale of this provision is to protect users of credit from a
lack of awareness of the true cost thereof, proceeding from the
experience that banks are able to conceal such true cost by
hidden charges, uncertainty of interest rates, deduction of
interests from the loaned amount, and the like. The law thereby
seeks to protect debtors by permitting them to fully appreciate
the true cost of their loan, to enable them to give full consent to
the contract, and to properly evaluate their options in arriving at
business decisions. Upholding UCPBs claim of substantial compliance
would defeat these purposes of the Truth in Lending Act. The belated
discovery of the true cost of credit will too often not be able to
reverse the ill effects of an already consummated business
decision.
In addition, the promissory notes, the copies of which were
presented to the spouses Beluso after execution, are not sufficient
notification from UCPB. As earlier discussed, the interest rate
provision therein does not sufficiently indicate with particularity
the interest rate to be applied to the loan covered by said
promissory notes.[92] (Emphases supplied)
However, the one-year period within which an action for violation of the
Truth in Lending Act may be filed evidently prescribed long ago, or
sometime in 2001, one year after petitioners received the March 2000
demand
letter
which
contained
the
illegal
charges.
The fact that petitioners later received several statements of account
detailing its outstanding obligations does not cure respondents breach. To
repeat, the belated discovery of the true cost of credit does not reverse the
ill effects of an already consummated business decision. [93] Neither may the
statements be considered proposals sent to secure the petitioners
conformity; they were sent after the imposition and application of the
interest rate, and not before. And even if it were to be presumed that these
are proposals or offers, there was no acceptance by petitioners. No one
receiving a proposal to modify a loan contract, especially regarding
interest,
is
obliged
to
answer
the
proposal. [94]
Loan and credit arrangements may be made enticing by, or sweetened
114
any installment thereon, when due, shall constitute default, and a penalty
charge of 24% per annum based on the defaulted principal amount shall
be imposed. Petitioners claim that this penalty should be excluded from
the foreclosure amount or bid price because the Real Estate Mortgage and
the Supplement thereto did not specifically include it as part of the secured
amount. Respondent justifies its inclusion in the secured amount, saying
that the purpose of the penalty or a penal clause is to ensure the
performance of the obligation and substitute for damages and the
payment of interest in the event of non-compliance. [100] Respondent adds
that the imposition and collection of a penalty is a normal banking practice,
and the standard rate per annum for all commercial banks, at the time,
was 24%. Its inclusion as part of the secured amount in the mortgage
agreements
is
thus
valid
and
necessary.
The Court sustains petitioners view that the penalty may not be included
as part of the secured amount. Having found the credit agreements and
promissory notes to be tainted, we must accord the same treatment to the
mortgages. After all, [a] mortgage and a note secured by it are deemed
parts of one transaction and are construed together. [101] Being so tainted
and having the attributes of a contract of adhesion as the principal credit
documents, we must construe the mortgage contracts strictly, and against
the party who drafted it. An examination of the mortgage agreements
reveals that nowhere is it stated that penalties are to be included in the
secured amount. Construing this silence strictly against the respondent,
the Court can only conclude that the parties did not intend to include the
penalty allowed under PN 9707237 as part of the secured amount. Given
its resources, respondent could have if it truly wanted to conveniently
prepared and executed an amended mortgage agreement with the
petitioners, thereby including penalties in the amount to be secured by the
encumbered
properties.
Yet
it
did
not.
With regard to attorneys fees, it was plain error for the CA to have passed
upon the issue since it was not raised by the petitioners in their appeal; it
was the respondent that improperly brought it up in its appellees brief,
when it should have interposed an appeal, since the trial courts Decision
on this issue is adverse to it. It is an elementary principle in the subject of
appeals that an appellee who does not himself appeal cannot obtain from
the appellate court any affirmative relief other than those granted in the
decision of the court below.
x x x [A]n appellee, who is at the same time not an appellant, may on
appeal be permitted to make counter assignments of error in ordinary
115
The 1st Promissory Note with the 19.5% interest rate is deemed
proper and paid;
2.
3.
4.
28, 1997 until January 14, 1999, which is the date of the auction
sale;
5.
6.
7.
The sum total of the outstanding balance (3.), interest (4.) and 1%
attorneys fees (6.) shall be DEDUCTED from the bid price of
P4,324,172.96. The penalties (5.) are not included because they
are not included in the secured amount;
8.
