G.R. No. 192986. January 15, 2013.
* which must be settled early; and (5) for legislators, there must be a claim that the
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.
Page | ANTONIO, PETER FAVILA, NELLY F. VILLAFUERTE, IGNACIO R.
1 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
_______________
* EN BANC.
531
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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
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
532
532 SUPREME COURT REPORTS ANNOTATED
Advocates for Truth in Lending, Inc. vs. Bangko Sentral Monetary
Board
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
Page |
failure by the debtor to pay the debt due. The debt due is considered as without the
2 stipulated excessive interest, and the legal interest of 12% per annum will be added
in place of the excessive interest formerly imposed.—It is set-
533
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Advocates for Truth in Lending, Inc. vs. Bangko Sentral Monetary
Board
tled that nothing in CB Circular No. 905 grants lenders
a carteblanche 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.
SPECIAL CIVIL ACTION in the Supreme Court. Certiorari.
The facts are stated in the opinion of the Court.
Nathaniel A. Lobigas for petitioners.
The Solicitor General for respondents.
REYES, J.:
Petitioners, claiming that they are raising issues of transcendental
importance to the public, filed directly with this Court this Petition
for Certiorari under Rule 65 of the 1997 Rules of Court, seeking to declare
that the Bangko Sentral ng Pilipinas Monetary Board (BSP-MB), replacing
the Central
534
534 SUPREME COURT REPORTS ANNOTATED
Advocates for Truth in Lending, Inc. vs. Bangko Sentral Monetary Board
Bank Monetary Board (CB-MB) by virtue of Republic Act (R.A.) No. 7653,
has no authority to continue enforcing Central Bank Circular No.
905,1 issued by the CB-MB in 1982, which “suspended” Act No. 2655, or the
Usury Law of 1916.
Factual Antecedents
Petitioner “Advocates for Truth in Lending, Inc.” (AFTIL) is a nonprofit,
non-stock corporation organized to engage in pro bono concerns and
activities relating to money lending issues. It was incorporated on July 9,
2010,2and a month later, it filed this petition, joined by its founder and
president, Eduardo B. Olaguer, suing as a taxpayer and a citizen.
R.A. No. 265, which created the Central Bank (CB) of the Philippines
on June 15, 1948, empowered the CB-MB to, among others, set the
maximum interest rates which banks may charge for all types of loans and
other credit operations, within limits prescribed by the Usury Law. Section
109 of R.A. No. 265 reads:
Sec. 109. Interest Rates, Commissions and Charges.—The Monetary Board
may fix the maximum rates of interest which banks may pay on deposits and on
other obligations.
The Monetary Board may, within the limits prescribed in the Usury Law fix the
maximum rates of interest which banks may charge for different types of loans and
for any other credit operations, or may fix the maximum differences which may
exist between the interest or rediscount rates of the Central Bank and the rates
which the banks may charge their customers if the respective credit documents are
not to lose their eligibility for rediscount or advances in the Central Bank.
Any modifications in the maximum interest rates permitted for the borrowing
or lending operations of the banks shall apply only to future operations and not to
those made prior to the date on which the modification becomes effective.
_______________
1 Rollo, pp. 48-56.
2 Id., at pp. 40-45.
535
VOL. 688, JANUARY 15, 2013 535
Advocates for Truth in Lending, Inc. vs. Bangko Sentral Monetary Board
In order to avoid possible evasion of maximum interest rates set by the
Monetary Board, the Board may also fix the maximum rates that banks may pay
to or collect from their customers in the form of commissions, discounts, charges,
fees or payments of any sort. (Underlining ours)
On March 17, 1980, the Usury Law was amended by Presidential
Decree (P.D.) No. 1684, giving the CB-MB authority to prescribe different
maximum rates of interest which may be imposed for a loan or renewal
thereof or the forbearance of any money, goods or credits, provided that the
 changes are effected gradually and announced in advance. Thus, Section
1-a of Act No. 2655 now reads:
Sec. 1-a. The Monetary Board is hereby authorized to prescribe the maximum
rate or rates of interest for the loan or renewal thereof or the forbearance
of any money, goods or credits, and to change such rate or rates whenever
Page | warranted by prevailing economic and social conditions: Provided, That changes in
such rate or rates may be effected gradually on scheduled dates announced in
3 advance.
In the exercise of the authority herein granted the Monetary Board may
prescribe higher maximum rates for loans of low priority, such as consumer loans
or renewals thereof as well as such loans made by pawnshops, finance companies
and other similar credit institutions although the rates prescribed for these
institutions need not necessarily be uniform. The Monetary Board is also
authorized to prescribe different maximum rate or rates for different types of
borrowings, including deposits and deposit substitutes, or loans of financial
intermediaries. (Underlining and emphasis ours)
In its Resolution No. 2224 dated December 3, 1982,3 the CB-MB issued
CB Circular No. 905, Series of 1982, effective on January 1, 1983. Section
1 of the Circular, under its General Provisions, removed the ceilings on
interest rates on loans or forbearance of any money, goods or credits, to
wit:
_______________
3 Id., at pp. 48-56.
536
536 SUPREME COURT REPORTS ANNOTATED
Advocates for Truth in Lending, Inc. vs. Bangko Sentral Monetary Board
Sec. 1. The rate of interest, including commissions, premiums, fees and other
charges, on a loan or forbearance of anymoney, goods, or credits, regardless of
maturity and whether secured or unsecured, that may be charged or collected by
any person, whether natural or juridical, shall not be subject to any
ceiling prescribed under or pursuant to the Usury Law, as amended.
(Underscoring and emphasis ours)
The Circular then went on to amend Books I to IV of the CB’s “Manual
of Regulations for Banks and Other Financial Intermediaries” (Manual of
Regulations) by removing the applicable ceilings on specific interest rates.
Thus, Sections 5, 9 and 10 of CB Circular No. 905 amended Book I,
Subsections 1303, 1349, 1388.1 of the Manual of Regulations, by removing
the ceilings for interest and other charges, commissions, premiums, and
fees applicable to commercial banks; Sections 12 and 17 removed the
interest ceilings for thrift banks (Book II, Subsections 2303, 2349); Sections
19 and 21 removed the ceilings applicable to rural banks (Book III,
Subsection 3152.3-c); and, Sections 26, 28, 30 and 32 removed the ceilings
for non-bank financial intermediaries (Book IV, Subsections 4303Q.1 to
4303Q.9, 4303N.1, 4303P).4
On June 14, 1993, President Fidel V. Ramos signed into law R.A. No.
7653 establishing the Bangko Sentral ng Pilipinas (BSP) to replace the CB.
The repealing clause thereof, Section 135, reads:
Sec. 135. Repealing Clause.—Except as may be provided for in Sections 46
and 132 of this Act, Republic Act No. 265, as amended, the provisions of any other
law, special charters, rule or regulation issued pursuant to said Republic Act No.
265, as amended, or parts thereof, which may be inconsistent with the provisions
of this Act are hereby repealed. Presidential Decree No. 1792 is likewise repealed.
_______________
4 Id., at pp. 10-12.
537
VOL. 688, JANUARY 15, 2013 537
Advocates for Truth in Lending, Inc. vs. Bangko Sentral Monetary Board
Petition for Certiorari
To justify their skipping the hierarchy of courts and going directly to
this Court to secure a writ of certiorari, petitioners contend that the
transcendental importance of their Petition can readily be seen in the
issues raised therein, to wit:
a) Whether under R.A. No. 265 and/or P.D. No. 1684, the CB-MB had
the statutory or constitutional authority to prescribe the maximum
rates of interest for all kinds of credit transactions and forbearance
of money, goods or credit beyond the limits prescribed in the Usury
Law;
b) If so, whether the CB-MB exceeded its authority when it issued CB
Circular No. 905, which removed all interest ceilings and thus
suspended Act No. 2655 as regards usurious interest rates;
c) Whether under R.A. No. 7653, the new BSP-MB may continue to
enforce CB Circular No. 905.5
Petitioners attached to their petition copies of several Senate Bills and
Resolutions of the 10th Congress, which held its sessions from 1995 to
1998, calling for investigations by the Senate Committee on Banks and
Financial Institutions into alleged unconscionable commercial rates of
interest imposed by these entities. Senate Bill (SB) Nos. 376 and 1860,7 filed
by Senator Vicente C. Sotto III and the late Senator Blas F. Ople,
respectively, sought to amend Act No. 2655 by fixing the rates of interest
on loans and forbearance of credit; Philippine Senate Resolution (SR) No.
1053,8 10739 and 1102,10 filed by Senators Ramon B. Magsaysay, Jr.,
Gregorio B. Honasan and
_______________
5 Id., at p. 13.
6 Id., at pp. 31-32.
7 Id., at p. 33.
8 Id., at pp. 34-35.
9 Id., at pp. 36-37.
10 Id., at p. 38.
538
 538 SUPREME COURT REPORTS ANNOTATED
Advocates for Truth in Lending, Inc. vs. Bangko Sentral Monetary Board
Franklin M. Drilon, respectively, urged the aforesaid Senate Committee to
investigate ways to curb the high commercial interest rates then obtaining
Page | in the country; Senator Ernesto Maceda filed SB No. 1151 to prohibit the
collection of more than two months of advance interest on any loan of
4 Circular No. 905.
money; and Senator Raul Roco filed SR No. 114411 seeking an investigation
into an alleged cartel of commercial banks, called “Club 1821”, reportedly
behind the regime of high interest rates. The petitioners also attached
news clippings12 showing that in February 1998 the banks’ prime lending
rates, or interests on loans to their best borrowers, ranged from 26% to
31%.
Petitioners contend that under Section 1-a of Act No. 2655, as amended
by P.D. No. 1684, the CB-MB was authorized only to prescribe or set the
maximum rates of interest for a loan or renewal thereof or for the
forbearance of any money, goods or credits, and to change such rates
whenever warranted by prevailing economic and social conditions, the
changes to be effected gradually and on scheduled dates; that nothing in
P.D. No. 1684 authorized the CB-MB to lift or suspend the limits of interest
on all credit transactions, when it issued CB Circular No. 905. They further
insist that under Section 109 of R.A. No. 265, the authority of the CB-MB
was clearly only to fix the banks’ maximum rates of interest, but always
within the limits prescribed by the Usury Law.
Thus, according to petitioners, CB Circular No. 905, which was
promulgated without the benefit of any prior public hearing, is void
because it violated Article 5 of the New Civil Code, which provides that
“Acts executed against the provisions of mandatory or prohibitory laws
shall be void, except when the law itself authorizes their validity.”
They further claim that just weeks after the issuance of CB Circular
No. 905, the benchmark 91-day Treasury bills (T-
_______________
11 Id., at p. 30.
12 Id., at pp. 26-29.
539
VOL. 688, JANUARY 15, 2013 539
Advocates for Truth in Lending, Inc. vs. Bangko Sentral Monetary Board
bills),13 then known as “Jobo” bills14 shot up to 40% per annum, as a result.
The banks immediately followed suit and re-priced their loans to rates
which were even higher than those of the “Jobo” bills. Petitioners thus
assert that CB Circular No. 905 is also unconstitutional in light of Section
1 of the Bill of Rights, which commands that “no person shall be deprived
of life, liberty or property without due process of law, nor shall any person
be denied the equal protection of the laws.”
Finally, petitioners point out that R.A. No. 7653 did not re-enact a
provision similar to Section 109 of R.A. No. 265, and therefore, in view of
the repealing clause in Section 135 of R.A. No. 7653, the BSP-MB has been
stripped of the power either to prescribe the maximum rates of interest
which banks may charge for different kinds of loans and credit
transactions, or to suspend Act No. 2655 and continue enforcing CB
Ruling
The petition must fail.
A. The Petition is procedurally infirm.
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.15 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.16
_______________
13 Treasury bills are government debt securities issued by the Bureau of the Treasury
with maturities of less than 1 year.
14 Named after CB Governor Jose “Jobo” Fernandez.
15 Chong v. Dela Cruz, G.R. No. 184948, July 21, 2009, 593 SCRA 311, 313-314.
16 Sea Power Shipping Enterprises, Inc. v. Court of Appeals, 412 Phil. 603, 611; 360 SCRA
173, 181 (2001).
540
540 SUPREME COURT REPORTS ANNOTATED
Advocates for Truth in Lending, Inc. vs. Bangko Sentral Monetary Board
As provided in Section 1 of Rule 65, a writ of certiorari is directed
against a tribunal exercising judicial or quasi-judicial functions.17 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.18
The CB-MB (now BSP-MB) was created to perform executive functions
with respect to the establishment, operation or liquidation of banking and
credit institutions, and branches and agencies thereof.19 It does not perform
judicial or quasi-judicial functions. Certainly, the issuance of CB Circular
No. 905 was done in the exercise of an executive function. Certiorari will
not lie in the instant case.20
_______________
 17 Sec. 1. Petition for certiorari.—When any tribunal, board or officer exercising
judicial or quasi-judicial functions has acted without or in excess of its or his jurisdiction, or
with grave abuse of discretion amounting to lack or excess of jurisdiction, and there is no
appeal, nor any plain, speedy, and adequate remedy in the ordinary course of law, a person
aggrieved thereby may file a verified petition in the proper court, alleging the facts with
certainty and praying that judgment be rendered annulling or modifying the proceedings of
Page | such tribunal, board or officer, and granting such incidental reliefs as law and justice may
require.
5 18 Chamber of Real Estate and Builders’ Associations, Inc. (CREBA) v. Energy Regulatory
Commission (ERC), G.R. No. 174697, July 8, 2010, 624 SCRA 556, 571.
19 Central Bank of the Philippines v. Court of Appeals, 158 Phil. 986, 993; 61 SCRA 348,
355 (1974).
20 In Philnabank Employees Association v. Estanislao (G.R. No. 104209, November 16,
1993, 227 SCRA 804), the Supreme Court refused to issue a writ of certiorari against the
Secretaries of Finance and of Labor after noting that they did not act in any judicial or
541
VOL. 688, JANUARY 15, 2013 541
23 320 Phil. 171; 246 SCRA 540 (1995); 316 Phil. 652; 250 SCRA 130 (1995).
542
542 SUPREME COURT REPORTS ANNOTATED
Advocates for Truth in Lending, Inc. vs. Bangko Sentral Monetary Board
being misspent, which according to the Court would have made the action
a public one, “and justify relaxation of the requirement that an action must
be prosecuted in the name of the real party-in-interest.” The Court held,
moreover, that the status of Kilosbayan as a people’s organization did not
give it the requisite personality to question the validity of the contract.
Thus:
Petitioners do not in fact show what particularized interest they have for
bringing this suit. It does not detract from the high regard for petitioners as civic
leaders to say that their interest falls short of that required to maintain an action
under the Rule 3, Sec. 2. 24

C. The Petition raises no issues of

Advocates for Truth in Lending, Inc. vs. Bangko Sentral Monetary Board
transcendental importance.
B. Petitioners have no locus standi In the 1993 case of Joya v. Presidential Commission on Good
to file the Petition Government,25 it was held that no question involving the constitutionality
Locus standi is defined as “a right of appearance in a court of justice on or validity of a law or governmental act may be heard and decided by the
a given question.” In private suits, Section 2, Rule 3 of the 1997 Rules of court unless there is compliance with the legal requisites for judicial
Civil Procedure provides that “every action must be prosecuted or defended inquiry, namely: (a) that the question must be raised by the proper party;
in the name of the real party in interest,” who is “the party who stands to (b) that there must be an actual case or controversy; (c) that the question
be benefited or injured by the judgment in the suit or the party entitled to must be raised at the earliest possible opportunity; and (d) that the
the avails of the suit.” Succinctly put, a party’s standing is based on his decision on the constitutional or legal question must be necessary to the
own right to the relief sought.21 determination of the case itself.
Even in public interest cases such as this petition, the Court has In Prof. David v. Pres. Macapagal-Arroyo,26 the Court summarized the
generally adopted the “direct injury” test that the person who impugns the requirements before taxpayers, voters, concerned citizens, and legislators
validity of a statute must have “a personal and substantial interest in the can be accorded a standing to sue, viz.:
case such that he has sustained, or will sustain direct injury as a _______________
result.”22Thus, while petitioners assert a public right to assail CB Circular 24 Id., at p. 696.
No. 905 as an illegal executive action, it is nonetheless required of them to 25 G.R. No. 96541, August 24, 1993, 225 SCRA 568.
26 Supra note 21.
make out a sufficient interest in the vindication of the public order and the
543
securing of relief. It is significant that in this petition, the petitioners do
not allege that they sustained any personal injury from the issuance of CB VOL. 688, JANUARY 15, 2013 543
Circular No. 905. Advocates for Truth in Lending, Inc. vs. Bangko Sentral Monetary Board
(1) the cases involve constitutional issues;
Petitioners also do not claim that public funds were being misused in (2) for taxpayers, there must be a claim of illegal disbursement of public funds or that the tax
the enforcement of CB Circular No. 905. In Kilosbayan, Inc. v. measure is unconstitutional;
Morato,23 involving the on-line lottery contract of the PCSO, there was no (3) for voters, there must be a showing of obvious interest in the validity of the election law in
question;
allegation that public funds were (4) for concerned citizens, there must be a showing that the issues raised are of transcendental
_______________ importance which must be settled early; and
quasi-judicial capacity but were merely promulgating the implementing rules of R.A. No. (5) for legislators, there must be a claim that the official action complained of infringes upon
6971, the Productivity Incentives Act of 1990. their prerogatives as legislators.
21 Prof. David v. Pres. Macapagal-Arroyo, 522 Phil. 705, 755-756; 489 SCRA 160, 216 While the Court may have shown in recent decisions a certain
(2006). (Citations omitted) toughening in its attitude concerning the question of legal standing, it has
22 People of the Philippines and HSBC v. Vera, 65 Phil. 56, 89 (1937).
nonetheless always made an exception where the transcendental
 importance of the issues has been established, notwithstanding the which mature in more than a year, carried an annual rate of 6.125%, way below 31%. It
fetched P63 billion, more than double the government’s original offer of P30 billion.
petitioners’ failure to show a direct injury.27 In CREBA v. ERC,28 the Court
31 See www.bsp.gov.ph/statistics.online.asp.
set out the following instructive guides as determinants on whether a 32 Manila Bulletin article, November 13, 2012, p. B-1: “Treasury Bill Yields Tumble to
matter is of transcendental importance, namely: (1) the character of the Record Lows, 91-Day at 0.150%”
funds or other assets involved in the case; (2) the presence of a clear case 33 Id.
Page | of disregard of a constitutional or statutory prohibition by the public 34 Araneta v. Dinglasan, 84 Phil. 368, 373 (1949).
545
6 respondent agency or instrumentality of the government; and (3) the lack
of any other party with a more direct and specific interest in the questions VOL. 688, JANUARY 15, 2013 545
being raised. Further, the Court stated in Anak Mindanao Party-List Advocates for Truth in Lending, Inc. vs. Bangko Sentral Monetary Board
Group v. The Executive Secretary29 that the rule on standing will not be petition has actually rendered moot and academic the issues it now raises.
waived where these determinants are not established. For its part, BSP-MB maintains that the petitioners’ allegations of
In the instant case, there is no allegation of misuse of public funds in constitutional and statutory violations of CB Circular No. 905 are really
the implementation of CB Circular No. 905. Neither were borrowers who mere challenges made by petitioners concerning the wisdom of the
were actually affected by the sus- Circular. It explains that it was in view of the global economic downturn
_______________ in the early 1980’s that the executive department through the CB-MB had
27 Id. to formulate policies to achieve economic recovery, and among these
28 Supra note 18.
29 G.R. No. 166052, August 29, 2007, 531 SCRA 583. policies was the establishment of a market-oriented interest rate structure
544 which would require the removal of the government-imposed interest rate
544 SUPREME COURT REPORTS ANNOTATED ceilings.35
D. The CB-MB merely suspended
Advocates for Truth in Lending, Inc. vs. Bangko Sentral Monetary Board
the effectivity of the Usury Law
pension of the Usury Law joined in this petition. Absent any showing of when it issued CB Circular No. 905.
transcendental importance, the petition must fail. The power of the CB to effectively suspend the Usury Law pursuant to
More importantly, the Court notes that the instant petition adverted to P.D. No. 1684 has long been recognized and upheld in many cases. As the
the regime of high interest rates which obtained at least 15 years ago, when Court explained in the landmark case of Medel v. CA,36 citing several cases,
the banks’ prime lending rates ranged from 26% to 31%,30 or even 29 years CB Circular No. 905 “did not repeal nor in anyway amend the Usury Law
ago, when the 91-day Jobo bills reached 40% per annum. In contrast, but simply suspended the latter’s effectivity”;37that “a [CB] Circular cannot
according to the BSP, in the first two (2) months of 2012 the bank lending repeal a law, [for] only a law can repeal another law”;38 that “by virtue of
rates averaged 5.91%, which implies that the banks’ prime lending rates CB Circular No. 905, the Usury Law has been rendered ineffective”; 39and
were lower; moreover, deposit interests on savings and long-term deposits “Usury has been legally
have also gone very low, averaging 1.75% and 1.62%, respectively. 31 _______________
Judging from the most recent auctions of T-bills, the savings rates must 35 Rollo, pp. 79-80, 103-105.
be approaching 0%. In the auctions held on November 12, 2012, the rates 36 359 Phil. 820; 299 SCRA 481 (1998).
37 Security Bank and Trust Co. v. RTC-Makati, Branch 61, 331 Phil. 787, 793; 263 SCRA
of 3-month, 6-month and 1-year T-bills have dropped to 0.150%, 0.450%
483, 488 (1996).
and 0.680%, respectively.32 According to Manila Bulletin, this very low 38 Palanca v. Court of Appeals, G.R. No. 106685, December 2, 1994, 238 SCRA 593, 601.
interest regime has been attributed to “high liquidity and strong investor 39 Sps. Florendo v. Court of Appeals, 333 Phil. 535, 546; 265 SCRA 678, 687 (1996).
demand amid positive economic indicators of the country.”33 546
While the Court acknowledges that cases of transcendental importance 546 SUPREME COURT REPORTS ANNOTATED
demand that they be settled promptly and definitely, brushing aside, if we Advocates for Truth in Lending, Inc. vs. Bangko Sentral Monetary Board
must, technicalities of procedure,34 the delay of at least 15 years in the filing non-existent in our jurisdiction. Interest can now be charged as lender and
of the instant borrower may agree upon.”40
_______________
30 Rollo, p. 27. In contrast, as reported in the October 10, 2012 issue of the Philippine
Daily Inquirer, Section B-2-1, a recent 25-year treasury bond issue, government securities
 In First Metro Investment Corp. v. Este Del Sol Mountain Reserve,
Inc.41 cited in DBP v. Perez,42 we also belied the contention that the CB was
engaged in self-legislation. Thus:
Central Bank Circular No. 905 did not repeal nor in any way amend the Usury Law
but simply suspended the latter’s effectivity. The illegality of usury is wholly the
Page | creature of legislation. A Central Bank Circular cannot repeal a law. Only a law
can repeal another law. x x x.
43
7
In PNB v. Court of Appeals,44 an escalation clause in a loan agreement
authorized the PNB to unilaterally increase the rate of interest to 25% per
annum, plus a penalty of 6% per annum on past dues, then to 30% on
October 15, 1984, and to 42% on October 25, 1984. The Supreme Court
invalidated the rate increases made by the PNB and upheld the 12%
interest imposed by the CA, in this wise:
P.D. No. 1684 and C.B. Circular No. 905 no more than allow contracting parties
to stipulate freely regarding any subsequent adjustment in the interest rate that
shall accrue on a loan or forbearance of money, goods or credits. In fine, they can
agree to adjust, upward or downward, the interest previously stipulated. x x x. 45
Thus, according to the Court, by lifting the interest ceiling, CB Circular
No. 905 merely upheld the parties’ freedom of
_______________
40 People v. Dizon, 329 Phil. 685, 696; 260 SCRA 851, 859 (1996).
41 420 Phil. 902; 369 SCRA 99 (2001).
42 484 Phil. 843; 442 SCRA 238 (2004).
43 Supra note 41, at p. 914; p. 111, citing Medel v. Court of Appeals, supra note 36, at p.
829; p. 489; Security Bank and Trust v. RTC Makati, Branch 61, supra note 37; Palanca v.
Court of Appeals, supra note 38.
44 G.R. No. 107569, November 8, 1994, 238 SCRA 20.
45 Id., at p. 25.
547
VOL. 688, JANUARY 15, 2013 547
Advocates for Truth in Lending, Inc. vs. Bangko Sentral Monetary Board
contract to agree freely on the rate of interest. It cited Article 1306 of the
New Civil Code, under which the contracting parties may establish such
stipulations, clauses, terms and conditions as they may deem convenient,
provided they are not contrary to law, morals, good customs, public order,
or public policy.
E. The BSP-MB has authority to
enforce CB Circular No. 905.
Section 1 of CB Circular No. 905 provides that “The rate of interest,
including commissions, premiums, fees and other charges, on a loan or
forbearance of any money, goods, or credits, regardless of maturity and
whether secured or unsecured, that may be charged or collected by person,
whether natural or juridical, shall not be subject to any ceiling prescribed
under or pursuant to the Usury Law, as amended.” It does not purport to
suspend the Usury Law only as it applies to banks, but to all lenders.
Petitioners contend that, granting that the CB had power to “suspend”
the Usury Law, the new BSP-MB did not retain this power of its
predecessor, in view of Section 135 of R.A. No. 7653, which expressly
repealed R.A. No. 265. The petitioners point out that R.A. No. 7653 did not
reenact a provision similar to Section 109 of R.A. No. 265.
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.548
548 SUPREME COURT REPORTS ANNOTATED
Advocates for Truth in Lending, Inc. vs. Bangko Sentral Monetary Board
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.
Moreover, the rule is settled that repeals by implication are not favored,
because laws are presumed to be passed with deliberation and full
knowledge of all laws existing pertaining to the subject.46 An implied repeal
is predicated upon the condition that a substantial conflict or repugnancy
is found between the new and prior laws. Thus, in the absence of an express
repeal, a subsequent law cannot be construed as repealing a prior law
unless an irreconcilable inconsistency and repugnancy exists in the terms
of the new and old laws.47 We find no such conflict between the provisions
of Act 2655 and R.A. No. 7653.
F. The lifting of the ceilings for in-
terest rates does not authorize stipu-
lations charging excessive, uncon-
scionable, and iniquitous interest.
It is settled that nothing in CB Circular No. 905 grants lenders a carte
blanche authority to raise interest rates to levels which will either enslave
their borrowers or lead to a hemorrhaging of their assets. 48 As held
in Castro v. Tan:49
_______________
46 Sps. Recaña, Jr. v. Court of Appeals, 402 Phil. 26, 35; 349 SCRA 24, 33 (2001),
citing City Government of San Pablo, Laguna v. Reyes, 364 Phil. 842; 305 SCRA 353 (1999).
47 Berces, Jr. v. Guingona, Jr., 311 Phil. 614, 620; 241 SCRA 539, 544 (1995).
 48 Spouses Solangon v. Salazar, 412 Phil. 816, 822; 360 SCRA 379, 384 (2001), citing Sps.
Almeda v. Court of Appeals, 326 Phil. 309; 256 SCRA 292 (1996).
49 G.R. No. 168940, November 24, 2009, 605 SCRA 231.
549
VOL. 688, JANUARY 15, 2013 549
Page | Advocates for Truth in Lending, Inc. vs. Bangko Sentral Monetary Board
The imposition of an unconscionable rate of interest on a money debt, even if
8 be adjudged on unliquidated claims or damages except when or until the demand
knowingly and voluntarily assumed, is immoral and unjust. It is tantamount to a
repugnant spoliation and an iniquitous deprivation of property, repulsive to the
common sense of man. It has no support in law, in principles of justice, or in the
human conscience nor is there any reason whatsoever which may justify such
imposition as righteous and as one that may be sustained within the sphere of
public or private morals. 50
Stipulations authorizing iniquitous or unconscionable interests have
been invariably struck down for being contrary to morals, if not against the
law.51 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.52Thus, 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,53 following the guidelines laid down in the landmark case
of Eastern Shipping Lines,
_______________
50 Id., at pp. 232-233, citing Ibarra v. Aveyro, 37 Phil. 273, 282 (1917).
51 Medel v. Court of Appeals, supra note 36, at p. 830; p. 489.
52 First Metro Investment Corp. v. Este del Sol Mountain Reserve, Inc., supra note 41, at
p. 918; p. 115.
53 See Castro v. Tan, supra note 49, at p. 240; Heirs of Zoilo Espiritu v. Landrito, G.R.
No. 169617, April 3, 2007, 520 SCRA 383, 394; Cuaton v. Salud, 465 Phil. 999; 421 SCRA 278
(2004); Sps. Almeda v. Court of Appeals, supra note 48; First Metro Investment Corp. v. Este
Del Sol Mountain Reserve, Inc., supra note 41, at p. 918; Ruiz v. Court of Appeals, 449 Phil.
419, 433-435; 401 SCRA 410, 421 (2003); Spouses Solangon v. Salazar, supra note 48.
550
550 SUPREME COURT REPORTS ANNOTATED
Advocates for Truth in Lending, Inc. vs. Bangko Sentral Monetary Board
Inc. v. Court of Appeals,54 regarding the manner of computing legal interest:
II. With regard particularly to an award of interest in the concept of actual
and compensatory damages, the rate of interest, as well as the accrual thereof, is
imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of
money, i.e., a loan or forbearance of money, the interest due should be that which
may have been stipulated in writing. Furthermore, the interest due shall itself earn
legal interest from the time it is judicially demanded. In the absence of stipulation,
the rate of interest shall be 12% per annum to be computed from default, i.e., from
judicial or extrajudicial demand under and subject to the provisions of Article 1169
of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is
breached, an interest on the amount of damages awarded may be imposed at
the discretion of the court at the rate of 6% per annum. No interest, however, shall
can be established with reasonable certainty. Accordingly, where the demand is
established with reasonable certainty, the interest shall begin to run from the time
the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such
certainty cannot be so reasonably established at the time the demand is made, the
interest shall begin to run only from the date the judgment of the court is made (at
which time the quantification of damages may be deemed to have been reasonably
ascertained). The actual base for the computation of legal interest shall, in any
case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final
and executory, the rate of legal interest, whether the case falls under paragraph 1
or paragraph 2, above, shall be 12% per annum from such finality until its
satisfaction, this interim period being deemed to be by then an equivalent to a
forbearance of credit. (Citations omitted)
55
_______________
54 G.R. No. 97412, July 12, 1994, 234 SCRA 78.
55 Id., at pp. 95-97.
551
VOL. 688, JANUARY 15, 2013 551
Advocates for Truth in Lending, Inc. vs. Bangko Sentral Monetary Board
The foregoing rules were further clarified in Sunga-Chan v. Court of
Appeals,56 as follows:
Eastern Shipping Lines, Inc. synthesized the rules on the imposition of interest,
if proper, and the applicable rate, as follows: The 12% per annum rate under CB
Circular No. 416 shall apply only to loans or forbearance of money, goods, or credits,
as well as to judgments involving such loan or forbearance of money, goods, or
credit, while the 6% per annum under Art. 2209 of the Civil Code applies “when the
transaction involves the payment of indemnities in the concept of damage arising
from the breach or a delay in the performance of obligations in general,” with the
application of both rates reckoned “from the time the complaint was filed until the
[adjudged] amount is fully paid.” In either instance, the reckoning period for the
commencement of the running of the legal interest shall be subject to the condition
“that the courts are vested with discretion, depending on the equities of each case,
on the award of interest.” (Citations omitted)
57
WHEREFORE, premises considered, the Petition for certiorari is
DISMISSED.
SO ORDERED.
Sereno (C.J.), Carpio, Velasco, Jr., Leonardo-De Castro, Peralta,
Bersamin, Del Castillo, Abad, Villarama, Jr., Perez, Mendoza, Perlas-
Bernabe and Leonen, JJ., concur.
 Brion, J., On leave.
Petition dismissed.

