CATHOLIC VICAR APOSTOLIC OF THE MOUNTAIN
PROVINCE, petitioner, vs. COURT OF APPEALS, HEIRS OF
EGMIDIO OCTAVIANO AND JUAN VALDEZ, respondents.
Ordinary acquisitive prescription requires possession for
10 years, but always with just title. Extra-Ordinary
Acquisitive prescription requires 30 years. Petitioner failed
to meet the requirements of both ordinary and extra-
ordinary prescription. — Petitioner was in possession as
borrower in commodatum up to 1951, when it repudiated the
trust by declaring the properties in its name for taxation
purposes. When petitioner applied for registration of Lots 2 and
3 in 1962, it had been in possession in concept of owner only for
eleven years. Ordinary acquisitive prescription requires
possession for ten years, but always with just title. Extraordinary
acquisitive prescription requires 30 years. x x x The Court of
Appeals found that petitioner did not meet the requirement of 30
years possession for acquisitive prescription over Lots 2 and 3.
Neither did it satisfy the requirement of 10 years possession for
ordinary acquisitive prescription because of the absence of just
title. The appellate court did not believe the findings of the trial
court that Lot 2 was acquired from Juan Valdez by purchase and
Lot 3 was acquired also by purchase from Egmidio Octaviano
by petitioner Vicar because there was absolutely no
documentary evidence to support the same and the alleged
purchases were never mentioned in the application for
registration.
When petitioner borrowed the house of private
respondents’ predecessors, and petitioner was allowed its
free use, private respondents became bailors in
commodatum, and petitioner, the bailee. —Private
respondents were able to prove that their predecessors’ house
was borrowed by petitioner Vicar after the church and the
convent were destroyed. They never asked for the return of the
house, but when they allowed its free use, they became bailors
in commodatum and the petitioner the bailee. The bailees’
failure to return the subject matter of commodatum to the bailor
did not mean adverse possession on the part of the borrower.
The bailee held in trust the property subject matter of
commodatum. The adverse claim of petitioner came only in
1951 when it declared the lots for taxation purposes. The action
of petitioner Vicar by such adverse claim could not ripen into title
by way of ordinary acquisitive prescription because of the
absence of just title.
The principle of res judicata applies in the instant case. The
presentation of evidence cannot alter the findings on the
issues resolved with finality a long time ago. —On the above
findings of facts supported by evidence and evaluated by the
Court of Appeals in CA-G.R. No. 38830-R, affirmed by this
Court, We see no error in respondent appellate court’s ruling
that said findings are res judicata between the parties. They can
no longer be altered by presentation of evidence because those
issues were resolved with finality a long time ago. To ignore the
principle of res judicata would be to open the door to endless
litigations by continuous determination of issues without end.
COLITO T. PAJUYO, petitioner, vs. COURT OF APPEALS
and EDDIE GUEVARRA, respondents.
Actions; Appeals; Pleadings and Practice; Decisions of
regional trial courts in the exercise of their appellate
jurisdiction are appealable to the Court of Appeals by
petition for review in cases involving questions of fact or
mixed questions of fact and law while their decisions
involving pure questions of law are appealable directly to
the Supreme Court.—Decisions of the regional trial courts in
the exercise of their appellate jurisdiction are appealable to the
Court of Appeals by petition for review in cases involving
questions of fact or mixed questions of fact and law. Decisions
of the regional trial courts involving pure questions of law are
appealable directly to this Court by petition for review. These
modes of appeal are now embodied in Section 2, Rule 41 of the
1997 Rules of Civil Procedure.
Same; Same; Questions of Law and Questions of Fact;
Words and Phrases; There is a question of law when the
doubt or difference is on what the law is on a certain state
of facts and there is a question of fact when the doubt or
difference is on the truth or falsity of the facts alleged.—
Guevarra believed that his appeal of the RTC decision involved
only questions of law. Guevarra thus filed his motion for
extension to file petition for review before this Court on 14
December 1996. On 3 January 1997, Guevarra then filed his
petition for review with this Court. A perusal of Guevarra’s
petition for review gives the impression that the issues he raised
were pure questions of law. There is a question of law when the
doubt or difference is on what the law is on a certain state of
facts. There is a question of fact when the doubt or difference is
on the truth or falsity of the facts alleged.
Same; Same; The Court of Appeals has the power to grant an
extension of time to file a petition for review—the prohibition
against granting an extension of time applies only in a case
where ordinary appeal is perfected by a mere notice of appeal.—
The Court of Appeals has the power to grant an extension of
time to file a petition for review. In Lacsamana v. Second Special
Cases Division of the Intermediate Appellate Court, we declared
that the Court of Appeals could grant extension of time in
appeals by petition for review. In Liboro v. Court of Appeals, we
clarified that the prohibition against granting an extension of time
applies only in a case where ordinary appeal is perfected by a
mere notice of appeal. The prohibition does not apply in a
petition for review where the pleading needs verification. A
petition for review, unlike an ordinary appeal, requires
preparation and research to present a persuasive position. The
drafting of the petition for review entails more time and effort
than filing a notice of appeal. Hence, the Court of Appeals may
allow an extension of time to file a petition for review.
Same; Same; Judgments; Pleadings and Practice; A
judgment becomes “final and executory” by operation of
law; The material dates to consider in determining the
timeliness of the filing of the motion for extension are (1)
the date of receipt of the judgment or final order or
resolution subject of the petition, and (2) the date of filing
of the motion for extension.—A judgment becomes “final and
executory” by operation of law. Finality of judgment becomes a
fact on the lapse of the reglementary period to appeal if no
appeal is perfected. The RTC decision could not have gained
finality because the Court of Appeals granted the 30-day
extension to Guevarra. The Court of Appeals did not commit
grave abuse of discretion when it approved Guevarra’s motion
for extension. The Court of Appeals gave due course to the
motion for extension because it complied with the condition set
by the appellate court in its resolution dated 28 January 1997.
The resolution stated that the Court of Appeals would only give
due course to the motion for extension if filed on time. The
motion for extension met this condition. The material dates to
consider in determining the timeliness of the filing of the motion
for extension are (1) the date of receipt of the judgment or final
order or resolution subject of the petition, and (2) the date of
filing of the motion for extension. It is the date of the filing of the
motion or pleading, and not the date of execution, that
determines the timeliness of the filing of that motion or pleading.
Thus, even if the motion for extension bears no date, the date of
filing stamped on it is the reckoning point for determining the
timeliness of its filing.

Same; Same; Same; Same; Estoppel; Estoppel sets in not
because the judgment of the court is a valid and conclusive
adjudication but because the practice of attacking the
court’s jurisdiction after voluntarily submitting to it is
against public policy.—Assuming that the Court of Appeals
should have dismissed Guevarra’s appeal on technical grounds,
Pajuyo did not ask the appellate court to deny the motion for
extension and dismiss the petition for review at the earliest
opportunity. Instead, Pajuyo vigorously discussed the merits of
the case. It was only when the Court of Appeals ruled in
Guevarra’s favor that Pajuyo raised the procedural issues
against Guevarra’s petition for review. A party, who, after
voluntarily submitting a dispute for resolution, receives an
adverse decision on the merits, is estopped from attacking the
jurisdiction of the court. Estoppel sets in not because the
judgment of the court is a valid and conclusive adjudication, but
because the practice of attacking the court’s jurisdiction after
voluntarily submitting to it is against public policy.
Same; Certification of Non-Forum Shopping; Verification;
Pleadings and Practice; A party’s failure to sign the
certification against forum shopping is different from the
party’s failure to sign personally the verification; A party’s
representative, lawyer or any person who personally knows
the truth of the facts alleged in the pleading may sign the
verification.—A party’s failure to sign the certification against
forum shopping is different from the party’s failure to sign
personally the verification. The certificate of non-forum shopping
must be signed by the party, and not by counsel. The
certification of counsel renders the petition defective. On the
other hand, the requirement on verification of a pleading is a
formal and not a jurisdictional requisite. It is intended simply to
secure an assurance that what are alleged in the pleading are
true and correct and not the product of the imagination or a
matter of speculation, and that the pleading is filed in good faith.
The party need not sign the verification. A party’s representative,
lawyer or any person who personally knows the truth of the facts
alleged in the pleading may sign the verification.
Same; Ejectment; Ownership; The defendant’s claim of
ownership of the disputed property does not divest the
inferior court of its jurisdiction over an ejectment case.—
Settled is the rule that the defendant’s claim of ownership of the
disputed property will not divest the inferior court of its
jurisdiction over the ejectment case. Even if the pleadings raise
the issue of ownership, the court may pass on such issue to
determine only the question of possession, especially if the
ownership is inseparably linked with the possession. The
adjudication on the issue of ownership is only provisional and
will not bar an action between the same parties involving title to
the land. This doctrine is a necessary consequence of the nature
of the two summary actions of ejectment, forcible entry and
unlawful detainer, where the only issue for adjudication is the
physical or material possession over the real property.
Same; Same; Same; The absence of title over a contested
lot is not a ground for the courts to withhold relief from the
parties in an ejectment case.—Ownership or the right to
possess arising from ownership is not at issue in an action for
recovery of possession. The parties cannot present evidence to
prove ownership or right to legal possession except to prove the
nature of the possession when necessary to resolve the issue of
physical possession. The same is true when the defendant
asserts the absence of title over the property. The absence of
title over the contested lot is not a ground for the courts to
withhold relief from the parties in an ejectment case. The only
question that the courts must resolve in ejectment proceedings
is—who is entitled to the physical possession of the premises,
that is, to the possession de facto and not to the possession de
jure. It does not even matter if a party’s title to the property is
questionable, or when both parties intruded into public land and
their applications to own the land have yet to be approved by the
proper government agency. Regardless of the actual condition
of the title to the property, the party in peaceable quiet
possession shall not be thrown out by a strong hand, violence
or terror. Neither is the unlawful withholding of property allowed.
Courts will always uphold respect for prior possession.
Same; Same; The underlying philosophy behind ejectment
suits is to prevent breach of the peace and criminal disorder
and to compel the party out of possession to respect and
resort to the law alone to obtain what he claims is his.—
Courts must not abdicate their jurisdiction to resolve the issue of
physical possession because of the public need to preserve the
basic policy behind the summary actions of forcible entry and
unlawful detainer. The underlying philosophy behind ejectment
suits is to prevent breach of the peace and criminal disorder and
to compel the party out of possession to respect and resort to
the law alone to obtain what he claims is his. The party deprived
of possession must not take the law into his own hands.
Ejectment proceedings are summary in nature so the authorities
can settle speedily actions to recover possession because of the
overriding need to quell social disturbances.
Same; Same; Pari Delicto; One of the exceptions to the
application of the pari delicto principle is where its
application would violate well-established public policy.—
Articles 1411 and 1412 of the Civil Code embody the principle
of pari delicto. We explained the principle of pari delicto in these
words: The rule of pari delicto is expressed in the maxims ‘ex
dolo malo non eritur actio’ and ‘in pari delicto potior est conditio
defedentis.’ The law will not aid either party to an illegal
agreement. It leaves the parties where it finds them. The
application of the pari delicto principle is not absolute, as there
are exceptions to its application. One of these exceptions is
where the application of the pari delicto rule would violate well-
established public policy.
Same; Same; Same; Squatting; The application of the
principle of pari delicto to a case of ejectment between
squatters is fraught with danger; Courts must resolve the
issue of possession even if the parties to the ejectment suit
are squatters—courts should not leave squatters to their
own devices in cases involving recovery of possession.—
Clearly, the application of the principle of pari delicto to a case
of ejectment between squatters is fraught with danger. To shut
out relief to squatters on the ground of pari delicto would openly
invite mayhem and lawlessness. A squatter would oust another
squatter from possession of the lot that the latter had illegally
occupied, emboldened by the knowledge that the courts would
leave them where they are. Nothing would then stand in the way
of the ousted squatter from re-claiming his prior possession at
all cost. Petty warfare over possession of properties is precisely
what ejectment cases or actions for recovery of possession seek
to prevent. Even the owner who has title over the disputed
property cannot take the law into his own hands to regain
possession of his property. The owner must go to court. Courts
must resolve the issue of possession even if the parties to the
ejectment suit are squatters. The determination of priority and
superiority of possession is a serious and urgent matter that
cannot be left to the squatters to decide. To do so would make
squatters receive better treatment under the law. The law
restrains property owners from taking the law into their own
hands. However, the principle of pari delicto as applied by the
Court of Appeals would give squatters free rein to dispossess
fellow squatters or violently retake possession of properties
usurped from them. Courts should not leave squatters to their
own devices in cases involving recovery of possession.