9.
Respondent may then proceed to consolidate its title to TCTs T14250 and T-16208;
116
6.
7.
8.
Considering that this case has been pending for such a long time
and that further proceedings, albeit uncomplicated, are required,
the trial court is ORDERED to proceed with dispatch.
15. Respondent may then proceed to consolidate its title to TCTs T14250 and T-16208. The outstanding penalties, if any, shall be
collected by other means.
From the above, it will be seen that if, after proper accounting, it turns out
that the petitioners made payments exceeding what they actually owe by
way of principal, interest, and attorneys fees, then the mortgaged
properties need not answer for any outstanding secured amount, because
there is not any; quite the contrary, respondent must refund the excess to
petitioners. In such case, the extrajudicial foreclosure and sale of the
properties shall be declared null and void for obvious lack of basis, the
case being one of solutio indebiti instead. If, on the other hand, it turns out
that petitioners overpayments in interests do not exceed their total
obligation, then the respondent may consolidate its ownership over the
properties, since the period for redemption has expired. Its only obligation
will be to return the difference between its bid price (P4,324,172.96) and
petitioners total obligation outstanding except penalties after applying
the
latters
overpayments.
WHEREFORE, premises considered, the Petition is GRANTED. The May 8,
2007 Decision of the Court of Appeals in CA-G.R. CV No. 79650 is
ANNULLED and SET ASIDE. Judgment is hereby rendered as follows:
1.
The interest rates imposed and indicated in the 2nd up to the 26th
Promissory Notes are DECLARED NULL AND VOID, and such
notes shall instead be subject to interest at the rate of twelve
percent (12%) per annum up to June 30, 2013, and starting July 1,
2013, six percent (6%) per annum until full satisfaction;
2.
3.
The trial courts award of one per cent (1%) attorneys fees is
REINSTATED;
4.
SO
ORDERED.
117
centum per annum, computed from August 31, 1993 until full payment of
the said amount, and in addition, an amount equivalent to ten (10%) per
centum of the total amount due and payable, for attorneys fees, without
pronouncement as to costs.[5]
DECISION
The Facts
PANGANIBAN, J.:
Iniquitous and unconscionable stipulations on interest rates, penalties and
attorneys fees are contrary to morals. Consequently, courts are granted
authority to reduce them equitably. If reasonably exercised, such authority
shall not be disturbed by appellate courts.
The Case
P 50,000.00
(b)
40,000.00
(c)
January 6, 1988
30,000.00
(d)
50,000.00
(e)
50,000.00
(f)
100,000.00
Total
P320,000.00
The loans were covered by six (6) separate promissory notes executed by
defendant. The face value of each promissory notes is bigger [than] the
amount released to defendant because said face value already include[d]
the interest from date of note to date of maturity. Said promissory notes,
which indicate the interest of 16% per month, date of issue, due date, the
corresponding guarantee checks issued by defendant, penalties and
attorneys fees, are the following:
118
1.
2.
3.
4.
5.
6.
1988, in the total sum of P320,000.00 at the rate of sixteen percent (16%)
per month. The notes mature[d] every four (4) months with unearned
interest compounding every four (4) months if the loan [was] not fully paid.
The loan releases [were] as follows:
(a)
P 50,000.00
(b)
40,000.00
(c)
January 6, 1988
30,000.00
(d)
50,000.00
(e)
50,000.00
(f)
100,000.00
Total
P320,000.00
The particulars about the postdated checks, i.e., number, amount, date,
etc., are indicated in each of the promissory notes. Thus, for Exhibit D,
four (4) PB checks were issued; for Exhibit E four (4) checks; for Exhibit F
four (4) checks; for Exhibit G four (4) checks; for Exhibit H one (1) check;
for
Exhibit
I
one
(1)
check;
The arrangement between plaintiff and defendant regarding these
guarantee checks was that each time a check matures the defendant
would
exchange
it
with
cash.
The loan on November 13, 1987 and January 6, 1988 ha[d] been fully paid
including the usurious interests of 16% per month, this is the reason why
these
were
not
included
in
the
complaint.
Defendant alleges that all the above amounts were released respectively
by checks drawn by the plaintiff, and the latter must produce these checks
as these were returned to him being the drawer if only to serve the truth.