Page |
9
 G.R. No. 119379. September 25, 1998. * VOL. 296, SEPTEMBER 25, 1998
RODELO G. POLOTAN, SR., petitioner, vs. HON. COURT OF APPEALS
(Eleventh Division), REGIONAL TRIAL COURT IN MAKATI CITY
(Branch 132), and SECURITY DINERS INTERNATIONAL
CORPORATION, respondents.
Page | Courts; Appeals; Factual findings of the trial court, adopted and confirmed by
10 the Court of Appeals, are final and conclusive and may not be reviewed on appeal;
Exceptions.—In the case of Reyes v.
____________
THIRD DIVISION.
*
248
248 SUPREME COURT REPORTS ANNOTATED
Polotan, Sr. vs. Court of Appeals (Eleventh Division)
CA, this Court held that factual findings of the trial court, adopted and
confirmed by the Court of Appeals, are final and conclusive and may not be
reviewed on appeal. The exceptions to this rule are as follows: (1) when the
inference made is manifestly mistaken, absurd or impossible; (2) when there is a
grave abuse of discretion; (3) when the finding is grounded entirely on speculations,
surmises or conjectures; (4) when the judgment of the Court of Appeals is based on
misapprehension of facts; (5) when the findings of fact are conflicting; (6) when the
Court of Appeals, in making its findings, went beyond the issues of the case and
the same is contrary to the admissions of both appellant and appellee; (7) when the
findings of the Court of Appeals are contrary to those of the trial court; (8) when
the findings of fact are conclusions without citation of specific evidence on which
they are based; (9) when the Court of Appeals manifestly overlooked certain
relevant facts not disputed by the parties and which, if properly considered, would
justify a different conclusion and (10) when the findings of fact of the Court of
Appeals are premised on the absence of evidence and are contradicted by the
evidence on record.
Contracts; Contracts of Adhesion; Words and Phrases; A contract of adhesion
is one in which one of the contracting parties imposes a ready-made form of contract
which the other party may accept or reject, but cannot modify.—A contract of
adhesion is one in which one of the contracting parties imposes a ready-made form
of contract which the other party may accept or reject, but cannot modify. One party
prepares the stipulation in the contract, while the other party merely affixes his
signature or his “adhesion” thereto, giving no room for negotiation and depriving
the latter of the opportunity to bargain on equal footing.
Same; Same; Credit Cards; There is no way a prospective credit card holder
can object to any onerous provision in contracts containing standard stipulations
imposed upon those who seek to avail of credit services as they are offered on a take-
it-or-leave-it basis.—Admittedly, the contract containing standard stipulations
imposed upon those who seek to avail of its credit services was prepared by Diners
Club. There is no way a prospective credit card holder can object to any onerous
provision as it is offered on a take-it-or-leave-it basis. Being a contract of adhesion,
any ambiguity in its provisions must be construed against private respondent.
249
249
Polotan, Sr. vs. Court of Appeals (Eleventh Division)
Same; Same; Same; Words and Phrases; The terms “prime rate,” “prevailing
market rate,” “2% penalty charge,” “service fee,” and “guiding rate” are technical
terms which are beyond the ken of an ordinary layman.—Indeed, the terms “prime
rate,” “prevailing market rate,” “2% penalty charge,” “service fee,” and “guiding
rate” are technical terms which are beyond the ken of an ordinary layman. To be
sure, petitioner hardly falls into the category of an “ordinary layman.” As aptly
observed by the Court of Appeals: “x x x [A]ppellant by his own admission is a
‘lawyer by profession, a reputable businessman and a noted leader of a number of
socio-civic organizations.’ With such impressive credentials, this Court is hardput
to fathom someone of his calibre entering into a contract with eyes ‘blindfolded.’ ”
Same; Same; 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.—The binding effect
of any agreement between parties to a contract is premised on two settled
principles: (1) that any obligation arising from a 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. It is important to stress that
the Court is not precluded from ruling out blind adherence to their terms if the
attendant facts and circumstances show that they should be ignored for being
obviously too one-sided.
Same; Same; Escalation Clauses; There is nothing inherently wrong with
escalation clauses—they are valid clauses in commercial contracts to maintain fiscal
stability and to retain the value of money in long term contracts.—Be that as it may,
there is nothing inherently wrong with escalation clauses. Escalation clauses are
valid stipulations in commercial contracts to maintain fiscal stability and to retain
the value of money in long term contracts.
Same; Same; A clause that simply states that the interest rate should be based
on the prevailing market rate is not an escalation clause.—The contractual
provision in question states that “if there occurs any change in the prevailing
market rates, the new interest rate shall be the guiding rate in computing the
interest due on the
250
250 SUPREME COURT REPORTS ANNOTATED
Polotan, Sr. vs. Court of Appeals (Eleventh Division)
outstanding obligation without need of serving notice to the Cardholder other
than the required posting on the monthly statement served to the Cardholder.” This
could not be considered an escalation clause for the reason that it neither states an
increase nor a decrease in interest rate. Said clause simply states that the interest
rate should be based on the prevailing market rate. Interpreting it differently,
while said clause does not expressly stipulate a reduction in interest rate, it
nevertheless provides a leeway for the interest rate to be reduced in case the
prevailing market rates dictate its reduction.
 Same; Same; Same; Escalation clauses are not basically wrong or legally
objectionable as long as they are not solely potestative but based on reasonable and
valid grounds.—Admittedly, the second paragraph of the questioned proviso which
provides that “the Cardholder hereby authorizes Security Diners to
correspondingly increase the rate of such interest in the event of changes in
prevailing market rates x x x” is an escalation clause. However, it cannot be said to
Page |
be dependent solely on the will of private respondent as it is also dependent on the
11 prevailing market rates. Escalation clauses are not basically wrong or legally
objectionable as long as they are not solely potestative but based on reasonable and
valid grounds. Obviously, the fluctuation in the market rates is beyond the control
of private respondent.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Domingo S. Cruz for petitioner.
Castro & Associates for private respondent.
ROMERO, J.:
Assailed before this Court in a Petition for Review on Certiorari is the
decision of the Court of Appeals in CA-G.R. CV
1
___________
1Penned by Justice Pacita Canizares-Nye and concurred in by Justices Jorge S. Imperial
and Bernardo L. Salas.
251
VOL. 296, SEPTEMBER 25, 1998 251
Polotan, Sr. vs. Court of Appeals (Eleventh Division)
No. 33270 affirming the decision of Branch 132 of the Regional Trial Court
of Makati City.
Private respondent Security Diners International Corporation (Diners
Club), a credit card company, extends credit accomodations to its
cardholders for the purchase of goods and other services from member
establishments. Said goods and services are reimbursed later on by
cardholders upon proper billing.
Petitioner Rodelo G. Polotan, Sr. applied for membership and credit
accomodations with Diners Club in October 1985. The application form
contained terms and conditions governing the use and availment of the
Diners Club card, among which is for the cardholder to pay all charges
made through the use of said card within the period indicated in the
statement of account and any remaining unpaid balance to earn 3%
interest per annum plus prime rate of Security Bank & Trust Company.
Notably, in the application form submitted by petitioner, Ofricano Canlas
obligated himself to pay jointly and severally with petitioner the latter’s
obligation to private respondent.
Upon acceptance of his application, petitioner was issued Diners Club
card No. 3651-212766-3005. As of May 8, 1987, petitioner incurred credit
charges plus appropriate interest and service charges in the aggregate
amount of P33,819.84 which had become due and demandable.
Demands for payment made against petitioner proved futile. Hence,
private respondent filed a Complaint for Collection of Sum of Money
against petitioner before the lower court.
The lower court ruled, thus:
“WHEREFORE, judgment is hereby rendered ordering defendants to pay jointly
and severally plaintiff:
1. a)The amount of P33,819.84 and interest of 3% per annum plus prime rate
of SBTC and service charges of 2% per month starting May 9, 1987 until
the entire obligation is fully paid;
2. b)An amount equivalent to 25% of any and all amounts due and payable
as attorney’s fees, plus costs of suit.
252
252 SUPREME COURT REPORTS ANNOTATED
Polotan, Sr. vs. Court of Appeals (Eleventh Division)
With respect to the cross-claim of defendant Ofricano Canlas, defendant Rodelo G.
Polotan, Sr. is ordered to indemnify and/or reimburse the former for whatever he
may be ordered to pay plaintiff.”
The Court of Appeals affirmed the ruling of the lower court. Hence, this
petition. Petitioner assigns the following errors:
I
RESPONDENT COURT OF APPEALS COMMITTED AN ERROR OF LAW IN
RULING AS VALID AND LEGAL THE FOLLOWING PROVISION ON
INTEREST IN THE DINERS CARD CONTRACT, TO WIT:
PAYMENT OF CHARGES—xxx xxx xxx The Cardholder agrees to pay interest
per annum at 3% plus the prime rate of Security Bank and Trust Company. xxx
xxx xxx Provided that if there occurs any change in the prevailing market rates the
new interest rate shall be the guiding rate of computing the interest due on the
outstanding obligation without need of serving notice to the Cardholder other than
the required posting on the monthly statement served to the Cardholder.
The Cardholder hereby authorizes Security Diners to correspondingly increase
the rate of such interest in the event of changes in prevailing market rates and to
charge additional service fees as may be deemed necessary in order to maintain its
service to the Cardholder.
II
 RESPONDENT COURT OF APPEALS COMMITTED AN ERROR OF LAW IN
RULING IN EFFECT THAT PRIVATE RESPONDENT’S STATEMENT OF
ACCOUNT (Exh. “2”) AS A JUDICIAL ADMISSION THAT MRS. POLOTAN HAD
ALREADY PAID COULD BE CONTRADICTED WITHOUT THE PRIVATE
RESPONDENT LAYING THE PROPER BASIS FOR THE INTRODUCTION OF
CONTRARY EVIDENCE;
Page | 253
12 VOL. 296, SEPTEMBER 25, 1998 253
Polotan, Sr. vs. Court of Appeals (Eleventh Division)
III
RESPONDENT COURT OF APPEALS COMMITTED A GRIEVOUS ERROR OF
FACT IN FINDING AS CREDIBLE THE ILLOGICAL AND ABSURD
EXPLANATION OF PRIVATE RESPONDENT’S MR. VICENTE;
IV
RESPONDENT COURT OF APPEALS ERRED IN NOT AWARDING
DAMAGES TO PETITIONER.
In the first assignment of error, petitioner argues that the provision on
interest rate is “obscure and ambiguous and not susceptible of reasonable
interpretation” particularly the terms “prime rate,” “prevailing market
rate” and “guiding rate.” In effect, there was no meeting of minds. As such,
this being a contract of adhesion, any ambiguity should be resolved against
the one who caused it.
Petitioner added that the said provision was also illegal as it violated
the laws and Central Bank Circulars. While said proviso allowed for the
escalation of interest, it did not allow for a downward adjustment of the
same.
In his second and third assignment of error, petitioner claimed that
Diners Club admitted, through its statement of account, that petitioner’s
wife, Mrs. Polotan, had no more account with it. But then, he claimed that
the lower court and the Court of Appeals allowed the testimony of one Mr.
Vicente explaining that the reason why Mrs. Polotan had no more account
with it was that being a supplementary cardholder, her account was
consolidated with that of petitioner in accordance with its new policy. He
argued that since Diners Club admitted that Mrs. Polotan had no more
account with it, the only way it could contradict such admission was by
declaring that the same was a result of a palpable mistake in accordance
with Section 4 of Rule 129 of the Revised Rules on Evidence. In admitting
said explanation, the lower court and the Court of Appeals violated the rule
on the weight to be accorded conflicting evidence. In effect, petitioner
insists that both courts favored the uncorroborated testimonial evidence
254
254 SUPREME COURT REPORTS ANNOTATED
Polotan, Sr. vs. Court of Appeals (Eleventh Division)
of Mr. Vicente over the documentary evidence presented by petitioner and
admitted by Diners Club.
In its fourth assignment of error, petitioner claimed that he should have
been awarded damages because of Diners Club’s bad faith.
This Court finds petitioner’s contentions without merit.
The issues presented by petitioner are clearly questions of law.
Notwithstanding petitioner’s submission of the above errors, however, the
core issue is basically one of fact. This case stemmed from a simple
complaint for collection of sum of money. The lower court and the Court of
Appeals found that petitioner indeed owed Diners Club the amount being
demanded.
In the case of Reyes v. CA, this Court held that factual findings of the
2
trial court, adopted and confirmed by the Court of Appeals, are final and
conclusive and may not be reviewed on appeal. The exceptions to this rule
are as follows: (1) when the inference made is manifestly mistaken, absurd
or impossible; (2) when there is a grave abuse of discretion; (3) when the
finding is grounded entirely on speculations, surmises or conjectures; (4)
when the judgment of the Court of Appeals is based on misapprehension of
facts; (5) when the findings of fact are conflicting; (6) when the Court of
Appeals, in making its findings, went beyond the issues of the case and the
same is contrary to the admissions of both appellant and appellee; (7) when
the findings of the Court of Appeals are contrary to those of the trial court;
(8) when the findings of fact are conclusions without citation of specific
evidence on which they are based; (9) when the Court of Appeals manifestly
overlooked certain relevant facts not disputed by the parties and which, if
properly considered, would justify a different conclusion and (10) when the
findings of fact of the Court of Appeals are premised on the absence of
evidence and are contradicted by the evidence on record.
___________
2258 SCRA 651 [1996].
255
VOL. 296, SEPTEMBER 25, 1998 255
Polotan, Sr. vs. Court of Appeals (Eleventh Division)
Only a clear showing that any of the above-cited exceptions exists would
justify a review of the findings of fact made by the lower court and upheld
by the Court of Appeals. In the instant case, a review of the decisions of the
lower court, as well as the Court of Appeals, shows that the conclusions
have been logically arrived at and substantially supported by the evidence
presented by the parties.
 Be that as it may, this Court sees it fit and proper to discuss the merits
of this petition based on petitioner’s claim that since the contract he signed
with Diners Club was a contract of adhesion, the obscure provision on
interest should be resolved in his favor.
A contract of adhesion is one in which one of the contracting parties
Page | imposes a ready-made form of contract which the other party may accept
13 or reject, but cannot modify. One party prepares the stipulation in the
contract, while the other party merely affixes his signature or his
“adhesion” thereto, giving no room for negotiation and depriving the latter
of the opportunity to bargain on equal footing. 3 failed to cite any particular provision of said Circular which was allegedly
Admittedly, the contract containing standard stipulations imposed
upon those who seek to avail of its credit services was prepared by Diners
Club. There is no way a prospective credit card holder can object to any
onerous provision as it is offered on a take-it-or-leave-it basis. Being a
contract of adhesion, any ambiguity in its provisions must be construed
against private respondent.
Indeed, the terms “prime rate,” “prevailing market rate,” “2% penalty
charge,” “service fee,” and “guiding rate” are technical terms which are
beyond the ken of an ordinary layman. To be sure, petitioner hardly falls
into the category of an “ordinary layman.” As aptly observed by the Court
of Appeals:
“x x x [A]ppellant by his own admission is a ‘lawyer by profession, a reputable
businessman and a noted leader of a number of socio-civic organizations.’ With such
impressive credentials, this
____________
3 Phil. Commercial International Bank v. CA, 255 SCRA 299 [1996].
256
256 SUPREME COURT REPORTS ANNOTATED
Polotan, Sr. vs. Court of Appeals (Eleventh Division)
Court is hard-put to fathom someone of his calibre entering into a contract with
eyes ‘blindfolded.’ ” 4
Nevertheless, these types of contracts have been declared as binding as
ordinary contracts, the reason being that the party who adheres to the
contract is free to reject it entirely. 5
The binding effect of any agreement between parties to a contract is
premised on two settled principles: (1) that any obligation arising from a
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. It is important to stress that the
6 not be considered an escalation clause for the reason that it neither states
Court is not precluded from ruling out blind adherence to their terms if the
attendant facts and circumstances show that they should be ignored for
being obviously too one-sided. 7
In this case, petitioner, in effect, claims that the subject contract is one-
sided in that the contract allows for the escalation of interests, but does not
provide for a downward adjustment of the same in violation of Central
Bank Circular No. 905.
The claim is without basis. First, by signing the contract, petitioner and
private respondent agreed upon the rate as stipulated in the subject
contract. Such is now allowed by C.B. Circular No. 905. Second, petitioner
8
violated by the subject contract.
____________
Decision, rollo, p. 101.
4
5See note 3.
6Almeda v. CA, 256 SCRA 292 [1996].
7See note 3.
8People v. Dizon, 260 SCRA 851 (1996).
257
VOL. 296, SEPTEMBER 25, 1998 257
Polotan, Sr. vs. Court of Appeals (Eleventh Division)
Be that as it may, there is nothing inherently wrong with escalation
clauses. Escalation clauses are valid stipulations in commercial contracts
to maintain fiscal stability and to retain the value of money in long term
contracts. 9
Petitioner further argues that the interest rate was unilaterally
imposed and based on the standards and rate formulated solely by Diners
Club.
In Florendo v. CA, this Court has held that:
10
“x x x the unilateral determination and imposition of increased interest rates by
the herein respondent bank is obviously violative of the principle of mutuality of
contracts ordained in Article 1308 of the Civil Code. As this Court held in PNB v.
CA (196 SCRA 536[1991]):
‘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. x x x’ ”
The contractual provision in question states that “if there occurs any
change in the prevailing market rates, the new interest rate shall be the
guiding rate in computing the interest due on the outstanding obligation
without need of serving notice to the Cardholder other than the required
posting on the monthly statement served to the Cardholder.” This could
 an increase nor a decrease in interest rate. Said clause simply states that
the interest rate should be based on the prevailing market rate.
Interpreting it differently, while said clause does not expressly
stipulate a reduction in interest rate, it nevertheless provides a leeway for
the interest rate to be reduced in case the prevailing market rates dictate
Page | its reduction.
14 Admittedly, the second paragraph of the questioned proviso which
provides that “the Cardholder hereby authorizes Secu-
__________
9See note 8.
265 SCRA 678 (1996).
10
258
258 SUPREME COURT REPORTS ANNOTATED
Polotan, Sr. vs. Court of Appeals (Eleventh Division)
rity Diners to correspondingly increase the rate of such interest in the
event of changes in prevailing market rates x x x” is an escalation clause.
However, it cannot be said to be dependent solely on the will of private
respondent as it is also dependent on the prevailing market rates.
Escalation clauses are not basically wrong or legally objectionable as
long as they are not solely potestative but based on reasonable and valid
grounds. Obviously, the fluctuation in the market rates is beyond the
11
control of private respondent.
As to the second and third assignments of error, it is misleading for
petitioner to say that private respondent had judicially admitted that its
statement of account is proof that Mrs. Polotan has already paid her
account with private respondent. Proceeding from said premise, it is
further misleading for petitioner to conclude that private respondent’s
testimonial evidence about a new policy contradicted its judicially admitted
documentary evidence without laying the proper basis for the introduction
of contrary evidence and in violation of Section 2, Rule 129 of the Revised
Rules on Evidence, which provides that:
“Admissions made by the parties in the pleadings, or in the course of the trial or
other proceedings do not require proof and can not be contradicted unless
previously shown to have been made through palpable mistake.”
Certainly, Diners Club could not deny the existence of Exhibit “2” which is
the Statement of Account issued to Mrs. Polotan since, precisely, it was the
one which issued said statement. But to conclude that said Statement of
Account was likewise an admission that Mrs. Polotan has no more account
with Diners Club would be equivocatory, or nonsequitur.
While private respondent admitted the existence of Exhibit “2,” it could
not have agreed to the purpose for which the
_________
See note 6.
11
259
VOL. 296, SEPTEMBER 25, 1998 259
Polotan, Sr. vs. Court of Appeals (Eleventh Division)
exhibit was presented. As satisfactorily found by the Court of Appeals and
to which this Court agrees:
“Appellant’s allegation is misleading. On the contrary, appellee’s rebuttal witness,
Alfredo Vicente, categorically stated that the reason the Statement of Account in
the name of Alicia Polotan showed a zero balance (Exh. “2”) was due to the fact that
effective February 1989, under a new system, separate monthly statements were
produced on supplementary card members. Prior to February 1989, the availments
of Mr. and Mrs. Polotan were incorporated under one statement.
Moreover, it is to be observed that while the Complaint was filed on 15 May
1987, the Diners Club Monthly Statement in the name of Alicia B. Polotan is dated
almost two (2) years later or “02/08/89” (Exh. “2”). This bolsters the testimony of
Alfredo Vicente regarding the entry of zero balance in Mrs. Polotan’s name.”
Although said exhibit would, by itself, show that Mrs. Polotan had no more
account with Diners Club, it would not have been conclusive to prove that
said account was already paid. The proper evidence would have been a
receipt of payment.
Significantly, petitioner did not contest the purchases as indicated in
the statements of account but merely alleged that some of the purchases
being claimed to have been made by petitioner were not supported by
invoices. The lower court found otherwise. 12
In light of the above, this Court sees no reason to award damages to
petitioner.
WHEREFORE, in view of the foregoing, the petition for certiorari is
hereby DENIED and the Decision of the Court of Appeals AFFIRMED with
the MODIFICATION that the attorney’s fees are reduced to 15%.
SO ORDERED.
Narvasa (C.J., Chairman), Kapunan and Purisima, JJ., concur.
___________
Decision in Civil Case No. 16739.
12
260
260 SUPREME COURT REPORTS ANNOTATED
BPI Express Card Corporation vs. Court of Appeals
Petition denied, judgment affirmed with modification.
 G.R. No. 131622. November 27, 1998. *
LETICIA Y. MEDEL, DR. RAFAEL MEDEL and SERVANDO FRANCO,
petitioners, vs. COURT OF APPEALS, SPOUSES VERONICA R.
GONZALES and DANILO G. GONZALES, JR. doing lending business
under the trade name and style “GONZALES CREDIT ENTERPRISES,”
Page | respondents.
15 Loans; Usury Law; Interest Rates; A stipulated rate of interest at 5.5% per
month on a P500,000.00 loan is excessive, iniquitous, unconscionable and
exorbitant; The Usury Law is now “legally inexistent.”—We agree with petitioners
that the stipulated rate of interest
__________________
*THIRD DIVISION.
482
482 SUPREME COURT REPORTS ANNOTATED
Medel vs. Court of Appeals
at 5.5% per month on the P500,000.00 loan is excessive, iniquitous,
unconscionable and exorbitant. However, we can not consider the rate “usurious”
because this Court has consistently held that Circular No. 905 of the Central Bank,
adopted on December 22, 1982, has expressly removed the interest ceilings
prescribed by the Usury Law and that the Usury Law is now “legally inexistent.”
Same; Same; Same; C.B. Circular No. 905 “did not repeal nor in any way
amend the Usury Law but simply suspended the latter’s effectivity.”—In Security
Bank and Trust Company vs. Regional Trial Court of Makati, Branch 61 the Court
held that CB Circular No. 905 “did not repeal nor in any way amend the Usury Law
but simply suspended the latter’s effectivity.” Indeed, we have held that “a Central
Bank Circular can not repeal a law. Only a law can repeal another law.” In the
recent case of Florendo vs. Court of Appeals, the Court reiterated the ruling that
“by virtue of CB Circular No. 905, the Usury Law has been rendered ineffective.”
“Usury has been legally non-existent in our jurisdiction. Interest can now be
charged as lender and borrower may agree upon.”
Same; Same; Same; The courts shall reduce equitably liquidated damages,
whether intended as an indemnity or a penalty if they are iniquitous or
unconscionable.—We find the interest at 5.5% per month, or 66% per annum,
stipulated upon by the parties in the promissory note iniquitous or unconscionable,
and, hence, contrary to morals (“contra bonos mores”), if not against the law. The
stipulation is void. The courts shall reduce equitably liquidated damages, whether
intended as an indemnity or a penalty if they are iniquitous or unconscionable.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
De Castro & Cagampang Law Offices for petitioners.
Leopoldo C. Sta. Maria for private respondents.
PARDO, J.:
The case before the Court is a petition for review on certiorari, under Rule
45 of the Revised Rules of Court, seeking to
483
VOL. 299, NOVEMBER 27, 1998 483
Medel vs. Court of Appeals
set aside the decision of the Court of Appeals, and its resolution denying
1
reconsideration, the dispositive portion of which decision reads as follows:
2
“WHEREFORE, the appealed judgment is hereby MODIFIED such that
defendants are hereby ordered to pay the plaintiff: the sum of P500,000.00, plus
5.5% per month interest and 2% service charge per annum effective July 23, 1986,
plus 1% per month of the total amount due and demandable as penalty charges
effective August 23, 1986, until the entire amount is fully paid.
“The award to the plaintiff of P50,000.00 as attorney’s fees is affirmed. And so
is the imposition of costs against the defendants. SO ORDERED.” 3
The Court required the respondents to comment on the petition, which was
4
filed on April 3, 1998, and the petitioners to reply thereto, which was filed
5
on May 29, 1998. We now resolve to give due course to the petition and
6
decide the case.
The facts of the case, as found by the Court of Appeals in its decision,
which are considered binding and conclusive on the parties herein, as the
appeal is limited to questions of law, are as follows:
On November 7, 1985, Servando Franco and Leticia Medel (hereafter
Servando and Leticia) obtained a loan from Veronica R. Gonzales
(hereafter Veronica), who was engaged in the money lending business
under the name “Gonzales Credit Enterprises,” in the amount of
P50,000.00, payable in two months. Veronica gave only the amount of
P47,000.00, to the borrowers, as she retained P3,000.00, as advance
interest for one month at 6% per month. Servando and Leticia executed a
___________________
1CA-G.R. CV No. 36096, promulgated on March 21, 1997.
Issued on November 25, 1995.
2
3Rollo, pp. 22-28.
4Resolution dated February 23, 1998, p. 44, Rollo.
5Rollo, pp. 45-48.
6Rollo, pp. 53-56.
484
484 SUPREME COURT REPORTS ANNOTATED
Medel vs. Court of Appeals
promissory note for P50,000.00, to evidence the loan, payable on January
7, 1986.
 On November 19, 1985, Servando and Leticia obtained from Veronica
another loan in the amount of P90,000.00, payable in two months, at 6%
interest per month. They executed a promissory note to evidence the loan,
maturing on January 19, 1986. They received only P84,000.00, out of the
proceeds of the loan.
Page | On maturity of the two promissory notes, the borrowers failed to pay
16 the indebtedness.
On June 11, 1986, Servando and Leticia secured from Veronica still
another loan in the amount of P300,000.00, maturing in one month,
secured by a real estate mortgage over a property belonging to Leticia
Makalintal Yaptinchay, who issued a special power of attorney in favor of
Leticia Medel, authorizing her to execute the mortgage. Servando and
Leticia executed a promissory note in favor of Veronica to pay the sum of
P300,000.00, after a month, or on July 11, 1986. However, only the sum of
P275,000.00, was given to them out of the proceeds of the loan.
Like the previous loans, Servando and Medel failed to pay the third loan
on maturity.
On July 23, 1986, Servando and Leticia with the latter’s husband, Dr.
Rafael Medel, consolidated all their previous unpaid loans totaling
P440,000.00, and sought from Veronica another loan in the amount of
P60,000.00, bringing their indebtedness to a total of P500,000.00, payable
on August 23, 1986. They executed a promissory note, reading as follows:
“Baliwag, Bulacan July 23, 1986
“Maturity Date August 23, 1986
“P500,000.00
“FOR VALUE RECEIVED, I/WE jointly and severally promise to pay to
the order of VERONICA R. GONZALES doing business in the business
style of GONZALES CREDIT ENTERPRISES, Filipino, of legal age,
married to Danilo G. Gonzales, Jr., of Baliwag, Bulacan, the sum of PESOS
. . . . . FIVE HUNDRED THOUSAND . . . . . (P500,000.00) Philippine
Currency with interest thereon at the
485
VOL. 299, NOVEMBER 27, 1998 485
Medel vs. Court of Appeals
rate of 5.5 PER CENT per month plus 2% service charge per annum from
date hereof until fully paid according to the amortization schedule
contained herein. (Italics supplied)
“Payment will be made in full at the maturity date.
“Should I/WE fail to pay any amortization or portion hereof when
due, all the other installments together with all interest accrued shall
immediately be due and payable and I/WE hereby agree to pay
an additional amount equivalent to one per cent (1%) per month of the
amount due and demandable as penalty charges in the form of liquidated
damages until fully paid; and the further sum of TWENTY FIVE PER
CENT (25%) thereof in full, without deductions as Attorney’s Fee whether
actually incurred or not, of the total amount due and demandable,
exclusive of costs and judicial or extra judicial expenses. (Italics supplied)
“I, WE further agree that in the event the present rate of interest on
loan is increased by law or the Central Bank of the Philippines, the holder
shall have the option to apply and collect the increased interest charges
without notice although the original interest have already been collected
wholly or partially unless the contrary is required by law.
“It is also a special condition of this contract that the parties herein
agree that the amount of peso-obligation under this agreement is based on
the present value of the peso, and if there be any change in the value
thereof, due to extraordinary inflation or deflation, or any other cause or
reason, then the peso-obligation herein contracted shall be adjusted in
accordance with the value of the peso then prevailing at the time of the
complete fulfillment of the obligation.
“Demand and notice of dishonor waived. Holder may accept partial
payments and grant renewals of this note or extension of payments,
reserving rights against each and all indorsers and all parties to this note.
“IN CASE OF JUDICIAL Execution of this obligation, or any part of it,
the debtors waive all his/their rights under the provisions of Section 12,
Rule 39, of the Revised Rules of Court.”
On maturity of the loan, the borrowers failed to pay the indebtedness
of P500,000.00, plus interests and penalties, evidenced by the above-quoted
promissory note.
486
486 SUPREME COURT REPORTS ANNOTATED
Medel vs. Court of Appeals
On February 20, 1990, Veronica R. Gonzales, joined by her husband Danilo
G. Gonzales, filed with the Regional Trial Court of Bulacan, Branch 16, at
Malolos, Bulacan, a complaint for collection of the full amount of the loan
including interests and other charges.
In his answer to the complaint filed with the trial court on April 5, 1990,
defendant Servando alleged that he did not obtain any loan from the
plaintiffs; that it was defendants Leticia and Dr. Rafael Medel who
borrowed from the plaintiffs the sum of P500,000.00, and actually received
the amount and benefited therefrom; that the loan was secured by a real
estate mortgage executed in favor of the plaintiffs, and that he (Servando
Franco) signed the promissory note only as a witness.
In their separate answer filed on April 10, 1990, defendants Leticia and
Rafael Medel alleged that the loan was the transaction of Leticia
Yaptinchay, who executed a mortgage in favor of the plaintiffs over a parcel
 of real estate situated in San Juan, Batangas; that the interest rate is
excessive at 5.5% per month with additional service charge of 2% per
annum, and penalty charge of 1% per month; that the stipulation for
attorney’s fees of 25% of the amount due is unconscionable, illegal and
excessive, and that substantial payments made were applied to interest,
Page | penalties and other charges.
17 After due trial, the lower court declared that the due execution and
genuineness of the four promissory notes had been duly proved, and ruled
that although the Usury Law had been repealed, the interest charged by
the plaintiffs on the loans was unconscionable and “revolting to the
conscience.” Hence, the trial court applied “the provision of the New [Civil]
Code” that the “legal rate of interest for loan or forbearance of money, goods
or credit is 12% per annum.” 7
Accordingly, on December 9, 1991, the trial court rendered judgment,
the dispositive portion of which reads as follows:
___________________
7Petition, Rollo, pp. 8-21, 17.
487
VOL. 299, NOVEMBER 27, 1998 487
Medel vs. Court of Appeals
“WHEREFORE, premises considered, judgment is hereby rendered, as follows:
1. “1.Ordering the defendants Servando Franco and Leticia Medel, jointly
and severally, to pay plaintiffs the amount of P47,000.00 plus 12%
interest per annum from November 7, 1985 and 1% per month as penalty,
until the entire amount is paid in full;
2. “2.Ordering the defendants Servando Franco and Leticia Y. Medel to
plaintiffs, jointly and severally the amount of P84,000.00 with 12%
interest per annum and 1% per cent per month as penalty from
November 19, 1985 until the whole amount is fully paid;
3. “3.Ordering the defendants to pay the plaintiffs, jointly and severally, the
amount of P285,000.00 plus 12% interest per annum and 1% per month
as penalty from July 11, 1986, until the whole amount is fully paid;
4. “4.Ordering the defendants to pay plaintiffs, jointly and severally, the
amount of P50,000.00 as attorney’s fees;
5. “5.All counterclaims are hereby dismissed.
“With costs against the defendants.”8
In due time, both plaintiffs and defendants appealed to the Court of
Appeals.
In their appeal, plaintiffs-appellants argued that the promissory note,
which consolidated all the unpaid loans of the defendants, is the law that
governs the parties. They further argued that Circular No. 416 of the
Central Bank prescribing the rate of interest for loans or forbearance of
money, goods or credit at 12% per annum, applies only in the absence of a
stipulation on interest rate, but not when the parties agreed thereon.
The Court of Appeals sustained the plaintiffs-appellants’ contention. It
ruled that “the Usury Law having become ‘legally inexistent’ with the
promulgation by the Central Bank in 1982 of Circular No. 905, the lender
and borrower could agree on any interest that may be charged on the
loan.” The 9
_________________
Rollo, pp. 36-A-43.
8
9 Citing Verdejo v. Court of Appeals, 157 SCRA 743 (1988); Liam Law v. Olympic Sawmill
Co., 129 SCRA 439 (1984).
488
488 SUPREME COURT REPORTS ANNOTATED
Medel vs. Court of Appeals
Court of Appeals further held that “the imposition of ‘an additional amount
equivalent to 1% per month of the amount due and demandable as penalty
charges in the form of liquidated damages until fully paid’ was allowed by
law.” 10
Accordingly, on March 21, 1997, the Court of Appeals promulgated its
decision reversing that of the Regional Trial Court, disposing as follows:
“WHEREFORE, the appealed judgment is hereby MODIFIED such that
defendants are hereby ordered to pay the plaintiffs the sum of P500,000.00, plus
5.5% per month interest and 2% service charge per annum effective July 23, 1986,
plus 1% per month of the total amount due and demandable as penalty charges
effective August 24, 1986, until the entire amount is fully paid.
“The award to the plaintiffs of P50,000.00 as attorney’s fees is affirmed. And so
is the imposition of costs against the defendants.
“SO ORDERED.” 11
On April 15, 1997, defendants-appellants filed a motion for reconsideration
of the said decision. By resolution dated November 25, 1997, the Court of
Appeals denied the motion. 12
Hence, defendants interposed the present recourse viapetition for
review on certiorari. 13
We find the petition meritorious.
Basically, the issue revolves on the validity of the interest rate
stipulated upon. Thus, the question presented is whether or not the
stipulated rate of interest at 5.5% per month on the loan in the sum of
P500,000.00, that plaintiffs extended to the defendants is usurious. In
other words, is the Usury Law still effective, or has it been repealed by
Central Bank Circular No. 905, adopted on December 22, 1982, pursuant
to its powers under P.D. No. 116, as amended by P.D. No. 1684?
 ___________________ dated damages, whether intended as an indemnity or a penalty if they are
iniquitous or unconscionable.
23

Citing Article 2209, Civil Code, and State Investment House, Inc. v. Court of
Consequently, the Court of Appeals erred in upholding the stipulation
10

Appeals, 198 SCRA 390.

11Rollo, p. 27. of the parties. Rather, we agree with the trial court that, under the
12Rollo, p. 36. circumstances, interest at 12% per annum, and an additional 1% a month
Page | 13Rollo, pp. 8-21. penalty charge as liquidated damages may be more reasonable.
489
18 WHEREFORE, the Court hereby REVERSES and SETS ASIDE the
VOL. 299, NOVEMBER 27, 1998 489 decision of the Court of Appeals promulgated on March 21, 1997, and its
Medel vs. Court of Appeals resolution dated November 25, 1997. Instead, we render judgment
We agree with petitioners that the stipulated rate of interest at 5.5% per REVIVING and AFFIRMING the decision dated December 9, 1991, of the
month on the P500,000.00 loan is excessive, iniquitous, unconscionable and Regional Trial Court of Bulacan, Branch 16, Malolos, Bulacan, in Civil
exorbitant. However, we can not consider the rate “usurious” because this
14 Case No. 134-M-90, involving the same parties.
Court has consistently held that Circular No. 905 of the Central Bank, No pronouncement as to costs in this instance.
adopted on December 22, 1982, has expressly removed the interest ceilings SO ORDERED.
prescribed by the Usury Law and that the Usury Law is now “legally
15 Narvasa (C.J., Chairman), Romero, Kapunan and Purisima,
inexistent.” 16 JJ., concur.
In Security Bank and Trust Company vs. Regional Trial Court of Judgment and resolution reversed and set aside, that of the Regional
Makati, Branch 61 the Court held that CB Circular No. 905 “did not repeal
17 Trial Court of Bulacan, Br. 16 revived and affirmed.
nor in any way amend the Usury Law but simply suspended the latter’s
effectivity.” Indeed, we have held that “a Central Bank Circular can not
repeal a law. Only a law can repeal another law.” In the recent case18

of Florendo vs. Court of Appeals, the Court reiterated the ruling that “by
19

virtue of CB Circular 905, the Usury Law has been rendered ineffective.”
“Usury has been legally non-existent in our jurisdiction. Interest can now
be charged as lender and borrower may agree upon.” 20

Nevertheless, we find the interest at 5.5% per month, or 66% per

annum, stipulated upon by the parties in the promissory note iniquitous or
unconscionable, and, hence, contrary to morals (“contra bonos mores”), if
not against the law. The stipulation is void. The courts shall reduce
21 22

equitably liqui-

____________________

Petition, pp. 15-17, Rollo.

14

People v. Dizon, 329 Phil. 687 [1996].

15

Liam Law v. Olympic Sawmill Co., 129 SCRA 439, 442.

16

331 Phil. 787 [1996].

17

Palanca v. Court of Appeals, 238 SCRA 593, 601 [1994].

18

333 Phil. 535 [1996].

19

People v. Dizon, supra, citing other cases.

20

Article 1306, Civil Code.

21

Cf. Ibarra v. Aveyro, 37 Phil. 274; Almeda v. Court of Appeals, 256 SCRA 292 [1996].
22