Same; Same; Administrative Law; Public Lands; The
determination of the respective rights of rival claimants to
public land is distinct from the determination of who has
the actual physical possession or who has a better right of
physical possession; Courts should not preempt the
decision of the administrative agency mandated by law to
determine the qualifications of applicants for the
acquisition of public lands.—In Pitargue, we ruled that courts
have jurisdiction over possessory actions involving public land
to determine the issue of physical possession. The
determination of the respective rights of rival claimants to public
land is, however, distinct from the determination of who has the
actual physical possession or who has a better right of physical
possession. The administrative disposition and alienation of
public lands should be threshed out in the proper government
agency. The Court of Appeals’ determination of Pajuyo and
Guevarra’s rights under Proclamation No. 137 was premature.
Pajuyo and Guevarra were at most merely potential
beneficiaries of the law. Courts should not preempt the decision
of the administrative agency mandated by law to determine the
qualifications of applicants for the acquisition of public lands.
Instead, courts should expeditiously resolve the issue of
physical possession in ejectment cases to prevent disorder and
breaches of peace.
Same; Same; Unlawful Detainer; Unlawful detainer involves
the withholding by a person from another of the possession
of real property to which the latter is entitled after the
expiration or termination of the former’s right to hold
possession under a contract, express or implied.—Based on
the Kasunduan, Pajuyo permitted Guevarra to reside in the
house and lot free of rent, but Guevarra was under obligation to
maintain the premises in good condition. Guevarra promised to
vacate the premises on Pajuyo’s demand but Guevarra broke
his promise and refused to heed Pajuyo’s demand to vacate.
These facts make out a case for unlawful detainer. Unlawful
detainer involves the withholding by a person from another of
the possession of real property to which the latter is entitled after
the expiration or termination of the former’s right to hold
possession under a contract, express or implied. Where the
plaintiff allows the defendant to use his property by tolerance
without any contract, the defendant is necessarily bound by an
implied promise that he will vacate on demand, failing which, an
action for unlawful detainer will lie. The defendant’s refusal to
comply with the demand makes his continued possession of the
property unlawful. The status of the defendant in such a case is
similar to that of a lessee or tenant whose term of lease has
expired but whose occupancy continues by tolerance of the
owner.
Same; Same; Contracts; Commodatum; Precarium; Words
and Phrases; An essential feature of commodatum is that it
is gratuitous, while another feature is that the use of the
thing belonging to another is for a certain period; If the use
of the thing is merely tolerated by the bailor, he can demand
the return of the thing at will, in which case the contractual
relation is called a precarium; Precarium is a kind of
commodatum.—In a contract of commodatum, one of the
parties delivers to another something not consumable so that
the latter may use the same for a certain time and return it. An
essential feature of commodatum is that it is gratuitous. Another
feature of commodatum is that the use of the thing belonging to
another is for a certain period. Thus, the bailor cannot demand
the return of the thing loaned until after expiration of the period
stipulated, or after accomplishment of the use for which the
commodatum is constituted. If the bailor should have urgent
need of the thing, he may demand its return for temporary use.
If the use of the thing is merely tolerated by the bailor, he can
demand the return of the thing at will, in which case the
contractual relation is called a precarium. Under the Civil Code,
precarium is a kind of commodatum.
Contracts; Human Relations; Squatting; There must be
honor even between squatters.—Guevarra turned his back on
the Kasunduan on the sole ground that like him, Pajuyo is also
a squatter. Squatters, Guevarra pointed out, cannot enter into a
contract involving the land they illegally occupy. Guevarra insists
that the contract is void. Guevarra should know that there must
be honor even between squatters. Guevarra freely entered into
the Kasunduan. Guevarra cannot now impugn the Kasunduan
after he had benefited from it. The Kasunduan binds Guevarra.
Same; Ejectment; Possession; Prior possession is not
always a condition sine qua non in ejectment.—Prior
possession is not always a condition sine qua non in ejectment.
This is one of the distinctions between forcible entry and
unlawful detainer. In forcible entry, the plaintiff is deprived of
physical possession of his land or building by means of force,
intimidation, threat, strategy or stealth. Thus, he must allege and
prove prior possession. But in unlawful detainer, the defendant
unlawfully withholds possession after the expiration or
termination of his right to possess under any contract, express
or implied. In such a case, prior physical possession is not
required.
Same; Same; Same; Possession in the eyes of the law does
not mean that a man has to have his feet on every square
meter of the ground before he is deemed in possession.—
Pajuyo’s withdrawal of his permission to Guevarra terminated
the Kasunduan. Guevarra’s transient right to possess the
property ended as well. Moreover, it was Pajuyo who was in
actual possession of the property because Guevarra had to seek
Pajuyo’s permission to temporarily hold the property and
Guevarra had to follow the conditions set by Pajuyo in the
Kasunduan. Control over the property still rested with Pajuyo
and this is evidence of actual possession. Pajuyo’s absence did
not affect his actual possession of the disputed property.
Possession in the eyes of the law does not mean that a man has
to have his feet on every square meter of the ground before he
is deemed in possession. One may acquire possession not only
by physical occupation, but also by the fact that a thing is subject
to the action of one’s will. Actual or physical occupation is not
always necessary.
Same; Same; Squatting; Where the party that has title or a
better right over the property is not impleaded in the case,
the Court cannot evict on its own the contending parties
who are squatters.—We are aware of our pronouncement in
cases where we declared that “squatters and intruders who
clandestinely enter into titled government property cannot, by
such act, acquire any legal right to said property.” We made this
declaration because the person who had title or who had the
right to legal possession over the disputed property was a party
in the ejectment suit and that party instituted the case against
squatters or usurpers. In this case, the owner of the land, which
is the government, is not a party to the ejectment case. This case
is between squatters. Had the government participated in this
case, the courts could have evicted the contending squatters,
Pajuyo and Guevarra. Since the party that has title or a better
right over the property is not impleaded in this case, we cannot
evict on our own the parties. Such a ruling would discourage
squatters from seeking the aid of the courts in settling the issue
of physical possession. Stripping both the plaintiff and the
defendant of possession just because they are squatters would
have the same dangerous implications as the application of the
principle of pari delicto. Squatters would then rather settle the
issue of physical possession among themselves than seek relief
from the courts if the plaintiff and defendant in the ejectment
case would both stand to lose possession of the disputed
property. This would subvert the policy underlying actions for
recovery of possession.
Attorney’s Fees; Attorney’s fees are not awarded every time
a party prevails in a suit because of the policy that no
premium should be placed on the right to litigate.—The MTC
and RTC failed to justify the award of P3,000 attorney’s fees to
Pajuyo. Attorney’s fees as part of damages are awarded only in
the instances enumerated in Article 2208 of the Civil Code.
Thus, the award of attorney’s fees is the exception rather than
the rule. Attorney’s fees are not awarded every time a party
prevails in a suit because of the policy that no premium should
be placed on the right to litigate. We therefore delete the
attorney’s fees awarded to Pajuyo.
REPUBLIC OF THE PHILIPPINES, plaintiff-appellee, vs.
JOSE V. BAGTAS, defendant, FELICIDAD M. BAGTAS,
Administratrix of the Intestate Estate left by the late Jose V.
Bagtas, petitioner-appellant.
Contracts; Loan of bulls for breeding purposes; Nature of
contract affected by payment of fee.—The loan by the Bureau
of Animal Industry to the defendant of three bulls for breeding
purposes for a period of one year, later on renewed for another
as regards one bull, was subject to the payment by the borrower
of breeding fee of 10% of the book value of the bulls. If the
breeding fee be considered a compensation, the contract would
be a lease of the bulls; it could not be a contract of commodatum,
because that contract is essentially gratuitous.
Judgments; Proceedings for administration and settlement
of estate of the deceased; Enforcement of money
judgments.—Where special proceedings for the administration
and settlement of the estate of the deceased have been
instituted, the money judgment rendered in favor of a party
cannot be enforced by means of a writ of execution, but must be
presented to the probate court for payment by the administrator
appointed by the court. Republic vs. Bagtas, 6 SCRA 262, No.
L-17474 October 25, 1962
MARGARITA QUINTOS and ANGEL A. ANSALDO, plaintiffs
and appellants, vs. BECK, defendant and appellee.
1.COMMODATUM; OBLIGATION OF THE PARTIES.—The
contract entered into between the parties is one of
commodatum, because under it the plaintiff gratuitously granted
the use of the furniture to the defendant, reserving for herself the
ownership thereof; by this contract the defendant bound himself
to return the furniture to the plaintiff, upon the latter's demand
(Clause 7 of the contract, Exhibit "A"; articles 1740, paragraph
1, and 1741 of the Civil Code). The obligation voluntarily
assumed by the defendant to return the furniture upon the
plaintiff's demand, means that he should return all of them to the
plaintiff at the latter's residence or house. The defendant did not
comply with this obligation when he merely placed them at the
disposal of the plaintiff, retaining for his benefit the three gas
heaters and the four electric lamps.
2.ID.; ID.; EXPENSES FOR DEPOSIT OF FURNITURE.—As
the defendant had voluntarily undertaken to return all the
furniture to the plaintiff, upon the latter's demand, the Court
could not legally compel her to bear the expenses occasioned
by the deposit of the furniture at the defendant's behest. The
latter, as bailee, was not entitled to place the furniture on
deposit; nor was the plaintiff under a duty to accept the offer to
return the furniture, because the defendant wanted to retain the
three gas heaters and the four electric lamps.
3.ID.; ID.; VALUE OF FURNITURE.—As to the value of the
furniture. we do not believe that the plaintiff is entitled to the
payment thereof by the defendant in case of his inability to return
some of the furniture, because under paragraph 6 of the
stipulation of facts, the defendant has neither agreed to nor
admitted the correctness of the said value. Should the defendant
fail to deliver some of the furniture, the value thereof should be
later determined by the trial Court through evidence which the
parties may desire to present.
4.COSTS OF LITIGATION.—The costs in both instances should
be borne by the defendant because the plaintiff is the prevailing
party (section 487 of the Code of Civil Procedure). The
defendant was the one who breached the contract of
Commodatum, and without any reason he refused to return and
deliver all the furniture upon the plaintiff's demand. In these
circumstances, it is just and equitable that he pay the legal
expenses and other judicial costs which the plaintiff would not
have otherwise defrayed.
SIMPLE LOAN/ MUTUUM CASES
PEOPLE OF THE PHILIPPINES, petitioner, vs. TERESITA
PUIG and ROMEO PORRAS, respondents.
Criminal Law; Theft; Elements of theft under Article 308 of
the Revised Penal Code.—Theft, as defined in Article 308 of
the Revised Penal Code, requires the physical taking of
another’s property without violence or intimidation against
persons or force upon things. The elements of the crime under
this Article are: 1. Intent to gain; 2. Unlawful taking; 3. Personal
property belonging to another; 4. Absence of violence or
intimidation against persons or force upon things.
Same; Same; Qualified Theft; Elements of qualified theft.—
To fall under the crime of Qualified Theft, the following elements
must concur: 1. Taking of personal property; 2. That the said
property belongs to another; 3. That the said taking be done with
intent to gain; 4. That it be done without the owner’s consent; 5.
That it be accomplished without the use of violence or
intimidation against persons, nor of force upon things; 6. That it
be done with grave abuse of confidence.