The above amount are the real amount released to the defendant but the
plaintiff by masterful machinations made it appear that the total amount
released was P462,600.00. Because in his computation he made it appear
that the true amounts released was not the original amount, since it
include[d]
the
unconscionable
interest
for
four
months.
Further, defendant claims that as of January 25, 1989, the total payments
made by defendants [were] as follows:
a.
b.
P 80,000.00
Exhibit 26 Receipt
231,000.00
119
c.
65,300.00
d.
Exhibit 27 Receipt
65,000.00
Total
P441,780.00
Less:
320,000.00
Excess Payment
P121,780.00
Defendant contends that from all perspectives the above excess payment
of P121,780.00 is more than the interest that could be legally charged, and
in fact as of January 25, 1989, the total releases have been fully paid.
5. The non-inclusion of the husband of the petitioner at the time the case
was filed should have dismissed this case. [8]
On 31 August 1993, the trial court rendered the assailed decision. [6]
The Petition has no merit.
Ruling of the Court of Appeals
On appeal, the CA held that without judicial inquiry, it was improper for the
RTC to rule on the constitutionality of Section 1, Central Bank Circular No.
905, Series of 1982. Nonetheless, the appellate court affirmed the
judgment of the trial court, holding that the latters clear and detailed
computation of petitioners outstanding obligation to respondent was
convincing
and
satisfactory.
Hence, this Petition.[7]
The Issues
First
Computation of Outstanding Obligation
Issue:
Arguing that she had already fully paid the loan before the filing of the
case, petitioner alleges that the two lower courts misappreciated the facts
when they ruled that she still had an outstanding balance of P208,430.
This issue involves a question of fact. Such question exists when a doubt or
difference arises as to the truth or the falsehood of alleged facts; and when
there is need for a calibration of the evidence, considering mainly the
credibility of witnesses and the existence and the relevancy of specific
surrounding circumstances, their relation to each other and to the whole,
and
the
probabilities
of
the
situation.[9]
It is a well-entrenched rule that pure questions of fact may not be the
subject of an appeal by certiorari under Rule 45 of the Rules of Court, as
this remedy is generally confined to questions of law. [10] The jurisdiction of
this Court over cases brought to it is limited to the review and rectification
of errors of law allegedly committed by the lower court. As a rule, the
latters factual findings, when adopted and affirmed by the CA, are final
and
conclusive
and
may
not
be
reviewed
on
appeal. [11]
Generally, this Court is not required to analyze and weigh all over again
the evidence already considered in the proceedings below. [12] In the present
120
Issue:
The trial court, as affirmed by the CA, reduced the interest rate from 16
percent to 1.167 percent per month or 14 percent per annum; and the
stipulated penalty charge, from 5 percent to 1.167 percent per month or
14
percent
per
annum.
Petitioner alleges that absent any written stipulation between the parties,
the lower courts should have imposed the rate of 12 percent per annum
only.
The records show that there was a written agreement between the parties
for the payment of interest on the subject loans at the rate of 16 percent
per month. As decreed by the lower courts, this rate must be equitably
reduced for being iniquitous, unconscionable and exorbitant. While the
Usury Law ceiling on interest rates was lifted by C.B. Circular No. 905,
nothing in the said circular grants lenders carte blanche authority to raise
interest rates to levels which will either enslave their borrowers or lead to a
hemorrhaging
of
their
assets.[13]
In Medel v. CA,[14] the Court found the stipulated interest rate of 5.5 percent
per month, or 66 percent per annum, unconscionable. In the present case,
the rate is even more iniquitous and unconscionable, as it amounts to 192
percent per annum. When the agreed rate is iniquitous or unconscionable,
it is considered contrary to morals, if not against the law. [Such]
stipulation
is
void.[15]
Since the stipulation on the interest rate is void, it is as if there were no
express contract thereon.[16] Hence, courts may reduce the interest rate as
reason and equity demand. We find no justification to reverse or modify the
rate imposed by the two lower courts.
Third
and
Penalties and Attorneys Fees
Fourth
Issue:
Issue:
121
Petitioner contends that the case against her should have been dismissed,
because her husband was not included in the proceedings before the RTC.