490
490 SUPREME COURT REPORTS ANNOTATED
Medel vs. Court of Appeals
 G.R. No. 129227. May 30, 2000. *
BANCO FILIPINO SAVINGS AND MORTGAGE BANK,
petitioners, vs. THE HON. COURT OF APPEALS, and CALVIN & ELSA
ARCILLA, respondents.
Banks and Banking; Loans; Interest Rates; Prescription; Under Article 1150
Page | of the Civil Code, the time for prescription of all kinds of actions, when there is no
19 special provision which ordains otherwise, shall be counted from the day they may
be brought.—Petitioner’s claim that the action of the private respondents has
prescribed is bereft of merit. Under Article 1150 of the Civil Code, the time for
prescription of all kinds of actions, when there is no special provision which ordains
otherwise, shall be counted from the day they may be brought. Thus, the period of
prescription of any cause of action is reckoned only from the date the cause of action
accrued. And a cause of action arises when that which should have been done is not
done, or that which should not have been done is done. The period should not be
made to retroact to the date of the execution of
_______________
*THIRD DIVISION.
242
242 SUPREME COURT REPORTS ANNOTATED
Banco Filipino Savings and Mortgage Bank vs. Court of Appeals
the contract on January 15, 1975 as claimed by the petitioner for at
that time, there would be no way for the respondents to know of the violation
of their rights.
Same; Same; Same; Same; The cause of action for annulment of loan contract
based on unilateral increased rate of interest accrues only from date of receipt of the
statement of account showing such increased rate of interest.—The Court of Appeals
therefore correctly found that respondents’ cause of action accrued on October 30,
1978, the date they received the statement of account showing the increased rate
of interest, for it was only from that moment that they discovered the petitioner’s
unilateral increase thereof.
Actions; Pleadings and Practice; It is the material allegations in the
complaint, not the legal conclusions made therein or the prayer that determines the
relief to which the plaintiff is entitled.—Anent the second issue as to whether the
respondents are entitled to recover the alleged overpayments of interest, we find
that they are despite the absence of any prayer therefore. This Court has ruled that
it is the material allegations of fact in the complaint, not the legal conclusion made
therein or the prayer that determines the relief to which the plaintiff is entitled. It
is the allegations of the pleading which determine the nature of the action and the
Court shall grant relief warranted by the allegations and the proof even if no such
relief is prayed for. Thus, even if the complaint seeks the declaration of nullity of
the contract, the Court of Appeals correctly ruled that the factual allegations
contained therein ultimately seek the return of the excess interests paid.
Banks and Banking; Loans; Interest Rates; Escalation Clauses; Central Bank
Circular 494, although it has the force and effect of law, is not a law and is not the
law contemplated by the parties which authorizes the petitioner to unilaterally raise
the interest rate of the loan.—In Banco Filipino Savings & Mortgage Bank vs.
Navarro, which involved a similar escalation clause, we ruled that Central Bank
Circular 494, although it has the force and effect of law, is not a law and is not the
law contemplated by the parties which authorizes the petitioner to unilaterally
raise the interest rate of the loan. Consequently, the reliance by the petitioner on
Central Bank Circular 494 to unilaterally raise the interest rates on the loan in
question was without any legal basis.
243
VOL. 332, MAY 30, 2000 243
Banco Filipino Savings and Mortgage Bank vs. Court of Appeals
Judgments; Doctrine of Stare Decisis; While a judgment in a case cannot bind
persons who were not parties thereto, the doctrine enunciated therein is that a
judicial decision forms part of the legal system of the land, a precedent which must
be adhered to under the doctrine of stare decisis.—Petitioner’s argument that the
Banco Filipino case cannot be applied to the present case since the respondents
were not intervenors therein is flawed. Only the judgment in said case cannot bind
the respondents as they were not parties thereto, however, the doctrine enunciated
therein is that a judicial decision forms part of the legal system of the land. It forms
a precedent, which must be adhered to under the doctrine of stare decisis. Thus,
even if the respondents were not parties to the above-mentioned case, the doctrine
enunciated therein may be applied to the present case.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Francisco A. Rivera for petitioner.
Julio O. Lopez for private respondents.
GONZAGA-REYES, J.:
Before us is a Petition for Review on Certiorari of the Decision of the Court
of Appeals in CA-GR. CV No. 45891entitled CALVIN S. ARCILLA and
1
ELSA B. ARCILLA vs. BANCO FILIPINO SAVINGS and MORTGAGE
BANK, ET AL. which affirmed the decision of the Regional Trial Court
(RTC), Branch 33, Manila ordering BANCO FILIPINO to pay CALVIN and
ELSA ARCILLA the amount of P126,139.00 with interest thereon at 12%
per annum from the filing of the complaint.
The undisputed facts as found by the Court of Appeals are as follows:
_______________
1Special Fourth Division composed of the ponente, J. Romeo J. Callejo; and the members
J. Gloria C. Paras (Chairman) and J. Conrado M. Vasquez, Jr., concurring.
244
244 SUPREME COURT REPORTS ANNOTATED
 Banco Filipino Savings and Mortgage Bank vs. Court of Appeals
“Elsa Arcilla and her husband, Calvin Arcilla, the Appellees in the present
recourse, secured, on three (3) occasions, loans from the Banco Filipino Savings and
Mortgage Bank, the Appellant in the present recourse, in the total amount of P
107,946.00 as evidenced by “Promissory Note” executed by the Appellees in favor
of the Appellant. To secure the payment of said loans, the Appellees executed “Real
Page |
Estate Mortgages” in favor of the Appellants over their parcels of land located in
20
BF-Paranaque, covered by Transfer Certificate of Title Nos. 444645, 450406,
450407 and 455410 of the Registry of Deeds of Paranaque (Annexes “B” to “B-2”
Amended Complaint). Under said deeds, the Appellant may increase the rate of
interest, on said loans, within the limits allowed by law, as Appellant’s Board of
Directors may prescribe for its borrowers. At that time, under the Usury Law, Act
2655, as amended, the maximum rate of interest for loans secured by real estate
mortgages was 12% per annum. On January 10, 1975, the Appellees and the
Appellant executed a “Deed of Consolidation and Amendment of Real Estate
Mortgage” whereby the aforementioned loans of the Appellees and the “Real Estate
Mortgage” executed by them as security for the payment of said loans were
consolidated (pages 33-35, Record). Likewise, under said deed, the loan of the
Appellees from the Appellant was increased to P188,000.00. The Appellees
executed a “Promissory Note,” dated January 15, 1975, whereby they bound and
obliged themselves, jointly and severally, to pay the Appellant the aforesaid
amount of P188,000.00 with interest at the rate of 12% per annum, in nineteen (19)
years from date thereof, in stated installments of P2,096.93 a month (page 32,
Records).
On January 2, 1976, the Central Bank of the Philippines issued Central Bank
Circular No. 494, quoted infra, as follows:
‘x x x
‘3. The maximum rate of interest, including commissions, premiums, fees and other
charges on loans with maturity of more than seven hundred thirty (730) days, by banking
institutions, including thrift banks, or by financial intermediaries authorized to engage in
quasi-banking functions shall be nineteen percent (19%) per annum.
‘x x x
7. Except as provided in this Circular and Circular No. 493, loans or renewals thereof
shall continue to be governed by the Usury Law, as amended.’ (idem, supra)
245
VOL. 332, MAY 30, 2000 245
Banco Filipino Savings and Mortgage Bank vs. Court of Appeals
In the meantime, the Skyline Builders, Inc., through its President, Appellee Calvin
Arcilla, secured loans from the Bank of the Philippine Islands in the total amount
of P450,000.00. To insure payment of the aforesaid loan, the FGU Insurance
Corporation, issued PG Bond No. 1003 for the amount of P225,000.00 (pages 434-
436, Records) in favor of the Bank of the Philippine Islands. Skyline Buildings, Inc.,
and the Appellees executed an “Agreement of Counter-Guaranty with Mortgage” in
favor of the FGU Insurance Corporation covering the aforesaid parcels of land to
assure payment of any amount that the insurance company may pay on account of
said loans (pages 429-436, Records). The mortgage was annotated as Entry No.
58009 at the dorsal portion of Appellees’ titles.
After October 30, 1978, the Appellant prepared and issued a “Statement of
Account” to the Appellees on their loan account to the effect that, as of October 30,
1978, the balance of their loan account, inclusive of interests, computed at 17% per
annum, amounted to 284,490.75 (page 555, Records). It turned out that the
Appellant unilaterally increased the rate of interest on the loan account of the
Appellees from 12% per annum, as covenanted in the “Real Estate Mortgage” and
“Deed of Consolidated and Amended Real Estate Mortgage” to 17% per annum on
the authority of the aforequoted Central Bank Circular.
The Appellees failed to pay their monthly amortizations to Appellant. The latter
forthwith filed, on April 3, 1979, a petition, with the Provincial Sheriff, for the
extrajudicial foreclosure of Appellees’ “Real Estate Mortgage” in favor of the
Appellant for the amount of P342,798.00 inclusive of the 17% per annum which
purportedly was the totality of Appellees’ account with the Appellant on their loans.
The Appellant was the purchaser of the property at public auction for the aforesaid
amount of P324,798.00. On May 25, 1979, the Sheriff executed a “Certificate of
Sale” over the aforesaid properties in favor of the Appellant for the aforesaid
amount (pages 37-38, Records).
The Appellant filed a “Petition for a Writ of Possession” with the Regional Trial
Court entitled “Banco Filipino Savings and Mortgage Bank vs. Elsa Arcilla, et al,
LRC Case No. P-7757-P” On February 28, 1980, the Court rendered a Decision
granting the Petition of the Appellant. The Appellees appealed to the Court of
Appeals but the latter Court, on June 29, 1985, promulgated a Decision affirming
the Decision of the Regional Trial Court (pages 190-198, Records).
246
246 SUPREME COURT REPORTS ANNOTATED
Banco Filipino Savings and Mortgage Bank vs. Court of Appeals
In the meantime, the FGU Insurance Corporation, Inc., redeemed the aforesaid
properties from the Appellant by paying to the latter the amount of P389,289.41
inclusive of interest computed at 17% per annum. The Appellant and FGU
Insurance Corp., Inc., executed, on May 27, 1980, a “Deed of Redemption” (pages
126-129, Records).
On September 2, 1985, the Appellees filed a complaint in the Court a quo for
the “Annulment of the Loan Contracts, Foreclose Sale with Prohibition and
Injunction, Etc.” entitled “Calvin Arcilla, et al. vs. Banco Filipino Savings and
Mortgage Bank, et al.” (pages 1-38, Records).
The Appellees averred, in their complaint, inter alia, that the loan contracts
and mortgages between the Appellees and the Appellant were null and void
because: (a) the interests, charges, etc., were deducted in advance from the face
value of the “Promissory Notes” executed by the Appellees; and (b) the rate of
interests charged by the Appellant were usurious. The Appellees prayed that
judgment be rendered in their favor as follows:
“x x x
WHEREFORE, it is respectfully prayed—
a) Pending hearing on the prayer for the issuance of the Writ of Preliminary Injunction,
a restraining order be immediately issued against the defendants or anyone acting in their
behalf from enforcing the writ of possession issued against the plaintiffs;
b) After notice and hearing, a writ of preliminary injunction be issued against the
defendants, particularly defendants FGU Insurance Corporation and the City Sheriff of Pasay
 City, MM, or any of his deputies or anyone acting in their behalf from enforcing the writ of
possession;
c) After trial—
1. 1)To make the injunction permanent;
2. 2)Declare the loan contracts null and void;
Page | 3. 3)Declare the extrajudicial foreclosure null and void;
21 4. 4)Ordering the defendants to pay the plaintiffs the sums of P100,000.00 as moral
damages; P50,000.00 as attorney fees; and, costs of suit.
247
VOL. 332, MAY 30, 2000 247
Banco Filipino Savings and Mortgage Bank vs. Court of Appeals
PLAINTIFFS further pray for such other reliefs and remedies just and equitable in the
premises.” (pages 88-89, Records)
In its Answer to the Complaint, the Appellant averred that the interests charged
by it on Appellees’ loan accounts and that the said loan contracts and mortgages
were lawful. The Appellant further averred that the Appellees’ action had already
prescribed. In the interim, the Supreme Court promulgated its Decision in the
precedent—setting case of “Banco Filipino Savings and Mortgage Bank vs. Hon.
Miguel Navarro, et al, 152 SCRA 346” where it declared that Central Bank Circular
No. 494 was not the “law” envisaged in the mortgage deeds of borrowers of the
Bank; that the escalation clause incorporated in said deeds giving authority to the
Appellant to increase the rate of interests without the corresponding deescalation
clause should not be given effect because of its one-sidedness in favor of the
Appellant; that the aforesaid Central Bank Circular did not apply to loans secured
by real estate mortgages, and that, therefore, the Appellant cannot rely on said
Circular as authority for it to unilaterally increase the rate of interests on loans
secured by Real Estate Mortgages.
In the meantime, the FGU Insurance Corp., Inc., filed a “Motion for
Substitution” with the Regional Trial Court, in LRC Case No. Pq-7757-P praying
that it be substituted as the Petitioner in said case (pages 354-356, Records). The
Appellees were served with a copy of said motion and filed their Opposition thereto.
However, on November 10, 1987, the Regional Trial Court rendered a Decision
granting the motion of FGU Insurance Company (page 369, Records)
On December 3, 1987, the Appellees filed a Motion, with the Court a quo, for
leave to file an “Amended Complaint” to implead FGU Insurance Corporation as
party defendant (pages 83-129, Records). The Court granted said motion and
admitted Appellees’ Amended Complaint.
After the requisite pre-trial, the Court a quo issued a Pre-Trial Order which
defined, inter alia, Appellees’ action against the Appellant, and the latter’s
defenses, to wit:
“x x x
On the part of the defendants Banco Filipino Savings to simplify the case, it
seeks to declare as null and void plaintiffs’ loan contract with Banco Filipino
obtained in May 1974, on the
248
248 SUPREME COURT REPORTS ANNOTATED
Banco Filipino Savings and Mortgage Bank vs. Court of Appeals
ground that the interest agreed in the contract was usurious. Plaintiffs also seek to declare
as null and void the foreclosure of their mortgage by Banco Filipino on the ground that the
loan with the said mortgagee foreclosure maybe validly done.
DEFENSES
1. 1.Prescription
2. 2.Laches
3. 3.Estoppel” (page 496, Records)
In the meantime, the Appellees and FGU Insurance Corporation entered into
and forged a “Compromise Agreement.” The Court a quo promulgated a Decision,
dated April 3, 1991, based on said “Compromise Agreement.” Under the
“Compromise Agreement,” the Appellees bound and obliged themselves, jointly and
severally, to pay to FGU Insurance Corporation the amount of P1,964,117.00 in
three (3) equal installments and that:
“x x x
6. Upon faithful compliance by plaintiffs Calvin S. Arcilla and Elsa B. Arcilla with their
Agreement, defendant FGU Insurance Corporation shall renounce in their favor all its rights,
interests and claims to the four (4) parcels of land mentioned in paragraph No. 4 of this
Compromise Agreement, together with all the improvements thereon, and plaintiffs Calvin
S. Arcilla and Elsa B. Arcilla shall be subrogated to all such rights, interests and claims. In
addition, defendant FGU Insurance Corporation shall execute in favor of plaintiffs Calvin S.
Arcilla and Elsa B. Arcilla a deed of cancellation of the real estate mortgage constituted in its
favor on the above-mentioned four (4) parcels of land, together with all the improvements
thereon. All documentary stamps and expenses for registration of the said deed of cancellation
of mortgage shall be for the account of plaintiffs Calvin S. Arcilla and Elsa B. Arcilla.
7. Subject to the provisions of paragraph No. 4 of this Compromise Agreement, the
execution of this Compromise Agreement shall be without prejudice to the prosecution of the
claims of plaintiffs Calvin S. Arcilla and Elsa B. Arcilla. (pages 543-544, Records)
Thereafter, the Appellees and the Appellant agreed, upon the prodding of the
Court a quo, that the only issue to be resolved by the
249
VOL. 332, MAY 30, 2000 249
Banco Filipino Savings and Mortgage Bank vs. Court of Appeals
Court a quo was, whether or not the Appellees were entitled to the refund, under
the Decision of the Supreme Court in “Banco Filipino Savings and Mortgage Bank
vs. Hon. Miguel Navarro, et al.” supra. On November 8, 1991, the Appellees filed a
“Motion for Summary Judgment” appending thereto, inter alia, the Affidavit of
Appellee Calvin S. Arcilla and the appendages thereof (pages 550-555, Records).
Appellant filed its Opposition but did not append any affidavit to said Opposition.
On March 26, 1993, the Court a quo promulgated a Decision, the decretal portion
of which reads as follows:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiffs
and against defendant Banco Filipino ordering defendant Banco Filipino to pay spouses
Calvin S. Arcilla and Elsa B. Arcilla the sum of P126,139.00 with interest thereon at 12% per
annum reckoned from the filing of the complaint.
SO ORDERED.’ (pages 584-585, Records)” 2
 Petitioner appealed to the Court of Appeals, which affirmed the decision of
the RTC the dispositive portion of which reads:
“IN THE LIGHT OF ALL THE FOREGOING, the assailed Decision is AFFIRMED.
Appellant’s appeal is DISMISSED. With costs against the Appellant.
SO ORDERED.” 3
Page | Their Motion for Reconsideration was denied hence this petition where the
4
22 petitioner assigns the following errors:
1. “I.THE HONORABLE COURT OF APPEALS ERRED WHEN IT HELD
THAT THE CAUSE OF ACTION OF THE PRIVATE RESPONDENTS
ACCRUED ON OCTOBER 30, 1978, AND THEREFORE THE FILING
OF THEIR COMPLAINT FOR ANNULMENT OF THEIR LOAN
CONTRACTS WITH THE PETITIONER IN 1985 WAS NOT YET
BARRED BY PRESCRIPTION.
2. II.THE HONORABLE COURT OF APPEALS ERRED WHEN IT HELD
THAT THE MATERIAL ALLEGATIONS OF THE
_______________
2Decision of the Court of Appeals, pp. 1-8.
3Ibid., p. l9.
4Rollo, p. 35.
250
250 SUPREME COURT REPORTS ANNOTATED
Banco Filipino Savings and Mortgage Bank vs. Court of Appeals
1. PRIVATE RESPONDENTS COMPLAINT WERE SUFFICIENT TO
WARRANT THE RELIEFS GRANTED TO THEM BY THE LOWER
COURT, PARTICULARLY THE REFUND OF P126,139.00
REPRESENTING ALLEGED EXCESS INTEREST PAID ON THEIR
LOAN.
2. III.THE HONORABLE COURT OF APPEALS ERRED IN HOLDING
THAT THE PRIVATE RESPONDENTS WERE ENTITLED TO THE
SAID REFUND OF P126,139.00 CLAIMED BY THEM.”
5
The petitioner maintains that the complaint filed by herein private
respondents was an action for Annulment of Loan Contracts, foreclosure
sale with prohibition and injunction. It is contended that these causes of
action accrued on the date of the execution of the promissory note and deed
of mortgage on January 15, 1975 and not October 30, 1978 as found by the
Court of Appeals. Thus, private respondents cause of action has already
prescribed inasmuch as the case was filed on September 2, 1985 or more
than ten years thereafter. Petitioner further contends that private
respondents cannot rely on the ruling in the case of Banco Filipino Savings
& Mortgage Bank vs. Navarro considering that they were not parties to
6
said case. Petitioner also maintains that the order of the lower court, which
was affirmed by the Court of Appeals ordering the petitioner to refund the
excess interest paid by private respondents in the amount of P126,318.00
was without any legal basis since private respondents never raised the
issue of interest nor prayed for any relief with respect thereto. Moreover,
the private respondents never paid said amount to the petitioner. While
the amount was included in the bid price of the bank when it bought the
mortgaged properties during the public auction, said bid price did not
prejudice the private respondents because when the private respondents
repurchased the properties, the amount they paid was different and
independent of the redemption price of the bank. Besides, the agreement
between the private respondents and FGU Insur-
_______________
5Petition, pp. 10-11; Rollo, pp. 18-19.
6152 SCRA 346 [1987].
251
VOL. 332, MAY 30, 2000 251
Banco Filipino Savings and Mortgage Bank vs. Court of Appeals
ance Corporation was one of sale and not redemption. Thus, any amount
paid by the private respondents to FGU was voluntarily entered into by
them and was not a consequence of the foreclosure of the mortgage
properties.
Conversely, private respondents allege that their action has not
prescribed considering that prescription begins to run from the day the
action may be brought; the date their right of action accrued. It is their
contention that the period of prescription of their action should commence
to run from October 30, 1978 when the petitioner unilaterally increased
the rate of interest on private respondents’ loan to 17% per annum. Thus,
when private respondents filed their action against the petitioner on
September 2, 1985 or almost eight years thereafter, their action had not
yet prescribed. Moreover, private respondents aver that they are entitled
to the refund inasmuch as the escalation clause incorporated in the loan
contracts do not have a corresponding de-escalation clause and is therefore
illegal.
The appeal is unmeritorious.
There are only two issues, which must be resolved in the present
appeal. First, has the action of the private respondents prescribed; and
second, are the respondents entitled to the refund-of the alleged interest
overpayments.
Petitioner’s claim that the action of the private respondents has
prescribed is bereft of merit. Under Article 1150 of the Civil Code, the time
for prescription of all kinds of actions, when there is no special provision
 which ordains otherwise, shall be counted from the day they may be
brought. Thus, the period of prescription of any cause of action is reckoned
only from the date the cause of action accrued. And a cause of action arises
7
when that which should have been done is not done, or that which should
not have been done is done. The period should not be made to retroact to
8
Page | the date of the execu-
23
_______________
7Lim Tay vs. CA, 293 SCRA 634 at p. 655 [1998].
Arturo M. Tolentino, The Civil Code, Volume IV (1997), p. 44.
8
252
252 SUPREME COURT REPORTS ANNOTATED
Banco Filipino Savings and Mortgage Bank vs. Court of Appeals
tion of the contract on January 15, 1975 as claimed by the petitioner for at
that time, there would be no way for the respondents to know of the
violation of their rights. The Court of Appeals therefore correctly found
9
that respondents’ cause of action accrued on October 30, 1978, the date
they received the statement of account showing the increased rate of
interest, for it was only from that moment that they discovered the
petitioner’s unilateral increase thereof. We quote with approval the
pertinent portions of the Court of Appeals decision as follows:
“It is the legal possibility of bringing the action that determines the starting point
for the computation of the period of prescription (Constancia C. Tolentino vs. Court
of Appeals, et al., 162 SCRA 66). In fine, the ten-year prescriptive period is to be
reckoned from the accrual of Appellees’ right of action, not necessarily on the very
date of the execution of the contracts subject of the action (Naga Telephone Co., Inc.
vs. Court of Appeals, et al., 230 SCRA 351). A party’s right of action accrues only
when the confluence of the following elements is established:
“x x x: a) a right in favor of the plaintiff by whatever means and under whatever law it arises
or is created; b) an obligation on the part of defendant to respect such right; and c) an act or
omission on the part of such defendant violative of the right of the plaintiff (Cole vs. Vda. de
Gregorio, 116 SCRA 670 [1982]; Mathay vs. Consolidated Bank & Trust Co., 58 SCRA
559 [1974]; Vda. de Enriquez vs. Dela Cruz, 54 SCRA 1[1973]. It is only when the last element
occurs or takes place that it can be said in law that a cause of action has arisen (Cole vs. Vda.
De Gregorio, supra)” (Maria U. Español vs. Chairman, etc., et al., 137 SCRA 314, page 318)
More, the aggrieved must have either actual or presumptive knowledge of the
violation, by the guilty party of his rights either by an act or omission. The question
that now comes to the fore is when the Appellees became precisely aware of the
unilateral increase, by the Appellant, of the rate of interest on their loan account
to 17% per annum. As can be ascertained from the records, the Appellees discovered
or should have discovered, for the first time, the unilat-
_______________
9 Ibid.
253
VOL. 332, MAY 30, 2000 253
Banco Filipino Savings and Mortgage Bank vs. Court of Appeals
eral increase by the Appellant of the rate of interest to 17% per annum when they
received the “Statement of Account” of the Appellant as of October 30, 1978. Hence,
it was only then that the prescriptive period for the Appellees to institute their
action in the Court a quo commenced. Since the Appellees filed their complaint in
the Court a quo on September 2, 1985, the same was seasonably filed within the
ten-year prescriptive period.” 10
Anent the second issue as to whether the respondents are entitled to
recover the alleged overpayments of interest, we find that they are despite
the absence of any prayer therefor. This Court has ruled that it is the
material allegations of fact in the complaint, not the legal conclusion made
therein or the prayer that determines the relief to which the plaintiff is
entitled. It is the allegations of the pleading which determine the nature
11
of the action and the Court shall grant relief warranted by the allegations
and the proof even if no such relief is prayed for. Thus, even if the
12
complaint seeks the declaration of nullity of the contract, the Court of
Appeals correctly ruled that the factual allegations contained therein
ultimately seek the return of the excess interests paid.
The amended complaint of herein private respondents specifically
13
allege that the contracts of loan entered into by them and the petitioner
were contrary to and signed in violation of the Usury Law and 14
consequentially pray that said contracts be declared null and void. The
amended complaint reads:
1. “6.The aforementioned loans granted by defendantBanco Filipino to the
plaintiffs as stated on the face of the promissory note
_______________
10 Decision p. 11-12; Rollo, pp. 47-48.
11 Metropolitan Waterworks and Sewerage System vs. Court of Appeals, 297 SCRA 287 at
p. 302 [1998].
12 Solid Homes, Inc. vs. Court of Appeals, 271 SCRA 157 at p. 164 [1997].
13 Admitted on December 8, 1987; Record, p. 138.
14 The Usury Law was suspended only on December 10, 1982 pursuant to Central Bank
Circular No. 905, Series of 1982. See Liam Law vs. Olympic Sawmill Co., 129 SCRA
439 [1984].
254
254 SUPREME COURT REPORTS ANNOTATED
Banco Filipino Savings and Mortgage Bank vs. Court of Appeals
1. and real estate mortgage (Annexes “B” to “D,” inclusive) were not actually
received by the plaintiffs because interests, charges, etc. were deducted
 in advance from the face value of the loans not in accordance with the
contracts;
2. 7.Even the loan contracts (Annexes “B” to “D,” inclusive) required by
defendant Banco Filipino to be signed by the plaintiffs were contrary to
and in violation of the then Usury Law, as amended;
3. 8.Assuming arguendo that the loan contracts between plaintiffs and
Page |
defendant Banco Filipino are valid, the extra-judicial foreclosure of the
24 properties of the plaintiffs, on May 24, 1979 was null and void for having
been conducted in clear violation of the law (Act 3135), namely: a) lack of
proper notice to the plaintiffs; b) lack of proper publication and posting as
required by law; c) the alleged sale was conducted at the place other than
that prescribed by law, among others;
4. 9.On May 27, 1990, defendant Banco Filipino purportedly executed in favor
of defendant FGU Insurance Corporation a Deed of Redemption over the
foreclosed properties of the plaintiffs, again, without notice to the latter,
as evidenced by the said Deed of Redemption, copy of which is hereto
attached and marked as Annex “F.”
5. 10.The Deed of Redemption (Annex “F”) is clearly null and void for having
been executed in violation of Rule 39, Rules of Court, and other related
provisions of the Rules of Court.”15
The loan contracts with real estate mortgage entered into by and between
the petitioner and respondent stated that the petitioner may increase the
interest on said loans, within the limits allowed by law, as petitioner’s
Board of Directors may prescribe for its borrowers. At the time the
contracts were entered into, said escalation clause was valid. It was only 16
pursuant to P.D. No. 1684 which became effective March 17, 1980 wherein
to be valid, escalation clauses should provide: 1.) that there can be an
increase in interest if increased by law or by the Monetary Board; and 2.)
in order for such stipulation to be valid, it must include a provision for the
reduction of the stipulated interest in the event that the
_______________
Amended Complaint, pp. 2 to 3; Record, pp. 86 to 87.
15
Banco Filipino Savings & Mortgage Bank vs. Navarro, 152 SCRA 346at p. 353 [1987].
16
255
VOL. 332, MAY 30, 2000 255
Banco Filipino Savings and Mortgage Bank vs. Court of Appeals
maximum rate of interest is reduced by law or by the Monetary Board. 17
Given the validity of the escalation clause, could the petitioner increase
the stipulated interest pursuant to the Central Bank Circular 494 from
12% to 17%.
We rule that it may not.
The escalation clause in the loan contracts reads as follows:
“x x x g) The rate of interest charged on the obligation secured by this mortgage, as
well as the interest on the amount which may have been advanced by the
Mortgagee in accordance with paragraph (b) and (d) hereof, shall be subject, during
the terms of this contract, to such an increase, within the limits allowed by law, as
the Board of Directors of the Mortgagee may prescribe for its debtors; x x x”
(emphasis supplied) 18
In Banco Filipino Savings & Mortgage Bank vs. Navarro, which involved 19
a similar escalation clause, we ruled that Central Bank Circular 494,
20
although it has the force and effect of law, is not a law and is not the law
contemplated by the parties which authorizes the petitioner to unilaterally
raise the interest rate of the loan. Consequently, the reliance by the
21
petitioner on Central Bank Circular 494 to unilaterally raise the interest
rates on the loan in question was without any legal basis.
Petitioner’s argument that the Banco Filipino case cannot be applied to
the present case since the respondents were not intervenors therein is
flawed. Only the judgment in said case cannot bind the respondents as they
were not parties thereto, however, the doctrine enunciated therein is that
a judicial
_______________
17Ibid., at p. 355.
18Record at pp. 21, 25 and 29.
19See note 6.
20“I/We hereby authorize Banco Filipino to correspondingly increase the interest rate
stipulated in this contract without advance notice to me/us in the event a law increasing the
lawful rates of interest that may be charged on this particular kind of loan.”
21See note 16, Supra at pp. 354-355.
256
256 SUPREME COURT REPORTS ANNOTATED
Banco Filipino Savings and Mortgage Bank vs. Court of Appeals
decision forms part of the legal system of the land. It forms a precedent,
22
which must be adhered to under the doctrine of stare decisis.23 Thus, even
if the respondents were not parties to the above-mentioned case, the
doctrine enunciated therein may be applied to the present case.
WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No.
45891 is AFFIRMED and the instant petition is hereby DENIED.
No pronouncement as to costs.
SO ORDERED.
Melo (Chairman), Vitug and Purisima, JJ., concur.
Panganiban, J., On leave.
Petition denied, judgment affirmed.
 G.R. No. 187678. April 10, 2013.*
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
Page | result is void. Any stipulation regarding the validity or compliance of the contract
25 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
_______________
* FIRST DIVISION.
521
VOL. 695, APRIL 10, 2013 521
Juico vs. China Banking Corporation
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
522
522 SUPREME COURT REPORTS ANNOTATED
Juico vs. China Banking Corporation
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
523
VOL. 695, APRIL 10, 2013 523
Juico vs. China Banking Corporation
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.
 PETITION for review on certiorari of the decision and resolution of the
Court of Appeals.
The facts are stated in the opinion of the Court.
R.A. Din, Jr. & Associates Law Offices for petitioners.
Lim, Vigilia, Alcala, Dumlao, Alameda and Casidingfor respondent.
Page | VILLARAMA, JR., J.:
26 Before us is a petition for review on certiorari under Rule 45 of the 1997
Rules of Civil Procedure, as amended, assailing the February 20, 2009
Decision1 and April 27, 2009 Resolution2 of the Court of Appeals (CA) in CA
G.R. CV No. 80338. The CA affirmed the April 14, 2003 Decision3 of the
Regional Trial Court (RTC) of Makati City, Branch 147.
The factual antecedents:
Spouses Ignacio F. Juico and Alice P. Juico (petitioners) obtained a loan
from China Banking Corporation (respondent) as evidenced by two
Promissory Notes both dated October 6, 1998 and numbered 507-001051-
34 and 507-001052-0,5 for the
_______________
1 Rollo, pp. 23-38. Penned by Associate Justice Teresita Dy-Liacco Flores with Associate
Justices Rosmari D. Carandang and Romeo F. Barza, concurring.
2 Id., at p. 47.
3 Id., at pp. 48-51. Penned by Judge Maria Cristina J. Cornejo.
4 Records, p. 36.
524
524 SUPREME COURT REPORTS ANNOTATED
Juico vs. China Banking Corporation
sums of P6,216,000 and P4,139,000, respectively. The loan was secured by
a Real Estate Mortgage (REM) over petitioners’ property located at 49
Greensville St., White Plains, Quezon City covered by Transfer Certificate
of Title (TCT) No. RT-103568 (167394) PR-412086 of the Register of Deeds
of Quezon City.
When petitioners failed to pay the monthly amortizations due,
respondent demanded the full payment of the outstanding balance with
accrued monthly interests. On September 5, 2000, petitioners received
respondent’s last demand letter7 dated August 29, 2000.
As of February 23, 2001, the amount due on the two promissory notes
totaled P19,201,776.63 representing the principal, interests, penalties and
attorney’s fees. On the same day, the mortgaged property was sold at public
auction, with respondent as highest bidder for the amount of P10,300,000.
On May 8, 2001, petitioners received 8 a demand letter9dated May 2,
2001 from respondent for the payment of P8,901,776.63, the amount of
deficiency after applying the proceeds of the foreclosure sale to the
mortgage debt. As its demand remained unheeded, respondent filed a
collection suit in the trial court. In its Complaint,10 respondent prayed that
judgment be rendered ordering the petitioners to pay jointly and severally:
(1) P8,901,776.63 representing the amount of deficiency, plus interests at
the legal rate, from February 23, 2001 until fully paid; (2) an additional
amount equivalent to 1/10 of 1% per day of the total amount, until fully
paid, as penalty; (3) an amount equivalent to 10% of the foregoing
_______________
5 Id., at p. 35.
6 Id., at pp. 60-62.
7 Id., at pp. 55-56.
8 Id., at p. 66.
9 Id., at pp. 63-64.
10 Id., at pp. 1-5.
525
VOL. 695, APRIL 10, 2013 525
Juico vs. China Banking Corporation
amounts as attorney’s fees; and (4) expenses of litigation and costs of suit.
In their Answer,11 petitioners admitted the existence of the debt but
interposed, by way of special and affirmative defense, that the complaint
states no cause of action considering that the principal of the loan was
already paid when the mortgaged property was extrajudicially foreclosed
and sold for P10,300,000. Petitioners contended that should they be held
liable for any deficiency, it should be only for P55,000 representing the
difference between the total outstanding obligation of P10,355,000 and the
bid price of P10,300,000. Petitioners also argued that even assuming there
is a cause of action, such deficiency cannot be enforced by respondent
because it consists only of the penalty and/or compounded interest on the
accrued interest which is generally not favored under the Civil Code. By
way of counterclaim, petitioners prayed that respondent be ordered to pay
P100,000 in attorney’s fees and costs of suit.
At the trial, respondent presented Ms. Annabelle Cokai Yu, its Senior
Loans Assistant, as witness. She testified that she handled the account of
petitioners and assisted them in processing their loan application. She
called them monthly to inform them of the prevailing rates to be used in
computing interest due on their loan. As of the date of the public auction,
petitioners’ outstanding balance was P19,201,776.6312 based on the
following statement of account which she prepared:
STATEMENT OF ACCOUNT
As of FEBRUARY 23, 2001
_____IGNACIO F. JUICO____
PN# 507-0010520 due on 04-07-2004
_______________
11 Id., at pp. 17-19.
12 TSN, April 1, 2002, pp. 6-18, 30-33.
526
 526 SUPREME COURT Penalty charge @ 1/10 of 1% of the total amount due 3,145,296.00
REPORTS (P6,216,000.00 from 10-06-99 to 02-23-2001 @ 1/10 of 1% per day). .
ANNOTATED ...............
Juico vs. China Banking Corporation Subtotal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,770,199.23
Page | Principal balance of PN# 5070010520. . . . . . . . . . . . 4,139,000.00 Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,772,309.96
27 Interest on P4,139,000.00 fr. 04-Nov-99 04-Nov-2000 622,550.96 Less: A/P applied to balance of principal (55,000.00)
366 days @ 15.00%. . . . . . . . . . . . . . . . Less: Accounts payable L & D (261,149.39)
Interest on P4,139,000.00 fr. 04-Nov-2000 04-Dec-2000 83,346.99 17,456,160.57
30 days @ 24.50%. . . . . . . . . . . . . . . . . Add: 10% Attorney’s Fee 1,745,616.06
Interest on P4,139,000.00 fr. 04-Dec-2000 04-Jan-2001 75,579.27 Total amount due 19,201,776.63
31 days @ 21.50%. . . . . . . . . . . . . . . . . Less: Bid Price 10,300,000.00
Interest on P4,139,000.00 fr. 04-Jan-2001 04-Feb-2001 68,548.64 TOTAL DEFICIENCY AMOUNT AS OF FEB. 23, 2001 8,901,776.6313
31 days @ 19.50%. . . . . . . . . . . . . . . . .
Interest on P4,139,000.00 fr. 04-Feb-2001 23-Feb-2001 38,781.86 Petitioners thereafter received a demand letter 14 dated May 2, 2001 from
19 days @ 18.00%. . . . . . . . . . . . . . . . . respondent’s counsel for the deficiency amount of P8,901,776.63. Ms. Yu
further testified that based on the Statement of Account15 dated March 15,
Penalty charge @ 1/10 of 1% of the total amount 1,974,303.00
2002 which she prepared, the outstanding balance of petitioners was
due(P4,139,000.00 from 11-04-99 to 02-23-2001 P15,190,961.48.16
@1/10 of 1% per day). . . . . . . . . . . . . . . . . On cross-examination, Ms. Yu reiterated that the interest rate changes
Sub-total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,002,110.73 every month based on the prevailing market rate and she notified
PN# 507-0010513 due on 04-07-2004 petitioners of the prevailing rate by calling them monthly before their
account becomes past due. When asked if there was any written authority
Principal balance of PN# 5070010513. . . . . . . . . . . . . 6,216,000.00
from petitioners for respondent to increase the interest rate unilaterally,
Interest on P6,216,000.00 fr. 06-Oct-99 04-Nov-2000 1,009,035.62 _______________
395 days @ 15.00%. . . . . . . . . . . . . . . . . 13 Records, pp. 8-9.
14 Id., at pp. 63-64.
Interest on P6,216,000.00 fr. 04-Nov-2000 04-Dec-2000 125,171.51 15 Id., at pp. 67-68.
30 days @ 24.50%. . . . . . . . . . . . . . . . . . 16 TSN, April 1, 2002, pp. 20-23.
528
Interest on P6,216,000.00 fr. 04-Dec-2000 04-Jan-2001 113,505.86
528 SUPREME COURT REPORTS ANNOTATED
31 days @ 21.50%. . . . . . . . . . . . . . . . . .
Juico vs. China Banking Corporation
Interest on P6,216,000.00 fr. 04-Jan-2001 04-Feb-2001 102,947.18
she answered that petitioners signed a promissory note indicating that
31 days @ 19.50%. . . . . . . . . . . . . . . . . . they agreed to pay interest at the prevailing rate.17
Interest on P6,216,000.00 fr. 04-Feb-2001 23-Feb-2001 58,243.07 Petitioner Ignacio F. Juico testified that prior to the release of the loan,
19 days @ 18.00%. . . . . . . . . . . . . . . . . . he was required to sign a blank promissory note and was informed that the
527 interest rate on the loan will be based on prevailing market rates. Every
VOL. 695, APRIL 10, 2013 527 month, respondent informs him by telephone of the prevailing interest
rate. At first, he was able to pay his monthly amortizations but when he
Juico vs. China Banking Corporation started to incur delay in his payments due to the financial crisis,
respondent pressured him to pay in full, including charges and interests
 for the delay. His property was eventually foreclosed and was sold at public
auction.18
On cross-examination, petitioner testified that he is a Doctor of
Medicine and also engaged in the business of distributing medical supplies.
He admitted having read the promissory notes and that he is aware of his
Page | obligation under them before he signed the same.19
28 In its decision, the RTC ruled in favor of respondent. The fallo of the
RTC decision reads:
WHEREFORE, premises considered, the Complaint is hereby sustained, and
Judgment is rendered ordering herein defendants to pay jointly and severally to
plaintiff, the following:
1. P8,901,776.63 representing the amount of the deficiency owing to the
plaintiff, plus interest thereon at the legal rate after February 23, 2001;
2. An amount equivalent to 10% of the total amount due as and for attorney’s
fees, there being stipulation therefor in the promissory notes;
3. Costs of suit.
SO ORDERED. 20
_______________
17 Id., at pp. 27-35.
18 TSN, April 4, 2003, pp. 8-17.
19 Id., at pp. 18-23.
20 Rollo, p. 51.
529
VOL. 695, APRIL 10, 2013 529
Juico vs. China Banking Corporation
The trial court agreed with respondent that when the mortgaged
property was sold at public auction on February 23, 2001 for P10,300,000
there remained a balance of P8,901,776.63 since before foreclosure, the
total amount due on the two promissory notes aggregated to
P19,201,776.63 inclusive of principal, interests, penalties and attorney’s
fees. It ruled that the amount realized at the auction sale was applied to
the interest, conformably with Article 1253 of the Civil Code which
provides that if the debt produces interest, payment of the principal shall
not be deemed to have been made until the interests have been covered.
This being the case, petitioners’ principal obligation subsists but at a
reduced amount of P8,901,776.63.
The trial court further held that Ignacio’s claim that he signed the
promissory notes in blank cannot negate or mitigate his liability since he
admitted reading the promissory notes before signing them. It also ruled
that considering the substantial amount involved, it is unbelievable that
petitioners threw all caution to the wind and simply signed the documents
without reading and understanding the contents thereof. It noted that the
promissory notes, including the terms and conditions, are pro forma and
what appears to have been left in blank were the promissory note number,
date of the instrument, due date, amount of loan, and condition that
interest will be at the prevailing rates. All of these details, the trial court
added, were within the knowledge of the petitioners.
When the case was elevated to the CA, the latter affirmed the trial
court’s decision. The CA recognized respondent’s right to claim the
deficiency from the debtor where the proceeds of the sale in an extrajudicial
foreclosure of mortgage are insufficient to cover the amount of the debt.
Also, it found as valid the stipulation in the promissory notes that interest
will be based on the prevailing rate. It noted that the parties agreed on the
interest rate which was not unilaterally imposed by the bank but was the
rate offered daily by all com-
530
530 SUPREME COURT REPORTS ANNOTATED
Juico vs. China Banking Corporation
mercial banks as approved by the Monetary Board. Having signed the
promissory notes, the CA ruled that petitioners are bound by the
stipulations contained therein.
Petitioners are now before this Court raising the sole issue of whether
the interest rates imposed upon them by respondent are valid.
Petitioners contend that the interest rates imposed by respondent are
not valid as they were not by virtue of any law or Bangko Sentral ng
Pilipinas (BSP) regulation or any regulation that was passed by an
appropriate government entity. They insist that the interest rates were
unilaterally imposed by the bank and thus violate the principle of
mutuality of contracts. They argue that the escalation clause in the
promissory notes does not give respondent the unbridled authority to
increase the interest rate unilaterally. Any change must be mutually
agreed upon.
Respondent, for its part, points out that petitioners failed to show that
their case falls under any of the exceptions wherein findings of fact of the
CA may be reviewed by this Court. It contends that an inquiry as to
whether the interest rates imposed on the loans of petitioners were
supported by appropriate regulations from a government agency or the
Central Bank requires a reevaluation of the evidence on records. Thus, the
Court would in effect, be confronted with a factual and not a legal issue.
The appeal is partly meritorious.
The principle of mutuality of contracts is expressed in Article 1308 of
the Civil Code, which provides:
Article 1308. The contract must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them.
Article 1956 of the Civil Code likewise ordains that “[n]o interest shall
be due unless it has been expressly stipulated in writing.”531
VOL. 695, APRIL 10, 2013 531
Juico vs. China Banking Corporation
 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
Page | so as to lead to an unconscionable result is void. Any stipulation regarding
29 the validity or compliance of the contract which is left solely to the will of
one of the parties, is likewise, invalid.21
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.22 Hence,
such stipulations are not void per se.23
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.24 Thus, this Court has previously
nullified the
_______________
21 Sps. Almeda v. Court of Appeals, 326 Phil. 309, 316; 256 SCRA 292, 299-300 (1996).
22 Sps. Florendo v. Court of Appeals, 333 Phil. 535, 543; 265 SCRA 678, 685 (1996),
citing Banco Filipino Savings & Mortgage Bank v. Navarro, No. L-46591, July 28, 1987, 152
SCRA 346, 353 and Insular Bank of Asia and America v. Spouses Salazar, No. L-82082,
March 25, 1988, 159 SCRA 133, 137.
23 Equitable PCI Bank v. Ng Sheung Ngor, G.R. No. 171545, December 19, 2007, 541
SCRA 223, 240.
24 Id.
532
532 SUPREME COURT REPORTS ANNOTATED
Juico vs. China Banking Corporation
unilateral determination and imposition by creditor banks of increases in
the rate of interest provided in loan contracts.25
In Banco Filipino Savings & Mortgage Bank v. Navarro,26 the
escalation clause stated: “I/We hereby authorize Banco Filipino to
correspondingly increase the interest rate stipulated in this contract
without advance notice to me/us in the event a law should be enacted
increasing the lawful rates of interest that may be charged on this
particular kind of loan.” While escalation clauses in general are considered
valid, we ruled that Banco Filipino may not increase the interest on
respondent borrower’s loan, pursuant to Circular No. 494 issued by the
Monetary Board on January 2, 1976, because said circular is not a law
although it has the force and effect of law and the escalation clause has no
provision for reduction of the stipulated interest “in the event that the
applicable maximum rate of interest is reduced by law or by the Monetary
Board” (de-escalation clause).
Subsequently, in Insular Bank of Asia and America v. Spouses
Salazar27 we reiterated that escalation clauses are valid stipulations but
their enforceability are subject to certain conditions. The increase of
interest rate from 19% to 21% per annum made by petitioner bank was
disallowed because it did not comply with the guidelines adopted by the
Monetary Board to govern interest rate adjustments by banks and non-
banks performing quasi-banking functions.
In the 1991 case of Philippine National Bank v. Court of Appeals,28 the
promissory notes authorized PNB to increase the stipulated interest per
annum “within the limits allowed
_______________
25 See Philippine Savings Bank v. Castillo, G.R. No. 193178, May 30, 2011, 649 SCRA
527; Philippine National Bank v. Court of Appeals, G.R. No. 107569, November 8, 1994, 238
SCRA 20; Philippine National Bank v. Court of Appeals, 273 Phil. 789; 196 SCRA 536 (1991).
26 Supra note 22, at pp. 348, 354-355 & 358.
27 Supra note 22, at pp. 137-138.
28 Supra note 25, at pp. 797, 798.
533
VOL. 695, APRIL 10, 2013 533
Juico vs. China Banking Corporation
by law at any time depending on whatever policy [PNB] may adopt in the
future; Provided, that, the interest rate on this note shall be
correspondingly decreased in the event that the applicable maximum
interest rate is reduced by law or by the Monetary Board.” This Court
declared the increases (from 18% to 32%, then to 41% and then to 48%)
unilaterally imposed by PNB to be in violation of the principle of mutuality
essential in contracts.29
A similar ruling was made in a 1994 case 30 also involving PNB where
the credit agreement provided that “[PNB] reserves the right to increase
the interest rate within the limits allowed by law at any time depending
on whatever policy it may adopt in the future: Provided, that the interest
rate on this accommodation shall be correspondingly decreased in the
event that the applicable maximum interest is reduced by law or by the
Monetary Board x x x”.
Again, in 1996, the Court invalidated escalation clauses authorizing
PNB to raise the stipulated interest rate at any time without notice, within
the limits allowed by law. The Court observed that there was no attempt
made by PNB to secure the conformity of respondent borrower to the
successive increases in the interest rate. The borrower’s assent to the
increases cannot be implied from their lack of response to the letters sent
by PNB, informing them of the increases.31
 In the more recent case of Philippine Savings Bank v. Castillo, 32 we
sustained the CA in declaring as unreasonable the following escalation
clause: “The rate of interest and/or bank charges herein stipulated, during
the terms of this promissory note, its extensions, renewals or other
modifications, may be
Page | _______________
29 As cited in Philippine National Bank v. Court of Appeals, 328 Phil. 54, 61-62; 258
30
SCRA 549, 555 (1996).
30 Philippine National Bank v. Court of Appeals, supra note 25, at p. 22.
31 Supra note 29, at p. 63; p. 557.
32 Supra note 25, at pp. 529, 533-535.
534
534 SUPREME COURT REPORTS ANNOTATED
Juico vs. China Banking Corporation
increased, decreased or otherwise changed from time to time within the
rate of interest and charges allowed under present or future law(s) and/or
government regulation(s) as the [PSBank] may prescribe for its debtors.”
Clearly, the increase or decrease of interest rates under such clause hinges
solely on the discretion of petitioner as it does not require the conformity
of the maker before a new interest rate could be enforced. We also said that
respondents’ assent to the modifications in the interest rates cannot be
implied from their lack of response to the memos sent by petitioner,
informing them of the amendments, nor from the letters requesting for
reduction of the rates. Thus:
… the validity of the escalation clause did not give petitioner the unbridled
right to unilaterally adjust interest rates. The adjustment should have still been
subjected to the mutual agreement of the contracting parties. In light of the absence
of consent on the part of respondents to the modifications in the interest rates, the
adjusted rates cannot bind them notwithstanding the inclusion of a de-escalation
clause in the loan agreement. 33
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.34 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
_______________
33 Id., at p. 537.
34 New Sampaguita Builders Construction, Inc. (NSBCI) v. Philippine National Bank,
479 Phil. 483, 497-498; 435 SCRA 565, 581 (2004).
535
VOL. 695, APRIL 10, 2013 535
Juico vs. China Banking Corporation
which will either enslave their borrowers or lead to a hemorrhaging of their
assets.”35
The two promissory notes signed by petitioners provide:
I/We hereby authorize the CHINA BANKING CORPORATION to increase or
decrease as the case may be, the interest rate/service charge presently stipulated
in this note without any advance notice to me/us in the event a law or Central Bank
regulation is passed or promulgated by the Central Bank of the Philippines or
appropriate government entities, increasing or decreasing such interest rate or
service charge. 36
Such escalation clause is similar to that involved in the case
of Floirendo, Jr. v. Metropolitan Bank and Trust Company37 where this
Court ruled:
The provision in the promissory note authorizing respondent bank to increase,
decrease or otherwise change from time to time the rate of interest and/or bank
charges “without advance notice” to petitioner, “in the event of change in the
interest rate prescribed by law or the Monetary Board of the Central Bank of the
Philippines,” does not give respondent bank unrestrained freedom to charge any
rate other than that which was agreed upon. Here, the monthly upward/downward
adjustment of interest rate is left to the will of respondent bank alone. It violates
the essence of mutuality of the contract. 38
More recently in Solidbank Corporation v. Permanent Homes,
Incorporated,39 we upheld as valid an escalation
_______________
35 Id., at p. 498; p. 582, citing Imperial v. Jaucian, 471 Phil. 484, 494; 427 SCRA 517, 525
(2004), further citing Spouses Solangon v. Salazar, 412 Phil. 816, 822; 360 SCRA 379, 384
(2001), and Sps. Almeda v. Court of Appeals, supra note 21, at p. 319.
36 Records, pp. 35-36.
37 G.R. No. 148325, September 3, 2007, 532 SCRA 43.
38 Id., at pp. 50-51.
39 G.R. No. 171925, July 23, 2010, 625 SCRA 275, 284-285.
536
536 SUPREME COURT REPORTS ANNOTATED
Juico vs. China Banking Corporation
clause which required a written notice to and conformity by the borrower
to the increased interest rate. Thus:
The Usury Law had been rendered legally ineffective by Resolution No. 224
dated 3 December 1982 of the Monetary Board of the Central Bank, and later by
Central Bank Circular No. 905 which took effect on 1 January 1983. These circulars
removed the ceiling on interest rates for secured and unsecured loans regardless of
maturity. The effect of these circulars is to allow the parties to agree on any interest
that may be charged on a loan. The virtual repeal of the Usury Law is within the
range of judicial notice which courts are bound to take into account. Although
interest rates are no longer subject to a ceiling, the lender still does not have an
unbridled license to impose increased interest rates. The lender and the borrower
should agree on the imposed rate, and such imposed rate should be in writing.
 The three promissory notes between Solidbank and Permanent all contain the
following provisions:
“5. We/I irrevocably authorize Solidbank to increase or decrease at any
time the interest rate agreed in this Note or Loan on the basis of, among
others, prevailing rates in the local or international capital markets. For
this purpose, We/I authorize Solidbank to debit any deposit or placement
Page |
account with Solidbank belonging to any one of us. The adjustment of the
31 interest rate shall be effective from the date indicated in the written notice
sent to us by the bank, or if no date is indicated, from the time the notice
was sent.
6. Should We/I disagree to the interest rate adjustment, We/I shall prepay
all amounts due under this Note or Loan within thirty (30) days from the
receipt by anyone of us of the written notice. Otherwise, We/I shall be
deemed to have given our consent to the interest rate adjustment.”
The stipulations on interest rate repricing are valid because (1) the parties
mutually agreed on said stipulations; (2) repricing takes effect only upon
Solidbank’s written notice to Permanent of the new interest rate; and (3)
Permanent has the option to prepay its loan if Permanent and Solidbank do not
agree on the
537
VOL. 695, APRIL 10, 2013 537
Juico vs. China Banking Corporation
new interest rate. The phrases “irrevocably authorize,” “at any time” and
“adjustment of the interest rate shall be effective from the date indicated in the
written notice sent to us by the bank, or if no date is indicated, from the time the
notice was sent,” emphasize that Permanent should receive a written notice from
Solidbank as a condition for the adjustment of the interest rates. (Emphasis
supplied.)
In this case, the trial and appellate courts, in upholding the validity of
the escalation clause, underscored the fact that there was actually no fixed
rate of interest stipulated in the promissory notes as this was made
dependent on prevailing rates in the market. The subject promissory notes
contained the following condition written after the first paragraph:
With one year grace period on principal and thereafter payable in 54 equal monthly
instalments to start on the second year. Interest at the prevailing rates payable
quarterly in arrears.40
In Polotan, Sr. v. CA (Eleventh Div.),41 petitioner cardholder assailed
the trial and appellate courts in ruling for the validity of the escalation
clause in the Cardholder’s Agreement. On petitioner’s contention that the
interest rate was unilaterally imposed and based on the standards and rate
formulated solely by respondent credit card company, we held:
The contractual provision in question states that “if there occurs any change in
the prevailing market rates, the new interest rate shall be the guiding rate in
computing the interest due on the outstanding obligation without need of serving
notice to the Cardholder other than the required posting on the monthly statement
served to the Cardholder.” This could not be considered an escalation clause for the
reason that it neither states an increase nor a decrease in interest rate. Said clause
simply states that the interest rate should be based on the prevailing market rate.
_______________
40 Supra note 36.
41 357 Phil. 250; 296 SCRA 247 (1998).
538
538 SUPREME COURT REPORTS ANNOTATED
Juico vs. China Banking Corporation
Interpreting it differently, while said clause does not expressly stipulate a
reduction in interest rate, it nevertheless provides a leeway for the interest rate to
be reduced in case the prevailing market rates dictate its reduction.
Admittedly, the second paragraph of the questioned proviso which provides
that “the Cardholder hereby authorizes Security Diners to correspondingly
increase the rate of such interest in the event of changes in prevailing
market rates x x x” is an escalation clause. However, it cannot be said to be
dependent solely on the will of private respondent as it is also dependent
on the prevailing market rates.
Escalation clauses are not basically wrong or legally objectionable as long as
they are not solely potestative but based on reasonable and valid grounds.
Obviously, the fluctuation in the market rates is beyond the control of
private respondent. (Emphasis supplied.)
42
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.43
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’
_______________
42 Id., at p. 260; p. 258.
43 Bangko Sentral ng Pilipinas v. Santamaria, 443 Phil. 108, 119; 395 SCRA 84, 93
(2003), citing Art. 1374, Civil Code.
539
VOL. 695, APRIL 10, 2013 539
Juico vs. China Banking Corporation
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.44
 There is no indication that petitioners were coerced into agreeing with Petitioners’ Statement of Account, as of February 23, 2001, the date of
the foregoing provisions of the promissory notes. In fact, petitioner Ignacio, the foreclosure proceedings, should thus be modified as follows:
a physician engaged in the medical supply business, admitted having Principal P10,355,000.00
understood his obligations before signing them. At no time did petitioners
Interest at 15% per annum P10,355,000 x .15 x 477 days/365 days 2,029,863.70
protest the new rates imposed on their loan even when their property was
Page | foreclosed by respondent. Penalty at 12% per annum P10,355,000 x .12 x 477days/365 days 1,623,890.96
32 This notwithstanding, we hold that the escalation clause is still void Sub-Total 14,008,754.66
because it grants respondent the power to impose an increased rate of Less: A/P applied to balance of principal (55,000.00)
interest without a written notice to petitioners and their written consent. Less: Accounts payable L & D (261,149.39)
Respondent’s monthly telephone calls to petitioners advising them of the
13,692,605.27
prevailing interest rates would not suffice. A detailed billing statement _______________
based on the new imposed interest with corresponding computation of the 46 See Philippine National Bank v. Rocamora, G.R. No. 164549, September 18, 2009, 600
total debt should have been provided by the respondent to enable SCRA 395, 407, citing Banco Filipino Savings & Mortgage Bank v. Navarro, supra note 22.
petitioners to make an informed decision. An appropriate form must also 541
be signed by the petitioners to indicate their conformity to the new rates. VOL. 695, APRIL 10, 2013 541
Compliance with these requisites is essential to preserve the mutuality of Juico vs. China Banking Corporation
contracts. For indeed, one-sided impositions do not have the force of law
Add: Attorney’s Fees 1,369,260.53
between the parties, because such impositions are not based on the parties’
Total Amount Due 15,061,865.79
essential equality.45
Modifications in the rate of interest for loans pursuant to an escalation Less: Bid Price 10,300,000.00
clause must be the result of an agreement between the parties. Unless such
important change in the con- TOTAL DEFICIENCY AMOUNT 4,761,865.79
_______________
44 <www.bsp.gov.ph/downloads/publications/faqs/intrates.pdf> (visited April 3, 2013).
WHEREFORE, the petition for review on certiorari is PARTLY
45 New Sampaguita Builders Construction, Inc. v. Philippine National Bank, supra note GRANTED. The February 20, 2009 Decision and April 27, 2009 Resolution
34, at p. 497; p. 581. of the Court of Appeals in CA G.R. CV No. 80338 are hereby MODIFIED.
540 Petitioners Spouses Ignacio F. Juico and Alice P. Juico are hereby
540 SUPREME COURT REPORTS ANNOTATED ORDERED to pay jointly and severally respondent China Banking
Juico vs. China Banking Corporation Corporation P4,761,865.79 representing the amount of deficiency inclusive
tract terms is mutually agreed upon, it has no binding effect. 46 In the of interest, penalty charge and attorney’s fees. Said amount shall bear
absence of consent on the part of the petitioners to the modifications in the interest at 12% per annum, reckoned from the time of the filing of the
interest rates, the adjusted rates cannot bind them. Hence, we consider as complaint until its full satisfaction.
invalid the interest rates in excess of 15%, the rate charged for the first No pronouncement as to costs.
year. SO ORDERED.
Based on the August 29, 2000 demand letter of China Bank, petitioners’ Leonardo-De Castro, Bersamin and Reyes, JJ., concur.
total principal obligation under the two promissory notes which they failed Sereno (C.J., Chairperson), See Concurring Opinion.
to settle is P10,355,000. However, due to China Bank’s unilateral increases
in the interest rates from 15% to as high as 24.50% and penalty charge of CONCURRING OPINION
1/10 of 1% per day or 36.5% per annum for the period November 4, 1999 to
February 23, 2001, petitioners’ balance ballooned to P19,201,776.63. Note SERENO, C.J.:
that the original amount of principal loan almost doubled in only 16 I fully concur with the majority that the increases in interest rates
months. The Court also finds the penalty charges imposed excessive and unilaterally imposed by China Bank without petitioners’ assent violates
arbitrary, hence the same is hereby reduced to 1% per month or 12% per the principle of mutuality of contracts. This principle renders void a
annum. contract containing a provision that makes its fulfilment exclusively
 dependent upon the uncontrolled will of one of the contracting parties. 1 In
this case, the provision reads:
_______________
1 See Decision citing Garcia v. Rita Legarda, Inc., 128 Phil. 590, 594-595; 21 SCRA 555,
559 (1967).
542
Page |
542 SUPREME COURT REPORTS ANNOTATED
33
Juico vs. China Banking Corporation
I/We hereby authorize the CHINA BANKING CORPORATION to
increase or decrease as the case may be, the interest rate/service charge
presently stipulated in this note without any advance notice to me/us in
the event a law or Central Bank regulation is passed or promulgated by
the Central Bank of the Philippines or appropriate government entities,
increasing or decreasing such interest rate or service charge.
This Court dealt with a similarly worded provision in Floirendo, Jr. v.
Metropolitan Bank and Trust Company.2It noted that the “provision in the
promissory note authorizing respondent bank to increase, decrease or
otherwise change from time to time the rate of interest and/or bank charges
‘without advance notice’ to petitioner, ‘in the event of change in the interest
rate prescribed by law or the Monetary Board of the Central Bank of the
Philippines,’ does not give respondent bank unrestrained freedom to
charge any rate other than that which was agreed upon.”
However, I write to clarify that not all escalation clauses in loan
agreements are void per se.3 It is actually the rule that “escalation clauses
are valid stipulations in commercial contracts to maintain fiscal stability
and to retain the value of money in long term contracts.” 4 In The
Consolidated Bank and Trust Corporation v. Court of
Appeals,5 citing Polotan, Sr. v. Court of Appeals,6 this Court already
accepted that, given the fluctuating economic conditions, practical reasons
allow banks to stipulate that interest rates on a loan will not be fixed and
will instead depend on market conditions. In ad-
_______________
2 G.R. No. 148325, 3 September 2007, 532 SCRA 43.
3 Spouses delos Santos v. Metropolitan Bank and Trust Company, G.R. No. 153852, 24
October 2012, 684 SCRA 410.
4 Insular Bank of Asia and America v. Spouses Salazar, 242 Phil. 757, 761; 159 SCRA
133, 137 (1988); Philippine National Bank v. Spouses Rocamora, G.R. No. 164549, 18
September 2009, 600 SCRA 395, 406.
5 408 Phil. 803; 356 SCRA 671 (2001).
6 357 Phil. 250; 296 SCRA 247 (1998).
543
VOL. 695, APRIL 10, 2013 543
Juico vs. China Banking Corporation
judging so, we differentiated a valid escalation clause from an otherwise
invalid proviso in this wise:7
Neither do we find error when the lower court and the Court of Appeals set
aside as invalid the floating rate of interest exhorted by petitioner to be applicable.
The pertinent provision in the trust receipt agreement of the parties fixing the
interest rate states:
I, WE jointly and severally agree to any increase or decrease in the
interest rate which may occur after July 1, 1981, when the Central Bank
floated the interest rate, and to pay additionally the penalty of 1% per
month until the amount/s or instalments/s due and unpaid under the trust
receipt on the reverse side hereof is/are fully paid.
We agree with respondent Court of Appeals that the foregoing stipulation is
invalid, there being no reference rate set either by it or by the Central Bank, leaving
the determination thereof at the sole will and control of petitioner.
While it may be acceptable, for practical reasons given the fluctuating economic
conditions, for banks to stipulate that interest rates on a loan not be fixed and
instead be made dependent upon prevailing market conditions, there should always
be a reference rate upon which to peg such variable interest rates. An example of
such a valid variable interest rate was found in Polotan, Sr. v. Court of Appeals. In
that case, the contractual provision stating that “if there occurs any change in the
prevailing market rates, the new interest rate shall be the guiding rate in
computing the interest due on the outstanding obligation without need of serving
notice to the Cardholder other than the required posting on the monthly statement
served to the Cardholder” was considered valid. The aforequoted provision was
upheld notwithstanding that it may partake of the nature of an escalation clause,
because at the same time it provides for the decrease in the interest rate in case
the prevailing market rates dictate its reduction. In other words, unlike the
stipulation subject of the instant case, the interest rate involved in the Polotan case
is designed to be based on the prevailing market rate. On the other hand, a
stipulation ostensibly signifying an agreement to “any increase or decrease in the
interest rate,” without more, cannot be
_______________
7 Supra note 5, at pp. 811-812; p. 678.
544
544 SUPREME COURT REPORTS ANNOTATED
Juico vs. China Banking Corporation
accepted by this Court as valid for it leaves solely to the creditor the determination
of what interest rate to charge against an outstanding loan. (Emphasis in the
original and underscoring supplied)
Evidently, the point of difference in the cited escalation clauses lies in
the use of the phrase “any increase or decrease in the interest rate” without
reference to the prevailing market rate actually imposed by the
regulations of the Central Bank.8 It is thus not enough to state, as akin to
China Bank’s provision, that the bank may increase or decrease the interest
rate in the event a law or a Central Bank regulation is passed. To adopt
that stance will necessarily involve a determination of the interest rate by
the creditor since the provision spells a vague condition―it only requires
that any change in the imposable interest must conform to the upward or
downward movement of borrowing rates.
 And if that determination is not subjected to the mutual agreement of
the contracting parties, then the resulting interest rates to be imposed by
the creditor would be unilaterally determined. Consequently, the
escalation clause violates the principle of mutuality of contracts.
Based on jurisprudence, therefore, these points must be considered by
Page | creditors and debtors in the drafting of valid escalation clauses. Firstly, as
34 a matter of equity and consistent with P.D. No. 1684, the escalation clause
must be paired with a de-escalation clause.9 Secondly, so as not to violate
the principle of mutuality, the escalation must be pegged to the prevailing
market rates, and not merely make a generalized reference to “any
increase or decrease in the interest rate” in the event a law or a Central
Bank regulation is passed.
_______________
8 Lotto Restaurant Corporation v. BPI Family Savings Bank, Inc., G.R. No. 177260, 30
March 2011, 646 SCRA 699.
9 Banco Filipino Savings and Mortgage Bank v. Judge Navarro, 236 Phil. 370; 152 SCRA
346 (1987); Equitable PCI Bank v. Ng Sheung Ngor, G.R. No. 171545, 19 December 2007, 541
SCRA 223, 241.
545
VOL. 695, APRIL 10, 2013 545
Juico vs. China Banking Corporation
Thirdly, consistent with the nature of contracts, the proposed
modification must be the result of an agreement between the parties. In
this way, our credit system would be facilitated by firm loan provisions that
not only aid fiscal stability, but also avoid numerous disputes and
litigations between creditors and debtors.
Petition partly granted, judgment and resolution modified.
 G.R. No. 181045. July 2, 2014.*
SPOUSES EDUARDO and LYDIA SILOS, petitioners, vs. PHILIPPINE
NATIONAL BANK, respondent.
Page |
35
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
_______________
* SECOND DIVISION.
618
618 SUPREME COURT REPORTS ANNOTATED
Silos vs. Philippine National Bank
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
619
VOL. 728, JULY 2, 2014 619
Silos vs. Philippine National Bank
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 litiga-
Page | 620
36 620 SUPREME COURT REPORTS ANNOTATED
Silos vs. Philippine National Bank
tion; 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
621
VOL. 728, JULY 2, 2014 621
Silos vs. Philippine National Bank
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. x x x [A]n appellee, who is at the same time not an appellant,
may on appeal be permitted to make counter assignments of error in ordinary
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.
PETITION for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
Stephen C. Arceño for petitioners.
Lyna B. Brotarlo-Pasco for respondent.
DEL CASTILLO, J.:
In loan agreements, it cannot be denied that 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. Moreover, the Court cannot consider a stipulation granting
a party the option to prepay the loan if said party is not agreeable to the
arbitrary interest rates imposed. Premium may not be placed upon a
stipulation in a contract which grants one party the right to choose whether
to continue with or withdraw from the agreement if it discovers that what
the other party has been doing all along is improper or illegal. 622
622 SUPREME COURT REPORTS ANNOTATED
Silos vs. Philippine National Bank
This Petition for Review on Certiorari1 questions the May 8, 2007
Decision2 of the Court of Appeals (CA) in C.A.-G.R. CV No. 79650, which
affirmed with modifications the February 28, 2003 Decision 3 and the June
4, 2003 Order4 of the Regional Trial Court (RTC), Branch 6 of Kalibo, Aklan
in Civil Case No. 5975.
Factual Antecedents
Spouses Eduardo and Lydia Silos (petitioners) have been in business
for about two decades of operating a department store and buying and
selling of ready-to-wear apparel. Respondent Philippine National Bank
(PNB) is a banking corporation organized and existing under Philippine
laws.
To secure a one-year revolving credit line of P150,000.00 obtained from
PNB, petitioners constituted in August 1987 a Real Estate
Mortgage5 over a 370-square meter lot in Kalibo, Aklan covered by
Transfer Certificate of Title No. (TCT) T-14250. In July 1988, the credit
line was increased to P1.8 million and the mortgage was correspondingly
 increased to P1.8 million.6 And in July 1989, a Supplement to the
Existing Real Estate Mortgage7 was executed to cover the same credit line,
which was increased to P2.5 million, and additional security was given in
the form of a 134-square meter lot covered by TCT T-16208. In addition,
petitioners issued eight
Page | _______________
1 Rollo, pp. 9-45.
37 2 Id., at pp. 47-64; penned by Associate Justice Francisco P. Acosta and concurred in by
Executive Justice Arsenio J. Magpale and Associate Justice Agustin S. Dizon.
3 Records, pp. 361-367; penned by Judge Niovady M. Marin.
4 Rollo, pp. 72-73.
5 Records, p. 94.
6 See Whereas Clause of Supplement to Existing Real Estate Mortgage,id., at p. 10.
7 Id., at pp. 10-11.
623
VOL. 728, JULY 2, 2014 623
Silos vs. Philippine National Bank
Promissory Notes8 and signed a Credit Agreement.9This July 1989
Credit Agreement contained a stipulation on interest which provides as
follows:
1.03. Interest. (a) The Loan shall be subject to interest at the rate of
19.5% per annum. Interest shall be payable in advance every one hundred twenty
days at the rate prevailing at the time of the renewal.
(b) The Borrower agrees that the Bank may modify the interest rate
in the Loan depending on whatever policy the Bank may adopt in the
future, including without limitation, the shifting from the floating interest rate
system to the fixed interest rate system, or vice versa. Where the Bank has imposed
on the Loan interest at a rate per annum, which is equal to the Bank’s spread over
the current floating interest rate, the Borrower hereby agrees that the Bank
may, without need of notice to the Borrower, increase or decrease its
spread over the floating interest rate at any time depending on whatever
policy it may adopt in the future. (Emphases supplied)
10
The eight Promissory Notes, on the other hand, contained a stipulation
granting PNB the right to increase or reduce interest rates “within the
limits allowed by law or by the Monetary Board.”11 The Real Estate
Mortgage agreement provided the same right to increase or reduce interest
rates “at any time depending on whatever policy PNB may adopt in the
future.”12
Petitioners religiously paid interest on the notes at the following rates:
1. 1st Promissory Note dated July 24, 1989 — 19.5%;
_______________
8 Rollo, p. 148.
9 Records, pp. 47-54.
10 Id., at p. 47.
11 Id., at p. 192.
12 Id., at p. 74, dorsal portion.
624
624 SUPREME COURT REPORTS ANNOTATED
Silos vs. Philippine National Bank
2. 2nd Promissory Note dated November 22, 1989 — 23%;
3. 3rd Promissory Note dated March 21, 1990 — 22%;
4. 4th Promissory Note dated July 19, 1990 — 24%;
5. 5th Promissory Note dated December 17, 1990 — 28%;
6. 6th Promissory Note dated February 14, 1991 — 32%;
7. 7th Promissory Note dated March 1, 1991 — 30%; and
8. 8th Promissory Note dated July 11, 1991 — 24%.13
In August 1991, an Amendment to Credit Agreement14 was
executed by the parties, with the following stipulation regarding interest:
1.03. Interest on Line Availments. (a) The Borrowers agree to pay
interest on each Availment from date of each Availment up to but not including
the date of full payment thereof at the rate per annum which is determined
by the Bank to be prime rate plus applicable spread in effect as of the date
of each Availment. (Emphases supplied)
15
Under this Amendment to Credit Agreement, petitioners issued in
favor of PNB the following 18 Promissory Notes, which petitioners
settled — except the last (the note covering the principal) — at the
following interest rates:
1. 9th Promissory Note dated November 8, 1991 — 26%;
2. 10th Promissory Note dated March 19, 1992 — 25%;
3. 11th Promissory Note dated July 11, 1992 — 23%;
4. 12th Promissory Note dated November 10, 1992 — 21%;
5. 13th Promissory Note dated March 15, 1993 — 21%;
6. 14th Promissory Note dated July 12, 1993 — 17.5%;
7. 15th Promissory Note dated November 17, 1993 — 21%;
_______________
13 Id., at pp. 192-199.
14 Id., at pp. 55-58.
15 Id., at p. 56.
625
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Silos vs. Philippine National Bank
8. 16th Promissory Note dated March 28, 1994 — 21%;
9. 17th Promissory Note dated July 13, 1994 — 21%;
10. 18th Promissory Note dated November 16, 1994 — 16%;
11. 19th Promissory Note dated April 10, 1995 — 21%;
12. 20th Promissory Note dated July 19, 1995 — 18.5%;
13. 21st Promissory Note dated December 18, 1995 — 18.75%;
14. 22nd Promissory Note dated April 22, 1996 — 18.5%;
15. 23rd Promissory Note dated July 22, 1996 — 18.5%;
16. 24th Promissory Note dated November 25, 1996 — 18%;
 17. 25th Promissory Note dated May 30, 1997 — 17.5%; and
18. 26th Promissory Note (PN 9707237) dated July 30, 1997 — 25%.16
The 9th up to the 17th promissory notes provide for the payment of
interest at the “rate the Bank may at any time without notice, raise within
the limits allowed by law x x x.”17 On the other hand, the 18th up to the
Page | 26thpromissory notes — including PN 9707237, which is the 26th promissory
38 note — carried the following provision:
x x x For this purpose, I/We agree that the rate of interest herein
stipulated may be increased or decreased for the subsequent Interest
Periods, with prior notice to the Borrower in the event of changes in
interest rate prescribed by law or the Monetary Board of the Central Bank
of the Philippines, or in the Bank’s overall cost of funds. I/We hereby agree
that in the event I/we are not agreeable to the interest rate fixed for any
Interest Period, I/we shall have the option to prepay the loan or credit
facility without penalty within ten (10)
_______________
16 Id., at pp. 174-191.
17 Id., at p. 191.
626
626 SUPREME COURT REPORTS ANNOTATED
Silos vs. Philippine National Bank
calendar days from the Interest Setting Date. (Emphasis supplied)
18
Respondent regularly renewed the line from 1990 up to 1997, and
petitioners made good on the promissory notes, religiously paying the
interests without objection or fail. But in 1997, petitioners faltered when
the interest rates soared due to the Asian financial crisis. Petitioners’ sole
outstanding promissory note for P2.5 million — PN 9707237 executed in
July 1997 and due 120 days later or on October 28, 1997 —became past
due, and despite repeated demands, petitioners failed to make good on the
note.
Incidentally, PN 9707237 provided for the penalty equivalent to
24% per annum in case of default, as follows:
Without need for notice or demand, failure to pay this note or any installment
thereon, when due, shall constitute default and in such cases or in case of
garnishment, receivership or bankruptcy or suit of any kind filed against me/us by
the Bank, the outstanding principal of this note, at the option of the Bank and
without prior notice of demand, shall immediately become due and payable and
shall be subject to a penalty charge of twenty-four percent (24%) per
annum based on the defaulted principal amount. x x x (Emphasis supplied)
19
PNB prepared a Statement of Account20 as of October 12, 1998,
detailing the amount due and demandable from petitioners in the total
amount of P3,620,541.60, broken down as follows:
Principal P2,500,000.00
Interest 538,874.94
_______________
18 Id., at p. 174.
19 Id.
20 Id., at p. 12.
627
VOL. 728, JULY 2, 2014 627
Silos vs. Philippine National Bank
Penalties 581,666.66
Total P3,620,541.60
Despite demand, petitioners failed to pay the foregoing amount. Thus,
PNB foreclosed on the mortgage, and on January 14, 1999, TCTs T-14250
and T-16208 were sold to it at auction for the amount of
P4,324,172.96.21 The sheriff’s certificate of sale was registered on March 11,
1999.
More than a year later, or on March 24, 2000, petitioners filed Civil
Case No. 5975, seeking annulment of the foreclosure sale and an
accounting of the PNB credit. Petitioners theorized that after the first
promissory note where they agreed to pay 19.5% interest, the succeeding
stipulations for the payment of interest in their loan agreements with PNB
— which allegedly left to the latter the sole will to determine the interest
rate — became null and void. Petitioners added that because the interest
rates were fixed by respondent without their prior consent or agreement,
these rates are void, and as a result, petitioners should only be made liable
for interest at the legal rate of 12%. They claimed further that they
overpaid interests on the credit, and concluded that due to this
overpayment of steep interest charges, their debt should now be deemed
paid, and the foreclosure and sale of TCTs T-14250 and T-16208 became
unnecessary and wrongful. As for the imposed penalty of P581,666.66,
petitioners alleged that since the Real Estate Mortgage and the
Supplement thereto did not include penalties as part of the secured
amount, the same should be excluded from the foreclosure amount or bid
price, even if such penalties are provided for in the final Promissory Note,
or PN 9707237.22
In addition, petitioners sought to be reimbursed an alleged
overpayment of P848,285.00 made during the period August 21, 1991 to
March 5, 1998, resulting from respondent’s impo-
_______________
21 Id., at p. 13.
22 Id., at pp. 68-70.
628
628 SUPREME COURT REPORTS ANNOTATED
Silos vs. Philippine National Bank
sition of the alleged illegal and steep interest rates. They also prayed to be
awarded P200,000.00 by way of attorney’s fees.23
 In its Answer,24 PNB denied that it unilaterally imposed or fixed interest
rates; that petitioners agreed that without prior notice, PNB may modify
interest rates depending on future policy adopted by it; and that the
imposition of penalties was agreed upon in the Credit Agreement. It added
that the imposition of penalties is supported by the all-inclusive clause in
Page | the Real Estate Mortgage agreement which provides that the mortgage
39 shall stand as security for any and all other obligations of whatever kind
and nature owing to respondent, which thus includes penalties imposed
upon default or nonpayment of the principal and interest on due date.
On pre-trial, the parties mutually agreed to the following material
facts, among others:
a) That since 1991 up to 1998, petitioners had paid PNB the total
amount of P3,484,287.00;25 and
b) That PNB sent, and petitioners received, a March 10, 2000 demand
letter.26
During trial, petitioner Lydia Silos (Lydia) testified that the Credit
Agreement, the Amendment to Credit Agreement, Real Estate Mortgage
and the Supplement thereto were all prepared by respondent PNB and
were presented to her and her husband Eduardo only for signature; that
she was told by PNB that the latter alone would determine the interest
rate; that as to the Amendment to Credit Agreement, she was told that
PNB would fill up the interest rate portion thereof; that at the time the
parties executed the said Credit Agreement, she was not informed about
the applicable spread that PNB would impose on her account; that the
interest rate portion of
_______________
23 Id., at p. 71.
24 Id., at pp. 37-43.
25 Id., at p. 165.
26 Id., at p. 149.
629
VOL. 728, JULY 2, 2014 629
Silos vs. Philippine National Bank
all Promissory Notes she and Eduardo issued were always left in blank
when they executed them, with respondent’s mere assurance that it would
be the one to enter or indicate thereon the prevailing interest rate at the
time of availment; and that they agreed to such arrangement. She further
testified that the two Real Estate Mortgage agreements she signed did not
stipulate the payment of penalties; that she and Eduardo consulted with a
lawyer, and were told that PNB’s actions were improper, and so on March
20, 2000, they wrote to the latter seeking a recomputation of their
outstanding obligation; and when PNB did not oblige, they instituted Civil
Case No. 5975.27
On cross-examination, Lydia testified that she has been in business for 20
years; that she also borrowed from other individuals and another bank;
that it was only with banks that she was asked to sign loan documents with
no indicated interest rate; that she did not bother to read the terms of the
loan documents which she signed; and that she received several PNB
statements of account detailing their outstanding obligations, but she did
not complain; that she assumed instead that what was written therein is
correct.28
For his part, PNB Kalibo Branch Manager Diosdado Aspa, Jr. (Aspa), the
sole witness for respondent, stated on cross-examination that as a practice,
the determination of the prime rates of interest was the responsibility
solely of PNB’s Treasury Department which is based in Manila; that these
prime rates were simply communicated to all PNB branches for
implementation; that there are a multitude of considerations which
determine the interest rate, such as the cost of money, foreign currency
values, PNB’s spread, bank administrative costs, profitability, and the
practice in the banking industry; that in every repricing of each loan
availment, the borrower has the right to question the rates, but that this
was
_______________
27 Rollo, pp. 51-52.
28 Id., at p. 52.
630
630 SUPREME COURT REPORTS ANNOTATED
Silos vs. Philippine National Bank
not done by the petitioners; and that anything that is not found in the
Promissory Note may be supplemented by the Credit Agreement.29
Ruling of the Regional Trial Court
On February 28, 2003, the trial court rendered judgment dismissing
Civil Case No. 5975.30 It ruled that:
1. While the Credit Agreement allows PNB to unilaterally increase its
spread over the floating interest rate at any time depending on whatever
policy it may adopt in the future, it likewise allows for the decrease at any
time of the same. Thus, such stipulation authorizing both the increase and
decrease of interest rates as may be applicable is valid, 31 as was held in
Consolidated Bank and Trust Corporation (SOLIDBANK) v. Court of
Appeals;32
_______________
29 Id., at pp. 52-53.
30 Records, pp. 361-367; penned by Judge Niovady M. Marin.
31 Id., at pp. 365-366.
32 408 Phil. 803, 811-812; 356 SCRA 671, 679 (2001). The Court therein held:
While it may be acceptable, for practical reasons given the fluctuating economic
conditions, for banks to stipulate that interest rates on a loan not be fixed and instead be
made dependent upon prevailing market conditions, there should always be a reference rate
 upon which to peg such variable interest rates. An example of such a valid variable interest to petitioner the excess in attorney’s fees in the amount of
rate was found in Polotan, Sr. v. Court of Appeals. In that case, the contractual provision
P356,589.90, viz.:
stating that “if there occurs any change in the prevailing market rates, the new interest rate
shall be the guiding rate in computing the interest due on the outstanding obligation without WHEREFORE, judgment is hereby rendered upholding the validity of the
need of serving notice to the Cardholder other than the required posting on the monthly interest rate charged by the respondent as well as the extrajudicial foreclosure
statement served to the Cardholder” was considered valid. The aforequoted provision was proceedings and the Certificate of Sale. However, respondent is directed to refund
Page | upheld notwithstanding that it may partake of the nature of an escalation clause, because to the petitioner the amount of P356,589.90 representing the excess interest
at the same time it provides for the decrease in the interest rate in case the charged against the latter.
40 prevailing market rates dictate its reduction. In other words, unlike the stipulation No pronouncement as to costs.
subject of the instant case, the interest rate SO ORDERED. 40