Same; Same; Same; Banks, where monies are deposited,
are considered the owners thereof; The relationship
between banks and depositors has been held to be that of
creditor and debtor.—It is beyond doubt that tellers, Cashiers,
Bookkeepers and other employees of a Bank who come into
possession of the monies deposited therein enjoy the
confidence reposed in them by their employer. Banks, on the
other hand, where monies are deposited, are considered the
owners thereof. This is very clear not only from the express
provisions of the law, but from established jurisprudence. The
relationship between banks and depositors has been held to be
that of creditor and debtor.
Criminal Procedure; Actions; Court has consistently
considered the allegations in the Information that such
employees acted with grave abuse of confidence, to the
damage and prejudice of the Bank, without particularly
referring to it as owner of the money deposits, as sufficient
to make out a case of Qualified Theft.—In a long line of cases
involving Qualified Theft, this Court has firmly established the
nature of possession by the Bank of the money deposits therein,
and the duties being performed by its employees who have
custody of the money or have come into possession of it. The
Court has consistently considered the allegations in the
Information that such employees acted with grave abuse of
confidence, to the damage and prejudice of the Bank, without
particularly referring to it as owner of the money deposits, as
sufficient to make out a case of Qualified Theft.
Same; Same; When the defendant, with grave abuse of
confidence, removed the money and appropriated it to his
own use without the consent of the Bank, there was taking
as contemplated in the crime of Qualified Theft.—People v.
Locson, 57 Phil. 325 (1932), in addition to People v. Sison,
described the nature of possession by the Bank. The money in
this case was in the possession of the defendant as receiving
teller of the bank, and the possession of the defendant was the
possession of the Bank. The Court held therein that when the
defendant, with grave abuse of confidence, removed the money
and appropriated it to his own use without the consent of the
Bank, there was taking as contemplated in the crime of Qualified
Theft.
Banks and Banking; Criminal Law; Qualified Theft; The
Bank acquires ownership of the money deposited by its
clients; and the employees of the Bank, who are entrusted
with the possession of money of the Bank due to the
confidence reposed in them, occupy positions of
confidence.—In summary, the Bank acquires ownership of the
money deposited by its clients; and the employees of the Bank,
who are entrusted with the possession of money of the Bank due
to the confidence reposed in them, occupy positions of
confidence. The Informations, therefore, sufficiently allege all
the essential elements constituting the crime of Qualified Theft.
BPI FAMILY BANK, petitioner, vs. AMADO FRANCO and
COURT OF APPEALS, respondents.
Civil Law; Property; The movable property mentioned in
Article 559 of the Civil Code pertains to a specific or
determinate thing—a determinate or specific thing is one
that is individualized and can be identified or distinguished
from others of the same kind.—BPI-FB’s argument is
unsound. To begin with, the movable property mentioned in
Article 559 of the Civil Code pertains to a specific or determinate
thing. A determinate or specific thing is one that is individualized
and can be identified or distinguished from others of the same
kind.
Same; Same; In this case, the deposit in Franco’s accounts
consists of money which, albeit characterized as a
movable, is generic and fungible.—In this case, the deposit in
Franco’s accounts consists of money which, albeit characterized
as a movable, is generic and fungible. The quality of being
fungible depends upon the possibility of the property, because
of its nature or the will of the parties, being substituted by others
of the same kind, not having a distinct individuality.
Mercantile Law; Banking Laws; Money as a Medium of
Exchange; Money, which had passed through various
transactions in the general course of banking business,
even if of traceable origin, bears no earmarks of peculiar
ownership.—It bears emphasizing that money bears no
earmarks of peculiar ownership, and this characteristic is all the
more manifest in the instant case which involves money in a
banking transaction gone awry. Its primary function is to pass
from hand to hand as a medium of exchange, without other
evidence of its title. Money, which had passed through various
transactions in the general course of banking business, even if
of traceable origin, bears no earmarks of peculiar ownership.
Same; Same; Nature of a Bank; As a business affected with
public interest and because of the nature of its functions,
the bank is under obligation to treat the accounts of its
depositors with meticulous care, always having in mind the
fiduciary nature of the relation-ship.—In every case, the
depositor expects the bank to treat his account with the utmost
fidelity, whether such account consists only of a few hundred
pesos or of millions. The bank must record every single
transaction accurately, down to the last centavo, and as
promptly as possible. This has to be done if the account is to
reflect at any given time the amount of money the depositor can
dispose of as he sees fit, confident that the bank will deliver it as
and to whomever directs. A blunder on the part of the bank, such
as the dishonor of the check without good reason, can cause the
depositor not a little embarrassment if not also financial loss and
perhaps even civil and criminal litigation. The point is that as a
business affected with public interest and because of the nature
of its functions, the bank is under obligation to treat the accounts
of its depositors with meticulous care, always having in mind the
fiduciary nature of their relationship. x x x.
Remedial Law; Civil Procedure; Amendment to Conform to
Evidence; When issues not raised by the pleadings are tried
with the express or implied consent of the parties, they
shall be treated in all respects as if they had been raised in
the pleadings—such amendment of the pleadings as may
be necessary to cause them to conform to the evidence and
to raise these issues may be made upon motion of any party
at anytime, even after judgment, but failure to amend does
not affect the result of the trial of these issues.—Section 5.
Amendment to conform to or authorize presentation of
evidence.—When issues not raised by the pleadings are tried
with the express or implied consent of the parties, they shall be
treated in all respects as if they had been raised in the pleadings.
Such amendment of the pleadings as may be necessary to
cause them to conform to the evidence and to raise these issues
may be made upon motion of any party at any time, even after
judgment; but failure to amend does not affect the result of the
trial of these issues. If evidence is objected to at the trial on the
ground that it is now within the issues made by the pleadings,
the court may allow the pleadings to be amended and shall do
so with liberality if the presentation of the merits of the action
and the ends of substantial justice will be subserved thereby.
The court may grant a continuance to enable the amendment to
be made.
Service of Court Papers; It should be noted that the strict
requirement on the service of papers upon the parties
affected is designed to comply with the elementary
requisite of due process.—In this argument, we perceive BPI-
FB’s clever but transparent ploy to circumvent Section 4, Rule
13 of the Rules of Court. It should be noted that the strict
requirement on service of court papers upon the parties affected
is designed to comply with the elementary requisites of due
process. Franco was entitled, as a matter of right, to notice, if
the requirements of due process are to be observed. Yet, he
received a copy of the Notice of Garnishment only on September
27, 1989, several days after the two checks he issued were
dishonored by BPI-FB on September 20 and 21, 1989. Verily, it
was premature for BPI-FB to freeze Franco’s accounts without
even awaiting service of the Makati RTC’s Notice of
Garnishment on Franco.
Civil Law; Damages; Moral Damages; In the absence of
fraud or bad faith, moral damages cannot be awarded; and
that the adverse result of an action does not per se make
the action wrongful, or the party liable for it. One may err,
but error alone is not a ground for granting such
damages.—We have had occasion to hold that in the absence
of fraud or bad faith, moral damages cannot be awarded; and
that the adverse result of an action does not per se make the
action wrongful, or the party liable for it. One may err, but error
alone is not a ground for granting such damages.
Same; Exemplary Damages; As there is no basis for the
award of moral damages, neither can exemplary damages
be granted.—We also deny the claim for exemplary damages.
Franco should show that he is entitled to moral, temperate, or
compensatory damages before the court may even consider the
question of whether exemplary damages should be awarded to
him. As there is no basis for the award of moral damages,
neither can exemplary damages be granted.
BOBIE ROSE V. FRIAS, represented by her Attorney-in-
fact, MARIE F. FUJITA, petitioner, vs. FLORA SAN
DIEGOSISON, respondent.
Civil Law; Contracts; The general rule is that if the terms of
an agreement are clear and leave no doubt as to the
intention of the contracting parties, the literal meaning of
its stipulations shall prevail.—The Memorandum of
Agreement executed between the petitioner and respondent on
December 7, 1990 is the law between the parties. In resolving
an issue based upon a contract, we must first examine the
contract itself, especially the provisions thereof which are
relevant to the controversy. The general rule is that if the terms
of an agreement are clear and leave no doubt as to the intention
of the contracting parties, the literal meaning of its stipulations
shall prevail. It is further required that the various stipulations of
a contract shall be interpreted together, attributing to the
doubtful ones that sense which may result from all of them taken
jointly.
Interest Rates; The payment of regular interest constitutes
the price or cost of the use of money and thus, until the
principal sum due is returned to the creditor, regular
interest continues to accrue since the debtor continues to
use such principal amount.—The payment of regular interest
constitutes the price or cost of the use of money and thus, until
the principal sum due is returned to the creditor, regular interest
continues to accrue since the debtor continues to use such
principal amount. It has been held that for a debtor to continue
in possession of the principal of the loan and to continue to use
the same after maturity of the loan without payment of the
monetary interest, would constitute unjust enrichment on the
part of the debtor at the expense of the creditor.
Same; The interest rate of 25% per annum awarded by the
Court of Appeals to a P2 million loan is fair and
reasonable.—In Bautista v. Pilar Development Corp., 312
SCRA 611 (1999), we upheld the validity of a 21% per annum
interest on a P142,326.43 loan. In Garcia v. Court of Appeals,
167 SCRA 815 (1988), we sustained the agreement of the
parties to a 24% per annum interest on an P8,649,250.00 loan.
Thus, the interest rate of 25% per annum awarded by the CA to
a P2 million loan is fair and reasonable.
Contracts; Obligations; Damages; Moral damages may be
awarded in culpa contractual or breach of contract cases
when the defendant acted fraudulently or in bad faith.—We
agree with the findings of the trial court and the CA that
petitioner’s act of trying to deprive respondent of the security of
her loan by executing an affidavit of loss of the title and instituting
a petition for the issuance of a new owner’s duplicate copy of
TCT No. 168173 entitles respondent to moral damages. Moral
damages may be awarded in culpa contractual or breach of
contract cases when the defendant acted fraudulently or in bad
faith. Bad faith does not simply connote bad judgment or
negligence; it imports a dishonest purpose or some moral
obliquity and conscious doing of wrong. It partakes of the nature
of fraud.
Damages; The entitlement to moral damages having been
established, the award of exemplary damages is proper.—
The entitlement to moral damages having been established, the
award of exemplary damages is proper. Exemplary damages
may be imposed upon petitioner by way of example or correction
for the public good. The RTC awarded the amount of
P100,000.00 as moral and exemplary damages. While the
award of moral and exemplary damages in an aggregate
amount may not be the usual way of awarding said damages,
no error has been committed by CA. There is no question that
respondent is entitled to moral and exemplary damages.
Attorney’s Fees; Attorney’s fees as part of the damages are
not meant to enrich the winning party at the expense of the
losing litigant. They are not awarded every time a party
prevails in a suit because of the policy that no premium
should be placed on the right to litigate.—Article 2208 of the
New Civil Code enumerates the instances where such may be
awarded and, in all cases, it must be reasonable, just and
equitable if the same were to be granted. Attorney’s fees as part
of damages are not meant to enrich the winning party at the
expense of the losing litigant. They are not awarded every time
a party prevails in a suit because of the policy that no premium
should be placed on the right to litigate. The award of attorney’s
fees is the exception rather than the general rule. As such, it is
necessary for the trial court to make findings of facts and law
that would bring the case within the exception and justify the
grant of such award. The matter of attorney’s fees cannot be
mentioned only in the dispositive portion of the decision. They
must be clearly explained and justified by the trial court in the
body of its decision. On appeal, the CA is precluded from
supplementing the bases for awarding attorney’s fees when the
trial court failed to discuss in its Decision the reasons for
awarding the same. Consequently, the award of attorney’s fees
should be deleted.
SEBASTIAN SIGA-AN, petitioner, vs. ALICIA VILLANUEVA,
respondent.