We are not persuaded. The husbands non-joinder does not warrant
dismissal, as it is merely a formal requirement that may be cured by
amendment.[20] Since petitioner alleges that her husband has already
passed away, such an amendment has thus become moot.
WHEREFORE,
SO
the
Petition
is
DENIED.
Costs
against
petitioner.
ORDERED.
122
Petitioner Advocates for Truth in Lending, Inc. (AFTIL) is a non- profit, nonstock corporation organized to engage in pro bono concerns and activities
relating to money lending issues. It was incorporated on July 9, 2010, [2] and
a month later, it filed this petition, joined by its founder and president,
Eduardo
B.
Olaguer,
suing
as
a
taxpayer
and
a
citizen.
R.A. No. 265, which created the Central Bank (CB) of the Philippines on
June 15, 1948, empowered the CB-MB to, among others, set the maximum
interest rates which banks may charge for all types of loans and other
credit operations, within limits prescribed by the Usury Law. Section 109 of
R.A. No. 265 reads:
Sec. 109. Interest Rates, Commissions and Charges. The Monetary
Board may fix the maximum rates of interest which banks may pay on
deposits
and
on
other
obligations.
the maximum rates of interest which banks may charge for different types
of loans and for any other credit operations, or may fix the maximum
differences which may exist between the interest or rediscount rates of the
Central Bank and the rates which the banks may charge their customers if
the respective credit documents are not to lose their eligibility for
rediscount
or
advances
in
the
Central
Bank.
Any modifications in the maximum interest rates permitted for the
borrowing or lending operations of the banks shall apply only to future
operations and not to those made prior to the date on which the
modification
becomes
effective.
In order to avoid possible evasion of maximum interest rates set by the
Monetary Board, the Board may also fix the maximum rates that banks
may pay to or collect from their customers in the form of commissions,
discounts, charges, fees or payments of any sort. (Underlining ours)
On March 17, 1980, the Usury Law was amended by Presidential Decree
(P.D.) No. 1684, giving the CB-MB authority to prescribe different maximum
rates of interest which may be imposed for a loan or renewal thereof or the
forbearance of any money, goods or credits, provided that the changes are
effected gradually and announced in advance. Thus, Section 1-a of Act No.
2655 now reads:
Sec. 1-a. The Monetary Board is hereby authorized to prescribe the
maximum rate or rates of interest for the loan or renewal thereof or the
forbearance of any money, goods or credits, and to change such rate or
rates whenever warranted by prevailing economic and social conditions:
Provided, That changes in such rate or rates may be effected gradually on
scheduled
dates
announced
in
advance.
In the exercise of the authority herein granted the Monetary Board may
prescribe higher maximum rates for loans of low priority, such as consumer
loans or renewals thereof as well as such loans made by pawnshops,
finance companies and other similar credit institutions although the rates
prescribed for these institutions need not necessarily be uniform. The
Monetary Board is also authorized to prescribe different maximum rate or
rates for different types of borrowings, including deposits and deposit
substitutes, or loans of financial intermediaries. (Underlining and emphasis
ours)
The Monetary Board may, within the limits prescribed in the Usury Law fix
123
In its Resolution No. 2224 dated December 3, 1982, [3] the CB-MB issued CB
Circular No. 905, Series of 1982, effective on January 1, 1983. Section 1 of
the Circular, under its General Provisions, removed the ceilings on interest
rates on loans or forbearance of any money, goods or credits, to wit:
To justify their skipping the hierarchy of courts and going directly to this
Court to secure a writ of certiorari, petitioners contend that the
transcendental importance of their Petition can readily be seen in the
issues raised therein, to wit:
a) Whether under R.A. No. 265 and/or P.D. No. 1684, the CB-MB had the
statutory or constitutional authority to prescribe the maximum rates of
interest for all kinds of credit transactions and forbearance of money,
goods or credit beyond the limits prescribed in the Usury Law;
124
mere
technicality.[16]
125
involving the on-line lottery contract of the PCSO, there was no allegation
that public funds were being misspent, which according to the Court would
have made the action a public one, and justify relaxation of the
requirement that an action must be prosecuted in the name of the real
party-in-interest. The Court held, moreover, that the status of Kilosbayan
as a peoples organization did not give it the requisite personality to
question the validity of the contract. Thus:
Petitioners do not in fact show what particularized interest they have for
bringing this suit. It does not detract from the high regard for petitioners as
civic leaders to say that their interest falls short of that required to
maintain an action under the Rule 3, Sec. 2.[24]
While the Court may have shown in recent decisions a certain toughening
in its attitude concerning the question of legal standing, it has nonetheless
always made an exception where the transcendental importance of the
issues has been established, notwithstanding the petitioners failure to
show a direct injury.[27] In CREBA v. ERC,[28] the Court set out the following
instructive guides as determinants on whether a matter is of
transcendental importance, namely: (1) the character of the funds or other
assets involved in the case; (2) the presence of a clear case of disregard of
a constitutional or statutory prohibition by the public respondent agency or
instrumentality of the government; and (3) the lack of any other party with
a more direct and specific interest in the questions being raised. Further,
the Court stated in Anak Mindanao Party-List Group v. The Executive
Secretary[29] that the rule on standing will not be waived where these
determinants
are
not
established.