631
Ruling of the Court of Appeals
VOL. 728, JULY 2, 2014 631 Petitioners appealed to the CA, which issued the questioned Decision
Silos vs. Philippine National Bank with the following decretal portion:
2. Banks are allowed to stipulate that interest rates on loans need WHEREFORE, in view of the foregoing, the instant appeal is PARTLY
not be fixed and instead be made dependent on prevailing rates upon which GRANTED. The modified Decision of the Regional Trial Court per Order dated
to peg such variable interest rates;33 June 4, 2003 is hereby AFFIRMED with MODIFICATIONS, to wit:
1. [T]hat the interest rate to be applied after the expiration of the first 30-day
3. The Promissory Note, as the principal contract evidencing
interest period for PN No. 9707237 should be 12% per annum;
petitioners’ loan, prevails over the Credit Agreement and the Real Estate 2. [T]hat the attorney’s fees of 10% is valid and binding; and
Mortgage. As such, the rate of interest, penalties and attorney’s fees _______________
stipulated in the Promissory Note prevail over those mentioned in the 38 Id.
39 Rollo, pp. 72-73.
Credit Agreement and the Real Estate Mortgage agreements;34 40 Id., at p. 73.
4. Roughly, PNB’s computation of the total amount of petitioners’ 633
obligation is correct;35 VOL. 728, JULY 2, 2014 633
5. Because the loan was admittedly due and demandable, the Silos vs. Philippine National Bank
foreclosure was regularly made;36 3. [T]hat [PNB] is hereby ordered to reimburse [petitioners] the excess in the
6. By the admission of petitioners during pre-trial, all payments made bid price of P377,505.99 which is the difference between the total amount due
to PNB were properly applied to the principal, interest and penalties.37 [PNB] and the amount of its bid price.
The dispositive portion of the trial court’s Decision reads: SO ORDERED. 41