Obligations and Contracts; Interests; Words and Phrases;
Interest is a compensation fixed by the parties for the use
or forbearance of money, and this is referred to as monetary
interest; Interest may also be imposed by law or by courts
as penalty or indemnity for damages, and this is called
compensatory interest; Article 1956 of the Civil Code refers
to monetary interest; Monetary interest shall be due only if
it has been expressly stipulated in writing.—Interest is a
compensation fixed by the parties for the use or forbearance of
money. This is referred to as monetary interest. Interest may
also be imposed by law or by courts as penalty or indemnity for
damages. This is called compensatory interest. The right to
interest arises only by virtue of a contract or by virtue of
damages for delay or failure to pay the principal loan on which
interest is demanded. Article 1956 of the Civil Code, which refers
to monetary interest, specifically mandates that no interest shall
be due unless it has been expressly stipulated in writing. As can
be gleaned from the foregoing provision, payment of monetary
interest is allowed only if: (1) there was an express stipulation
for the payment of interest; and (2) the agreement for the
payment of interest was reduced in writing. The concurrence of
the two conditions is required for the payment of monetary
interest. Thus, we have held that collection of interest without
any stipulation therefor in writing is prohibited by law.
Same; Same; The interest under Arts. 2209 and 2212 of the
Civil Code may be imposed only as a penalty or damages
for breach of contractual obligations—it cannot be charged
as a compensation for the use or forbearance of money.—
There are instances in which an interest may be imposed even
in the absence of express stipulation, verbal or written, regarding
payment of interest. Article 2209 of the Civil Code states that if
the obligation consists in the payment of a sum of money, and
the debtor incurs delay, a legal interest of 12% per annum may
be imposed as indemnity for damages if no stipulation on the
payment of interest was agreed upon. Likewise, Article 2212 of
the Civil Code provides that interest due shall earn legal interest
from the time it is judicially demanded, although the obligation
may be silent on this point. All the same, the interest under these
two instances may be imposed only as a penalty or damages for
breach of contractual obligations. It cannot be charged as a
compensation for the use or forbearance of money. In other
words, the two instances apply only to compensatory interest
and not to monetary interest. The case at bar involves
petitioner’s claim for monetary interest.
Same; Same; Solutio Indebiti; The principle of solutio
indebiti applies in case of erroneous payment of undue
interest.—Under Article 1960 of the Civil Code, if the borrower
of loan pays interest when there has been no stipulation
therefor, the provisions of the Civil Code concerning solutio
indebiti shall be applied. Article 2154 of the Civil Code explains
the principle of solutio indebiti. Said provision provides that if
something is received when there is no right to demand it, and it
was unduly delivered through mistake, the obligation to return it
arises. In such a case, a creditor-debtor relationship is created
under a quasi-contract whereby the payor becomes the creditor
who then has the right to demand the return of payment made
by mistake, and the person who has no right to receive such
payment becomes obligated to return the same. The quasi-
contract of solutio indebiti harks back to the ancient principle that
no one shall enrich himself unjustly at the expense of another.
The principle of solutio indebiti applies where (1) a payment is
made when there exists no binding relation between the payor,
who has no duty to pay, and the person who received the
payment; and (2) the payment is made through mistake, and not
through liberality or some other cause. We have held that the
principle of solutio indebiti applies in case of erroneous payment
of undue interest.
Damages; Article 2216 of the Civil Code instructs that
assessment of damages is left to the discretion of the court
according to the circumstances of each case, which
discretion is limited by the principle that the amount
awarded should not be palpably excessive as to indicate
that it was the result of prejudice or corruption on the part
of the trial court.—Article 2217 of the Civil Code provides that
moral damages may be recovered if the party underwent
physical suffering, mental anguish, fright, serious anxiety,
besmirched reputation, wounded feelings, moral shock, social
humiliation and similar injury. Respondent testified that she
experienced sleepless nights and wounded feelings when
petitioner refused to return the amount paid as interest despite
her repeated demands. Hence, the award of moral damages is
justified. However, its corresponding amount of P300,000.00, as
fixed by the RTC and the Court of Appeals, is exorbitant and
should be equitably reduced. Article 2216 of the Civil Code
instructs that assessment of damages is left to the discretion of
the court according to the circumstances of each case. This
discretion is limited by the principle that the amount awarded
should not be palpably excessive as to indicate that it was the
result of prejudice or corruption on the part of the trial court. To
our mind, the amount of P150,000.00 as moral damages is fair,
reasonable, and proportionate to the injury suffered by
respondent.
Same; In a quasi-contract, such as solutio indebiti,
exemplary damages may be imposed if the defendant acted
in an oppressive manner, such as when the creditor
defendant acted oppressively by pestering debtor to pay
interest and threatening to block the latter’s transactions
with a government office if she would not pay interest.—
Article 2232 of the Civil Code states that in a quasi-contract,
such as solutio indebiti, exemplary damages may be imposed if
the defendant acted in an oppressive manner. Petitioner acted
oppressively when he pestered respondent to pay interest and
threatened to block her transactions with the PNO if she would
not pay interest. This forced respondent to pay interest despite
lack of agreement thereto. Thus, the award of exemplary
damages is appropriate. The amount of P50,000.00 imposed as
exemplary damages by the RTC and the Court is fitting so as to
deter petitioner and other lenders from committing similar and
other serious wrongdoings.
Same; Attorney’s Fees; In awarding attorney’s fees, the trial
court must state the factual, legal or equitable justification
for awarding the same.—Jurisprudence instructs that in
awarding attorney’s fees, the trial court must state the factual,
legal or equitable justification for awarding the same. In the case
under consideration, the RTC stated in its Decision that the
award of attorney’s fees equivalent to 25% of the amount paid
as interest by respondent to petitioner is reasonable and
moderate considering the extent of work rendered by
respondent’s lawyer in the instant case and the fact that it
dragged on for several years. Further, respondent testified that
she agreed to compensate her lawyer handling the instant case
such amount. The award, therefore, of attorney’s fees and its
amount equivalent to 25% of the amount paid as interest by
respondent to petitioner is proper.
Interests; Where the obligation arose from a quasi-contract
of solutio indebiti and not from a loan or forbearance of
money, the interest of 6% per annum should be imposed on
the amount to be refunded as well as on the damages
awarded and on the attorney’s fees, to be computed from
the time of the extrajudicial demand up to the finality of the
Decision.—In Eastern Shipping Lines, Inc. v. Court of Appeals,
234 SCRA 78 (1994), that when an obligation, not constituting a
loan or forbearance of money is breached, an interest on the
amount of damages awarded may be imposed at the rate of 6%
per annum. We further declared that when the judgment of the
court awarding a sum of money becomes final and executory,
the rate of legal interest, whether it is a loan/forbearance of
money or not, shall be 12% per annum from such finality until its
satisfaction, this interim period being deemed equivalent to a
forbearance of credit. In the present case, petitioner’s obligation
arose from a quasi-contract of solutio indebiti and not from a loan
or forbearance of money. Thus, an interest of 6% per annum
should be imposed on the amount to be refunded as well as on
the damages awarded and on the attorney’s fees, to be
computed from the time of the extrajudicial demand on 3 March
1998, up to the finality of this Decision. In addition, the interest
shall become 12% per annum from the finality of this Decision
up to its satisfaction.
SPOUSES IGNACIO F. JUICO and ALICE P. JUICO,
petitioners, vs. CHINA BANKING CORPORATION,
respondent.
Civil Law; Contracts; Void Contracts; Any contract which
appears to be heavily weighed in favor of one of the parties
so as to lead to an unconscionable result is void. Any
stipulation regarding the validity or compliance of the
contract which is left solely to the will of one of the parties,
is likewise, invalid.—The binding effect of any agreement
between parties to a contract is premised on two settled
principles: (1) that any obligation arising from contract has the
force of law between the parties; and (2) that there must be
mutuality between the parties based on their essential equality.
Any contract which appears to be heavily weighed in favor of
one of the parties so as to lead to an unconscionable result is
void. Any stipulation regarding the validity or compliance of the
contract which is left solely to the will of one of the parties, is
likewise, invalid.
Same; Same; Escalation Clauses; Escalation clauses refer
to stipulations allowing an increase in the interest rate
agreed upon by the contracting parties.—Escalation clauses
refer to stipulations allowing an increase in the interest rate
agreed upon by the contracting parties. This Court has long
recognized that there is nothing inherently wrong with escalation
clauses which are valid stipulations in commercial contracts to
maintain fiscal stability and to retain the value of money in long
term contracts. Hence, such stipulations are not void per se.
Nevertheless, an escalation clause “which grants the creditor an
unbridled right to adjust the interest independently and
upwardly, completely depriving the debtor of the right to assent
to an important modification in the agreement” is void. A
stipulation of such nature violates the principle of mutuality of
contracts. Thus, this Court has previously nullified the unilateral
determination and imposition by creditor banks of increases in
the rate of interest provided in loan contracts.
Same; Same; Same; It is now settled that an escalation
clause is void where the creditor unilaterally determines
and imposes an increase in the stipulated rate of interest
without the express conformity of the debtor.—It is now
settled that an escalation clause is void where the creditor
unilaterally determines and imposes an increase in the
stipulated rate of interest without the express conformity of the
debtor. Such unbridled right given to creditors to adjust the
interest independently and upwardly would completely take
away from the debtors the right to assent to an important
modification in their agreement and would also negate the
element of mutuality in their contracts. While a ceiling on interest
rates under the Usury Law was already lifted under Central Bank
Circular No. 905, nothing therein “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.”
Same; Same; In interpreting a contract, its provisions should not
be read in isolation but in relation to each other and in their
entirety so as to render them effective, having in mind the
intention of the parties and the purpose to be achieved. The
various stipulations of a contract shall be interpreted together,
attributing to the doubtful ones that sense which may result from
all of them taken jointly.—In interpreting a contract, its provisions
should not be read in isolation but in relation to each other and
in their entirety so as to render them effective, having in mind
the intention of the parties and the purpose to be achieved. The
various stipulations of a contract shall be interpreted together,
attributing to the doubtful ones that sense which may result from
all of them taken jointly. Here, the escalation clause in the
promissory notes authorizing the respondent to adjust the rate
of interest on the basis of a law or regulation issued by the
Central Bank of the Philippines, should be read together with the
statement after the first paragraph where no rate of interest was
fixed as it would be based on prevailing market rates. While the
latter is not strictly an escalation clause, its clear import was that
interest rates would vary as determined by prevailing market
rates. Evidently, the parties intended the interest on petitioners’
loan, including any upward or downward adjustment, to be
determined by the prevailing market rates and not dictated by
respondent’s policy. It may also be mentioned that since the
deregulation of bank rates in 1983, the Central Bank has shifted
to a market-oriented interest rate policy.
Same; Same; Escalation Clauses; One-sided impositions
do not have the force of law between the parties, because
such impositions are not based on the parties’ essential
equality.—We hold that the escalation clause is still void
because it grants respondent the power to impose an increased
rate of interest without a written notice to petitioners and their
written consent. Respondent’s monthly telephone calls to
petitioners advising them of the prevailing interest rates would
not suffice. A detailed billing statement based on the new
imposed interest with corresponding computation of the total
debt should have been provided by the respondent to enable
petitioners to make an informed decision. An appropriate form
must also be signed by the petitioners to indicate their
conformity to the new rates. Compliance with these requisites is
essential to preserve the mutuality of contracts. For indeed, one-
sided impositions do not have the force of law between the
parties, because such impositions are not based on the parties’
essential equality.
Same; Same; Same; Interest Rates; Modifications in the rate
of interest for loans pursuant to an escalation clause must
be the result of an agreement between the parties.—
Modifications in the rate of interest for loans pursuant to an
escalation clause must be the result of an agreement between
the parties. Unless such important change in the contract terms
is mutually agreed upon, it has no binding effect. In the absence
of consent on the part of the petitioners to the modifications in
the interest rates, the adjusted rates cannot bind them. Hence,
we consider as invalid the interest rates in excess of 15%, the
rate charged for the first year.
SPOUSES EDUARDO and LYDIA SILOS, petitioners, vs.