In the instant case, there is no allegation of misuse of public funds in the
implementation of CB Circular No. 905. Neither were borrowers who were
actually affected by the suspension of the Usury Law joined in this petition.
Absent any showing of transcendental importance, the petition must fail.
More importantly, the Court notes that the instant petition adverted to the
regime of high interest rates which obtained at least 15 years ago, when
the banks prime lending rates ranged from 26% to 31%, [30] or even 29
years ago, when the 91-day Jobo bills reached 40% per annum. In contrast,
according to the BSP, in the first two (2) months of 2012 the bank lending
rates averaged 5.91%, which implies that the banks prime lending rates
were lower; moreover, deposit interests on savings and long-term deposits
have also gone very low, averaging 1.75% and 1.62%, respectively. [31]
Judging from the most recent auctions of T-bills, the savings rates must be
approaching 0%. In the auctions held on November 12, 2012, the rates of
3-month, 6-month and 1-year T-bills have dropped to 0.150%, 0.450% and
0.680%, respectively.[32] According to Manila Bulletin, this very low interest
regime has been attributed to high liquidity and strong investor demand
amid
positive
economic
indicators
of
the
country. [33]
While the Court acknowledges that cases of transcendental importance
demand that they be settled promptly and definitely, brushing aside, if we
must, technicalities of procedure, [34] the delay of at least 15 years in the
filing of the instant petition has actually rendered moot and academic the
issues
it
now
raises.
126
Thus, according to the Court, by lifting the interest ceiling, CB Circular No.
905 merely upheld the parties freedom of contract to agree freely on the
rate of interest. It cited Article 1306 of the New Civil Code, under which the
contracting parties may establish such stipulations, clauses, terms and
conditions as they may deem convenient, provided they are not contrary to
law,
morals,
good
customs,
public
order,
or public
policy.
E. The BSP-MB has authority to
127
repeal Section 1-a of Act No. 2655, it would have so stated in unequivocal
terms.
Moreover, the rule is settled that repeals by implication are not favored,
because laws are presumed to be passed with deliberation and full
knowledge of all laws existing pertaining to the subject. [46] An implied
repeal is predicated upon the condition that a substantial conflict or
repugnancy is found between the new and prior laws. Thus, in the absence
of an express repeal, a subsequent law cannot be construed as repealing a
prior law unless an irreconcilable inconsistency and repugnancy exists in
the terms of the new and old laws. [47] We find no such conflict between the
provisions
of
Act
2655
and
R.A.
No.
7653.
F. The lifting of the ceilings for interest rates does not authorize
stipulations charging excessive, unconscionable, and iniquitous
interest.
It is settled that nothing in CB Circular No. 905 grants lenders a carte
blanche authority to raise interest rates to levels which will either enslave
their borrowers or lead to a hemorrhaging of their assets. [48] As held in
Castro v. Tan:[49]
The imposition of an unconscionable rate of interest on a money debt,
even if knowingly and voluntarily assumed, is immoral and unjust. It is
tantamount to a repugnant spoliation and an iniquitous deprivation of
property, repulsive to the common sense of man. It has no support in law,
in principles of justice, or in the human conscience nor is there any reason
whatsoever which may justify such imposition as righteous and as one that
may be sustained within the sphere of public or private morals. [50]
128
WHEREFORE,
DISMISSED.
SO
premises
considered,
the
Petition
for
certiorari
is
ORDERED.
129