IN VIEW OF THE FOREGOING, judgment is hereby rendered in favor of the On the other hand, respondent did not appeal the June 4, 2003 Order
respondent and against the petitioners by DISMISSING the latter’s petition. of the trial court which reduced its award of attorney’s fees. It simply raised
Costs against the petitioners. the issue in its appellee’s brief in the CA, and included a prayer for the
_______________
involved in the Polotan case is designed to be based on the prevailing market rate. On the other hand, reversal of said Order.
a stipulation ostensibly signifying an agreement to “any increase or decrease in the interest rate,” without In effect, the CA limited petitioners’ appeal to the following issues:
more, cannot be accepted by this Court as valid for it leaves solely to the creditor the determination of what
interest rate to charge against an outstanding loan. (Emphasis supplied) 1) Whether x x x the interest rates on petitioners’ outstanding
33 Records, p. 365. obligation were unilaterally and arbitrarily imposed by PNB;
34 Id., at p. 366.
35 Id.
2) Whether x x x the penalty charges were secured by the real estate
36 Id. mortgage; and
37 Id., at p. 367. 3) Whether x x x the extrajudicial foreclosure and sale are valid.42
632
The CA noted that, based on receipts presented by petitioners during
632 SUPREME COURT REPORTS ANNOTATED trial, the latter dutifully paid a total of P3,027,324.60 in interest for the
Silos vs. Philippine National Bank period August 7, 1991 to August 6, 1997, over and above the P2.5 million
SO ORDERED. 38
principal obligation. And this is exclusive of payments for insurance
Petitioners moved for reconsideration. In an Order 39dated June 4, premiums, documentary stamp taxes, and penalty. All the while,
2003, the trial court granted only a modification in the award of attorney’s petitioners did not complain nor object to the imposition of interest; they
fees, reducing the same from 10% to 1%. Thus, PNB was ordered to refund in fact paid the same religiously and without fail for seven years. The
 appellate court ruled that petitioners are thus estopped from questioning
the same.
The CA nevertheless noted that for the period July 30, 1997 to August
14, 1997, PNB wrongly applied an interest
_______________
Page | 41 Id., at pp. 63-64.
42 Id., at p. 55.
41 634
634 SUPREME COURT REPORTS ANNOTATED
Silos vs. Philippine National Bank
rate of 25.72% instead of the agreed 25%; thus it overcharged petitioners,
and the latter paid, an excess of P736.56 in interest.
On the issue of penalties, the CA ruled that the express tenor of the
Real Estate Mortgage agreements contemplated the inclusion of the PN
9707237 — stipulated 24% penalty in the amount to be secured by the
mortgaged property, thus —
For and in consideration of certain loans, overdrafts and other credit
accommodations obtained from the MORTGAGEE and to secure the payment of
the same and those others that the MORTGAGEE may extend to the
MORTGAGOR, including interest and expenses, and other obligations
owing by the MORTGAGOR to the MORTGAGEE, whether direct or
indirect, principal or secondary, as appearing in the accounts, books and
records of the MORTGAGEE, the MORTGAGOR does hereby transfer and convey
by way of mortgage unto the MORTGAGEE x x x. (Emphasis supplied)
43
The CA believes that the 24% penalty is covered by the phrase “and
other obligations owing by the mortgagor to the mortgagee” and should thus
be added to the amount secured by the mortgages.44The CA then proceeded
to declare valid the foreclosure and sale of properties covered by TCTs T-
14250 and T-16208, which came as a necessary result of petitioners’ failure
to pay the outstanding obligation upon demand. 45 The CA saw fit to
increase the trial court’s award of 1% to 10%, finding the latter rate to be
reasonable and citing the Real Estate Mortgage agreement which
authorized the collection of the higher rate.46
_______________
43 Records, p. 74.
44 Rollo, p. 61.
45 Id., at pp. 61-62.
46 Id., at p. 62.
635
VOL. 728, JULY 2, 2014 635
Silos vs. Philippine National Bank
Finally, the CA ruled that petitioners are entitled to P377,505.09
surplus, which is the difference between PNB’s bid price of P4,324,172.96
and petitioners’ total computed obligation as of January 14, 1999, or the
date of the auction sale, in the amount of P3,946,667.87.47
Hence, the present Petition.
Issues
The following issues are raised in this Petition:
I
A. THE COURT OF APPEALS AS WELL AS THE LOWER COURT
ERRED IN NOT NULLIFYING THE INTEREST RATE PROVISION IN
THE CREDIT AGREEMENT DATED JULY 24, 1989 X X X AND IN THE
AMENDMENT TO CREDIT AGREEMENT DATED AUGUST 21, 1991
X X X WHICH LEFT TO THE SOLE UNILATERAL DETERMINATION
OF THE RESPONDENT PNB THE ORIGINAL FIXING OF INTEREST
RATE AND ITS INCREASE, WHICH AGREEMENT IS CONTRARY TO
LAW, ART. 1308 OF THE [NEW CIVIL CODE], AS ENUNCIATED IN
PONCIANO ALMEIDA V. COURT OF APPEALS, G.R. [NO.] 113412,
APRIL 17, 1996, AND CONTRARY TO PUBLIC POLICY AND PUBLIC
INTEREST, AND IN APPLYING THE PRINCIPLE OF ESTOPPEL
ARISING FROM THE ALLEGED DELAYED COMPLAINT OF
PETITIONER[S], AND [THEIR] PAYMENT OF THE INTEREST
CHARGED.
B. CONSEQUENTLY, THE COURT OF APPEALS AND THE LOWER
COURT ERRED IN NOT DECLARING THAT PNB IS NOT AT ALL
ENTITLED TO ANY INTEREST EXCEPT THE LEGAL RATE FROM
DATE OF DEMAND, AND IN NOT APPLYING THE EXCESS OVER THE
LEGAL
_______________
47 Id., at p. 63.
636
636 SUPREME COURT REPORTS ANNOTATED
Silos vs. Philippine National Bank
RATE OF THE ADMITTED PAYMENTS MADE BY PETITIONER[S]
FROM 1991-1998 IN THE ADMITTED TOTAL AMOUNT OF
P3,484,287.00, TO PAYMENT OF THE PRINCIPAL OF P2,500,000.[00]
LEAVING AN OVERPAYMENT OF P984,287.00 REFUNDABLE BY
RESPONDENT TO PETITIONER[S] WITH INTEREST OF 12% PER
ANNUM.
II
THE COURT OF APPEALS AND THE LOWER COURT ERRED IN
HOLDING THAT PENALTIES ARE INCLUDED IN THE SECURED
AMOUNT, SUBJECT TO FORECLOSURE, WHEN NO PENALTIES ARE
MENTIONED [NOR] PROVIDED FOR IN THE REAL ESTATE
MORTGAGE AS A SECURED AMOUNT AND THEREFORE THE
 AMOUNT OF PENALTIES SHOULD HAVE BEEN EXCLUDED FROM
[THE] FORECLOSURE AMOUNT.
III
THE COURT OF APPEALS ERRED IN REVERSING THE RULING
OF THE LOWER COURT, WHICH REDUCED THE ATTORNEY’S FEES
Page | OF 10% OF THE TOTAL INDEBTEDNESS CHARGED IN THE X X X
42 EXTRAJUDICIAL FORECLOSURE TO ONLY 1%, AND [AWARDING]
10% ATTORNEY’S FEES.48
Petitioners’ Arguments
Petitioners insist that the interest rate provision in the Credit
Agreement and the Amendment to Credit Agreement should be declared
null and void, for they relegated to PNB the sole power to fix interest rates
based on arbitrary criteria or factors such as bank policy, profitability, cost
of money, foreign currency values, and bank administrative costs; spaces
for interest rates in the two Credit Agreements and
_______________
48 Id., at pp. 23-24.
637
VOL. 728, JULY 2, 2014 637
Silos vs. Philippine National Bank
the promissory notes were left blank for PNB to unilaterally fill, and their
consent or agreement to the interest rates imposed thereafter was not
obtained; the interest rate, which consists of the prime rate plus the bank
spread, is determined not by agreement of the parties but by PNB’s
Treasury Department in Manila. Petitioners conclude that by this method
of fixing the interest rates, the principle of mutuality of contracts is
violated, and public policy as well as Circular 90549 of the then Central
Bank had been breached. Petitioners question the CA’s application of the
principle of estoppel, saying that no estoppel can proceed from an illegal
act. Though they failed to timely question the imposition of the alleged
illegal interest rates and continued to pay the loan on the basis of these
rates, they cannot be deemed to have acquiesced, and hence could recover
what they erroneously paid.50
Petitioners argue that if the interest rates were nullified, then their
obligation to PNB is deemed extinguished as of July 1997; moreover, it
would appear that they even made an overpayment to the bank in the
amount of P984,287.00.
Next, petitioners suggest that since the Real Estate Mortgage
agreements did not include nor specify, as part of the secured amount, the
penalty of 24% authorized in PN 9707237, such amount of P581,666.66
could not be made answerable by or collected from the mortgages covering
TCTs T-14250 and T-16208. Claiming support from Philippine Bank of
Communications [PBCom] v. Court of Appeals,51 petitioners insist that the
phrase “and other obligations owing by the
_______________
49 Which removed the ceiling on interest rates for secured and unsecured loans,
regardless of maturity (Section 1), but required that the rate of interest on a floating rate loan
during each interest period shall be stated on the basis of a reference rate plus a margin as
may be agreed upon by the parties (Section 7).
50 Rollo, p. 167, citing United Coconut Planters Bank v. Spouses Beluso, 557 Phil. 326;
530 SCRA 567 (2007).
51 323 Phil. 297; 253 SCRA 241 (1996).
638
638 SUPREME COURT REPORTS ANNOTATED
Silos vs. Philippine National Bank
mortgagor to the mortgagee”52 in the mortgage agreements cannot embrace
the P581,666.66 penalty, because, as held in the PBCom case, “[a] penalty
charge does not belong to the species of obligations enumerated in the
mortgage, hence, the said contract cannot be understood to secure the
penalty”;53 while the mortgages are the accessory contracts, what items are
secured may only be determined from the provisions of the mortgage
contracts, and not from the Credit Agreement or the promissory notes.
Finally, petitioners submit that the trial court’s award of 1% attorney’s fees
should be maintained, given that in foreclosures, a lawyer’s work consists
merely in the preparation and filing of the petition, and involves minimal
study.54 To allow the imposition of a staggering P396,211.00 for such work
would be contrary to equity. Petitioners state that the purpose of attorney’s
fees in cases of this nature “is not to give respondent a larger compensation
for the loan than the law already allows, but to protect it against any future
loss or damage by being compelled to retain counsel x x x to institute
judicial proceedings for the collection of its credit.”55 And because the
instant case involves a simple extrajudicial foreclosure, attorney’s fees may
be equitably tempered.
Respondent’s Arguments
For its part, respondent disputes petitioners’ claim that interest rates
were unilaterally fixed by it, taking relief in the CA pronouncement that
petitioners are deemed estopped by their failure to question the imposed
rates and their contin-
_______________
52 Records, p. 74.
53 Philippine Bank of Communications v. Court of Appeals, supra note 51 at p. 313; p.
254.
54 Citing Mambulao Lumber Co. v. Philippine National Bank, 130 Phil. 366, 380-381; 22
SCRA 359, 372 (1968).
55 Citing New Sampaguita Builders Construction, Inc. v. Philippine National Bank, 479
Phil. 483, 510; 435 SCRA 565, 592 (2004).
639
VOL. 728, JULY 2, 2014 639
 Silos vs. Philippine National Bank
ued payment thereof without opposition. It adds that because the Credit
Agreement and promissory notes contained both an escalation clause and
a de-escalation clause, it may not be said that the bank violated the
principle of mutuality. Besides, the increase or decrease in interest rates
Page | have been mutually agreed upon by the parties, as shown by petitioners’
43 continuous payment without protest. Respondent adds that the alleged
unilateral imposition of interest rates is not a proper subject for review by
the Court because the issue was never raised in the lower court.
As for petitioners’ claim that interest rates imposed by it are null and
void for the reasons that 1) the Credit Agreements and the promissory
notes were signed in blank; 2) interest rates were at short periods; 3) no
interest rates could be charged where no agreement on interest rates was
made in writing; 4) PNB fixed interest rates on the basis of arbitrary
policies and standards left to its choosing; and 5) interest rates based on
prime rate plus applicable spread are indeterminate and arbitrary — PNB
counters:
a. That Credit Agreements and promissory notes were signed by
petitioner[s] in blank — Respondent claims that this issue was never
raised in the lower court. Besides, documentary evidence prevails over
testimonial evidence; Lydia Silos’ testimony in this regard is self-serving,
unsupported and uncorroborated, and for being the lone evidence on this
issue. The fact remains that these documents are in proper form, presumed
regular, and endure, against arbitrary claims by Silos — who is an
experienced business person — that she signed questionable loan
documents whose provisions for interest rates were left blank, and yet she
continued to pay the interests without protest for a number of years. 56
_______________
56 Rollo, pp. 100, 102.
640
640 SUPREME COURT REPORTS ANNOTATED
Silos vs. Philippine National Bank
b. That interest rates were at short periods — Respondent argues that
the law which governs and prohibits changes in interest rates made more
than once every twelve months has been removed 57 with the issuance of
Presidential Decree No. 858.58
c. That no interest rates could be charged where no agreement on
interest rates was made in writing in violation of Article 1956 of the Civil
Code, which provides that no interest shall be due unless it has been
expressly stipulated in writing — Respondent insists that the stipulated
25% per annum as embodied in PN 9707237 should be imposed during the
interim, or the period after the loan became due and while it remains
unpaid, and not the legal interest of 12% as claimed by petitioners.59
d. That PNB fixed interest rates on the basis of arbitrary policies and
standards left to its choosing — According to respondent, interest rates
were fixed taking into consideration increases or decreases as provided by
law or by the Monetary Board, the bank’s overall costs of funds, and upon
agreement of the parties.60
e. That interest rates based on prime rate plus applicable spread are
indeterminate and arbitrary — On this score, respondent submits there
are various factors that influence interest rates, from political events to
economic developments,
_______________
57 Id., at p. 103.
58 Amending Further Act Numbered Two Thousand Six Hundred Fifty-Five, as
Amended, Otherwise Known as the “Usury Law.”
59 Rollo, pp. 103-104.
60 Id., at pp. 104-105.
641
VOL. 728, JULY 2, 2014 641
Silos vs. Philippine National Bank
etc.; the cost of money, profitability and foreign currency transactions may
not be discounted.61
On the issue of penalties, respondent reiterates the trial court’s finding
that during pre-trial, petitioners admitted that the Statement of Account
as of October 12, 1998 — which detailed and included penalty charges as
part of the total outstanding obligation owing to the bank — was correct.
Respondent justifies the imposition and collection of a penalty as a normal
banking practice, and the standard rate per annum for all commercial
banks, at the time, was 24%. Respondent adds that the purpose of the
penalty or a penal clause for that matter is to ensure the performance of
the obligation and substitute for damages and the payment of interest in
the event of noncompliance.62 And the promissory note — being the
principal agreement as opposed to the mortgage, which is a mere accessory
— should prevail. This being the case, its inclusion as part of the secured
amount in the mortgage agreements is valid and necessary.
Regarding the foreclosure of the mortgages, respondent accuses
petitioners of preempting consolidation of its ownership over TCTs T-14250
and T-16208; that petitioners filed Civil Case No. 5975 ostensibly to
question the foreclosure and sale of properties covered by TCTs T-14250
and T-16208 in a desperate move to retain ownership over these properties,
because they failed to timely redeem them.
Respondent directs the attention of the Court to its petition in G.R. No.
181046,63 where the propriety of the CA’s ruling on the following issues is
squarely raised:
_______________
61 Id., at pp. 106-107.
 62 Citing Article 1226 of the Civil Code and Paras, Civil Code of the Philippines
Annotated (Commentaries) Vol. IV, p. 298, 1989, 12th edition.
63 Philippine National Bank, petitioner, versus Spouses Eduardo and Lydia Silos,
respondents.
642
642 SUPREME COURT REPORTS ANNOTATED
Page |
Silos vs. Philippine National Bank
44
1. That the interest rate to be applied after the expiration of the first
30-day interest period for PN 9707237 should be 12% per annum; and
2. That PNB should reimburse petitioners the excess in the bid price of
P377,505.99 which is the difference between the total amount due to PNB
and the amount of its bid price.
Our Ruling
The Court grants the Petition.
Before anything else, it must be said that it is not the function of the
Court to 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.
The Court notes that on March 5, 2008, a Resolution was issued by the
Court’s First Division denying respondent’s petition in G.R. No. 181046,
due to late filing, failure to attach the required affidavit of service of the
petition on the trial court and the petitioners, and submission of a defective
verification and certification of nonforum shopping. On June 25, 2008, the
Court issued another Resolution denying with finality respondent’s motion
for reconsideration of the March 5, 2008 Resolution. And on August 15,
2008, entry of judgment was made. This thus settles the issues, as
abovestated, covering a) the interest rate — or 12% per annum — that
applies upon expiration of the first 30 days interest period provided under
PN 9707237, and b) the CA’s decree that PNB should reimburse petitioner
the excess in the bid price of P377,505.09.
It appears that respondent’s practice, more than once proscribed by the
Court, has been carried over once more to the
643
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Silos vs. Philippine National Bank
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,64 such
stipulation and similar ones were declared in violation of Article 130865 of
the Civil Code. In a second case, Philippine National Bank v. Court of
Appeals,66 the very same stipulations found in the credit agreement and the
promissory notes prepared and issued by the respondent were again
invalidated. The Court therein said:
The Credit Agreement provided inter alia, that —
(a) The BANK reserves the right to increase the interest rate within the
limits allowed by law at any time depending on whatever policy it may
adopt in the future; Provided, that the interest rate on this accommodation
shall be correspondingly decreased in the event that the applicable maximum
interest is reduced by law or by the Monetary Board. In either case, the
adjustment in the interest rate agreed upon shall take effect on the effectivity
date of the increase or decrease in the maximum interest rate.
The Promissory Note, in turn, authorized the PNB to raise the rate of
interest, at any time without notice, beyond the stipulated rate of 12% but
only “within the limits allowed by law.”
The Real Estate Mortgage contract likewise provided that—
_______________
64 273 Phil. 789, 796-797, 799; 196 SCRA 536, 543 (1991).
65 Art. 1308. The contract must bind both contracting parties; its validity or compliance cannot be
left to the will of one of them.
66 G.R. No. 107569, November 8, 1994, 238 SCRA 20.
644
644 SUPREME COURT REPORTS ANNOTATED
Silos vs. Philippine National Bank
(k) INCREASE OF INTEREST RATE: The rate of interest charged on the
obligation secured by this mortgage as well as the interest on the amount which
may have been advanced by the MORTGAGEE, in accordance with the
provision hereof, shall be subject during the life of this contract to such
an increase within the rate allowed by law, as the Board of Directors
of the MORTGAGEE may prescribe for its debtors.
xxxx
In making the unilateral increases in interest rates, petitioner bank relied on
the escalation clause contained in their credit agreement which provides, as
follows:
The Bank reserves the right to increase the interest rate within the limits allowed
by law at any time depending on whatever policy it may adopt in the
future and provided, that, the interest rate on this accommodation shall be
correspondingly decreased in the event that the applicable maximum interest
rate is reduced by law or by the Monetary Board. In either case, the adjustment
in the interest rate agreed upon shall take effect on the effectivity date of the
increase or decrease in maximum interest rate.
This clause is authorized by Section 2 of Presidential Decree (P.D.) No. 1684
which further amended Act No. 2655 (“The Usury Law”), as amended, thus:
Section 2. The same Act is hereby amended by adding a new section after Section
7, to read as follows:
 Sec. 7-a. Parties to an agreement pertaining to a loan or forbearance of money,
goods or credits may stipulate that the rate of interest agreed upon may be in645
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Silos vs. Philippine National Bank
creased in the event that the applicable maximum rate of interest is increased by
Page | law or by the Monetary Board; Provided, That such stipulation shall be valid only
45 if there is also a stipulation in the agreement that the rate of interest agreed upon
shall be reduced in the event that the applicable maximum rate of interest is
reduced by law or by the Monetary Board; Provided, further, That the adjustment
in the rate of interest agreed upon shall take effect on or after the effectivity of the
increase or decrease in the maximum rate of interest.
Section 1 of P.D. No. 1684 also empowered the Central Bank’s Monetary Board
to prescribe the maximum rates of interest for loans and certain forbearances.
Pursuant to such authority, the Monetary Board issued Central Bank (C.B.)
Circular No. 905, Series of 1982, Section 5 of which provides:
Sec. 5. Section 1303 of the Manual of Regulations (for Banks and Other Financial
Intermediaries) is hereby amended to read as follows:
Sec. 1303. Interest and Other Charges.—The rate of interest, including
commissions, premiums, fees and other charges, on any loan, or forbearance of
any money, goods or credits, regardless of maturity and whether secured or
unsecured, shall not be subject to any ceiling prescribed under or pursuant to
the Usury Law, as amended.
P.D. No. 1684 and C.B. Circular No. 905 no more than allow contracting parties
to stipulate freely regarding any subsequent adjustment in the interest rate that
shall accrue on a loan or forbearance of money, goods or
646
646 SUPREME COURT REPORTS ANNOTATED
Silos vs. Philippine National Bank
credits. In fine, they can agree to adjust, upward or downward, the interest
previously stipulated. However, contrary to the stubborn insistence of
petitioner bank, the said law and circular did not authorize either party
to unilaterally raise the interest rate without the other’s consent.
It is basic that there can be no contract in the true sense in the absence
of the element of agreement, or of mutual assent of the parties. If this
assent is wanting on the part of the one who contracts, his act has no more
efficacy than if it had been done under duress or by a person of unsound
mind.
Similarly, contract changes 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 contracts, it cannot be gainsaid that the
rate of interest is always a vital component, for it can make or break a capital
venture. Thus, any change must be mutually agreed upon, otherwise, it is bereft of
any binding effect.
We cannot countenance petitioner bank’s posturing that the escalation
clause at bench gives it unbridled right to unilaterally upwardly adjust
the interest on private respondents’ loan. That would completely take
away from private respondents the right to assent to an important
modification in their agreement, and would negate the element of
mutuality in contracts. In Philippine National Bank v. Court of Appeals, et al.,
196 SCRA 536, 544-545 (1991) we held—
x x x The unilateral action of the PNB in increasing the interest rate on
the private respondent’s loan violated the mutuality of contracts ordained
in Article 1308 of the Civil Code:
647
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Silos vs. Philippine National Bank
Art. 1308. The contract must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them.
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 . . . . Hence, even assuming that the . . . 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” . . . . Such a contract is a veritable trap for the
weaker party whom the courts of justice must protect against abuse and
imposition. (Emphases supplied)
67
Then again, in a third case, Spouses Almeda v. Court of Appeals,68 the
Court invalidated the very same provisions in the respondent’s prepared
Credit Agreement, declaring thus:
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
_______________
67 Id., at pp. 22-26.
68 326 Phil. 309; 256 SCRA 292 (1996).
648
648 SUPREME COURT REPORTS ANNOTATED
Silos vs. Philippine National Bank
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.
It is plainly obvious, therefore, from the undisputed facts of the case
that respondent bank unilaterally altered the terms of its contract with
petitioners by increasing the interest rates on the loan without the prior
assent of the latter. In fact, the manner of agreement is itself explicitly stipulated
by the Civil Code when it provides, in Article 1956 that “No interest shall be due
 unless it has been expressly stipulated in writing.” What has been “stipulated
in writing” from a perusal of interest rate provision of the credit
agreement signed between the parties is that petitioners were bound
merely to pay 21% interest, subject to a possible escalation or de-
escalation, when 1) the circumstances warrant such escalation or de-
escalation; 2) within the limits allowed by law; and 3) upon agreement.
Page |
Indeed, the interest rate which appears to have been agreed upon by
46 the parties to the contract in this case was the 21% rate stipulated in the
interest provision. Any doubt about this is in fact readily resolved by a
careful reading of the credit agreement because the same plainly uses the
phrase “interest rate agreed upon,” in reference to the original 21%
interest rate. x x x
xxxx
Petitioners never agreed in writing to pay the increased interest rates
demanded by respondent bank in contravention to the tenor of their credit
agreement. That an increase in interest rates from 18% to as much as 68% is
excessive and unconscionable is indisputable. Between 1981 and 1984,
petitioners had paid an amount equivalent to virtually half of the entire
649
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Silos vs. Philippine National Bank
principal (P7,735,004.66) which was applied to interest alone. By the time
the spouses tendered the amount of P40,142,518.00 in settlement of their
obligations; respondent bank was demanding P58,377,487.00 over and
above those amounts already previously paid by the spouses.
Escalation clauses are not basically wrong or legally objectionable so long as
they are not solely potestative but based on reasonable and valid grounds. Here, as
clearly demonstrated above, not only [are] the increases of the interest rates on the
basis of the escalation clause patently unreasonable and unconscionable, but also
there are no valid and reasonable standards upon which the increases are
anchored.
xxxx
In the face of the unequivocal interest rate provisions in the credit agreement
and in the law requiring the parties to agree to changes in the interest rate in
writing, we hold that the unilateral and progressive increases imposed by
respondent PNB were null and void. Their effect was to increase the total obligation
on an eighteen million peso loan to an amount way over three times that which was
originally granted to the borrowers. That these increases, occasioned by crafty
manipulations in the interest rates is unconscionable and neutralizes the salutary
policies of extending loans to spur business cannot be disputed. (Emphases
69
supplied)
Still, in a fourth case, Philippine National Bank v. Court of
Appeals,70 the above doctrine was reiterated:
The promissory note contained the following stipulation:
For value received, I/we, [private respondents] jointly and severally promise to
pay to the ORDER of the PHILIPPINE NATIONAL BANK, at its office in San
_______________
69 Id., at pp. 316-317, 322, 325; pp. 299-308.
70 328 Phil. 54; 258 SCRA 549 (1996).
650
650 SUPREME COURT REPORTS ANNOTATED
Silos vs. Philippine National Bank
Jose City, Philippines, the sum of FIFTEEN THOUSAND ONLY (P15,000.00),
Philippine Currency, together with interest thereon at the rate of 12% per
annum until paid, which interest rate the Bank may at any time without
notice, raise within the limits allowed by law, and I/we also agree to pay
jointly and severally ____% per annum penalty charge, by way of liquidated
damages should this note be unpaid or is not renewed on due dated.
Payment of this note shall be as follows:
*THREE HUNDRED SIXTY FIVE DAYS* AFTER DATE
On the reverse side of the note the following condition was stamped:
All short-term loans to be granted starting January 1, 1978 shall be made
subject to the condition that any and/or all extensions hereof that will leave any
portion of the amount still unpaid after 730 days shall automatically convert the
outstanding balance into a medium or long-term obligation as the case may be
and give the Bank the right to charge the interest rates prescribed under
its policies from the date the account was originally granted.
To secure payment of the loan the parties executed a real estate mortgage
contract which provided:
(k) INCREASE OF INTEREST RATE:
The rate of interest charged on the obligation secured by this mortgage as
well as the interest on the amount which may have been advanced by the
MORTGAGEE, in accordance with the provision hereof, shall be subject during
the life of this contract to such an increase within the rate allowed by law,
as the Board of Directors of the MORTGAGEE may prescribe for its
debtors.
xxxx
To begin with, PNB’s argument rests on a misapprehension of the import of the
appellate court’s ruling. The Court of Appeals nullified the interest rate
increases651
VOL. 728, JULY 2, 2014 651
Silos vs. Philippine National Bank
not because the promissory note did not comply with P.D. No. 1684 by providing for
a de-escalation, but because the absence of such provision made the clause so one-
sided as to make it unreasonable.
That ruling is correct. It is in line with our decision in Banco Filipino Savings
& Mortgage Bank v. Navarro that although P.D. No. 1684 is not to be retroactively
applied to loans granted before its effectivity, there must nevertheless be a de-
escalation clause to mitigate the one-sidedness of the escalation clause. Indeed
because of concern for the unequal status of borrowers vis-à-vis the banks, our cases
after Banco Filipino have fashioned the rule that any increase in the rate of
interest made pursuant to an escalation clause must be the result of
agreement between the parties.
Thus in Philippine National Bank v. Court of Appeals, two promissory
notes authorized PNB to increase the stipulated interest per annum
 “within the limits allowed by law at any time depending on whatever
policy [PNB] may adopt in the future; Provided, that the interest rate on
this note shall be correspondingly decreased in the event that the
applicable maximum interest rate is reduced by law or by the Monetary
Board.” The real estate mortgage likewise provided:
The rate of interest charged on the obligation secured by this mortgage
Page |
as well as the interest on the amount which may have been advanced by
47 the MORTGAGEE, in accordance with the provisions hereof, shall be
subject during the life of this contract to such an increase within the rate
allowed by law, as the Board of Directors of the MORTGAGEE may
prescribe for its debtors.
Pursuant to these clauses, PNB successively increased the interest from 18% to
32%, then to 41% and then to 48%. This Court declared the increases
unilaterally imposed by [PNB] to be in violation of the principle of
mutuality as embodied in Art. 1308 of the Civil Code, which provides that “[t]he
contract must bind both contracting parties; its validity or compliance cannot be
left to the will of one of them.” As the Court explained:
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.
A similar ruling was made in Philippine National Bank v. Court of
Appeals. The credit agreement in that case provided:
The BANK reserves the right to increase the interest rate within the
limits allowed by law at any time depending on whatever policy it may
adopt in the future: Provided, that the interest rate on this accommodation shall
be correspondingly decreased in the event that the applicable maximum interest is
reduced by law or by the Monetary Board. . . .
As in the first case, PNB successively increased the stipulated interest so that
what was originally 12% per annum became, after only two years, 42%. In declaring
the increases invalid, we held:
653
VOL. 728, JULY 2, 2014 653
Silos vs. Philippine National Bank
We cannot countenance petitioner bank’s posturing that the escalation clause
at bench gives it unbridled right to unilaterally upwardly adjust the interest on
private respondents’ loan. That would completely take away from private
respondents the right to assent to an important modification in their agreement,
and would negate the element of mutuality in contracts.
Only recently we invalidated another round of interest increases
decreed by PNB pursuant to a similar agreement it had with other
borrowers:
[W]hile the Usury Law ceiling on interest rates was lifted by C.B. Circular
905, nothing in the said circular could possibly be read as granting
respondent bank carte blanche authority to raise interest rates to levels
which would either enslave its borrowers or lead to a hemorrhaging of
their assets.
In this case no attempt was made by PNB to secure the conformity of
private respondents to the successive increases in the interest rate.
Private respondents’ assent to the increases cannot be implied from their
lack of response to the letters sent by PNB, informing them of the
increases. For as stated in one case, no one receiving a proposal to change
a contract is obliged to answer the proposal. (Emphasis supplied)
71
We made the same pronouncement in a fifth case, New Sampaguita
Builders Construction, Inc. v. Philippine National Bank,72 thus—
Courts have the authority to strike down or to modify provisions in promissory
notes that grant the lenders unrestrained power to increase interest rates,
penalties and other charges at the latter’s sole discretion and without giving prior
notice to and securing the consent of the borrowers. This unilateral authority is
anathema to the
_______________
71 Id., at pp. 56-57, 60-63; pp. 550-557.
72 Supra note 55.
654
654 SUPREME COURT REPORTS ANNOTATED
Silos vs. Philippine National Bank
mutuality of contracts and enable lenders to take undue advantage of borrowers.
Although the Usury Law has been effectively repealed, courts may still reduce
iniquitous or unconscionable rates charged for the use of money. Furthermore,
excessive interests, penalties and other charges not revealed in disclosure
statements issued by banks, even if stipulated in the promissory notes,
cannot be given effect under the Truth in Lending Act. (Emphasis supplied)
73
Yet again, in a sixth disposition, Philippine National Bank v. Spouses
Rocamora,74 the above pronouncements were reiterated to debunk PNB’s
repeated reliance on its invalidated contract stipulations:
We repeated this rule in the 1994 case of PNB v. CA and Jayme-Fernandez and
the 1996 case of PNB v. CA and Spouses Basco. Taking no heed of these rulings,
the escalation clause PNB used in the present case to justify the increased interest
rates is no different from the escalation clause assailed in the 1996 PNB case; in
both, the interest rates were increased from the agreed 12% per annum rate to 42%.
xxx
xxxx
On the strength of this ruling, PNB’s argument — that the spouses
Rocamora’s failure to contest the increased interest rates that were
purportedly reflected in the statements of account and the demand letters
 sent by the bank amounted to their implied acceptance of the increase —
should likewise fail.
Evidently, PNB’s failure to secure the spouses Rocamora’s consent to the
increased interest rates prompted the lower courts to declare excessive and illegal
the interest rates imposed. To go around this lower court finding, PNB alleges that
the P206,297.47 deficiency
Page | _______________
48 73 Id., at p. 486; p. 571.
74 616 Phil. 369; 600 SCRA 395 (2009).
655
VOL. 728, JULY 2, 2014 655
Silos vs. Philippine National Bank
claim was computed using only the original 12% per annuminterest rate. We find
this unlikely. Our examination of PNB’s own ledgers, included in the records of the
case, clearly indicates that PNB imposed interest rates higher than the agreed
12% per annum rate. This confirmatory finding, albeit based solely on ledgers
found in the records, reinforces the application in this case of the rule that findings
of the RTC, when affirmed by the CA, are binding upon this Court. (Emphases
75
supplied)
Verily, all these cases, including the present one, involve identical or
similar provisions found in respondent’s credit agreements and promissory
notes. Thus, the July 1989 Credit Agreement executed by petitioners and
respondent contained the following stipulation on interest:
1.03. Interest. (a) The Loan shall be subject to interest at the rate of 19.5%
[per annum]. Interest shall be payable in advance every one hundred twenty days
at the rate prevailing at the time of the renewal.
(b) The Borrower agrees that the Bank may modify the interest rate in
the Loan depending on whatever policy the Bank may adopt in the future,
including without limitation, the shifting from the floating interest rate system to
the fixed interest rate system, or vice versa. Where the Bank has imposed on the
Loan interest at a rate per annum which is equal to the Bank’s spread over the
current floating interest rate, the Borrower hereby agrees that the Bank may,
without need of notice to the Borrower, increase or decrease its spread
over the floating interest rate at any time depending on whatever policy
it may adopt in the future. (Emphases supplied)
76
while the eight promissory notes issued pursuant thereto granted PNB
the right to increase or reduce interest rates
_______________
75 Id., at pp. 382-383; 409-410.
76 Records, p. 74.
656
656 SUPREME COURT REPORTS ANNOTATED
Silos vs. Philippine National Bank
“within the limits allowed by law or the Monetary Board”77 and the Real
Estate Mortgage agreement included the same right to increase or reduce
interest rates “at any time depending on whatever policy PNB may adopt
in the future.”78
On the basis of the Credit Agreement, petitioners issued promissory
notes which they signed in blank, and respondent later on entered their
corresponding interest rates, as follows:
1st Promissory Note dated July 24, 1989 — 19.5%;
2nd Promissory Note dated November 22, 1989 — 23%;
3rd Promissory Note dated March 21, 1990 — 22%;
4th Promissory Note dated July 19, 1990 — 24%;
5th Promissory Note dated December 17, 1990 — 28%;
6th Promissory Note dated February 14, 1991 — 32%;
7th Promissory Note dated March 1, 1991 — 30%; and
8th Promissory Note dated July 11, 1991 — 24%.79
On the other hand, the August 1991 Amendment to Credit Agreement
contains the following stipulation regarding interest:
1.03. Interest on Line Availments. (a) The Borrowers agree to pay
interest on each Availment from date of each Availment up to but not including
the date of full payment thereof at the rate per annum which is determined
by the Bank to be prime rate plus applicable spread in effect as of the date
of each Availment. (Emphases supplied)
80
and under this Amendment to Credit Agreement, petitioners again
executed and signed the following promissory notes in
_______________
77 Id., at p. 192.
78 Id., at p. 74, dorsal portion.
79 Id., at pp. 192-199.
80 Id., at p. 56.
657
VOL. 728, JULY 2, 2014 657
Silos vs. Philippine National Bank
blank, for the respondent to later on enter the corresponding interest rates,
which it did, as follows:
9th Promissory Note dated November 8, 1991 — 26%;
10th Promissory Note dated March 19, 1992 — 25%;
11th Promissory Note dated July 11, 1992 — 23%;
12th Promissory Note dated November 10, 1992 — 21%;
13th Promissory Note dated March 15, 1993 — 21%;
14th Promissory Note dated July 12, 1993 — 17.5%;
15th Promissory Note dated November 17, 1993 — 21%;
16th Promissory Note dated March 28, 1994 — 21%;
17th Promissory Note dated July 13, 1994 — 21%;
18th Promissory Note dated November 16, 1994 — 16%;
19th Promissory Note dated April 10, 1995 — 21%;
20th Promissory Note dated July 19, 1995 — 18.5%;
21st Promissory Note dated December 18, 1995 — 18.75%;
22nd Promissory Note dated April 22, 1996 — 18.5%;
23rd Promissory Note dated July 22, 1996 — 18.5%;
 24th Promissory Note dated November 25, 1996 — 18%;
25th Promissory Note dated May 30, 1997 — 17.5%; and
26th Promissory Note (PN 9707237) dated July 30, 1997 — 25%.81
The 9th up to the 17th promissory notes provide for the payment of
interest at the “rate the Bank may at any time without notice, raise within
Page | the limits allowed by law x x x.”82 On the other hand, the 18th up to the
49 26th promissory notes — which includes PN 9707237 — carried the
following provision:
x x x For this purpose, I/We agree that the rate of interest herein
stipulated may be increased or decreased for the subsequent Interest
Periods, with
_______________
81 Id., at pp. 174-191.
82 Id., at p. 191.
657
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Silos vs. Philippine National Bank
prior notice to the Borrower in the event of changes in interest rate
prescribed by law or the Monetary Board of the Central Bank of the
Philippines, or in the Bank’s overall cost of funds. I/We hereby agree that
in the event I/we are not agreeable to the interest rate fixed for any
Interest Period, I/we shall have the option to prepay the loan or credit
facility without penalty within ten (10) calendar days from the Interest
Setting Date. (Emphasis supplied)
83
These stipulations must be once more invalidated, as was done in
previous cases. The common denominator in these cases is the lack of
agreement of the parties to the imposed interest rates. For this case, this
lack of consent by the petitioners has been made obvious by the fact that
they signed the promissory notes in blank for the respondent to fill. We
find credible the testimony of Lydia in this respect. Respondent failed to
discredit her; in fact, its witness PNB Kalibo Branch Manager Aspa
admitted that interest rates were fixed solely by its Treasury Department
in Manila, which were then simply communicated to all PNB branches for
implementation. If this were the case, then this would explain why
petitioners had to sign the promissory notes in blank, since the imposable
interest rates have yet to be determined and fixed by respondent’s
Treasury Department in Manila.
Moreover, 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 influ-
_______________
83 Id., at p. 174.
659
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ence 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.
The stipulation in the promissory notes subjecting the interest rate to review
does not render the imposition by UCPB of interest rates on the obligations of the
spouses Beluso valid. According to said stipulation:
The interest rate shall be subject to review and may be increased or decreased by
the LENDER considering among others the prevailing financial and
monetary conditions; or the rate of interest and charges which other
banks or financial institutions charge or offer to charge for similar
accommodations; and/or the resulting profitability to the
LENDER after due consideration of all dealings with the BORROWER.
It should be pointed out that the authority to review the interest rate
was given [to] UCPB alone as the lender. Moreover, UCPB may apply the
considerations enumerated in this provision as it wishes. As worded in the above
provision, UCPB may give as much weight as it desires to each of the following
considerations: (1) the prevailing financial and monetary condition; (2) the rate of
interest and charges which other banks or financial institutions charge or offer to
charge for similar accommodations; and/or (3) the resulting profitability to the
LENDER (UCPB) after due consideration of all dealings with the BORROWER (the
spouses Beluso). Again, as in the case of the interest rate provision, there is
no fixed margin above or below these considerations.
In view of the foregoing, the Separability Clause cannot save either of the two
options of UCPB as to the
660
660 SUPREME COURT REPORTS ANNOTATED
Silos vs. Philippine National Bank
interest to be imposed, as both options violate the principle of mutuality of
contracts. (Emphases supplied)
84
To repeat what has been said in the above cited cases, 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.
What is even more glaring in the present case is that, the stipulations
in question no longer provide that the parties shall agree upon the interest
rate to be fixed; instead, they are worded in such a way that the borrower
Page | shall agree to whatever interest rate respondent fixes. In credit
50 agreements covered by the abovecited cases, it is provided that:
The Bank reserves the right to increase the interest rate within the limits
allowed by law at any time depending on whatever policy it may adopt in the
future: Provided, that, the interest rate on this accommodation shall be
correspondingly decreased in the event that the applicable maximum interest rate
is reduced by law or by the Monetary Board. In either case, the adjustment in the
interest rate agreed upon shall take effect on the effectivity date of the increase
or decrease in maximum interest rate. (Emphasis supplied)
85
Whereas, in the present credit agreements under scrutiny, it is stated
that:
_______________
84 United Coconut Planters Bank v. Spouses Beluso, supra note 50 at pp. 342-343; p. 584.
85 See Philippine National Bank v. Court of Appeals, supra note 66 at p. 22.
661
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IN THE JULY 1989 CREDIT AGREEMENT
(b) The Borrower agrees that the Bank may modify the interest rate on the
Loan depending on whatever policy the Bank may adopt in the future, including
without limitation, the shifting from the floating interest rate system to the fixed
interest rate system, or vice versa. Where the Bank has imposed on the Loan
interest at a rate per annum, which is equal to the Bank’s spread over the current
floating interest rate, the Borrower hereby agrees that the Bank may, without
need of notice to the Borrower, increase or decrease its spread over the floating
interest rate at any time depending on whatever policy it may adopt in the
future. (Emphases supplied)
86
IN THE AUGUST 1991 AMENDMENT TO CREDIT AGREEMENT
1.03. Interest on Line Availments. (a) The Borrowers agree to pay interest
on each Availment from date of each Availment up to but not including the date of
full payment thereof at the rate per annum which is determined by the Bank to be
prime rate plus applicable spread in effect as of the date of each
Availment. (Emphasis supplied)
87
Plainly, with the present credit agreement, the element of consent or
agreement by the borrower is now completely lacking, which makes
respondent’s unlawful act all the more reprehensible.
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
_______________
86 Records, p. 47.
87 Id., at p. 56.
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662 SUPREME COURT REPORTS ANNOTATED
Silos vs. Philippine National Bank
law or is against public policy.”88 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.”89 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.”90 Section 4 thereof
provides that a disclosure statement must be furnished prior to the
consummation of the transaction, thus:
SEC. 4. Any creditor shall furnish to each person to whom credit is extended,
prior to the consummation of the transaction, a clear statement in writing setting
forth, to the extent applicable and in accordance with rules and regulations
prescribed by the Board, the following information:
(1) the cash price or delivered price of the property or service to be acquired;
(2) the amounts, if any, to be credited as down payment and/or trade-in;
(3) the difference between the amounts set forth under clauses (1) and (2);
(4) the charges, individually itemized, which are paid or to be paid by such
person in connection with the transaction but which are not incident to the
extension of credit;
(5) the total amount to be financed;
_______________
88 United Coconut Planters Bank v. Spouses Beluso, supra note 50 at p. 343; p. 585.
89 Section 2 thereof.
90 Heirs of Zoilo Espiritu v. Spouses Landrito, 549 Phil. 180, 190-191; 520 SCRA 383, 391-392 (2007).
663
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(6) the finance charge expressed in terms of pesos and centavos; and
(7) the percentage that the finance bears to the total amount to be financed
expressed as a simple annual rate on the outstanding unpaid balance of the
obligation.
Under Section 4(6), “finance charge” represents the amount to be paid by
the debtor incident to the extension of credit such as interest or discounts,
collection fees, credit investigation fees, attorney’s fees, and other service
charges. The total finance charge represents the difference between (1) the
 aggregate consideration (down payment plus installments) on the part of
the debtor, and (2) the sum of the cash price and nonfinance charges. 91
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
Page | disclosure obligations. In one case, which the Court finds applicable here,
51 it was held:
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 Lending Act clearly provides
that the disclosure statement must be furnished prior to the consummation of the
transaction:
SEC. 4. Any creditor shall furnish to each person to whom credit is extended,
prior to the consummation of the transaction, a clear statement in writing
setting forth, to the extent applicable and in accordance with rules and
regulations prescribed by the Board, the following information:
_______________
91 Central Bank Circular No. 158.
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664 SUPREME COURT REPORTS ANNOTATED
Silos vs. Philippine National Bank
(1) the cash price or delivered price of the property or service to be acquired;
(2) the amounts, if any, to be credited as down payment and/or trade-in;
(3) the difference between the amounts set forth under clauses (1) and (2);
(4) the charges, individually itemized, which are paid or to be paid by such person
in connection with the transaction but which are not incident to the extension
of credit;
(5) the total amount to be financed;
(6) the finance charge expressed in terms of pesos and centavos; and
(7) the percentage that the finance bears to the total amount to be financed
expressed as a simple annual rate on the outstanding unpaid balance of the
obligation.
The rationale of this provision is to protect users of credit from a lack
of awareness of the true cost thereof, proceeding from the experience that
banks are able to conceal such true cost by hidden charges, uncertainty
of interest rates, deduction of interests from the loaned amount, and the
like. The law thereby seeks to protect debtors by permitting them to fully
appreciate the true cost of their loan, to enable them to give full consent
to the contract, and to properly evaluate their options in arriving at
business decisions. Upholding 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.
In addition, the promissory notes, the copies of which were presented
to the spouses Beluso after execution, are not sufficient notification from
UCPB. As earlier discussed, the interest rate provision therein does not
sufficiently indicate with particularity the interest rate to be applied to
the loan covered by said promissory notes. (Emphases supplied)
92
However, the one-year period within which an action for violation of the
Truth in Lending Act may be filed evidently prescribed long ago, or
sometime in 2001, one year after petitioners received the March 2000
demand letter which contained the illegal charges.
The fact that petitioners later received several statements of account
detailing its outstanding obligations does not cure respondent’s breach. To
repeat, the belated discovery of the true cost of credit does not reverse the
ill effects of an already consummated business decision. 93Neither may the
statements be considered proposals sent to secure the petitioners’
conformity; they were sent after the imposition and application of the
interest rate, and not before. And even if it were to be presumed that these
are proposals or offers, there was no acceptance by petitioners. “No one
receiving a proposal to modify a loan contract, especially regarding
interest, is obliged to answer the proposal.”94
Loan and credit arrangements may be made enticing by, or “sweetened”
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 complica-
_______________
92 United Coconut Planters Bank v. Spouses Beluso, supra note 50 at pp. 356-358; p. 600.
93 Id., at p. 358; id.
94 Supra note 55 at p. 500; p. 583.
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666 SUPREME COURT REPORTS ANNOTATED
Silos vs. Philippine National Bank
tions 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.
Given the above supposition, the Court cannot subscribe to
respondent’s argument that in every repricing of petitioners’ loan
availment, they are given the right to question the interest rates imposed.
The import of respondent’s line of reasoning cannot be other than that if
one out of every hundred borrowers questions respondent’s practice of
 unilaterally fixing interest rates, then only the loan arrangement with that
lone complaining borrower will enjoy the benefit of review or renegotiation;
as to the 99 others, the questionable practice will continue unchecked, and
respondent will continue to reap the profits from such unscrupulous
practice. The Court can no more condone a view so perverse. This is exactly
Page | what the Court meant in the immediately preceding cited case when it said
52 that “the belated discovery of the true cost of credit does not reverse the ill
effects of an already consummated business decision”;95 as to the 99
borrowers who did not or could not complain, the illegal act shall have
become a fait accompli— to their detriment, they have already suffered the
oppressive rates.
Besides, that petitioners are given the right to question the interest
rates imposed is, under the circumstances, irrelevant; we have a situation
where the petitioners do not stand on equal footing with the respondent. It
is doubtful that any borrower who finds himself in petitioners’ position
would dare question respondent’s power to arbitrarily modify interest rates
at any time. In the second place, on what basis could any borrower question
such power, when the criteria or stan-
_______________
95 Id.
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dards — which are really one-sided, arbitrary and subjective — for the
exercise of such power are precisely lost on him?
For the same reasons, the Court cannot validly consider that, as
stipulated in the 18th up to the 26th promissory notes, petitioners are
granted the option to prepay the loan or credit facility without penalty
within 10 calendar days from the Interest Setting Date if they are not
agreeable to the interest rate fixed. It has been shown that the promissory
notes are executed and signed in blank, meaning that by the time
petitioners learn of the interest rate, they are already bound to pay it
because they have already presigned the note where the rate is
subsequently entered. Besides, premium may not be placed upon a
stipulation in a contract which grants one party the right to choose whether
to continue with or withdraw from the agreement if it discovers that what
the other party has been doing all along is improper or illegal.
Thus said, respondent’s arguments relative to the credit documents —
that documentary evidence prevails over testimonial evidence; that the
credit documents are in proper form, presumed regular, and endure,
against arbitrary claims by petitioners, experienced business persons that
they are, they signed questionable loan documents whose provisions for
interest rates were left blank, and yet they continued to pay the interests
without protest for a number of years — deserve no consideration.
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.96 The interests
paid by petitioners should be applied first to the payment of the stipulated
or legal and unpaid interest, as the case may
_______________
96 See also Equitable PCI Bank v. Ng Sheung Ngor, 565 Phil. 520, 539; 541 SCRA 223,
241-242 (2007).
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668 SUPREME COURT REPORTS ANNOTATED
Silos vs. Philippine National Bank
be, and later, to the capital or principal.97 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.”98 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 Frames99 and Bangko
Sentral ng Pilipinas-Monetary Board Circular No. 799.
Now to the issue of penalty. PN 9707237 provides that failure to pay it or
any installment thereon, when due, shall constitute default, and a penalty
charge of 24% per annum based on the defaulted principal amount shall be
imposed. Petitioners claim that this penalty should be excluded from the
foreclosure amount or bid price because the Real Estate Mortgage and the
Supplement thereto did not specifically include it as part of the secured
amount. Respondent justifies its inclusion in the secured amount, saying
that the purpose of the penalty or a penal clause is to ensure the
performance of the obligation and substitute for damages and the payment
_______________
97 Hodges v. Salas, 63 Phil. 567, 574 (1936), citing Aguilar v. Rubiato and Gonzalez Vila,
40 Phil. 570 (1920); Go Chioco v. Martinez, 45 Phil. 256, 279-282 (1923); Gui Jong & Co. v.
Rivera and Avellar, 45 Phil. 778, 784 (1924); Sajo v. Gustilo, 48 Phil. 451, 462 (1925).
98 See Philippine Savings Bank v. Castillo, G.R. No. 193178, May 30, 2011, 649 SCRA
527, 538.
99 G.R. No. 189871, August 13, 2013, 703 SCRA 439.
 669
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of interest in the event of noncompliance. 100 Respondent adds that the
imposition and collection of a penalty is a normal banking practice, and the
Page |
standard rate per annum for all commercial banks, at the time, was 24%.
53 Its inclusion as part of the secured amount in the mortgage agreements is
thus valid and necessary.
The Court sustains petitioners’ view that the penalty may not be included
as part of the secured amount. Having found the credit agreements and
promissory notes to be tainted, we must accord the same treatment to the
mortgages. After all, “[a] mortgage and a note secured by it are deemed
parts of one transaction and are construed together.”101 Being so tainted
and having the attributes of a contract of adhesion as the principal credit
documents, we must construe the mortgage contracts strictly, and against
the party who drafted it. An examination of the mortgage agreements
reveals that nowhere is it stated that penalties are to be included in the
secured amount. Construing this silence strictly against the respondent,
the Court can only conclude that the parties did not intend to include the
penalty allowed under PN 9707237 as part of the secured amount. Given
its resources, respondent could have — if it truly wanted to — conveniently
prepared and executed an amended mortgage agreement with the
petitioners, thereby including penalties in the amount to be secured by the
encumbered properties. Yet it did not.
With regard to 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
_______________
100 Citing Article 1226 of the Civil Code and Paras, Civil Code of the Philippines
Annotated (Commentaries) Vol. IV, p. 298, 1989, 12th edition.
101 Philippine Bank of Communications, supra note 51 at p. 314; p. 255.
670
670 SUPREME COURT REPORTS ANNOTATED
Silos vs. Philippine National Bank
subject of appeals that an appellee who does not himself appeal cannot
obtain from the appellate court any affirmative relief other than those
granted in the decision of the court below.
x x x [A]n appellee, who is at the same time not an appellant, may on appeal be
permitted to make counter assignments of error in ordinary 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. 102
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.
For the fixing of the proper amounts due and owing to the parties — to
the respondent as creditor and to the petitioners who are entitled to a
refund as a consequence of overpayment considering that they paid more
by way of interest charges than the 12% per annum103 herein allowed — the
case should be remanded to the lower court for proper accounting and
computation, applying the following procedure:
1. The 1st Promissory Note with the 19.5% interest rate is deemed
proper and paid;
2. All subsequent promissory notes (from the 2nd to the 26th promissory
notes) shall carry an interest rate of only 12% per annum.104 Thus, interest
payment made
_______________
102 Saenz v. Mitchell, 60 Phil. 69, 80 (1934).
103 Or 6% per annum, when applicable.
104 Id.
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in excess of 12% on the 2nd promissory note shall immediately be applied
to the principal, and the principal shall be accordingly reduced. The
reduced principal shall then be subjected to the 12%105 interest on the 3rd
promissory note, and the excess over 12% interest payment on the 3rd
promissory note shall again be applied to the principal, which shall again
be reduced accordingly. The reduced principal shall then be subjected to
the 12% interest on the 4th promissory note, and the excess over 12%
interest payment on the 4th promissory note shall again be applied to the
principal, which shall again be reduced accordingly. And so on and so forth;
3. After the above procedure is carried out, the trial court shall
be able to conclude if petitioners a) still have an OUTSTANDING
BALANCE/OBLIGATION or b) MADE PAYMENTS OVER AND
ABOVE THEIR TOTAL OBLIGATION (principal and interest);
4. Such outstanding balance/obligation, if there be any, shall then
be subjected to a 12% per annum interest from October 28, 1997 until
January 14, 1999, which is the date of the auction sale;
5. Such outstanding balance/obligation shall also be charged a 24% per
annum penalty from August 14, 1997 until January 14, 1999. But from
this total penalty, the petitioners’ previous payment of penalties in the
amount of P202,000.00 made on January 27, 1998106 shall be DEDUCTED;
 6. To this outstanding balance (3.), the interest (4.), penalties (5.), and
the final and executory award of 1% attorney’s fees shall be ADDED;
_______________
105 Id.
106 Rollo, p. 63.
Page |
7. The sum total of the outstanding balance (3.), interest (4.) and 1%
54 attorney’s fees (6.) shall be DEDUCTED from the bid price of
P4,324,172.96. The penalties (5.) are not included because they are not
included in the secured amount;
8. The difference in (7.) [P4,324,172.96 LESS sum total of the
outstanding balance (3.), interest (4.), and 1% attorney’s fees (6.)] shall be
DELIVERED TO THE PETITIONERS;
9. Respondent may then proceed to consolidate its title to TCTs T-14250
and T-16208;
10. ON THE OTHER HAND, if after performing the procedure in (2.),
it turns out that petitioners made an OVERPAYMENT, the interest (4.),
penalties (5.), and the award of 1% attorney’s fees (6.) shall be DEDUCTED
from the overpayment. There is no outstanding balance/obligation
precisely because petitioners have paid beyond the amount of the principal
and interest;
11. If the overpayment exceeds the sum total of the interest (4.),
penalties (5.), and award of 1% attorney’s fees (6.), the excess shall be
RETURNED to the petitioners, with legal interest, under the principle
of solutio indebiti;107
12. Likewise, if the overpayment exceeds the total amount of interest
(4.) and award of 1% attorney’s fees (6.), the trial court shall INVALIDATE
THE EXTRAJUDICIAL FORECLOSURE AND SALE;
13. HOWEVER, if the total amount of interest (4.) and award of 1%
attorney’s fees (6.) exceed petitioners’
_______________
107 Also, under the Civil Code, Art. 1413, interest paid in excess of the interest allowed
by the usury laws may be recovered by the debtor, with interest thereon from the date of the
payment.
673
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overpayment, then the excess shall be DEDUCTED from the bid price of
P4,324,172.96;
14. The difference in (13.) [P4,324,172.96 LESS sum total of the interest
(4.) and 1% attorney’s fees (6.)] shall be DELIVERED TO THE
PETITIONERS;
15. Respondent may then proceed to consolidate its title to TCTs T-
14250 and T-16208. The outstanding penalties, if any, shall be collected by
other means.
From the above, it will be seen that if, after proper accounting, it turns
out that the petitioners made payments exceeding what they actually owe
by way of principal, interest, and attorney’s fees, then the mortgaged
properties need not answer for any outstanding secured amount, because
there is not any; quite the contrary, respondent must refund the excess to
petitioners. In such case, the extrajudicial foreclosure and sale of the
properties shall be declared null and void for obvious lack of basis, the case
being one of solutio indebiti instead. If, on the other hand, it turns out that
petitioners’ overpayments in interests do not exceed their total obligation,
then the respondent may consolidate its ownership over the properties,
since the period for redemption has expired. Its only obligation will be to
return the difference between its bid price (P4,324,172.96) and petitioners’
total obligation outstanding — except penalties — after applying the
latter’s overpayments.
WHEREFORE, premises considered, the Petition is GRANTED. The
May 8, 2007 Decision of the Court of Appeals in C.A.-G.R. CV No. 79650
is ANNULLED and SET ASIDE. Judgment is hereby rendered as
follows:
1. The interest rates imposed and indicated in the 2nd up to the
26th Promissory Notes are DECLARED NULL AND VOID, and such notes
shall instead be subject to interest at the rate of twelve percent (12%) per
annum up to June 30, 2013, and starting July 1, 2013, six percent (6%) per
annum until full satisfaction;
674
674 SUPREME COURT REPORTS ANNOTATED
Silos vs. Philippine National Bank
2. The penalty charge imposed in Promissory Note No. 9707237 shall
be EXCLUDED from the amounts secured by the real estate mortgages;
3. The trial court’s award of one percent (1%) attorney’s fees
is REINSTATED;
4. The case is ordered REMANDED to the Regional Trial Court,
Branch 6 of Kalibo, Aklan for the computation of overpayments made by
petitioners spouses Eduardo and Lydia Silos to respondent Philippine
National Bank, taking into consideration the foregoing dispositions, and
applying the procedure hereinabove set forth;
5. Thereafter, the trial court is ORDERED to make a determination as
to the validity of the extrajudicial foreclosure and sale, declaring the same
null and void in case of overpayment and ordering the release and return
of Transfer Certificates of Title Nos. T-14250 and TCT T-16208 to
petitioners, or ordering the delivery to the petitioners of the difference
 between the bid price and the total remaining obligation of petitioners, if
any;
6. In the meantime, the respondent Philippine National Bank
is ENJOINED from consolidating title to Transfer Certificates of Title
Nos. T-14250 and T-16208 until all the steps in the procedure above set
Page | forth have been taken and applied;
55 7. The reimbursement of the excess in the bid price of P377,505.99,
which respondent Philippine National Bank is ordered to reimburse
petitioners, should be HELD IN ABEYANCE until the true amount
owing to or owed by the parties as against each other is determined;
8. Considering that this case has been pending for such a long time and
that further proceedings, albeit uncomplicated, are required, the trial court
is ORDEREDto proceed with dispatch.
675
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Silos vs. Philippine National Bank
SO ORDERED.
Carpio (Chairperson), Leonardo-De Castro,** Perez and Perlas-
Bernabe, JJ., concur.
Petition granted, judgment annulled and set aside.
 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
Page |
that a usurious loan transaction is not a complete nullity but defective only with
56 respect to the agreed interest.
_______________
SECOND DIVISION.
*
472
472 SUPREME COURT REPORTS ANNOTATED
Carpo vs. Chua
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.
PETITIONS for review on certiorari of a decision of the Court of Appeals.
The facts are stated in the opinion of the Court.
473
VOL. 471, SEPTEMBER 30, 2005 473
Carpo vs. Chua
David C. Naval for petitioners.
Gilbert P.E. Morandarte for respondents.
TINGA, J.:
Before this Court are two consolidated petitions for review. The first,
docketed as G.R. No. 150773, assails the Decision of the Regional Trial
1
Court (RTC), Branch 26 of Naga City dated 26 October 2001 in Civil Case
No. 99-4376. RTC Judge Filemon B. Montenegro dismissed the
complaint for annulment of real estate mortgage and consequent
2
foreclosure proceedings filed by the spouses David B. Carpo and Rechilda
S. Carpo (petitioners).
The second, docketed as G.R. No. 153599, seeks to annul the Court of
Appeals’ Decision dated 30 April 2002 in CA-G.R. SP No. 57297. The Court
3
of Appeals Third Division annulled and set aside the orders of Judge
Corazon A. Tordilla to suspend the sheriff’s enforcement of the writ of
possession.
The cases stemmed from a loan contracted by petitioners. On 18 July
1995, they borrowed from Eleanor Chua and Elma Dy Ng (respondents)
the amount of One Hundred Seventy-Five Thousand Pesos (P175,000.00),
payable within six (6) months with an interest rate of six percent (6%) per
month. To secure the payment of the loan, petitioners mortgaged their
residential house and lot situated at San Francisco, Magarao, Camarines
Sur, which lot is covered by Transfer Certificate of Title (TCT) No. 23180.
Petitioners failed to pay the loan upon demand. Consequently, the real
estate mortgage was extrajudicially foreclosed and the mortgaged
_______________
1G.R. No. 150773, Rollo, pp. 15-21.
2Id., at pp. 22-25. Elevated directly to this Court, it raising pure questions of law, in
accordance with Section 1, Rule 45, Rules of Court.
3Penned by Associate Justice Eubolo G. Verzola and concurred in by Associate Justices
Bernardo P. Abesamis and Josefina Guevara-Salonga. G.R. No. 153599, Rollo, pp. 22-26.
474
474 SUPREME COURT REPORTS ANNOTATED
Carpo vs. Chua
property sold at a public auction on 8 July 1996. The house and lot was
awarded to respondents, who were the only bidders, for the amount of
 Three Hundred Sixty-Seven Thousand Four Hundred Fifty-Seven Pesos
and Eighty Centavos (P367,457.80).
Upon failure of petitioners to exercise their right of redemption, a
certificate of sale was issued on 5 September 1997 by Sheriff Rolando A.
Borja. TCT No. 23180 was cancelled and in its stead, TCT No. 29338 was
Page | issued in the name of respondents.
57 Despite the issuance of the TCT, petitioners continued to occupy the
said house and lot, prompting respondents to file a petition for writ of
possession with the RTC docketed as Special Proceedings (SP) No. 98-1665.
On 23 March 1999, RTC Judge Ernesto A. Miguel issued an Order for the
4 Nonetheless, these points warrant brief comment.
issuance of a writ of possession.
On 23 July 1999, petitioners filed a complaint for annulment of real
estate mortgage and the consequent foreclosure proceedings, docketed as
Civil Case No. 99-4376 of the RTC. Petitioners consigned the amount of
Two Hundred Fifty-Seven Thousand One Hundred Ninety-Seven Pesos
and Twenty-Six Centavos (P257,197.26) with the RTC.
Meanwhile, in SP No. 98-1665, a temporary restraining order was
issued upon motion on 3 August 1999, enjoining the enforcement of the
writ of possession. In an Order dated 6 January 2000, the RTC suspended
5
the enforcement of the writ of possession pending the final disposition of
Civil Case No. 99-4376. Against this Order, respondents filed a petition for
certiorari and mandamus before the Court of Appeals, docketed as CA-G.R.
SP No. 57297.
During the pendency of the case before the Court of Appeals, RTC Judge
Filemon B. Montenegro dismissed the complaint in Civil Case No. 99-4376
on the ground that it was
_______________
4G.R. No. 153599, Rollo, p. 30.
Id., at pp. 38-40.
5
475
VOL. 471, SEPTEMBER 30, 2005 475
Carpo vs. Chua
filed out of time and barred by laches. The RTC proceeded from the premise
that the complaint was one for annulment of a voidable contract and thus
barred by the four-year prescriptive period. Hence, the first petition for
review now under consideration was filed with this Court, assailing the
dismissal of the complaint.
The second petition for review was filed with the Court after the Court
of Appeals on 30 April 2002 annulled and set aside the RTC orders in SP
No. 98-1665 on the ground that it was the ministerial duty of the lower
court to issue the writ of possession when title over the mortgaged property
had been consolidated in the mortgagee.
This Court ordered the consolidation of the two cases, on motion of
petitioners.
In G.R. No. 150773, petitioners claim that following the Court’s ruling
in Medel v. Court of Appeals the rate of interest stipulated in the principal
6
loan agreement is clearly null and void. Consequently, they also argue that
the nullity of the agreed interest rate affects the validity of the real estate
mortgage. Notably, while petitioners were silent in their petition on the
issues of prescription and laches on which the RTC grounded the dismissal
of the complaint, they belatedly raised the matters in their Memorandum.
On the other hand, petitioners argue in G.R. No. 153599that the RTC
did not commit any grave abuse of discretion when it issued the orders
dated 3 August 1999 and 6 January 2000, and that these orders could not
have been “the proper subjects of a petition for certiorari and mandamus.”
More accurately, the justiciable issues before us are whether the Court of
Appeals could properly entertain the petition for certiorari from the
timeliness aspect, and whether the appellate court correctly concluded that
the writ of possession could no longer be stayed.
_______________
359 Phil. 820; 299 SCRA 481 (1998).
6
476
476 SUPREME COURT REPORTS ANNOTATED
Carpo vs. Chua
We first resolve the petition in G.R. No. 150773.
Petitioners contend that the agreed rate of interest of 6% per month or
72% per annum is so excessive, iniquitous, unconscionable and exorbitant
that it should have been declared null and void. Instead of dismissing their
complaint, they aver that the lower court should have declared them liable
to respondents for the original amount of the loan plus 12% interest per
annum and 1% monthly penalty charge as liquidated damages, in view of 7
the ruling in Medel v. Court of Appeals. 8
In Medel, the Court found that the interest stipulated at 5.5% per
month or 66% per annum was so iniquitous or unconscionable as to render
the stipulation void.
Nevertheless, we find the interest at 5.5% per month, or 66% per annum, stipulated
upon by the parties in the promissory note iniquitous or unconscionable, and,
hence, contrary to morals (“contra bonos mores”), if not against the law. The
stipulation is void. The Court shall reduce equitably liquidated damages, whether
intended as an indemnity or a penalty if they are iniquitous or unconscionable.
9
In a long line of cases, this Court has invalidated similar stipulations on
interest rates for being excessive, iniquitous, unconscionable and
exorbitant. In Solangon v. Salazar, we annulled the stipulation of 6% per
10
 month or 72% per annum interest on a P60,000.00 loan. In Imperial v.
Jaucian, we reduced the interest rate from 16% to 1.167% per month or
11
14% per annum. In Ruiz v. Court of Appeals, we equitably reduced the
12
agreed 3% per month or 36% per annum interest to 1% per month or
12% per annum interest. The 10% and 8%
Page |
58 _______________
7G.R. No. 150773, Rollo, p. 10.
8Supra note 6.
9Ibid. Citing Ibarra v. Aveyro, 37 Phil. 274 (1917); Almeda v. Court of Appeals, 326 Phil.
309; 256 SCRA 292 (1996).
10412 Phil. 816; 360 SCRA 379 (2001).
11G.R. No. 149004, 14 April 2004, 427 SCRA 517.
12G.R. No. 146942, 22 April 2003, 401 SCRA 410.
477
VOL. 471, SEPTEMBER 30, 2005
Carpo vs. Chua
interest rates per month on a P1,000,000.00 loan were reduced to 12% per
annum in Cuaton v. Salud. Recently, this Court, in Arrofo v.
13
Quiño, reduced the 7% interest per month on a P15,000.00 loan amounting
14
to 84% interest per annum to 18% per annum.
There is no need to unsettle the principle affirmed in Medel and like
cases. From that perspective, it is apparent that the stipulated interest in
the subject loan is excessive, iniquitous, unconscionable and exorbitant.
Pursuant to the freedom of contract principle embodied in Article 1306 of
the Civil Code, contracting parties may establish such stipulations,
clauses, terms and conditions as they may deem convenient, provided they
are not contrary to law, morals, good customs, public order, or public policy.
In the ordinary course, the codal provision may be invoked to annul the
excessive stipulated interest.
In the case at bar, the stipulated interest rate is 6% per month, or
72% per annum. By the standards set in the abovecited cases, this
stipulation is similarly invalid. However, the RTC refused to apply the
principle cited and employed in Medel on the ground that Medel did not
pertain to the annulment of a real estate mortgage, as it was a case for
15
annulment of the loan contract itself. The question thus sensibly arises
whether the invalidity of the stipulation on interest carries with it the
invalidity of the principal obligation.
The question is crucial to the present petition even if the subject thereof
is not the annulment of the loan contract but that of the mortgage contract.
The consideration of the mortgage contract is the same as that of the
principal contract from which it receives life, and without which it cannot
exist as an independent contract. Being a mere accessory contract,
_______________
G.R. No. 158382, 27 January 2004, 421 SCRA 278.
13
G.R. No. 145794, 26 January 2005, 449 SCRA 284.
14
G.R. No. 150773, Rollo, p. 18.
15
478
478 SUPREME COURT REPORTS ANNOTATED
Carpo vs. Chua
the validity of the mortgage contract would depend on the validity of the
loan secured by it. 16
Notably in Medel, the Court did not invalidate the entire loan obligation
despite the inequitability of the stipulated interest, but instead reduced
the rate of interest to the more reasonable rate of 12% per annum. The
same remedial approach to the wrongful interest rates involved was
employed or affirmed by the Court in Solangon, Imperial, Ruiz, Cuaton,
477 and Arrofo.
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.
We are aware that the Court of Appeals, on certain occasions, had ruled
that a usurious loan is wholly null and void both as to the loan and as to
the usurious interest. However, this Court adopted the contrary rule, as
17
comprehensively discussed in Briones v. Cammayo: 18
In Gui Jong & Co. vs. Rivera, et al., 45 Phil. 778, this Court likewise declared that,
in any event, the debtor in a usurious contract of loan should pay the creditor the
amount which he justly owes him, citing in support of this ruling its previous
decisions in Go Chioco, Supra, Aguilar vs. Rubiato, et al., 40 Phil. 570, and Delgado
vs. Duque Valgona, 44 Phil. 739.
....
_______________
16 Naguiat v. Court of Appeals, G.R. No. 118375, 3 October 2003, 412 SCRA 591,
citing China Banking Corporation v. Lichauco, 46 Phil. 460(1926) and Filipinas Marble Corp.
v. Intermediate Appellate Court, 226 Phil. 109, 119; 142 SCRA 180 (1986).
17 See H. DE LEON, COMMENTS AND CASES ON CREDIT TRANSACTIONS (2002
ed.), at p. 95, citing Sebastian v. Bautista, [CA] 58 O.G. No. 15, 3147; People v. Masangkay,
[CA] 58 O.G. No. 17, 3565; Torres v. Joco, [CA] 59 O.G. No. 10, 1580.
148-B Phil. 881; 41 SCRA 404 (1971).
18
479
VOL. 471, SEPTEMBER 30, 2005 479
Carpo vs. Chua
Then in Lopez and Javelona vs. El Hogar Filipino, 47 Phil. 249, We also held that
the standing jurisprudence of this Court on the question under consideration was
 clearly to the effect that the Usury Law, by its letter and spirit, did not deprive the
lender of his right to recover from the borrower the money actually loaned to and
enjoyed by the latter. This Court went further to say that the Usury Law did not
provide for the forfeiture of the capital in favor of the debtor in usurious contracts,
and that while the forfeiture might appear to be convenient as a drastic measure
to eradicate the evil of usury, the legal question involved should not be resolved on
Page |
the basis of convenience.
59 Other cases upholding the same principle are Palileo vs. Cosio, 97 Phil.
919 and Pascua vs. Perez, L-19554, January 31, 1964, 10 SCRA 199, 200-202. In
the latter We expressly held that when a contract is found to be tainted with usury
“the only right of the respondent (creditor) . . . was merely to collect the amount of
the loan, plus interest due thereon.”
The view has been expressed, however, that the ruling thus consistently
adhered to should now be abandoned because Article 1957 of the new Civil Code—
a subsequent law—provides that contracts and stipulations, under any cloak or
device whatever, intended to circumvent the laws against usury, shall be void, and
that in such cases “the borrower may recover in accordance with the laws on usury.”
From this the conclusion is drawn that the whole contract is void and that,
therefore, the creditor has no right to recover—not even his capital.
The meaning and scope of our ruling in the cases mentioned heretofore is clearly
stated, and the view referred to in the preceding paragraph is adequately answered,
in Angel Jose, etc. vs. Chelda Enterprises, et al. (L-25704, April 24, 1968). On the
question of whether a creditor in a usurious contract may or may not recover the
principal of the loan, and, in the affirmative, whether or not he may also recover
interest thereon at the legal rate, We said the following:
“. . . .
Appealing directly to Us, defendants raise two questions of law: (1) In a loan with
usurious interest, may the creditor recover the principal of the loan? (2) Should attorney's
fees be awarded in plaintiff's favor?”
Great reliance is made by appellants on Art. 1411 of the New Civil Code . . . .
480
480 SUPREME COURT REPORTS ANNOTATED
Carpo vs. Chua
Since, according to the appellants, a usurious loan is void due to illegality of cause or object,
the rule of pari delicto expressed in Article 1411, supra, applies, so that neither party can
bring action against each other. Said rule, however, appellants add, is modified as to the
borrower, by express provision of the law (Art. 1413, New Civil Code), allowing the borrower
to recover interest paid in excess of the interest allowed by the Usury Law. As to the lender,
no exception is made to the rule; hence, he cannot recover on the contract. So—they continue—
the New Civil Code provisions must be upheld as against the Usury Law, under which a loan
with usurious interest is not totally void, because of Article 1961 of the New Civil Code, that:
“Usurious contracts shall be governed by the Usury Law and other special laws, so far as they
are not inconsistent with this Code.”
We do not agree with such reasoning. Article 1411 of the New Civil Code is not new; it is
the same as Article 1305 of the Old Civil Code. Therefore, said provision is no warrant for
departing from previous interpretation that, as provided in the Usury Law (Act No. 2655, as
amended), a loan with usurious interest is not totally void only as to the interest.
. . . [a]ppellants fail to consider that a contract of loan with usurious interest
consists of principal and accessory stipulations; the principal one is to pay the debt;
the accessory stipulation is to pay interest thereon.
And said two stipulations are divisible in the sense that the former can still
stand without the latter. Article 1273, Civil Code, attests to this: “The renunciation
of the principal debt shall extinguish the accessory obligations; but the waiver of
the latter shall leave the former in force.”
The question therefore to resolve is whether the illegal terms as to payment of
interest likewise renders a nullity the legal terms as to payments of the principal
debt. Article 1420 of the New Civil Code provides in this regard: “In case of a
divisible contract, if the illegal terms can be separated from the legal ones, the
latter may be enforced.”
481
VOL. 471, SEPTEMBER 30, 2005 481
Carpo vs. Chua
In simple loan with stipulation of usurious interest, the prestation of the debtor to
pay the principal debt, which is the cause of the contract (Article 1350, Civil Code),
is not illegal. The illegality lies only as to the prestation to pay the stipulated
interest; hence, being separable, the latter only should be deemed void, since it is
the only one that is illegal.
....
The principal debt remaining without stipulation for payment of interest can thus be
recovered by judicial action. And in case of such demand, and the debtor incurs in delay, the
debt earns interest from the date of the demand (in this case from the filing of the complaint).
Such interest is not due to stipulation, for there was none, the same being void. Rather, it is
due to the general provision of law that in obligations to pay money, where the debtor incurs
in delay, he has to pay interest by way of damages (Art. 2209, Civil Code). The court a
quo therefore, did not err in ordering defendants to pay the principal debt with interest
thereon at the legal rate, from the date of filing of the complaint.”
19
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.
It should be noted that had the Court declared the loan and mortgage
agreements void for being contrary to public policy, no prescriptive period
could have run. Such benefit is obviously not available to petitioners.
20
_______________
Id., at pp. 891-893; pp. 408-412. Emphasis supplied.
19
See Article 1410, Civil Code.
20
482
482 SUPREME COURT REPORTS ANNOTATED
Carpo vs. Chua
Yet the RTC pronounced that the complaint was barred by the four-year
prescriptive period provided in Article 1391 of the Civil Code, which
 governs voidable contracts. This conclusion was derived from the allegation
in the complaint that the consent of petitioners was vitiated through undue
influence. While the RTC correctly acknowledged the rule of prescription
for voidable contracts, it erred in applying the rule in this case. We are
hard put to conclude in this case that there was any undue influence in the
Page | first place.
60 There is ultimately no showing that petitioners’ consent to the loan and
mortgage agreements was vitiated by undue influence. The financial
condition of petitioners may have motivated them to contract with
respondents, but undue influence cannot be attributed to respondents
simply because they had lent money. Article 1391, in relation to Article
1390 of the Civil Code, grants the aggrieved party the right to obtain the
annulment of contract on account of factors which vitiate consent. Article
1337 defines the concept of undue influence, as follows:
There is undue influence when a person takes improper advantage of his power
over the will of another, depriving the latter of a reasonable freedom of choice. The
following circumstances shall be considered: the confidential, family, spiritual and
other relations between the parties or the fact that the person alleged to have been
unduly influenced was suffering from mental weakness, or was ignorant or in
financial distress.
While petitioners were allegedly financially distressed, it must be proven
that there is deprivation of their free agency. In other words, for undue
influence to be present, the influence exerted must have so overpowered or
subjugated the mind of a contracting party as to destroy his free agency,
making him express the will of another rather than his own. The alleged 21
lingering financial woes of petitioners per se cannot be equated with the
presence of undue influence.
_______________
Coso v. Fernandez Deza, 42 Phil. 595 (1921).
21
483
VOL. 471, SEPTEMBER 30, 2005 483
Carpo vs. Chua
The RTC had likewise concluded that petitioners were barred by laches
from assailing the validity of the real estate mortgage. We wholeheartedly
agree. If indeed petitioners unwillingly gave their consent to the
agreement, they should have raised this issue as early as in the foreclosure
proceedings. It was only when the writ of possession was issued did
petitioners challenge the stipulations in the loan contract in their action
for annulment of mortgage. Evidently, petitioners slept on their rights. The
Court of Appeals succinctly made the following observations:
In all these proceedings starting from the foreclosure, followed by the issuance of a
provisional certificate of sale; then the definite certificate of sale; then the issuance
of TCT No. 29338 in favor of the defendants and finally the petition for the issuance
of the writ of possession in favor of the defendants, there is no showing that
plaintiffs questioned the validity of these proceedings. It was only after the
issuance of the writ of possession in favor of the defendants, that plaintiffs allegedly
tendered to the defendants the amount of P260,000.00 which the defendants
refused. In all these proceedings, why did plaintiffs sleep on their rights? 22
Clearly then, with the absence of undue influence, petitioners have no
cause of action. Even assuming undue influence vitiated their consent to
the loan contract, their action would already be barred by prescription
when they filed it. Moreover, petitioners had clearly slept on their rights
as they failed to timely assail the validity of the mortgage agreement. The
denial of the petition in G.R. No. 150773 is warranted.
We now resolve the petition in G.R. No. 153599.
Petitioners claim that the assailed RTC orders dated 3 August 1999 and
6 January 2000 could no longer be questioned in a special civil action for
certiorari and mandamus as the reglementary period for such action had
already elapsed.
_______________
G.R. No. 150773, Rollo, p. 20.
22
484
484 SUPREME COURT REPORTS ANNOTATED
Carpo vs. Chua
It must be noted that the Order dated 3 August 1999 suspending the
enforcement of the writ of possession had a period of effectivity of only
twenty (20) days from 3 August 1999, or until 23 August 1999. Thus, upon
the expiration of the twenty (20)-day period, the said Order became functus
officio. Thus, there is really no sense in assailing the validity of this Order,
mooted as it was. For the same reason, the validity of the order need not
have been assailed by respondents in their special civil action before the
Court of Appeals.
On the other hand, the Order dated 6 January 2000 is in the nature of
a writ of injunction whose period of efficacy is indefinite. It may be properly
assailed by way of the special civil action for certiorari, as it is interlocutory
in nature.
As a rule, the special civil action for certiorari under Rule 65 must be
filed not later than sixty (60) days from notice of the judgment or
order. Petitioners argue that the 3 August 1999 Order could no longer be
23
assailed by respondents in a special civil action for certiorari before the
Court of Appeals, as the petition was filed beyond sixty (60) days following
respondents’ receipt of the Order. Considering that the 3 August
1999 Order had become functus officio in the first place, this argument
deserves scant consideration.
 Petitioners further claim that the 6 January 2000 Ordercould not have
likewise been the subject of a special civil action for certiorari, as it is
according to them a final order, as opposed to an interlocutory order. That
the 6 January 2000 Order is interlocutory in nature should be beyond
doubt. An order is interlocutory if its effects would only be provisional in
Page | character and would still leave substantial proceedings to be further had
61 by the issuing court in order to put the controversy to rest. The injunctive
24
relief granted by the order is
_______________
23Section 4, Rule 65, Rules of Court.
24Sto. Tomas Hospital v. Surla, 355 Phil. 804; 294 SCRA 382 (1998), citing Investments,
Inc. vs. Court of Appeals, L-60036, 27 January 1987, 147 SCRA 334; Denso Phils. Inc. v.
Intermediate
485
VOL. 471, SEPTEMBER 30, 2005 485
Carpo vs. Chua
definitely final, but merely provisional, its effectivity hinging on the
ultimate outcome of the then pending action for annulment of real estate
mortgage. Indeed, an interlocutory order hardly puts to a close, or disposes
of, a case or a disputed issue leaving nothing else to be done by the court
in respect thereto, as is characteristic of a final order.
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
25
reglementary period for special civil actions under Rule 65 applies, and
respondents’ petition was filed with the Court of Appeals well within the
period.
Accordingly, no error can be attributed to the Court of Appeals in
granting the petition for certiorari and mandamus. As pointed out by
respondents, the remedy of mandamus lies to compel the performance of a
ministerial duty. The issuance
_______________
Appellate Court, L-75000, 27 February 1987, 148 SCRA 280; Bairan v. Tan Siu Lay, 125
Phil. 371; 18 SCRA 1235 (1966).
25Yamaoka v. Pescarich, 414 Phil. 211; 361 SCRA 672 (2001); Go v. Court of Appeals, 358
Phil. 214; 297 SCRA 574 (1998). “[T]he proper remedy in such cases is an ordinary appeal
from an adverse judgment on the merits, incorporating in said appeal the grounds for
assailing the interlocutory orders. Allowing appeals from interlocutory orders would result in
the ‘sorry spectacle’ of a case being subject of a counterproductive ping-pong to and from the
appellate court as often as a trial court is perceived to have made an error in any of its
interlocutory rulings. However, where the assailed order is patently erroneous and the
remedy of appeal would not afford adequate and expeditious relief, the Court may allow
certiorari as a mode of redress.”
486
486 SUPREME COURT REPORTS ANNOTATED
Carpo vs. Chua
of a writ of possession to a purchaser in an extrajudicial foreclosure is
merely a ministerial function. 26
Thus, we also affirm the Court of Appeals’ ruling to set aside the RTC
orders enjoining the enforcement of the writ of possession. The purchaser
27
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
_______________
26F. David Enterprises v. Insular Bank of Asia and America, G.R. No. 78714, 21 November
1990, 191 SCRA 516; Primetown Property Group v. Juntilla, G.R. No. 157801, 8 June
2005, 459 SCRA 683; Santiago v. Merchants Rural Bank of Talavera, Inc., G.R. No. 147820,
18 March 2005, 453 SCRA 756; Development Bank of the Philippines v. Gatal, G.R. No.
138567, 4 March 2005, 452 SCRA 697; Mamerto Maniquiz Foundation v. Pizarro, A.M. No.
RTJ-03-1750, 14 January 2005, 448 SCRA 140; De Vera v. Agloro, G.R. No. 155673, 14
January 2005, 448 SCRA 203, citing China Banking Corporation v. Ordinario, G.R. No.
121943, 24 March 2003, 399 SCRA 430; A.G. Development Corporation v. Court of
Appeals, 346 Phil. 136; 281 SCRA 155 (1997); Suico Industrial Corporation v. Court of
Appeals, 361 Phil. 160; 301 SCRA 212 (1999); Idolor v. Court of Appeals, G.R. No. 161028, 31
January 2005, 450 SCRA 396, citing Samson, et al. v. Judge Rivera, et al., G.R. No. 154355,
20 May 2004, 428 SCRA 759.
27Primetown Property Group v. Juntilla, G.R. No. 157801, 8 June 2005, 459 SCRA
683; Santiago v. Merchants Rural Bank of Talavera, Inc., G.R. No. 147820, 18 March
2005, 453 SCRA 756; Development Bank of the Philippines v. Gatal, G.R. No. 138567, 4 March
2005, 452 SCRA 697; Mamerto Maniquiz Foundation v. Pizarro, A.M. No. RTJ-03-1750, 14
January 2005, 448 SCRA 140; De Vera v. Agloro, G.R. No. 155673, 14 January 2005, 448
SCRA 203, citing China Banking Corporation v. Ordinario, G.R. No. 121943, 24 March
2003, 399 SCRA 430; A.G. Development Corporation v. Court of Appeals, 346 Phil. 136; 281
SCRA 155 (1997); Suico Industrial Corporation v. Court of Appeals, 361 Phil. 160; 301 SCRA
212 (1999). Idolor v. Court of Appeals, G.R. No. 161028, 31 January 2005, 450 SCRA 396,
citing Samson, et al. v. Judge Rivera, et al., G.R. No. 154355, 20 May 2004, 428 SCRA 759.
487
VOL. 471, SEPTEMBER 30, 2005 487
Carpo vs. Chua
or the foreclosure proceedings. An injunction to prohibit the issuance or
enforcement of the writ is entirely out of place. 28
One final note. The issue on the validity of the stipulated interest rates,
regrettably for petitioners, was not raised at the earliest possible
opportunity. It should be pointed out though that since an excessive
stipulated interest rate may be void for being contrary to public policy, an
 action to annul said interest rate does not prescribe. Such indeed is the
remedy; it is not the action for annulment of the ancillary real estate
mortgage. Despite the nullity of the stipulated interest rate, the principal
loan obligation subsists, and along with it the mortgage that serves as
collateral security for it.
Page | WHEREFORE, in view of all the foregoing, the petitions are DENIED.
62 Costs against petitioners.
SO ORDERED.
Puno (Chairman), Austria-Martinez, Callejo, Sr.and Chico-
Nazario, JJ., concur.
Petitions denied.
 G.R. No. 175139. April 18, 2012.* Fidel Angelito I. Arias for petitioner.
HERMOJINA ESTORES, petitioner, vs. SPOUSES ARTURO and LAURA Rudy T. Tasarra Law Office for respondents.
SUPANGAN, respondents. DEL CASTILLO, J.:
Civil Law; Interest Rates; The general rule is that the applicable rate of The only issue posed before us is the propriety of the imposition of
interest “shall be computed in accordance with the stipulation of the parties.” Absent interest and attorney’s fees.
Page | any stipulation, the applicable rate of interest shall be 12% per annum “when the Assailed in this Petition for Review1 filed under Rule 45 of the Rules of
obligation arises out of a loan or a forbearance of money, goods or credits. In other
63 Court is the May 12, 2006 Decision2 of the Court
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 1 Rollo, pp. 11-18.
of the parties.” Absent any stipulation, the applicable rate of interest shall be 2 CA Rollo, pp. 82-104; penned by Associate Justice Jose L. Sabio, Jr. and concurred in
12% per annum “when the obligation arises out of a loan or a forbearance of money, by Associate Justices Rosalinda Asuncion-Vicente and Arturo G. Tayag.
goods or credits. In other cases, it shall be six percent (6%).” In this case, the parties 97
did not stipulate as to the applicable rate of interest. The only question remaining VOL. 670, APRIL 18, 2012 97
therefore is whether the 6% as provided under Article 2209 of the Civil Code, or
12% under Central Bank Circular No. 416, is due. Estores vs. Supangan
Same; Same; The phrase “forbearance of money, goods or credits” is meant to of Appeals (CA) in CA-G.R. CV No. 83123, the dispositive portion of which
have a separate meaning from a loan, otherwise there would have been no need to reads:
add that phrase as a loan is already sufficiently defined in the Civil Code.— “WHEREFORE, the appealed decision is MODIFIED. The rate of interest shall
In Crismina Garments, Inc. v. Court of Appeals, 304 SCRA 356 (1999), be six percent (6%) per annum, computed from September 27, 2000 until its full
“forbearance” was defined as a “contractual obligation of lender or creditor to payment before finality of the judgment. If the adjudged principal and the interest
refrain during a given period of time, from requiring the borrower or debtor to repay (or any part thereof) remain unpaid thereafter, the interest rate shall be adjusted
a loan or debt then due and payable.” This definition describes a loan where a to twelve percent (12%) per annum, computed from the time the judgment becomes
debtor is given a period within which to pay a loan or debt. final and executory until it is fully satisfied. The award of attorney’s fees is hereby
_______________ reduced to P100,000.00. Costs against the defendants-appellants.
* FIRST DIVISION.
SO ORDERED.” 3
96
Also assailed is the August 31, 2006 Resolution4 denying the motion for
96 SUPREME COURT REPORTS ANNOTATED reconsideration.
Estores vs. Supangan Factual Antecedents
In such case, “forbearance of money, goods or credits” will have no distinct On October 3, 1993, petitioner Hermojina Estores and respondent-
definition from a loan. We believe however, that the phrase “forbearance of money, spouses Arturo and Laura Supangan entered into a Conditional Deed of
goods or credits” is meant to have a separate meaning from a loan, otherwise there
Sale5 whereby petitioner offered to sell, and respondent-spouses offered to
would have been no need to add that phrase as a loan is already sufficiently defined
buy, a parcel of land covered by Transfer Certificate of Title No. TCT No.
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 98720 located at Naic, Cavite for the sum of P4.7 million. The parties
temporary use of his money, goods or credits pending happening of certain events likewise stipulated, among others, to wit:
“x x x x
or fulfillment of certain conditions. In this case, the respondent-spouses parted with 1. Vendor will secure approved clearance from DAR requirements of which are (sic):
their money even before the conditions were fulfilled. They have therefore allowed a) Letter request
or granted forbearance to the seller (petitioner) to use their money pending b) Title
fulfillment of the conditions. They were deprived of the use of their money for the c) Tax Declaration
d) Affidavit of Aggregate Landholding – Vendor/Vendee
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 3 Id., at p. 103.
4 Id., at p. 118.
also to compensation for the use of their money. And the compensation for the use 5 Records, pp. 8-9.
98
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.
98 SUPREME COURT REPORTS ANNOTATED
PETITION for review on certiorari of the decision and resolution of the Estores vs. Supangan
e) Certification from the Prov’l. Assessor’s as to Landholdings of Vendor/Vendee
Court of Appeals. f) Affidavit of Non-Tenancy
The facts are stated in the opinion of the Court. g) Deed of Absolute Sale
xxxx
 4. Vendee shall be informed as to the status of DAR clearance within 10 days upon signing of the 10 Id., at pp. 2-7.
documents. 11 Id., at p. 6.
xxxx
100
6. Regarding the house located within the perimeter of the subject [lot] owned by spouses [Magbago],
said house shall be moved outside the perimeter of this subject property to the 300 sq. m. area 100 SUPREME COURT REPORTS ANNOTATED
allocated for [it]. Vendor hereby accepts the responsibility of seeing to it that such agreement is
carried out before full payment of the sale is made by vendee. Estores vs. Supangan
Page | 7. If and after the vendor has completed all necessary documents for registration of the title and the In their Answer with Counterclaim,12 petitioner and Arias averred that
vendee fails to complete payment as per agreement, a forfeiture fee of 25% or downpayment, shall
64 be applied. However, if the vendor fails to complete necessary documents within thirty days they are willing to return the principal amount of P3.5 million but without
without any sufficient reason, or without informing the vendee of its status, vendee has the right any interest as the same was not agreed upon. In their Pre-Trial
to demand return of full amount of down payment.
xxxx Brief,13 they reiterated that the only remaining issue between the parties
9. As to the boundaries and partition of the lots (15,018 sq. m. and 300 sq. m.) Vendee shall be informed is the imposition of interest. They argued that since the Conditional Deed
immediately of its approval by the LRC.
10. The vendor assures the vendee of a peaceful transfer of ownership.
of Sale provided only for the return of the downpayment in case of breach,
x x x x”6 they cannot be held liable to pay legal interest as well.14
After almost seven years from the time of the execution of the contract In its Pre-Trial Order15 dated June 29, 2001, the RTC noted that “the
and notwithstanding payment of P3.5 million on the part of respondent- parties agreed that the principal amount of 3.5 million pesos should be
spouses, petitioner still failed to com- returned to the [respondent-spouses] by the [petitioner] and the issue
_______________ remaining [is] whether x x x [respondent-spouses] are entitled to legal
6 Id.
interest thereon, damages and attorney’s fees.”16
99
Trial ensued thereafter. After the presentation of the respondent-
VOL. 670, APRIL 18, 2012 99 spouses’ evidence, the trial court set the presentation of Arias and
Estores vs. Supangan petitioner’s evidence on September 3, 2003.17 However, despite several
ply with her obligation as expressly provided in paragraphs 4, 6, 7, 9 and postponements, petitioner and Arias failed to appear hence they were
10 of the contract. Hence, in a letter7 dated September 27, 2000, deemed to have waived the presentation of their evidence. Consequently,
respondent-spouses demanded the return of the amount of P3.5 million the case was deemed submitted for decision.18
within 15 days from receipt of the letter. In reply,8 petitioner acknowledged Ruling of the Regional Trial Court
receipt of the P3.5 million and promised to return the same within 120 On May 7, 2004, the RTC rendered its Decision 19 finding respondent-
days. Respondent-spouses were amenable to the proposal provided an spouses entitled to interest but only at the rate of
interest of 12% compounded annually shall be imposed on the P3.5 _______________
million.9 When petitioner still failed to return the amount despite demand, 12 Id., at pp. 18-20.
13 Id., at pp. 40-42.
respondent-spouses were constrained to file a Complaint10 for sum of 14 Id., at p. 40.
money before the Regional Trial Court (RTC) of Malabon against herein 15 Id., at pp. 80-81.
petitioner as well as Roberto U. Arias (Arias) who allegedly acted as 16 Id., at p. 81.
petitioner’s agent. The case was docketed as Civil Case No. 3201-MN and 17 See Order dated July 30, 2003; id., at p. 120.
18 See Order dated November 21, 2003; id., at p. 181.
raffled off to Branch 170. In their complaint, respondent-spouses prayed 19 Id., at pp. 253-257; penned by Judge Benjamin T. Antonio.
that petitioner and Arias be ordered to: 101
“1. Pay the principal amount of P3,500,000.00 plus interest of 12% compounded annually starting
October 1, 1993 or an estimated amount of P8,558,591.65; VOL. 670, APRIL 18, 2012 101
2. Pay the following items of damages:
a) Moral damages in the amount of P100,000.00;
Estores vs. Supangan
b) Actual damages in the amount of P100,000.00; 6% per annum and not 12% as prayed by them.20 It also found respondent-
c) Exemplary damages in the amount of P100,000.00;
d) [Attorney’s] fee in the amount of P50,000.00 plus 20% of recoverable amount from the
spouses entitled to attorney’s fees as they were compelled to litigate to
[petitioner]. protect their interest.21
e) [C]ost of suit.”11 The dispositive portion of the RTC Decision reads:
_______________
“WHEREFORE, premises considered, judgment is hereby rendered in favor of
7 Id., at p. 11.
8 See letter dated October 13, 2000; id., at p. 13. the [respondent-spouses] and ordering the [petitioner and Roberto Arias] to jointly
9 See letter dated October 20, 2000; id., at p. 22. and severally:
 1. Pay [respondent-spouses] the principal amount of Three Million Five
Hundred Thousand pesos (P3,500,000.00) with an interest of 6% compounded
annually starting October 1, 1993 and attorney’s fee in the amount of Fifty
Thousand pesos (P50,000.00) plus 20% of the recoverable amount from the
defendants and cost of the suit.
The Compulsory Counter Claim is hereby dismissed for lack of factual evidence.
Page |
SO ORDERED.” 22
Petitioner moved for reconsideration which was denied in the August
31, 2006 Resolution of the CA.
Hence, this petition raising the sole issue of whether the imposition of
interest and attorney’s fees is proper.
Petitioner’s Arguments
Petitioner insists that she is not bound to pay interest on the P3.5