PHILIPPINE NATIONAL BANK, respondent.
Remedial Law; Civil Procedure; Appeals; It is not the
function of the Supreme Court (SC) to reexamine or
reevaluate evidence adduced by the parties in the
proceedings below. The rule admits of certain well-
recognized exceptions.—Before anything else, it must be said
that it is not the function of the Court to reexamine or reevaluate
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.
Banks and Banking; Interest Rates; In a number of decided
cases, the Supreme Court (SC) struck down provisions in
credit documents issued by Philippine National Bank (PNB)
to, or required of, its borrowers which allow the bank to
increase or decrease interest rates “within the limits
allowed by law at any time depending on whatever policy it
may adopt in the future.”—It appears that respondent’s
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 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, 196 SCRA 536 (1991), such stipulation and similar
ones were declared in violation of Article 1308 of the Civil Code.
In a second case, Philippine National Bank v. Court of Appeals,
238 SCRA 20 (1994), the very same stipulations found in the
credit agreement and the promissory notes prepared and issued
by the respondent were again invalidated.
Same; Same; A borrower’s current financial state, his
feedback or opinions, the nature and purpose of his
borrowings, the effect of foreign currency values or
fluctuations on his business or borrowing, etc. — these are
not factors which influence the fixing of interest rates to be
imposed on him.—In Aspa’s 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 banking industry — it can be
seen that considerations which affect PNB’s borrowers are
ignored. A borrower’s current financial state, his feedback or
opinions, the nature and purpose of his borrowings, the effect of
foreign currency values or fluctuations on his business or
borrowing, etc. — these are not factors which influence the fixing
of interest rates to be imposed on him. Clearly, respondent’s
method of fixing interest rates based on one-sided,
indeterminate, and subjective criteria such as profitability, cost
of money, bank costs, etc. is arbitrary for there is no fixed
standard or margin above or below these considerations.
Same; Same; Any modification in the contract, such as the
interest rates, must be made with the consent of the
contracting parties.—Any modification in the contract, such as
the interest rates, must be made with the consent of the
contracting parties. The minds of all the parties must meet as to
the proposed modification, especially when it affects an
important aspect of the agreement. In the case of loan
agreements, the rate of interest is a principal condition, if not the
most important component. Thus, any modification thereof must
be mutually agreed upon; otherwise, it has no binding effect.
Same; Same; Truth in Lending Act (R.A. No. 3765); The
Truth in Lending Act, or Republic Act (R.A.) No. 3765, was
enacted “to protect citizens from a lack of awareness of the
true cost of credit to the user by using a full disclosure of
such cost with a view of preventing the uninformed use of
credit to the detriment of the national economy.”—
Accordingly, petitioners are correct in arguing that estoppel
should not apply to them, for “[e]stoppel cannot be predicated
on an illegal act. As between the parties to a contract, validity
cannot be given to it by estoppel if it is prohibited by law or is
against public policy.” It appears that by its acts, respondent
violated the Truth in Lending Act, or Republic Act No. 3765,
which was enacted “to protect x x x citizens from a lack of
awareness of the true cost of credit to the user by using a full
disclosure of such cost with a view of preventing the uninformed
use of credit to the detriment of the national economy.” The law
“gives a detailed enumeration of the specific information
required to be disclosed, among which are the interest and other
charges incident to the extension of credit.” Section 4 thereof
provides that a disclosure statement must be furnished prior to
the consummation of the transaction.
Same; Same; Same; By requiring the petitioners to sign the
credit documents and the promissory notes in blank, and
then unilaterally filling them up later on, respondent
violated the Truth in Lending Act, and was remiss in its
disclosure obligations.—By requiring the petitioners to sign
the credit documents and the promissory notes in blank, and
then unilaterally filling them up later on, respondent violated the
Truth in Lending Act, and was remiss in its disclosure
obligations.
Same; Same; Same; Loan and credit arrangements may be
made enticing by, or “sweetened” with, offers of low initial
interest rates, but actually accompanied by provisions
written in fine print that allow lenders to later on increase or
decrease interest rates unilaterally, without the consent of
the borrower, and depending on complex and subjective
factors.—Loan and credit arrangements may be made enticing
by, or “sweetened” with, offers of low initial interest rates, but
actually accompanied by provisions written in fine print that allow
lenders to later on increase or decrease interest rates
unilaterally, without the consent of the borrower, and depending
on complex and subjective factors. Because they have been
lured into these contracts by initially low interest rates, borrowers
get caught and stuck in the web of subsequent steep rates and
penalties, surcharges and the like. Being ordinary individuals or
entities, they naturally dread legal complications and cannot
afford court litigation; they succumb to whatever charges the
lenders impose. At the very least, borrowers should be charged
rightly; but then again this is not possible in a one-sided credit
system where the temptation to abuse is strong and the
willingness to rectify is made weak by the eternal desire for
profit.
Same; Same; Starting July 1, 2013, the prevailing rate of
interest shall be 6% per annum pursuant to the Supreme
Court’s (SC’s) ruling in Nacar v. Gallery Frames, 703 SCRA
439 (2013) and Bangko Sentral ng Pilipinas-Monetary Board
Circular No. 799.—With regard to interest, the Court finds that
since the escalation clause is annulled, the principal amount of
the loan is subject to the original or stipulated rate of interest,
and upon maturity, the amount due shall be subject to legal
interest at the rate of 12% per annum. This is the uniform ruling
adopted in previous cases, including those cited here. The
interests paid by petitioners should be applied first to the
payment of the stipulated or legal and unpaid interest, as the
case may be, and later, to the capital or principal. Respondent
should then refund the excess amount of interest that it has
illegally imposed upon petitioners; “[t]he amount to be refunded
refers to that paid by petitioners when they had no obligation to
do so.” Thus, the parties’ original agreement stipulated the
payment of 19.5% interest; however, this rate was intended to
apply only to the first promissory note which expired on
November 21, 1989 and was paid by petitioners; it was not
intended to apply to the whole duration of the loan. Subsequent
higher interest rates have been declared illegal; but because
only the rates are found to be improper, the obligation to pay
interest subsists, the same to be fixed at the legal rate of 12%
per annum. However, the 12% interest shall apply only until
June 30, 2013. Starting July 1, 2013, the prevailing rate of
interest shall be 6% per annum pursuant to our ruling in Nacar
v. Gallery Frames, 703 SCRA 439 (2013) and Bangko Sentral
ng Pilipinas-Monetary Board Circular No. 799.
Remedial Law; Civil Procedure; Appeals; 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.—With regard to attorney’s 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 appellee’s brief,
when it should have interposed an appeal, since the trial court’s
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. [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 actions, when the purpose is
merely to defend himself against an appeal in which errors are
alleged to have been committed by the trial court both in the
appreciation of facts and in the interpretation of the law, in order
to sustain the judgment in his favor but not when his purpose is
to seek modification or reversal of the judgment, in which case
it is necessary for him to have excepted to and appealed from
the judgment. Since petitioners did not raise the issue of
reduction of attorney’s fees, the CA possessed no authority to
pass upon it at the instance of respondent. The ruling of the trial
court in this respect should remain undisturbed.
TOLOMEO LIGUTAN and LEONIDAS DE LA LLANA,
petitioners, vs. HON. COURT OF APPEALS & SECURITY
BANK & TRUST COMPANY, respondents.
Obligations and Contracts; Penalty Clauses; Words and
Phrases; A penalty clause, expressly recognized by law, is
an accessory undertaking to assume greater liability on the
part of an obligor in case of breach of an obligation;
Although a court may not at liberty ignore the freedom of
the parties to agree on such terms and conditions as they
see fit that contravene neither law nor morals, good
customs, public order or public policy, a stipulated penalty,
nevertheless, may be equitably reduced by the courts if it is
iniquitous or unconscionable or if the principal obligation
has been partly or irregularly complied with.—A penalty
clause, expressly recognized by law, is an accessory
undertaking to assume greater liability on the part of an obligor
in case of breach of an obligation. It functions to strengthen the
coercive force of the obligation and to provide, in effect, for what
could be the liquidated damages resulting from such a breach.
The obligor would then be bound to pay the stipulated indemnity
without the necessity of proof on the existence and on the
measure of damages caused by the breach. Although a court
may not at liberty ignore the freedom of the parties to agree on
such terms and conditions as they see fit that contravene neither
law nor morals, good customs, public order or public policy, a
stipulated penalty, nevertheless, may be equitably reduced by
the courts if it is iniquitous or unconscionable or if the principal
obligation has been partly or irregularly complied with.
Same; Same; The question of whether a penalty is
reasonable or iniquitous can be partly subjective and partly
objective.—The question of whether a penalty is reasonable or
iniquitous can be partly subjective and partly objective. Its
resolution would depend on such factors as, but not necessarily
confined to, the type, extent and purpose of the penalty, the
nature of the obligation, the mode of breach and its
consequences, the supervening realities, the standing and
relationship of the parties, and the like, the application of which,
by and large, is addressed to the sound discretion of the court.
In Rizal Commercial Banking Corp. vs. Court of Appeals, just an
example, the Court has tempered the penalty charges after
taking into account the debtor’s pitiful situation and its offer to
settle the entire obligation with the creditor bank. The stipulated
penalty might likewise be reduced when a partial or irregular
performance is made by the debtor. The stipulated penalty might
even be deleted such as when there has been substantial
performance in good faith by the obligor, when the penalty
clause itself suffers from fatal infirmity, or when exceptional
circumstances so exist as to warrant it.
Same; Same; Interests; The essence or rationale for the
payment of interest, quite often referred to as cost of
money, is not exactly the same as that of a surcharge or a
penalty, and a penalty stipulation is not necessarily
preclusive of interest, if there is an agreement to that effect,
the two being distinct concepts which may separately be
demanded; What may justify a court in not allowing the
creditor to impose full surcharges and penalties, despite an
express stipulation therefor in a valid agreement, may not
equally justify the non-payment or reduction of interest.—
Anent the stipulated interest of 15.189% per annum, petitioners,
for the first time, question its reasonableness and prays that the
Court reduce the amount. This contention is a fresh issue that
has not been raised and ventilated before the courts below. In
any event, the interest stipulation, on its face, does not appear
as being that excessive. The essence or rationale for the
payment of interest, quite often referred to as cost of money, is
not exactly the same as that of a surcharge or a penalty. A
penalty stipulation is not necessarily preclusive of interest, if
there is an agreement to that effect, the two being distinct
concepts which may separately be demanded. What may justify
a court in not allowing the creditor to impose full surcharges and
penalties, despite an express stipulation therefor in a valid
agreement, may not equally justify the non-payment or reduction
of interest. Indeed, the interest prescribed in loan financing
arrangements is a fundamental part of the banking business and
the core of a bank’s existence.
Same; Attorney’s Fees; Where the rate of attorney’s fees
has been agreed to by the parties and intended to answer
not only for litigation expenses but also for collection
efforts as well, an award of 10% attorney’s fees is
reasonable.—Petitioners next assail the award of 10% of the
total amount of indebtedness by way of attorney’s fees for being
grossly excessive, exorbitant and unconscionable vis-a-vis the
time spent and the extent of services rendered by counsel for
the bank and the nature of the case. Bearing in mind that the
rate of attorney’s fees has been agreed to by the parties and
intended to answer not only for litigation expenses but also for
collection efforts as well, the Court, like the appellate court,
deems the award of 10% attorney’s fees to be reasonable.
Same; Novation; Requisites; In order that an obligation may
be extinguished by another which substitutes the same, it
is imperative that it be so declared in unequivocal terms, or
that the old and the new obligation be on every point
incompatible with each other; When not expressed,
incompatibility is required so as to ensure that the parties
have indeed intended such novation despite their failure to
express it in categorical terms.—Extinctive novation requires,
first, a previous valid obligation; second, the agreement of all the
parties to the new contract; third, the extinguishment of the
obligation; and fourth, the validity of the new one. In order that
an obligation may be extinguished by another which substitutes
the same, it is imperative that it be so declared in unequivocal
terms, or that the old and the new obligation be on every point
incompatible with each other. An obligation to pay a sum of
money is not extinctively novated by a new instrument which
merely changes the terms of payment or adding compatible
covenants or where the old contract is merely supplemented by
the new one. When not expressed, incompatibility is required so
as to ensure that the parties have indeed intended such novation
despite their failure to express it in categorical terms. The
incompatibility, to be sure, should take place in any of the
essential elements of the obligation, i.e., (1) the juridical relation
or tie, such as from a mere commodatum to lease of things, or
from negotiorum gestio to agency, or from a mortgage to
antichresis, or from a sale to one of loan; (2) the object or
principal conditions, such as a change of the nature of the
prestation; or (3) the subjects, such as the substitution of a
debtor or the subrogation of the creditor. Extinctive novation
does not necessarily imply that the new agreement should be
complete by itself; certain terms and conditions may be carried,
expressly or by implication, over to the new obligation.
EASTERN SHIPPING LINES, INC., petitioner, vs. HON.
COURT OF APPEALS AND MERCANTILE INSURANCE
COMPANY, INC., respondents.
Common Carriers; Obligations; Presumption of Fault;
When the goods shipped either are lost or arrive in
damaged condition, a presumption arises against the
carrier of its failure to observe that requisite diligence, and
there need not be an express finding of negligence to hold
it liable.—The common carrier’s duty to observe the requisite
diligence in the shipment of goods lasts from the time the articles
are surrendered to or unconditionally placed in the possession
of, and received by, the carrier for transportation until delivered
to, or until the lapse of a reasonable time for their acceptance
by, the person entitled to receive them (Arts. 1736-1738, Civil
Code; Ganzon vs. Court of Appeals, 161 SCRA 646; Kui Bai vs.
Dollar Steamship Lines, 52 Phil. 863). When the goods shipped
either are lost or arrive in damaged condition, a presumption
arises against the carrier of its failure to observe that diligence,
and there need not be an express finding of negligence to hold
it liable (Art. 1735, Civil Code; Philippine National Railways vs.
Court of Appeals, 139 SCRA 87; Metro Port Service vs. Court of
Appeals, 131 SCRA 365). There are, of course, exceptional
cases when such presumption of fault is not observed but these
cases, enumerated in Article 1734 of the Civil Code, are
exclusive, not one of which can be applied to this case.
Same; Same; Arrastre Operator; Carrier and arrastre
operator liable in solidum for the proper delivery of the
goods to the consignee.—The question of charging both the
carrier and the arrastre operator with the obligation of properly
delivering the goods to the consignee has, too, been passed
upon by the Court. In Fireman’s Fund Insurance Co. vs. Metro
Port Service, Inc. (182 SCRA 455), we have explained, in
holding the carrier and the arrastre operator liable in solidum,
thus: “The legal relationship between the consignee and the
arrastre operator is akin to that of a depositor and
warehouseman (Lua Kian v. Manila Railroad Co., et al., 19
SCRA 5 [1967]. The relationship between the consignee and the
common carrier is similar to that of the consignee and the
arrastre operator (Northern Motors, Inc. v. Prince Line, et al.,
107 Phil. 253 [1960]). Since it is the duty of the ARRASTRE to
take good care of the goods that are in its custody and to deliver
them in good condition to the consignee, such responsibility also
devolves upon the CARRIER. Both the ARRASTRE and the
CARRIER are therefore charged with the obligation to deliver
the goods in good condition to the consignee.”
Same; Same; Same; The Supreme Court is not implying,
however, that the arrastre operator and the customs broker
are themselves always and necessarily liable solidarily with
the carrier, or vice-versa, nor that attendant facts in a given
case may not vary the rule.—We do not, of course, imply by
the above pronouncement that the arrastre operator and the
customs broker are themselves always and necessarily liable
solidarily with the carrier, or vice-versa, nor that attendant facts
in a given case may not vary the rule. The instant petition has
been brought solely by Eastern Shipping Lines which, being the
carrier and not having been able to rebut the presumption of
fault, is, in any event, to be held liable in this particular case. A
factual finding of both the court a quo and the appellate court,
we take note, is that “there is sufficient evidence that the
shipment sustained damage while in the successive possession
of appellants” (the herein petitioner among them). Accordingly,
the liability imposed on Eastern Shipping Lines, Inc., the sole
petitioner in this case, is inevitable regardless of whether there
are others solidarily liable with it.
Damages; Interest Rates; Rules of thumb for future
guidance in the award of damages and interest rates.—The
ostensible discord is not difficult to explain. The factual
circumstances may have called for different applications, guided
by the rule that the courts are vested with discretion, depending
on the equities of each case, on the award of interest.
Nonetheless, it may not be unwise, by way of clarification and
reconciliation, to suggest the following rules of thumb for future
guidance.
Same; Same; Same; When an obligation is breached, the
contravenor can be held liable for damages.—When an
obligation, regardless of its source, i.e., law, contracts, quasi-
contracts, delicts or quasi-delicts is breached, the contravenor
can be held liable for damages. The provisions under Title XVIII
on “Damages” of the Civil Code govern in determining the
measure of recoverable damages.
Same; Same; Same; Interests in the Concept of Actual and
Compensatory Damages; In a loan or forbearance of
money, the interest due should be that stipulated in writing,
and in the absence thereof, the rate shall be 12% per
annum.—With regard particularly to an award of interest in the
concept of actual and compensatory damages, the rate of
interest, as well as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the
payment of a sum of money, i.e., a loan or forbearance of
money, the interest due should be that which may have been
stipulated in writing. Furthermore, the interest due shall itself
earn legal interest from the time it is judicially demanded. In the
absence of stipulation, the rate of interest shall be 12% per
annum to be computed from default, i.e., from judicial or
extrajudicial demand under and subject to the provisions of
Article 1169 of the Civil Code.
Same; Same; Same; Same; In case of other obligations, the
interest on the amount of damages may be imposed at the
discretion of the court at the rate of 6% per annum.—When
an obligation, not constituting a loan or forbearance of money,
is breached, an interest on the amount of damages awarded
may be imposed at the discretion of the court at the rate of 6%
per annum. No interest, however, shall be adjudged on
unliquidated claims or damages except when or until the
demand can be established with reasonable certainty.
Accordingly, where the demand is established with reasonable
certainty, the interest shall begin to run from the time the claim
is made judicially or extrajudicially (Art. 1169, Civil Code) but
when such certainty cannot be so reasonably established at the
time the demand is made, the interest shall begin to run only
from the date the judgment of the court is made (at which time
the quantification of damages may be deemed to have been
reasonably ascertained). The actual base for the computation of
legal interest shall, in any case, be on the amount finally
adjudged.
Same; Same; Same; Same; When the judgment of the court
awarding a sum of money becomes final and executory, the
rate of legal interest 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.—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.
HERMOJINA ESTORES, petitioner, vs. SPOUSES ARTURO
and LAURA SUPANGAN, respondents.
Civil Law; Interest Rates; The general rule is that the
applicable rate of interest “shall be computed in
accordance with the stipulation of the parties.” Absent any
stipulation, the applicable rate of interest shall be 12% per
annum “when the obligation arises out of a loan or a
forbearance of money, goods or credits. In other cases, it
shall be six percent (6%).”—Anent the interest rate, the
general rule is that the applicable rate of interest “shall be
computed in accordance with the stipulation of the parties.”
Absent any stipulation, the applicable rate of interest shall be
12% per annum “when the obligation arises out of a loan or a
forbearance of money, goods or credits. In other cases, it shall
be six percent (6%).” In this case, the parties did not stipulate as
to the applicable rate of interest. The only question remaining
therefore is whether the 6% as provided under Article 2209 of
the Civil Code, or 12% under Central Bank Circular No. 416, is
due.
Same; Same; The phrase “forbearance of money, goods or
credits” is meant to have a separate meaning from a loan,
otherwise there would have been no need to add that
phrase as a loan is already sufficiently defined in the Civil
Code.—In Crismina Garments, Inc. v. Court of Appeals, 304
SCRA 356 (1999), “forbearance” was defined as a “contractual
obligation of lender or creditor to refrain during a given period of
time, from requiring the borrower or debtor to repay a loan or
debt then due and payable.” This definition describes a loan
where a debtor is given a period within which to pay a loan or
debt. In such case, “forbearance of money, goods or credits” will
have no distinct definition from a loan. We believe however, that
the phrase “forbearance of money, goods or credits” is meant to
have a separate meaning from a loan, otherwise there would
have been no need to add that phrase as a loan is already
sufficiently defined in the Civil Code. Forbearance of money,
goods or credits should therefore refer to arrangements other
than loan agreements, where a person acquiesces to the
temporary use of his money, goods or credits pending
happening of certain events or fulfillment of certain conditions.
In this case, the respondent-spouses parted with their money
even before the conditions were fulfilled. They have therefore
allowed or granted forbearance to the seller (petitioner) to use
their money pending fulfillment of the conditions. They were
deprived of the use of their money for the period pending
fulfillment of the conditions and when those conditions were
breached, they are entitled not only to the return of the principal
amount paid, but also to compensation for the use of their
money. And the compensation for the use of their money, absent
any stipulation, should be the same rate of legal interest
applicable to a loan since the use or deprivation of funds is
similar to a loan.
UNITED COCONUT PLANTERS BANK, petitioner, vs.
SPOUSES SAMUEL and ODETTE BELUSO, respondents.
Obligations and Contracts; Loans; Principle of Mutuality; In order
that obligations arising from contracts may have the force of law
between the parties, there must be mutuality between the
parties based on their essential equality.—Article 1308 of the
Civil Code provides: Art. 1308. The contract must bind both
contracting parties; its validity or compliance cannot be left to the
will of one of them. We applied this provision in Philippine
National Bank v. Court of Appeals, 196 SCRA 536 (1991), where
we held: In order that obligations arising from contracts may
have the force of law between the parties, there must be
mutuality between the parties based on their essential equality.
A contract containing a condition which makes its fulfillment
dependent exclusively upon the uncontrolled will of one of the
contracting parties, is void (Garcia vs. Rita Legarda, Inc., 21
SCRA 555). Hence, even assuming that the P1.8 million loan
agreement between the PNB and the private respondent gave
the PNB a license (although in fact there was none) to increase
the interest rate at will during the term of the loan, that license
would have been null and void for being violative of the principle
of mutuality essential in contracts. It would have invested the
loan agreement with the character of a contract of adhesion,
where the parties do not bargain on equal footing, the weaker
party’s (the debtor) participation being reduced to the alternative
“to take it or leave it” (Qua vs. Law Union & Rock Insurance Co.,
95 Phil. 85). Such a contract is a veritable trap for the weaker
party whom the courts of justice must protect against abuse and
imposition.
Same; Same; Same; A provision stating that the interest
shall be at the “rate indicative of DBD retail rate or as
determined by the Branch Head” is indeed dependent
solely on the will of the lender; A rate “as determined by the
Branch Head” gives the latter unfettered discretion on what
the rate may be—the Branch Head may choose any rate he
or she desires.—The provision stating that the interest shall be
at the “rate indicative of DBD retail rate or as determined by the
Branch Head” is indeed dependent solely on the will of petitioner
UCPB. Under such provision, petitioner UCPB has two choices
on what the interest rate shall be: (1) a rate indicative of the DBD
retail rate; or (2) a rate as determined by the Branch Head. As
UCPB is given this choice, the rate should be categorically
determinable in both choices. If either of these two choices
presents an opportunity for UCPB to fix the rate at will, the bank
can easily choose such an option, thus making the entire interest
rate provision violative of the principle of mutuality of contracts.
Not just one, but rather both, of these choices are dependent
solely on the will of UCPB. Clearly, a rate “as determined by the
Branch Head” gives the latter unfettered discretion on what the
rate may be. The Branch Head may choose any rate he or she
desires. As regards the rate “indicative of the DBD retail rate,”
the same cannot be considered as valid for being akin to a
“prevailing rate” or “prime rate” allowed by this Court in Polotan.