65 Ruling of the Court of Appeals million because the Conditional Deed of Sale only
_______________
Aggrieved, petitioner and Arias filed their notice of appeal. 23 The CA 26 Id., at pp. 100-101.
noted that the only issue submitted for its resolution is “whether it is 27 Id., at p. 102.
proper to impose interest for an obligation that does not involve a loan or 28 Id., at p. 103.
forbearance of money in the absence of stipulation of the parties.” 24 29 Id.
103
On May 12, 2006, the CA rendered the assailed Decision affirming the
ruling of the RTC finding the imposition of 6% interest proper. 25 However, VOL. 670, APRIL 18, 2012 103
the same shall start to run only from September 27, 2000 when respondent- Estores vs. Supangan
spouses formally demanded the return of their money and not from October provided for the return of the downpayment in case of failure to comply
1993 when the contract was executed as held by the RTC. The with her obligations. Petitioner also argues that the award of attorney’s
_______________ fees in favor of the respondent-spouses is unwarranted because it cannot
20 Id., at p. 256.
21 Id.
be said that the latter won over the former since the CA even sustained her
22 Id., at pp. 256-257. contention that the imposition of 12% interest compounded annually is
23 Id., at p. 258. totally uncalled for.
24 CA Rollo, p. 82. Respondent-spouses’ Arguments
25 Id., at p. 98.
Respondent-spouses aver that it is only fair that interest be imposed on
102
the amount they paid considering that petitioner failed to return the
102 SUPREME COURT REPORTS ANNOTATED amount upon demand and had been using the P3.5 million for her benefit.
Estores vs. Supangan Moreover, it is undisputed that petitioner failed to perform her obligations
CA also modified the RTC’s ruling as regards the liability of Arias. It held to relocate the house outside the perimeter of the subject property and to
that Arias could not be held solidarily liable with petitioner because he complete the necessary documents. As regards the attorney’s fees, they
merely acted as agent of the latter. Moreover, there was no showing that claim that they are entitled to the same because they were forced to litigate
he expressly bound himself to be personally liable or that he exceeded the when petitioner unjustly withheld the amount. Besides, the amount
limits of his authority. More importantly, there was even no showing that awarded by the CA is even smaller compared to the filing fees they paid.
Arias was authorized to act as agent of petitioner.26 Anent the award of
attorney’s fees, the CA found the award by the trial court (P50,000.00 plus Our Ruling
20% of the recoverable amount) excessive 27 and thus reduced the same to
P100,000.00.28 The petition lacks merit.
The dispositive portion of the CA Decision reads: Interest may be imposed even in
“WHEREFORE, the appealed decision is MODIFIED. The rate of interest shall the absence of stipulation in the
be six percent (6%) per annum, computed from September 27, 2000 until its full contract.
payment before finality of the judgment. If the adjudged principal and the interest We sustain the ruling of both the RTC and the CA that it is proper to
(or any part thereof) remain[s] unpaid thereafter, the interest rate shall be adjusted
impose interest notwithstanding the absence of stipulation in the contract.
to twelve percent (12%) per annum, computed from the time the judgment becomes
final and executory until it is fully satisfied. The award of attorney’s fees is hereby Article 2210 of the Civil Code expressly provides that “[i]nterest may, in
reduced to P100,000.00. Costs against the [petitioner]. the discretion of the court, be allowed upon damages awarded for breach of
SO ORDERED.” 29 contract.” In this case, there is no question that petitioner is legally
 obligated to return the P3.5 million because of her failure to fulfill the
obligation under the Conditional Deed of
104
104 SUPREME COURT REPORTS ANNOTATED
Estores vs. Supangan
Page |
Sale, despite demand. She has in fact admitted that the conditions were
66 not fulfilled and that she was willing to return the full amount of P3.5
million but has not actually done so. Petitioner enjoyed the use of the
money from the time it was given to her 30 until now. Thus, she is already
in default of her obligation from the date of demand, i.e., on September 27,
2000.
The interest at the rate of 12% is
applicable in the instant case.
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.”31 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%).”32 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.
The contract involved in this case is admittedly not a loan but a
Conditional Deed of Sale. However, the contract provides that the seller
(petitioner) must return the payment made by the buyer (respondent-
spouses) if the conditions are not fulfilled. There is no question that they
have in fact, not been fulfilled as the seller (petitioner) has admitted this.
Notwithstanding demand by the buyer (respondent-spouses), the seller
(petitioner) has failed to return the money and
_______________
30 P1,500,000 on October 1, 1993; P1,500,000 on April 14, 1994; P300,000 on October 7,
1998 and P200,000 on November 2, 1998; see records, p. 10.
31 Crismina Garments, Inc. v. Court of Appeals, 363 Phil. 701, 703; 304 SCRA 356, 358
(1999).
32 Id.
105
VOL. 670, APRIL 18, 2012 105
Estores vs. Supangan
should be considered in default from the time that demand was made on
September 27, 2000.
Even if the transaction involved a Conditional Deed of Sale, can the
stipulation governing the return of the money be considered as a
forbearance of money which required payment of interest at the rate of
12%? We believe so.
In Crismina Garments, Inc. v. Court of Appeals,33 “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. 34 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
_______________
33 Id., at p. 709. Emphasis supplied.
34 Article 1933 of the Civil Code provides:
Art. 1933. By the contract of loan, one of the parties delivers to another, either
something not consumable so that the latter may use the same for a certain time and return
it, in which case the contract is called a commodatum; or money or other consumable thing,
upon the condition that the same amount of the same kind and quality shall be paid, in which
case the contract is simply called a loan or mutuum.
Commodatum is essentially gratuitous.
Simple loan may be gratuitous or with a stipulation to pay interest.
In commodatum the bailor retains the ownership of the thing loaned, while in simple
loan, ownership passes to the borrower.
106
106 SUPREME COURT REPORTS ANNOTATED
Estores vs. Supangan
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.
Petitioner’s unwarranted withholding of the money which rightfully
pertains to respondent-spouses amounts to forbearance of money which
can be considered as an involuntary loan. Thus, the applicable rate of
interest is 12% per annum. In Eastern Shipping Lines, Inc. v. Court of
Appeals,35 cited in Crismina Garments, Inc. v. Court of Appeals,36 the Court
suggested the following guidelines:
 “I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi- (2) When the defendant’s act or omission has compelled the plaintiff to litigate
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.
with third persons or to incur expenses to protect his interest;
II. With regard particularly to an award of interest in the concept of actual and xxxx
compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, (11) In any other case where the court deems it just and equitable that
as follows: attorney’s fees and expenses of litigation should be recovered.
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 In all cases, the attorney’s fees and expenses of litigation must be reasonable.”
Page | _______________
35 G.R. No. 97412, July 12, 1994, 234 SCRA 78.
Considering the circumstances of the instant case, we find respondent-
67 36 Supra note 31. spouses entitled to recover attorney’s fees. There is no doubt that they were
107