Same; Same; Estoppel; Estoppel cannot be predicated on an
illegal act.—Estoppel cannot be predicated on an illegal act. As
between the parties to a contract, validity cannot be given to it
by estoppel if it is prohibited by law or is against public policy.
Same; Same; Truth in Lending Act; Not disclosing the true
finance charges in connection with the extensions of credit
is a form of deception which we cannot countenance.—The
interest rate provisions in the case at bar are illegal not only
because of the provisions of the Civil Code on mutuality of
contracts, but also, as shall be discussed later, because they
violate the Truth in Lending Act. Not disclosing the true finance
charges in connection with the extensions of credit is,
furthermore, a form of deception which we cannot countenance.
It is against the policy of the State as stated in the Truth in
Lending Act: Sec. 2. Declaration of Policy.—It is hereby declared
to be the policy of the State to protect its citizens from a lack of
awareness of the true cost of credit to the user by assuring a full
disclosure of such cost with a view of preventing the uninformed
use of credit to the detriment of the national economy.
Same; Same; Default commences upon judicial or
extrajudicial demand, and the excess amount in such a
demand does not nullify the demand itself, which is valid
with respect to the proper amount.—Default commences
upon judicial or extrajudicial demand. The excess amount in
such a demand does not nullify the demand itself, which is valid
with respect to the proper amount. A contrary ruling would put
commercial transactions in disarray, as validity of demands
would be dependent on the exactness of the computations
thereof, which are too often contested. There being a valid
demand on the part of UCPB, albeit excessive, the spouses
Beluso are considered in default with respect to the proper
amount and, therefore, the interests and the penalties began to
run at that point.
Same; Same; Interest; The Court sees sufficient basis to
impose a 12% legal interest in favor of the lender in the case
at bar, as what was voided is merely the stipulated rate of
interest and not the stipulation that the loan shall earn
interest.—All these show that the spouses Beluso had
acknowledged before the RTC their obligation to pay a 12%
legal interest on their loans. When the RTC failed to include the
12% legal interest in its computation, however, the spouses
Beluso merely defended in the appellate courts this non-
inclusion, as the same was beneficial to them. We see, however,
sufficient basis to impose a 12% legal interest in favor of
petitioner in the case at bar, as what we have voided is merely
the stipulated rate of interest and not the stipulation that the loan
shall earn interest.
Same; Same; Same; Compounded Interest; The contracting
parties may by stipulation capitalize the interest due and
unpaid, which as added principal, shall earn new interest.—
We must likewise uphold the contract stipulation providing the
compounding of interest. The provisions in the Credit Agreement
and in the promissory notes providing for the compounding of
interest were neither nullified by the RTC or the Court of
Appeals, nor assailed by the spouses Beluso in their petition
with the RTC. The compounding of interests has furthermore
been declared by this Court to be legal. We have held in Tan v.
Court of Appeals, 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.
Same; Same; Same; Penalties; Like in the case of grossly
excessive interests, the penalty stipulated in the contract
may also be reduced by the courts if it is iniquitous or
unconscionable; If a 36% interest in itself has been declared
unconscionable by the Supreme Court, what more a 30.41%
to 36% penalty, over and above the payment of
compounded interest?—As regards the imposition of
penalties, however, although we are likewise upholding the
imposition thereof in the contract, we find the rate iniquitous.
Like in the case of grossly excessive interests, the penalty
stipulated in the contract may also be reduced by the courts if it
is iniquitous or unconscionable. We find the penalty imposed by
UCPB, ranging from 30.41% to 36%, to be iniquitous
considering the fact that this penalty is already over and above
the compounded interest likewise imposed in the contract. If a
36% interest in itself has been declared unconscionable by this
Court, what more a 30.41% to 36% penalty, over and above the
payment of compounded interest? UCPB itself must have
realized this, as it gave us a sample computation of the spouses
Beluso’s obligation if both the interest and the penalty charge
are reduced to 12%.
Attorney’s Fees; Default; Filing a case in court is the judicial
demand referred to in Article 1169 of the Civil Code, which
would put the obligor in delay; Since both parties were
forced to litigate to protect their respective rights, and both
are entitled to the award of attorney’s fees from the other,
practical reasons dictate that the Court sets off or
compensate both parties’ liabilities for attorney’s fees.—As
regards the attorney’s fees, the spouses Beluso can actually be
liable therefor even if there had been no demand. Filing a case
in court is the judicial demand referred to in Article 1169 of the
Civil Code, which would put the obligor in delay. The RTC,
however, also held UCPB liable for attorney’s fees in this case,
as the spouses Beluso were forced to litigate the issue on the
illegality of the interest rate provision of the promissory notes.
The award of attorney’s fees, it must be recalled, falls under the
sound discretion of the court. Since both parties were forced to
litigate to protect their respective rights, and both are entitled to
the award of attorney’s fees from the other, practical reasons
dictate that we set off or compensate both parties’ liabilities for
attorney’s fees. Therefore, instead of awarding attorney’s fees
in favor of petitioner, we shall merely affirm the deletion of the
award of attorney’s fees to the spouses Beluso.
Foreclosure of Mortgage; Annulment of Foreclosure Sale;
The grounds for the proper annulment of the foreclosure
sale are the following: (1) that there was fraud, collusion,
accident, mutual mistake, breach of trust or misconduct by
the purchaser; (2) that the sale had not been fairly and
regularly conducted; or (3) that the price was inadequate
and the inadequacy was so great as to shock the
conscience of the court.—We agree with UCPB and affirm the
validity of the foreclosure proceedings. Since we already found
that a valid demand was made by UCPB upon the spouses
Beluso, despite being excessive, the spouses Beluso are
considered in default with respect to the proper amount of their
obligation to UCPB and, thus, the property they mortgaged to
secure such amounts may be foreclosed. Consequently,
proceeds of the foreclosure sale should be applied to the extent
of the amounts to which UCPB is rightfully entitled. As argued
by UCPB, none of the grounds for the annulment of a foreclosure
sale are present in this case. The grounds for the proper
annulment of the foreclosure sale are the following: (1) that there
was fraud, collusion, accident, mutual mistake, breach of trust
or misconduct by the purchaser; (2) that the sale had not been
fairly and regularly conducted; or (3) that the price was
inadequate and the inadequacy was so great as to shock the
conscience of the court.
Loans; Truth in Lending Act; Pleadings and Practice; The
allegation that the promissory notes grant the lender the
power to unilaterally fix the interest rates certainly also
means that the promissory notes do not contain a “clear
statement in writing” of “(6) the finance charge expressed
in terms of pesos and centavos; and (7) the percentage that
the finance charge bears to the amount to be financed
expressed as a simple annual rate on the outstanding
unpaid balance of the obligation.”—The allegations in the
complaint, much more than the title thereof, are controlling.
Other than that stated by the Court of Appeals, we find that the
allegation of violation of the Truth in Lending Act can also be
inferred from the same allegation in the complaint we discussed
earlier: b.) In unilaterally imposing an increased interest rates
(sic) respondent bank has relied on the provision of their
promissory note granting respondent bank the power to
unilaterally fix the interest rates, which rate was not determined
in the promissory note but was left solely to the will of the Branch
Head of the respondent Bank, x x x. The allegation that the
promissory notes grant UCPB the power to unilaterally fix the
interest rates certainly also means that the promissory notes do
not contain a “clear statement in writing” of “(6) the finance
charge expressed in terms of pesos and centavos; and (7) the
percentage that the finance charge bears to the amount to be
financed expressed as a simple annual rate on the outstanding
unpaid balance of the obligation.” Furthermore, the spouses
Beluso’s prayer “for such other reliefs just and equitable in the
premises” should be deemed to include the civil penalty
provided for in Section 6(a) of the Truth in Lending Act.
Same; Same; Prescription; As the penalty provided under
the Truth in Lending Act depends on the finance charge
required of the borrower, the borrower’s cause of action
would only accrue when such finance charge is required.—
UCPB’s contention that this action to recover the penalty for the
violation of the Truth in Lending Act has already prescribed is
likewise without merit. The penalty for the violation of the act is
P100 or an amount equal to twice the finance charge required
by such creditor in connection with such transaction, whichever
is greater, except that such liability shall not exceed P2,000.00
on any credit transaction. As this penalty depends on the finance
charge required of the borrower, the borrower’s cause of action
would only accrue when such finance charge is required. In the
case at bar, the date of the demand for payment of the finance
charge is 2 September 1998, while the foreclosure was made on
28 December 1998. The filing of the case on 9 February 1999 is
therefore within the one-year prescriptive period.
Same; Same; Pleadings and Practice; Joinder of Causes of
Action; As can be gleaned from Section 6(a) and (c) of the
Truth in Lending Act, the violation of the said Act gives rise
to both criminal and civil liabilities; In the case at bar, the
civil action to recover the penalty under Section 6(a) of the
Truth in Lending Act had been jointly instituted with (1) the
action to declare the interests in the promissory notes void,
and (2) the action to declare the foreclosure void. This
joinder is allowed under Rule 2, Section 5 of the Rules of
Court.—As can be gleaned from Section 6(a) and (c) of the
Truth in Lending Act, the violation of the said Act gives rise to
both criminal and civil liabilities. Section 6(c) considers a criminal
offense the willful violation of the Act, imposing the penalty
therefor of fine, imprisonment or both. Section 6(a), on the other
hand, clearly provides for a civil cause of action for failure to
disclose any information of the required information to any
person in violation of the Act. The penalty therefor is an amount
of P100 or in an amount equal to twice the finance charge
required by the creditor in connection with such transaction,
whichever is greater, except that the liability shall not exceed
P2,000.00 on any credit transaction. The action to recover such
penalty may be instituted by the aggrieved private person
separately and independently from the criminal case for the
same offense. In the case at bar, therefore, the civil action to
recover the penalty under Section 6(a) of the Truth in Lending
Act had been jointly instituted with (1) the action to declare the
interests in the promissory notes void, and (2) the action to
declare the foreclosure void. This joinder is allowed under Rule
2, Section 5 of the Rules of Court.
Same; Same; Same; Same; Due Process; Due process
mandates that a defendant should be sufficiently apprised
of the matters he or she would be defending himself or
herself against.—In attacking the RTC’s disposition on the
violation of the Truth in Lending Act since the same was not
alleged in the complaint, UCPB is actually asserting a violation
of due process. Indeed, due process mandates that a defendant
should be sufficiently apprised of the matters he or she would be
defending himself or herself against. However, in the 1 July 1999
pre-trial brief filed by the spouses Beluso before the RTC, the
claim for civil sanctions for violation of the Truth in Lending Act
was expressly alleged, thus: Moreover, since from the start,
respondent bank violated the Truth in Lending Act in not
informing the borrower in writing before the execution of the
Promissory Notes of the interest rate expressed as a percentage
of the total loan, the respondent bank instead is liable to pay
petitioners double the amount the bank is charging petitioners
by way of sanction for its violation.
Actions; Venue; Where the causes of action are between the
same parties but pertain to different venues or jurisdictions, the
joinder may be allowed in the Regional Trial Court provided one
of the causes of action falls within the jurisdiction of said court
and the venue lies therein.—We have already ruled that the
action to recover the penalty under Section 6(a) of the Truth in
Lending Act had been jointly instituted with (1) the action to
declare the interests in the promissory notes void, and (2) the
action to declare the foreclosure void. There had been no
question that the above actions belong to the jurisdiction of the
RTC. Subsection (c) of the above-quoted Section 5 of the Rules
of Court on Joinder of Causes of Action provides: (c) Where the
causes of action are between the same parties but pertain to
different venues or jurisdictions, the joinder may be allowed in
the Regional Trial Court provided one of the causes of action
falls within the jurisdiction of said court and the venue lies
therein.