VOL. 670, APRIL 18, 2012 107 forced to litigate to protect their interest, i.e., to recover their money.
However, we find the
Estores vs. Supangan _______________
due should be that which may have been stipulated in writing. Furthermore, the 38 Id.
interest due shall itself earn legal interest from the time it is judicially 39 223 Phil. 472; 139 SCRA 260 (1985).
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
109
under and subject to the provisions of Article 1169 of the Civil Code. VOL. 670, APRIL 18, 2012 109
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest
on the amount of damages awarded may be imposed at the discretion of the court at the Estores vs. Supangan
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
amount of P50,000.00 more appropriate in line with the policy enunciated
certainty. Accordingly, where the demand is established with reasonable certainty, the in Article 2208 of the Civil Code that the award of attorney’s fees must
interest shall begin to run from the time the claim is made judicially or extrajudicially always be reasonable.
(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 WHEREFORE, the Petition for Review is DENIED. The May 12, 2006
judgment of the court is made (at which time the quantification of damages may be Decision of the Court of Appeals in CA-G.R. CV No. 83123 is AFFIRMED
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. with MODIFICATIONS that the rate of interest shall be twelve percent
3. When the judgment of the court awarding a sum of money becomes final and executory, the (12%) per annum, computed from September 27, 2000 until fully satisfied.
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
The award of attorney’s fees is further reduced to P50,000.00.
being deemed to be by then an equivalent to a forbearance of credit.” 37 SO ORDERED.
_______________ Corona (C.J., Chairperson), Leonardo-De Castro,
37 Eastern Shipping Lines, Inc. v. Court of Appeals, supra note 35 at pp. 95-97. Emphasis
Bersamin and Villarama, Jr., JJ., concur.
supplied.
108 Petition denied, judgment affirmed with modifications.
108 SUPREME COURT REPORTS ANNOTATED
Estores vs. Supangan
Eastern Shipping Lines, Inc. v. Court of Appeals38 and its predecessor
case, Reformina v. Tomol, Jr.39 both involved torts cases and hence, there
was no forbearance of money, goods, or credits. Further, the amount
claimed (i.e., damages) could not be established with reasonable certainty
at the time the claim was made. Hence, we arrived at a different ruling in
those cases.
Since the date of demand which is September 27, 2000 was
satisfactorily established during trial, then the interest rate of 12% should
be reckoned from said date of demand until the principal amount and the
interest thereon is fully satisfied.
The award of attorney’s fees
is warranted.
Under Article 2208 of the Civil Code, attorney’s fees may be recovered:
“x x x x
 G.R. No. 159912. August 17, 2007. *
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,
Page | there must be mutuality between the parties based on their essential equality.—
68 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
_______________
*THIRD DIVISION.
568
568 SUPREME COURT REPORTS ANNOTATED
United Coconut Planters Bank vs. Beluso
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 ex-
569
VOL. 530, AUGUST 17, 2007 569
United Coconut Planters Bank vs. Beluso
cess 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
Page |
earn new interest.
69 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%
570
570 SUPREME COURT REPORTS ANNOTATED
United Coconut Planters Bank vs. Beluso
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 mis-
571
VOL. 530, AUGUST 17, 2007 571
United Coconut Planters Bank vs. Beluso
take, 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 an-nulment
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
572
572 SUPREME COURT REPORTS ANNOTATED
United Coconut Planters Bank vs. Beluso
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
Page |
at bar, the date of the demand for payment of the finance charge is 2 September
70 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
573
VOL. 530, AUGUST 17, 2007 573
United Coconut Planters Bank vs. Beluso
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.
574
574 SUPREME COURT REPORTS ANNOTATED
United Coconut Planters Bank vs. Beluso
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 Balbin and Associates for petitioner.
would defeat these purposes of the Truth in Lending Act. The belated discovery of Stephen C. Arceño for respondents.
the true cost of credit will too often not be able to reverse the ill effects of an already
consummated business decision.
575
CHICO-NAZARIO, J.:

Page | VOL. 530, AUGUST 17, 2007 575

This is a Petition for Review on Certiorari under Rule 45 of the Rules of
71 United Coconut Planters Bank vs. Beluso Court, which seeks to annul the Court of Appeals Decision dated 21 1

Actions; Pleadings and Practice; Venue; Motions to Dismiss;When an action is January 2003 and its Resolution dated 9 September 2003 in CA-G.R. CV
2

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
No. 67318. The assailed Court of Appeals Decision and Resolution affirmed
in turn the Decision dated 23 March 2000 and Order dated 8 May 2000 of
3 4

is allowed to file same action, but should take care that, this time, it is filed with the the Regional Trial Court (RTC), Branch 65 of Makati City, in Civil Case
proper court or after the accomplishment of the erstwhile absent condition precedent, No. 99-314, declaring void the interest rate provided in the promissory
as the case may be; While it is the general rule that in cases where there are two notes executed by the respondents Spouses Samuel and Odette Beluso
pending actions between the same parties on the same issue, it should be the later (spouses Beluso) in favor of petitioner United Coconut Planters Bank
case that should be dismissed, the first action may nevertheless be dismissed if the (UCPB).
later action is the more appropriate vehicle for the ventilation of the issues between The procedural and factual antecedents of this case are as follows:
the parties.—When an action is dismissed on the motion of the other party, it is On 16 April 1996, UCPB granted the spouses Beluso a Promissory
only when the ground for the dismissal of an action is found in paragraphs (f), (h) Notes Line under a Credit Agreement whereby the latter could avail from
and (i) that the action cannot be refiled. As regards all the other grounds, the
the former credit of up to a maximum amount of P1.2 Million pesos for a
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 term ending on 30 April 1997. The spouses Beluso constituted, other than
condition precedent, as the case may be. UCPB, however, brings to the attention of their promissory notes, a real estate mortgage over parcels of land in Roxas
this Court a Motion for Reconsideration filed by the spouses Beluso on 15 January City, covered by Transfer Certificates of Title No. T-31539 and T-27828, as
1999 with the RTC of Roxas City, which Motion had not yet been ruled upon when additional security for the obligation. The Credit Agreement was
the spouses Beluso filed Civil Case No. 99-314 with the RTC of Makati. Hence, subsequently amended to increase the amount of the Promissory Notes
there were allegedly two pending actions between the same parties on the same Line to a maximum of
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 1Penned by Associate Justice Remedios A. Salazar-Fernando with Associate Justices
is not absolute. According to this Court in Allied Banking Corporation v. Court of Ruben T. Reyes (now a member of this Court) and Edgardo F. Sundiam concurring; Rollo, pp.
Appeals, 259 SCRA 371 (1996): In these cases, it is evident that the first action was 69-81.
filed in anticipation of the filing of the later action and the purpose is to preempt 2Rollo, p. 82.
the later suit or provide a basis for seeking the dismissal of the second action. Even 3Id., at pp. 83-87.
if this is not the purpose for the filing of the first action, it may nevertheless
4Id., at p. 88.
577
be dismissed if the later action is the more appropriate vehicle for the
ventilation of the issues between the parties. VOL. 530, AUGUST 17, 2007 577
United Coconut Planters Bank vs. Beluso
PETITION for review on certiorari of the decision and resolution of the P2.35 Million pesos and to extend the term thereof to 28 February 1998.
Court of Appeals. The spouses Beluso availed themselves of the credit line under the
following Promissory Notes:
576
PN # Date of PN Maturity Date Amount
576 SUPREME COURT REPORTS ANNOTATED
Secured
United Coconut Planters Bank vs. Beluso
8314-96-00083-3 29 April 1996 27 August 1996 P 700,000
The facts are stated in the opinion of the Court.
 PN # Date of PN Maturity Date Amount PN # Amount Interest Penalty Total
Secured Secured
8314-96-00085-0 2 May 1996 30 August 1996 P 500,000 98-00002-4 P 150,000 33% 36% P 170,034.71
8314-96-000292-2 20 November 20 March 1997 P 800,000 (102 days)
Page | 1996 The spouses Beluso, however, failed to make any payment of the foregoing
72 The three promissory notes were renewed several times. On 30 April 1997, amounts.
the payment of the principal and interest of the latter two promissory notes On 2 September 1998, UCPB demanded that the spouses Beluso pay
were debited from the spouses Beluso’s account with UCPB; yet, a their total obligation of P2,932,543.00 plus 25% attorney’s fees, but the
consolidated loan for P1.3 Million was again released to the spouses Beluso spouses Beluso failed to comply therewith. On 28 December 1998, UCPB
under one promissory note with a due date of 28 February 1998. foreclosed the properties mortgaged by the spouses Beluso to secure their
To completely avail themselves of the P2.35 Million credit line extended credit line, which, by that time, already ballooned to P3,784,603.00.
to them by UCPB, the spouses Beluso executed two more promissory notes On 9 February 1999, the spouses Beluso filed a Petition for Annulment,
for a total of P350,000.00: Accounting and Damages against UCPB with the RTC of Makati City.
On 23 March 2000, the RTC ruled in favor of the spouses Beluso,
PN # Date of PN Maturity Amount
disposing of the case as follows:
Date Secured “PREMISES CONSIDERED, judgment is hereby rendered declaring the interest
97-00363-1 11 December 1997 28 February P 200,000 rate used by [UCPB] void and the foreclosure and Sheriff’s Certificate of Sale void.
[UCPB] is hereby ordered to return to [the spouses Beluso] the properties subject
1998
of the foreclosure; to pay [the spouses Beluso] the amount of P50,000.00 by way of
98-00002-4 2 January 1998 28 February P 150,000 579
1998 VOL. 530, AUGUST 17, 2007 579
However, the spouses Beluso alleged that the amounts covered by these United Coconut Planters Bank vs. Beluso
last two promissory notes were never released or credited to their account attorney’s fees; and to pay the costs of suit. [The spouses Beluso] are hereby ordered
and, thus, claimed that the principal indebtedness was only P2 Million. to pay [UCPB] the sum of P1,560,308.00.” 5

In any case, UCPB applied interest rates on the different promissory On 8 May 2000, the RTC denied UCPB’s Motion for
notes ranging from 18% to 34%. From 1996 to Reconsideration, prompting UCPB to appeal the RTC Decision with the
6

578 Court of Appeals. The Court of Appeals affirmed the RTC Decision, to wit:
578 SUPREME COURT REPORTS ANNOTATED “WHEREFORE, premises considered, the decision dated March 23, 2000 of the
United Coconut Planters Bank vs. Beluso Regional Trial Court, Branch 65, Makati City in Civil Case No. 99-314 is hereby
AFFIRMED subject to the modification that defendant-appellant UCPB is not
February 1998 the spouses Beluso were able to pay the total sum of
liable for attorney’s fees or the costs of suit.” 7

P763,692.03.
On 9 September 2003, the Court of Appeals denied UCPB’s Motion for
From 28 February 1998 to 10 June 1998, UCPB continued to charge
Reconsideration for lack of merit. UCPB thus filed the present petition,
interest and penalty on the obligations of the spouses Beluso, as follows:
submitting the following issues for our resolution:
PN # Amount Interest Penalty Total
Secured I
97-00363-1 P 200,000 31% 36% P 225,313.24
WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED
97-00366-6 P 700,000 30.17% 32.786% P 795,294.72 SERIOUS AND REVERSIBLE ERROR WHEN IT AFFIRMED THE DECISION
(7 days) (102 days) OF THE TRIAL COURT WHICH DECLARED VOID THE PROVISION ON
INTEREST RATE AGREED UPON BETWEEN PETITIONER AND
97-00368-2 P 1,300,000 28% 30.41% P1,462,124.54
RESPONDENTS
(2 days) (102 days)
II
 WHETHER OR NOT THE HONORABLE COURT OF APPEALS (P_____), Philippine Currency, with interest thereon at the rate indicative of DBD
COMMITTED SERIOUS AND REVERSIBLE ERROR WHEN IT AFFIRMED THE retail rate or as determined by the Branch Head.” 9

COMPUTATION BY THE TRIAL COURT OF RESPONDENTS’ INDEBTEDNESS

AND ORDERED RESPONDENTS TO PAY PETITIONER THE AMOUNT OF _______________
ONLY ONE MILLION FIVE HUNDRED SIXTY THOUSAND THREE HUNDRED
EIGHT PESOS (P1,560,308.00) 8Id., at pp. 337-338.
Page | 9Id., at p. 184.
73 _______________ 581
VOL. 530, AUGUST 17, 2007 581
5Id., at p. 86.
6Id., at p. 88.
United Coconut Planters Bank vs. Beluso
7Id., at p. 81. UCPB asserts that this is a reversible error, and claims that while the
580 interest rate was not numerically quantified in the face of the promissory
580 SUPREME COURT REPORTS ANNOTATED notes, it was nonetheless categorically fixed, at the time of execution
United Coconut Planters Bank vs. Beluso thereof, at the “rate indicative of the DBD retail rate.” UCPB contends that
said provision must be read with another stipulation in the promissory
III notes subjecting to review the interest rate as fixed:
“The interest rate shall be subject to review and may be increased or decreased by
the LENDER considering among others the prevailing financial and monetary
WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED
conditions; or the rate of interest and charges which other banks or financial
SERIOUS AND REVERSIBLE ERROR WHEN IT AFFIRMED THE DECISION
institutions charge or offer to charge for similar accommodations; and/or the
OF THE TRIAL COURT WHICH ANNULLED THE FORECLOSURE BY
resulting profitability to the LENDER after due consideration of all dealings with
PETITIONER OF THE SUBJECT PROPERTIES DUE TO AN ALLEGED
the BORROWER.
“INCORRECT COMPUTATION” OF RESPONDENTS’ INDEBTEDNESS
10

In this regard, UCPB avers that these are valid reference rates akin to a
IV “prevailing rate” or “prime rate” allowed by this Court in Polotan v. Court
of Appeals. Furthermore, UCPB argues that even if the proviso “as
11

WHETHER OR NOT THE HONORABLE COURT OF APPEALS determined by the branch head” is considered void, such a declaration
COMMITTED SERIOUS AND REVERSIBLE ERROR WHEN IT AFFIRMED THE would not ipso facto render the connecting clause “indicative of DBD retail
DECISION OF THE TRIAL COURT WHICH FOUND PETITIONER LIABLE FOR rate” void in view of the separability clause of the Credit Agreement, which
VIOLATION OF THE TRUTH IN LENDING ACT reads:
“Section 9.08 Separability Clause.—If any one or more of the provisions contained
V in this AGREEMENT, or documents executed in connection herewith shall be
declared invalid, illegal or unenforceable in any respect, the validity, legality and
WHETHER OR NOT THE HONORABLE COURT OF APPEALS enforceability of the remaining provisions hereof shall not in any way be affected
COMMITTED SERIOUS AND REVERSIBLE ERROR WHEN IT FAILED TO or impaired.” 12

ORDER THE DISMISSAL OF THE CASE BECAUSE THE RESPONDENTS ARE According to UCPB, the imposition of the questioned interest rates did not
GUILTY OF FORUM SHOPPING 8
infringe on the principle of mutuality of contracts, because the spouses
Validity of the Interest Rates Beluso had the liberty to choose
The Court of Appeals held that the imposition of interest in the following
provision found in the promissory notes of the spouses Beluso is void, as _______________
the interest rates and the bases therefor were determined solely by
Id.
petitioner UCPB:
10

357 Phil. 250; 296 SCRA 247 (1998).

11

FOR VALUE RECEIVED, I, and/or We, on or before due date, SPS. SAMUEL AND Rollo, p. 341.
12

ODETTE BELUSO (BORROWER), jointly and severally promise to pay to 582

UNITED COCONUT PLANTERS BANK (LENDER) or order at UCPB Bldg.,
582 SUPREME COURT REPORTS ANNOTATED
Makati Avenue, Makati City, Philippines, the sum of ______________ PESOS,
 United Coconut Planters Bank vs. Beluso
whether or not to renew their credit line at the new interest rates pegged
by petitioner. UCPB also claims that assuming there was any defect in the
13
mutuality of the contract at the time of its inception, such defect was cured
by the subsequent conduct of the spouses Beluso in availing themselves of
Page | the credit line from April 1996 to February 1998 without airing any protest
74 with respect to the interest rates imposed by UCPB. According to UCPB,
therefore, the spouses Beluso are in estoppel. 14
We agree with the Court of Appeals, and find no merit in the
contentions of UCPB.
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, where we held:
15
“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).
_______________
Id., at p. 342.
13
Id., at pp. 344-346.
14
G.R. No. 88880, 30 April 1991, 196 SCRA 536, 545.
15
583
VOL. 530, AUGUST 17, 2007 583
United Coconut Planters Bank vs. Beluso
Such a contract is a veritable trap for the weaker party whom the courts of justice
must protect against abuse and imposition.”
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. The
interest rate in Polotan reads:
“The Cardholder agrees to pay interest per annum at 3% plus the prime rate of
Security Bank and Trust Company. x x x.” 16
In this provision in Polotan, there is a fixed margin over the reference rate:
3%. Thus, the parties can easily determine the interest rate by applying
simple arithmetic. On the other hand, the provision in the case at bar does
not specify any margin above or below the DBD retail rate. UCPB can peg
the interest at any percentage above or below the DBD retail rate, again
giving it unfettered discretion in determining the interest rate.
_______________
Supra note 11 at pp. 254-255; p. 252.
16
584
584 SUPREME COURT REPORTS ANNOTATED
United Coconut Planters Bank vs. Beluso
The stipulation in the promissory notes subjecting the interest rate to
review does not render the imposition by UCPB of interest rates on the
obligations of the spouses Beluso valid. According to said stipulation:
“The interest rate shall be subject to review and may be increased or decreased by
the LENDER considering among others the prevailing financial and monetary
conditions; or the rate of interest and charges which other banks or financial
institutions charge or offer to charge for similar accommodations; and/or the
resulting profitability to the LENDER after due consideration of all dealings with
the BORROWER.” 17
It should be pointed out that the authority to review the interest rate was
given UCPB alone as the lender. Moreover, UCPB may apply the
considerations enumerated in this provision as it wishes. As worded in the
above provision, UCPB may give as much weight as it desires to each of
the following considerations: (1) the prevailing financial and monetary
condition; (2) the rate of interest and charges which other banks or
financial institutions charge or offer to charge for similar accommodations;
and/or (3) the resulting profitability to the LENDER (UCPB) after due
consideration of all dealings with the BORROWER (the spouses Beluso).
 Again, as in the case of the interest rate provision, there is no fixed margin
above or below these considerations.
In view of the foregoing, the Separability Clause cannot save either of
the two options of UCPB as to the interest to be imposed, as both options
violate the principle of mutuality of contracts.
Page | UCPB likewise failed to convince us that the spouses Beluso were in
75 estoppel.
_______________
Rollo, p. 184.
17
585
VOL. 530, AUGUST 17, 2007 585
United Coconut Planters Bank vs. Beluso
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. 18
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.”
19
Moreover, while the spouses Beluso indeed agreed to renew the credit line,
the offending provisions are found in the promissory notes themselves, not
in the credit line. In fixing the interest rates in the promissory notes to
cover the renewed credit line, UCPB still reserved to itself the same two
options—(1) a rate indicative of the DBD retail rate; or (2) a rate as
determined by the Branch Head.
Error in Computation
UCPB asserts that while both the RTC and the Court of Appeals voided
the interest rates imposed by UCPB, both failed to include in their
computation of the outstanding obligation of the spouses Beluso the legal
rate of interest of 12%
_______________
Eugenio v. Perdido, 97 Phil. 41, 44 (1955); Auyong Hian v. Court of Tax Appeals, G.R.
18
No. L-28782, 12 September 1974, 59 SCRA 110, 133-134, cited in IV Tolentino, Commentaries
and Jurisprudence on the Civil Code (1986 Ed.), p. 659.
Section 2, Republic Act No. 3765.
19
586
586 SUPREME COURT REPORTS ANNOTATED
United Coconut Planters Bank vs. Beluso
per annum. Furthermore, the penalty charges were also deleted in the
decisions of the RTC and the Court of Appeals. Section 2.04, Article II on
“Interest and other Bank Charges” of the subject Credit Agreement,
provides:
“Section 2.04 Penalty Charges.—In addition to the interest provided for in Section
2.01 of this ARTICLE, any principal obligation of the CLIENT hereunder which is
not paid when due shall be subject to a penalty charge of one percent (1%) of the
amount of such obligation per month computed from due date until the obligation
is paid in full. If the bank accelerates teh (sic) payment of availments hereunder
pursuant to ARTICLE VIII hereof, the penalty charge shall be used on the total
principal amount outstanding and unpaid computed from the date of acceleration
until the obligation is paid in full.” 20
Paragraph 4 of the promissory notes also states:
“In case of non-payment of this Promissory Note (Note) at maturity, I/We, jointly
and severally, agree to pay an additional sum equivalent to twenty-five percent
(25%) of the total due on the Note as attorney’s fee, aside from the expenses and
costs of collection whether actually incurred or not, and a penalty charge of one
percent (1%) per month on the total amount due and unpaid from date of default
until fully paid.” 21
Petitioner further claims that it is likewise entitled to attorney’s fees,
pursuant to Section 9.06 of the Credit Agreement, thus:
“If the BANK shall require the services of counsel for the enforcement of its rights
under this AGREEMENT, the Note(s), the collaterals and other related documents,
the BANK shall be entitled to recover attorney’s fees equivalent to not less than
twenty-five percent (25%) of the total amounts due and outstanding exclusive of
costs and other expenses. 22
_______________
Rollo, p. 350.
20
Id., at p. 184.
21
Id., at p. 352.
22
587
VOL. 530, AUGUST 17, 2007 587
United Coconut Planters Bank vs. Beluso
Another alleged computational error pointed out by UCPB is the negation
of the Compounding Interest agreed upon by the parties under Section 2.02
of the Credit Agreement:
 “Section 2.02 Compounding Interest.—Interest not paid when due shall form part
of the principal and shall be subject to the same interest rate as herein stipulated.”
23
and paragraph 3 of the subject promissory notes:
“Interest not paid when due shall be added to, and become part of the principal and
shall likewise bear interest at the same rate.”
24
Page | UCPB lastly avers that the application of the spouses Be-luso’s payments
76 in the disputed computation does not reflect the parties’ agreement. The
RTC deducted the payment made by the spouses Beluso amounting to
P763,693.00 from the principal of P2,350,000.00. This was allegedly
inconsistent with the Credit Agreement, as well as with the agreement of
the parties as to the facts of the case. In paragraph 7 of the spouses Beluso’s
Manifestation and Motion on Proposed Stipulation of Facts and Issues vis-
à-vis UCPB’s Manifestation, the parties agreed that the amount of
P763,693.00 was applied to the interest and not to the principal, in accord
with Section 3.03, Article II of the Credit Agreement on “Order of the
Application of Payments,” which provides:
“Section 3.03 Application of Payment.—Payments made by the CLIENT shall be
applied in accordance with the following order of preference:
1. 1.Accounts receivable and other out-of-pocket expenses
2. 2.Front-end Fee, Origination Fee, Attorney’s Fee and other expenses of
collection;
3. 3.Penalty charges;
4. 4.Past due interest;
_______________
Id., at p. 353.
23
Id., at p. 184.
24
588
588 SUPREME COURT REPORTS ANNOTATED
United Coconut Planters Bank vs. Beluso
1. 5.Principal amortization/Payment in arrears;
2. 6.Advance interest;
3. 7.Outstanding balance; and
4. 8.All other obligations of CLIENT to the BANK, if any.”
25
Thus, according to UCPB, the interest charges, penalty charges, and
attorney’s fees had been erroneously excluded by the RTC and the Court of
Appeals from the computation of the total amount due and demandable
from spouses Beluso.
The spouses Beluso’s defense as to all these issues is that the demand
made by UCPB is for a considerably bigger amount and, therefore, the
demand should be considered void. There being no valid demand, according
to the spouses Beluso, there would be no default, and therefore the
interests and penalties would not commence to run. As it was likewise
improper to foreclose the mortgaged properties or file a case against the
spouses Beluso, attorney’s fees were not warranted.
We agree with UCPB on this score. Default commences upon judicial or
extrajudicial demand. The excess amount in such a demand does not
26
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.
As regards the award of 12% legal interest in favor of petitioner, the
RTC actually recognized that said legal interest should be imposed, thus:
“There being no valid stipulation as
_______________
Id., at pp. 357-358.
25
Civil Code, Article 1169.
26
589
VOL. 530, AUGUST 17, 2007 589
United Coconut Planters Bank vs. Beluso
to interest, the legal rate of interest shall be charged.” It seems that the
27
RTC inadvertently overlooked its non-inclusion in its computation.
The spouses Beluso had even originally asked for the RTC to impose
this legal rate of interest in both the body and the prayer of its petition
with the RTC:
“12. Since the provision on the fixing of the rate of interest by the sole will of the
respondent Bank is null and void, only the legal rate of interest which is 12% per
annum can be legally charged and imposed by the bank, which would amount to
only about P599,000.00 since 1996 up to August 31, 1998.
xxxx
WHEREFORE, in view of the foregoing, petitioners pray for judgment or order:
xxxx
2. By way of example for the public good against the Bank’s taking unfair
advantage of the weaker party to their contract, declaring the legal rate of 12% per
annum, as the imposable rate of interest up to February 28, 1999 on the loan of
2.350 million.” 28
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.
We must likewise uphold the contract stipulation providing the
Page | compounding of interest. The provisions in the Credit Agreement and in
77 the promissory notes providing for the
_______________
Rollo, p. 86.
27
Records, pp. 5-6.
28
590
590 SUPREME COURT REPORTS ANNOTATED
United Coconut Planters Bank vs. Beluso
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:
29
“Without prejudice to the provisions of Article 2212, interest due and unpaid shall
not earn interest. However, the contractingparties may by stipulation
capitalize the interest due andunpaid, which as added principal, shall
earn new 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. 30
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%.
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
_______________
29419 Phil. 857, 866; 367 SCRA 571, 580 (2001).
30Equitable Banking Corporation v. Liwanag, 143 Phil. 102, 106; 32 SCRA 293, 297
(1970); Civil Code, Article 1229.
Ruiz v. Court of Appeals, 449 Phil. 419, 434-435; 401 SCRA 410, 422 (2003).
31
591
VOL. 530, AUGUST 17, 2007 591
United Coconut Planters Bank vs. Beluso
Article 1169 of the Civil Code, which would put the obligor in delay.
32
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
33
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. There-
_______________
32 Article 1169 of the Civil Code provides:
Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or
extrajudicially demands from them the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in order that delay may exist:
1. (1)When the obligation or the law expressly so declare; or
2. (2)When from the nature and the circumstances of the obligation it appears that the designation
of the time when the thing is to be delivered or the service is to be rendered was a controlling
motive for the establishment of the contract; or
3. (3)When demand would be useless, as when the obligor has rendered it beyond his power to
perform.
In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to
comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills
his obligation, delay by the other begins.
33Nielson & Co., Inc. v. Lepanto Consolidated Mining Co., 135 Phil. 532, 566; 26 SCRA
540, 572 (1968); Kalalo v. Luz, 145 Phil. 152, 174; 34 SCRA 337, 359 (1970); San Miguel
Brewery, Inc. v. Magno, 128 Phil. 328, 337; 21 SCRA 292, 300 (1967); Philippine Airlines, Inc.
v. Court of Appeals, G.R. Nos. 50504-05, 13 August 1990, 188 SCRA 461, 464; Pleno v. Court
31
of Appeals, G.R. No. L-56505, 9 May 1988, 161 SCRA 208, 225.
592
592 SUPREME COURT REPORTS ANNOTATED
United Coconut Planters Bank vs. Beluso
fore, 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.
In sum, we hold that spouses Beluso should still be held liable for a
compounded legal interest of 12% per annumand a penalty charge of
12% per annum. We also hold that, 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.
 Annulment of the Foreclosure Sale
Properties of spouses Beluso had been foreclosed, titles to which had
already been consolidated on 19 February 2001 and 20 March 2001 in the
name of UCPB, as the spouses Beluso failed to exercise their right of
redemption which expired on 25 March 2000. The RTC, however, annulled
Page | the foreclosure of mortgage based on an alleged incorrect computation of
78 the spouses Beluso’s indebtedness.
UCPB alleges that none of the grounds for the annulment of a
foreclosure sale are present in the case at bar. Furthermore, the annulment
of the foreclosure proceedings and the certificates of sale were mooted by
the subsequent issuance of new certificates of title in the name of said
bank. UCPB claims that the spouses Beluso’s action for annulment of fore-
closure constitutes a collateral attack on its certificates of title, an act
proscribed by Section 48 of Presidential Decree No. 1529, otherwise known
as the Property Registration Decree, which provides:
“Section 48. Certificate not subject to collateral attack.—A certificate of title shall
not be subject to collateral attack. It cannot be altered, modified or cancelled except
in a direct proceeding in accordance with law.”
The spouses Beluso retort that since they had the right to refuse payment
of an excessive demand on their account, they cannot be said to be in
default for refusing to pay the same.
593
VOL. 530, AUGUST 17, 2007 593
United Coconut Planters Bank vs. Beluso
Consequently, according to the spouses Beluso, the “enforce-ment of such
illegal and overcharged demand through foreclo-sure of mortgage” should
be voided.
We agree with UCPB and affirm the validity of the foreclo-sure
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 annul-ment 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. 34
Liability for Violation of Truth in Lending Act
The RTC, affirmed by the Court of Appeals, imposed a fine of P26,000.00
for UCPB’s alleged violation of Republic Act No. 3765, otherwise known as
the Truth in Lending Act.
UCPB challenges this imposition, on the argument that Section 6(a) of
the Truth in Lending Act which mandates the filing of an action to recover
such penalty must be made under the following circumstances:
“Section 6. (a) Any creditor who in connection with any credit transaction fails to
disclose to any person any information in
_______________
Philippine National Bank v. Gonzalez, 45 Phil. 693, 699 (1924).
34
594
594 SUPREME COURT REPORTS ANNOTATED
United Coconut Planters Bank vs. Beluso
violation of this Act or any regulation issued thereunder shall be liable to such
person in the amount of P100 or in 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 on any credit transaction. Action
to recover such penalty may be brought by such person within one year
from the date of the occurrence of the violation, in any court of competent
jurisdiction. x x x” (Emphasis ours.)
According to UCPB, the Court of Appeals even stated that “[a]dmittedly
the original complaint did not explicitly allege a violation of the ‘Truth in
Lending Act’ and no action to formally admit the amended petition [which
expressly alleges violation of the Truth in Lending Act] was made either
by [respondents] spouses Beluso and the lower court. x x x.” 35
UCPB further claims that the action to recover the penalty for the
violation of the Truth in Lending Act had been barred by the one-year
prescriptive period provided for in the Act. UCPB asserts that per the
records of the case, the latest of the subject promissory notes had been
executed on 2 January 1998, but the original petition of the spouses Beluso
was filed before the RTC on 9 February 1999, which was after the
expiration of the period to file the same on 2 January 1999.
On the matter of allegation of the violation of the Truth in Lending Act,
the Court of Appeals ruled:
“Admittedly the original complaint did not explicitly allege a violation of the ‘Truth
in Lending Act’ and no action to formally admit the amended petition was made
either by [respondents] spouses Beluso and the lower court. In such transactions,
the debtor and the lending institutions do not deal on an equal footing and this law
was intended to protect the public from hidden or undisclosed charges on their loan
obligations, requiring a full disclosure thereof by the lender. We find that its
infringement may be inferred or implied from allegations that when [respondents]
spouses Beluso executed the promissory notes, the interest rate chargeable thereon
 _______________
Rollo, p. 80.
35
595
VOL. 530, AUGUST 17, 2007 595
Page | United Coconut Planters Bank vs. Beluso
79 were left blank. Thus, [petitioner] UCPB failed to discharge its duty to disclose in
full to [respondents] Spouses Beluso the charges applicable on their loans.”36
We agree with the Court of Appeals. 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.” 37
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
38
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.
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
_______________
Id.
36
Records, p. 4.
37
Republic Act No. 3765, Sec. 4.
38
596
596 SUPREME COURT REPORTS ANNOTATED
United Coconut Planters Bank vs. Beluso
transaction, whichever is greater, except that such liability shall not
exceed P2,000.00 on any credit transaction. As this penalty depends on
39
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.
UCPB argues that a violation of the Truth in Lending Act, being a
criminal offense, cannot be inferred nor implied from the allegations made
in the complaint. Pertinent provisions of the Act read:
40
“Sec. 6. (a) Any creditor who in connection with any credit transaction fails to
disclose to any person any information in violation of this Act or any regulation
issued thereunder shall be liable to such person in the amount of P100 or in an
amount equal to twice the finance charge required by such creditor in connection
with such transaction, whichever is the greater, except that such liability shall not
exceed P2,000 on any credit transaction. Action to recover such penalty may be
brought by such person within one year from the date of the occurrence of the
violation, in any court of competent jurisdiction. In any action under this subsection
in which any person is entitled to a recovery, the creditor shall be liable for
reasonable attorney’s fees and court costs as determined by the court.
xxxx
(c) Any person who willfully violates any provision of this Act or any regulation
issued thereunder shall be fined by not less than P1,000 or more than P5,000 or
imprisonment for not less than 6 months, nor more than one year or both.”
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
_______________
Republic Act No. 3765, Section 6(a).
39
Rollo, p. 376.
40
597
VOL. 530, AUGUST 17, 2007 597
United Coconut Planters Bank vs. Beluso
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, which provides:
“SEC. 5. Joinder of causes of action.—A party may in one pleading assert, in the
alternative or otherwise, as many causes of action as he may have against an
opposing party, subject to the following conditions:
Page |
80 1. (a)The party joining the causes of action shall comply with the rules on
joinder of parties;
2. (b)The joinder shall not include special civil actions or actions governed by
special rules;
3. (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; and
4. (d)Where the claims in all the causes of action are principally for recovery
of money, the aggregate amount claimed shall be the test of jurisdiction.”
In attacking the RTC’s disposition on the violation of the Truth in Lending
Act since the same was not alleged in the
598
598 SUPREME COURT REPORTS ANNOTATED
United Coconut Planters Bank vs. Beluso
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.”
41
In the same pre-trial brief, the spouses Beluso also expressly raised the
following issue:
b.) Does the expression indicative rate of DBD retail (sic) comply with the Truth in
Lending Act provision to express the interest rate as a simple annual percentage of
the loan?”42
These assertions are so clear and unequivocal that any attempt of UCPB
to feign ignorance of the assertion of this issue in this case as to prevent it
from putting up a defense thereto is plainly hogwash.
Petitioner further posits that it is the Metropolitan Trial Court which
has jurisdiction to try and adjudicate the alleged violation of the Truth in
Lending Act, considering that the present action allegedly involved a single
credit transaction as there was only one Promissory Note Line.
We disagree. 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
_______________
Records, pp. 64-65.
41
Id., at p. 68.
42
599
VOL. 530, AUGUST 17, 2007 599
United Coconut Planters Bank vs. Beluso
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.”
Furthermore, 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.
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 Lending Act clearly
provides that the disclosure statement must be furnished prior to the
consummation of the transaction:
“SEC. 4. Any creditor shall furnish to each person to whom credit is
extended, prior to the consummation of the transaction, a clear statement in
writing setting forth, to the extent applicable and in accordance with rules and
regulations prescribed by the Board, the following information:
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600 SUPREME COURT REPORTS ANNOTATED
 United Coconut Planters Bank vs. Beluso
1. (1)the cash price or delivered price of the property or service to be acquired;
2. (2)the amounts, if any, to be credited as down payment and/or trade-in;
3. (3)the difference between the amounts set forth under clauses (1) and (2);
Page | 4. (4)the charges, individually itemized, which are paid or to be paid by such
81 person in connection with the transaction but which are not incident to
the extension of credit;
5. (5)the total amount to be financed;
6. (6)the finance charge expressed in terms of pesos and centavos; and
7. (7)the percentage that the finance bears to the total amount to be financed
expressed as a simple annual rate on the outstanding unpaid balance of
the obligation.”
The rationale of this provision is to protect users of credit from a lack of
awareness of the true cost thereof, proceeding from the experience that
banks are able to conceal such true cost by hidden charges, uncertainty of
interest rates, deduction of interests from the loaned amount, and the like.
The law thereby seeks to protect debtors by permitting them to fully
appreciate the true cost of their loan, to enable them to give full consent to
the contract, and to properly evaluate their options in arriving at business
decisions. Upholding 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.
In addition, the promissory notes, the copies of which were presented
to the spouses Beluso after execution, are not sufficient notification from
UCPB. As earlier discussed, the interest rate provision therein does not
sufficiently indicate with particularity the interest rate to be applied to the
loan covered by said promissory notes.
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Forum Shopping
UCPB had earlier moved to dismiss the petition (originally Case No. 99-
314 in RTC, Makati City) on the ground that the spouses Beluso instituted
another case (Civil Case No. V-7227) before the RTC of Roxas City,
involving the same parties and issues. UCPB claims that while Civil Case
No. V-7227 initially appears to be a different action, as it prayed for the
issuance of a temporary restraining order and/or injunction to stop
foreclosure of spouses Beluso’s properties, it poses issues which are similar
to those of the present case. To prove its point, UCPB cited the spouses
43
Beluso’s Amended Petition in Civil Case No. V-7227, which contains
similar allegations as those in the present case. The RTC of Makati denied
UCPB’s Motion to Dismiss Case No. 99-314 for lack of merit. Petitioner
UCPB raised the same issue with the Court of Appeals, and is raising the
same issue with us now.
The spouses Beluso claim that the issue in Civil Case No. V-7227 before
the RTC of Roxas City, a Petition for Injunction Against Foreclosure, is the
propriety of the foreclosure before the true account of spouses Beluso is
determined. On the other hand, the issue in Case No. 99-314 before the
RTC of Makati City is the validity of the interest rate provision. The
spouses Beluso claim that Civil Case No. V-7227 has become moot because,
before the RTC of Roxas City could act on the restraining order, UCPB
proceeded with the foreclosure and auction sale. As the act sought to be
restrained by Civil Case No. V-7227 has already been accomplished, the
spouses Be-luso had to file a different action, that of Annulment of the
Foreclosure Sale, Case No. 99-314 with the RTC, Makati City.
Even if we assume for the sake of argument, however, that only one
cause of action is involved in the two civil actions, namely, the violation of
the right of the spouses Beluso not to have their property foreclosed for an
amount they do not owe,
_______________
Petitioner’s Memorandum, pp. 57-62; Rollo, pp. 378-382.
43
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602 SUPREME COURT REPORTS ANNOTATED
United Coconut Planters Bank vs. Beluso
the Rules of Court nevertheless allows the filing of the second action. Civil
Case No. V-7227 was dismissed by the RTC of Roxas City before the filing
of Case No. 99-314 with the RTC of Makati City, since the venue of
litigation as provided for in the Credit Agreement is in Makati City.
Rule 16, Section 5 bars the refiling of an action previously dismissed
only in the following instances:
“SEC. 5. Effect of dismissal.—Subject to the right of appeal, an order granting a
motion to dismiss based on paragraphs (f), (h) and (i) of section 1 hereof shall bar
the refiling of the same action or claim. (n)”
Improper venue as a ground for the dismissal of an action is found in
paragraph (c) of Section 1, not in paragraphs (f), (h) and (i):
“SECTION 1. Grounds.—Within the time for but before filing the answer to the
complaint or pleading asserting a claim, a motion to dismiss may be made on any
of the following grounds:
1. (a)That the court has no jurisdiction over the person of the defending
party;
2. (b)That the court has no jurisdiction over the subject matter of the claim;
 3. (c)That venue is improperly laid;
4. (d)That the plaintiff has no legal capacity to sue;
5. (e)That there is another action pending between the same parties for the
same cause;
6. (f)That the cause of action is barred by a prior judgment or by the
statute of limitations;
Page |
7. (g)That the pleading asserting the claim states no cause of action;
82
8. (h)That the claim or demand set forth in the plaintiff’spleading
has been paid, waived, abandoned, or otherwise extinguished;
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United Coconut Planters Bank vs. Beluso
1. (i)That the claim on which the action is founded isunenforceable
under the provisions of the statute of frauds; and
2. (j)That a condition precedent for filing the claim has not been complied
with.” (Emphases supplied.)
44
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: 45
“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 firstaction, it may
nevertheless be dismissed if the later action is
_______________
Rules of Court, Rule 16.
44
328 Phil. 710, 718-719; 259 SCRA 371, 377-378 (1996).
45
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604 SUPREME COURT REPORTS ANNOTATED
United Coconut Planters Bank vs. Beluso
the more appropriate vehicle for the ventilation of the issues between the
parties. Thus, in Ramos v. Peralta, it was held:
[T]he rule on litis pendentia does not require that the later case should yield to the earlier
case. What is required merely is that there be another pending action, not a prior pending
action. Considering the broader scope of inquiry involved in Civil Case No. 4102 and the
location of the property involved, no error was committed by the lower court in deferring to
the Bataan court’s jurisdiction.
Given, therefore, the pendency of two actions, the following are the relevant
considerations in determining which action should be dismissed: (1) the date of
filing, with preference generally given to the first action filed to be retained; (2)
whether the action sought to be dismissed was filed merely to preempt the later
action or to anticipate its filing and lay the basis for its dismissal; and (3) whether
the action is the appropriate vehicle for litigating the issues between the parties.”
In the case at bar, Civil Case No. V-7227 before the RTC of Roxas City was
an action for injunction against a foreclosure sale that has already been
held, while Civil Case No. 99-314 before the RTC of Makati City includes
an action for the an-nulment of said foreclosure, an action certainly more
proper in view of the execution of the foreclosure sale. The former case was
improperly filed in Roxas City, while the latter was filed in Makati City,
the proper venue of the action as mandated by the Credit Agreement. It is
evident, therefore, that Civil Case No. 99-314 is the more appropriate
vehicle for litigating the issues between the parties, as compared to Civil
Case No. V-7227. Thus, we rule that the RTC of Makati City was not in
error in not dismissing Civil Case No. 99-314.
WHEREFORE, the Decision of the Court of Appeals is hereby
AFFIRMED with the following MODIFICATIONS:
1. 1.In addition to the sum of P2,350,000.00 as determined by the courts a
quo, respondent spouses Samuel and Odette Beluso are also liable for the
following amounts:
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United Coconut Planters Bank vs. Beluso
1. a.Penalty of 12% per annum on the amount due from the date of demand;
46
and
2. b.Compounded legal interest of 12% per annum on the amount due from 47
date of demand;
 1. 2.The following amounts shall be deducted from the liability of the spouses
Samuel and Odette Beluso:

1. a.Payments made by the spouses in the amount of P763,692.00. These

payments shall be applied to the date of actual payment of the
Page | following in the order that they are listed, to wit:
83
1. i.penalty charges due and demand-able as of the time of payment;
2. ii.interest due and demandable as of the time of payment;
3. iii.principal amortization/payment in arrears as of the time of payment;
4. iv.outstanding balance.

1. b.Penalty under Republic Act No. 3765 in the amount of P26,000.00. This
amount shall be deducted from the liability of the spouses Samuel and
Odette Beluso on 9 February 1999 to the following in the order that
they are listed, to wit:

1. i.penalty charges due and demand-able as of time of payment;

2. ii.interest due and demandable as of the time of payment;
3. iii.principal amortization/payment in arrears as of the time of payment;

_______________

46The amount still due at the time of the application of penalty charges shall take into
account the dates when the amounts in item No. 2 of this fallo shall be deducted.
47The amount still due at the time of the application of the compounded legal interest
shall take into account the dates when the amounts in item No. 2 of this fallo shall be
deducted.
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United Coconut Planters Bank vs. Beluso

1. iv.outstanding balance.

1. 3.The foreclosure of mortgage is hereby declared VALID. Consequently,

the amounts which the Regional Trial Court and the Court of Appeals
ordered respondents to pay, as modified in this Decision, shall be
deducted from the proceeds of the foreclosure sale.

SO ORDERED.
Ynares-Santiago (Chairperson), Austria-Martinezand Nachura,
JJ., concur.
Reyes, J., No part, being the former Chairman of the CA Division
which rendered the assailed Decision.
Judgment affirmed with modifications.