Loans; Credit Lines; Words and Phrases; Opening a credit line
does not create a credit transaction of loan or mutuum, since the
former is merely a preparatory contract to the contract of loan or
mutuum—under such credit line, the bank is merely obliged, for
the considerations specified therefor, to lend to the other party
amounts not exceeding the limit provided.—Opening a credit
line does not create a credit transaction of loan or mutuum, since
the former is merely a preparatory contract to the contract of loan
or mutuum. Under such credit line, the bank is merely obliged,
for the considerations specified therefor, to lend to the other
party amounts not exceeding the limit provided. The credit
transaction thus occurred not when the credit line was opened,
but rather when the credit line was availed of. In the case at bar,
the violation of the Truth in Lending Act allegedly occurred not
when the parties executed the Credit Agreement, where no
interest rate was mentioned, but when the parties executed the
promissory notes, where the allegedly offending interest rate
was stipulated.
Same; Truth in Lending Act; Section 4 of the Truth in
Lending Act clearly provides that the disclosure statement
must be furnished prior to the consummation of the
transaction.—UCPB further argues that since the spouses
Beluso were duly given copies of the subject promissory notes
after their execution, then they were duly notified of the terms
thereof, in substantial compliance with the Truth in Lending Act.
Once more, we disagree. Section 4 of the Truth in Lend-ing Act
clearly provides that the disclosure statement must be furnished
prior to the consummation of the transaction.
Same; Same; 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.—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 UCPB’s 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.
Actions; Pleadings and Practice; Venue; Motions to
Dismiss; When an action is dismissed on the motion of the
other party, it is only when the ground for the dismissal of
an action is found in paragraphs (f), (h) and (i) of Section 1,
Rule 16, that the action cannot be refiled—as regards all the
other grounds, the complainant is allowed to file same
action, but should take care that, this time, it is filed with
the proper court or after the accomplishment of the
erstwhile absent condition precedent, as the case may be;
While it is the general rule that in cases where there are two
pending actions between the same parties on the same
issue, it should be the later case that should be dismissed,
the first action may nevertheless be dismissed if the later
action is the more appropriate vehicle for the ventilation of
the issues between the parties.—When an action is dismissed
on the motion of the other party, it is only when the ground for
the dismissal of an action is found in paragraphs (f), (h) and (i)
that the action cannot be refiled. As regards all the other
grounds, the complainant is allowed to file same action, but
should take care that, this time, it is filed with the proper court or
after the accomplishment of the erstwhile absent condition
precedent, as the case may be. UCPB, however, brings to the
attention of this Court a Motion for Reconsideration filed by the
spouses Beluso on 15 January 1999 with the RTC of Roxas City,
which Motion had not yet been ruled upon when the spouses
Beluso filed Civil Case No. 99-314 with the RTC of Makati.
Hence, there were allegedly two pending actions between the
same parties on the same issue at the time of the filing of Civil
Case No. 99-314 on 9 February 1999 with the RTC of Makati.
This will still not change our findings. It is indeed the general rule
that in cases where there are two pending actions between the
same parties on the same issue, it should be the later case that
should be dismissed. However, this rule is not absolute.
According to this Court in Allied Banking Corporation v. Court of
Appeals, 259 SCRA 371 (1996): In these cases, it is evident that
the first action was filed in anticipation of the filing of the later
action and the purpose is to preempt the later suit or provide a
basis for seeking the dismissal of the second action. Even if this
is not the purpose for the filing of the first action, it may
nevertheless be dismissed if the later action is the more
appropriate vehicle for the ventilation of the issues between the
parties.
ADVOCATES FOR TRUTH IN LENDING, INC. and EDUARDO
B. OLAGUER, petitioners, vs. BANGKO SENTRAL
MONETARY BOARD, represented by its Chairman,
GOVERNOR ARMANDO M. TETANGCO, JR., and its
incumbent members: JUANITA D. AMATONG, ALFREDO C.
ANTONIO, PETER FAVILA, NELLY F. VILLAFUERTE,
IGNACIO R. BUNYE and CESAR V. PURISIMA, respondents.
Remedial Law; Special Civil Actions; Certiorari; A petition
for certiorari being an extraordinary remedy, the party
seeking to avail of the same must strictly observe the
procedural rules laid down by law, and non-observance
thereof may not be brushed aside as mere technicality.—
The decision on whether or not to accept a petition for certiorari,
as well as to grant due course thereto, is addressed to the sound
discretion of the court. A petition for certiorari being an
extraordinary remedy, the party seeking to avail of the same
must strictly observe the procedural rules laid down by law, and
non-observance thereof may not be brushed aside as mere
technicality. As provided in Section 1 of Rule 65, a writ of
certiorari is directed against a tribunal exercising judicial or
quasi-judicial functions. Judicial functions are exercised by a
body or officer clothed with authority to determine what the law
is and what the legal rights of the parties are with respect to the
matter in controversy. Quasi-judicial function is a term that
applies to the action or discretion of public administrative officers
or bodies given the authority to investigate facts or ascertain the
existence of facts, hold hearings, and draw conclusions from
them as a basis for their official action using discretion of a
judicial nature.
Same; Civil Procedure; Locus Standi; Words and Phrases;
Locus standi is defined as a right of appearance in a court of
justice on a given question.—Locus standi is defined as “a right
of appearance in a court of justice on a given question.” In
private suits, Section 2, Rule 3 of the 1997 Rules of Civil
Procedure provides that “every action must be prosecuted or
defended in the name of the real party in interest,” who is “the
party who stands to be benefited or injured by the judgment in
the suit or the party entitled to the avails of the suit.” Succinctly
put, a party’s standing is based on his own right to the relief
sought.
Same; Same; Same; In Prof. David v. Pres. Macapagal-
Arroyo, 489 SCRA 160 (2006), the Supreme Court
summarized the requirements before taxpayers, voters,
concerned citizens, and legislators can be accorded a
standing to sue.—In Prof. David v. Pres. Macapagal-Arroyo,
489 SCRA 160 (2006), the Court summarized the requirements
before taxpayers, voters, concerned citizens, and legislators can
be accorded a standing to sue, viz.: (1) the cases involve
constitutional issues; (2) for taxpayers, there must be a claim of
illegal disbursement of public funds or that the tax measure is
unconstitutional; (3) for voters, there must be a showing of
obvious interest in the validity of the election law in question; (4)
for concerned citizens, there must be a showing that the issues
raised are of transcendental importance which must be settled
early; and (5) for legislators, there must be a claim that the
official action complained of infringes upon their prerogatives as
legislators.
Usury Law; Central Bank (CB) Circular No. 905; Central
Bank (CB) Circular No. 905 did not repeal nor in anyway
amend the Usury Law but simply suspended the latter’s
effectivity; that a Central Bank (CB) Circular cannot repeal
a law, for only a law can repeal another law; that by virtue
of CB Circular No. 905, the Usury Law has been rendered
ineffective; and Usury Law has been legally non-existent in
our jurisdiction.—The power of the CB to effectively suspend
the Usury Law pursuant to P.D. No. 1684 has long been
recognized and upheld in many cases. As the Court explained
in the landmark case of Medel v. CA, 299 SCRA 481 (1998),
citing several cases, CB Circular No. 905 “did not repeal nor in
anyway amend the Usury Law but simply suspended the latter’s
effectivity”; that “a [CB] Circular cannot repeal a law, [for] only a
law can repeal another law”; that “by virtue of CB Circular No.
905, the Usury Law has been rendered ineffective”; and “Usury
has been legally non-existent in our jurisdiction. Interest can now
be charged as lender and borrower may agree upon.”
Same; Section 109 of R.A. No. 265 covered only loans
extended by banks, whereas under Section 1-a of the Usury
Law, as amended, the Bangko Sentral ng Pilipinas Monetary
Board (BSP-MB) may prescribe the maximum rate or rates
of interest for all loans or renewals thereof or the
forebearance 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.—A closer perusal shows that
Section 109 of R.A. No. 265 covered only loans extended by
banks, whereas under Section 1-a of the Usury Law, as
amended, 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. Act No. 2655, an earlier law, is much broader in
scope, whereas R.A. No. 265, now R.A. No. 7653, merely
supplemented it as it concerns loans by banks and other
financial institutions. Had R.A. No. 7653 been intended to repeal
Section 1-a of Act No. 2655, it would have so stated in
unequivocal terms.
Statutes; Implied Repeals; 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.—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. 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. We find
no such conflict between the provisions of Act 2655 and R.A.
No. 7653.
Usury Law; Interest Rates; Stipulations authorizing
iniquitous or unconscionable interests have been
invariably struck down for being contrary to morals, if not
against the law; In a usurious loan with mortgage, the right
to foreclose the mortgage subsists, and this right can be
exercised by the creditor upon failure by the debtor to pay
the debt due. The debt due is considered as without the
stipulated excessive interest, and the legal interest of 12%
per annum will be added in place of the excessive interest
formerly imposed.—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. As held in Castro v. Tan, 605
SCRA 231 (2009): 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. Stipulations authorizing iniquitous or
unconscionable interests have been invariably struck down for
being contrary to morals, if not against the law. Indeed, under
Article 1409 of the Civil Code, these contracts are deemed
inexistent and void ab initio, and therefore cannot be ratified, nor
may the right to set up their illegality as a defense be waived.
Nonetheless, the nullity of the stipulation of usurious interest
does not affect the lender’s right to recover the principal of a
loan, nor affect the other terms thereof. Thus, in a usurious loan
with mortgage, the right to foreclose the mortgage subsists, and
this right can be exercised by the creditor upon failure by the
debtor to pay the debt due. The debt due is considered as
without the stipulated excessive interest, and a legal interest of
12% per annum will be added in place of the excessive interest
formerly imposed.
SPOUSES DAVID B. CARPO and RECHILDA S. CARPO,
petitioners, vs. ELEANOR CHUA and ELMA DY NG,
respondents.
Civil Law; Loans; Usury Law; A usurious loan transaction
is not a complete nullity but defective only with respect to
the agreed interest.—The Court’s ultimate affirmation in the
cases cited of the validity of the principal loan obligation side by
side with the invalidation of the interest rates thereupon is
congruent with the rule that a usurious loan transaction is not a
complete nullity but defective only with respect to the agreed
interest.
Same; Same; Same; Since the mortgage contract derives
its vitality from the validity of the principal obligation, the
invalid stipulation on interest rate is similarly insufficient to
render void the ancillary mortgage contract.—The Court’s
wholehearted affirmation of the rule that the principal obligation
subsists despite the nullity of the stipulated interest is evinced
by its subsequent rulings, cited above, in all of which the main
obligation was upheld and the offending interest rate merely
corrected. Hence, it is clear and settled that the principal loan
obligation still stands and remains valid. By the same token,
since the mortgage contract derives its vitality from the validity
of the principal obligation, the invalid stipulation on interest rate
is similarly insufficient to render void the ancillary mortgage
contract.
Remedial Law; Appeals; It is axiomatic that an interlocutory
order cannot be challenged by an appeal but is susceptible
to review only through the special civil action of
certiorari.—Since the 6 January 2000 Order is not a final order,
but rather interlocutory in nature, we cannot agree with
petitioners who insist that it may be assailed only through an
appeal perfected within fifteen (15) days from receipt thereof by
respondents. It is axiomatic that an interlocutory order cannot be
challenged by an appeal, but is susceptible to review only
through the special civil action of certiorari. The sixty (60)-day
reglementary period for special civil actions under Rule 65
applies, and respondents’ petition was filed with the Court of
Appeals well within the period.
Same; Writ of Possession; The purchaser in a foreclosure sale
is entitled as a matter of right to a writ of possession regardless
of whether or not there is a pending suit for annulment of the
mortgage or the foreclosure proceedings.—We also affirm the
Court of Appeals’ ruling to set aside the RTC orders enjoining
the enforcement of the writ of possession. The purchaser in a
foreclosure sale is entitled as a matter of right to a writ of
possession, regardless of whether or not there is a pending suit
for annulment of the mortgage or the foreclosure proceedings.
An injunction to prohibit the issuance or enforcement of the writ
is entirely out of place.