G.R. No.
144169 March 28, 200 an accion pauliana -- an action filed
KHE HONG CHENG, alias FELIX
KHE, SANDRA JOY KHE and RAY
STEVEN KHE, petitioners,
vs.
COURT OF APPEALS, HON.
TEOFILO GUADIZ, RTC 147,
MAKATI CITY and PHILAM
INSURANCE CO.,
INC., respondents.
KAPUNAN, J.:
Before the Court is a Petition for
Review on Certiorari under Rule 45,
seeking to set aside the decision of
the Court of Appeals dated April 10,
2000 and its resolution dated July
11, 2000 denying the motion for
reconsideration of the aforesaid
decision. The original complaint that
is the subject matter of this case is
by Philam Insurance Company, Inc.
(respondent Philam) to rescind or
annul the donations made by
petitioner Khe Hong Cheng allegedly
in fraud of creditors. The main issue
for resolution is whether or not the
action to rescind the donations has
already prescribed. While the first
paragraph of Article 1389 of the Civil
Code states: "The action to claim
rescission must be commenced
within four years..." the question is,
from which point or event does this
prescriptive period commence to
run?
The facts are as follows:
Petitioner Khe Hong Cheng, alias
Felix Khe, is the owner of Butuan
Shipping Lines. It appears that on or
about October 4, 1985, the Philippine
Agricultural Trading Corporation
shipped on board the vessel M/V
PRINCE ERIC, owned by petitioner
Khe Hong Cheng, 3,400 bags of
copra at Masbate, Masbate, for
delivery to Dipolog City, Zamboanga
del Norte. The said shipment of
copra was covered by a marine
insurance policy issued by American
Home Insurance Company
(respondent Philam's assured). M/V
PRINCE ERlC, however, sank
somewhere between Negros Island
and Northeastern Mindanao,
resulting in the total loss of the
shipment. Because of the loss, the
insurer, American Home, paid the
amount of P354,000.00 (the value of
the copra) to the consignee.
1âwphi1.nêt
Having been subrogated into the
rights of the consignee, American
Home instituted Civil Case No.
13357 in the Regional Trial Court
(RTC) of Makati , Branch 147 to
recover the money paid to the
consignee, based on breach of
contract of carriage. While the case
was still pending, or on December
20, 1989, petitioner Khe Hong Cheng
executed deeds of donations of
parcels of land in favor of his
children, herein co-petitioners
Sandra Joy and Ray Steven. The
parcel of land with an area of 1,000
square meters covered by Transfer
Certificate of Title (TCT) No. T-3816
was donated to Ray Steven.
Petitioner Khe Hong Cheng likewise
donated in favor of Sandra Joy two
(2) parcels of land located in Butuan
City, covered by TCT No. RT-12838.
On the basis of said deeds, TCT No.
T-3816 was cancelled and in lieu
thereof, TCT No. T-5072 was issued
in favor of Ray Steven and TCT No.
RT-12838 was cancelled and in lieu
thereof, TCT No. RT-21054 was
issued in the name of Sandra Joy.
The trial court rendered judgment
against petitioner Khe Hong Cheng
in Civil Case No.13357 on December
29, 1993, four years after the
donations were made and the TCTs
were registered in the donees'
names. The decretal portion of the
aforesaid decision reads:
"Wherefore, in view of the
foregoing, the Court hereby
renders judgment in favor of the
plaintiff and against the
defendant, ordering the latter to
pay the former:
1) the sum of P354,000.00
representing the amount paid by
the plaintiff to the Philippine
Agricultural Trading Corporation
with legal interest at 12% from
the time of the filing of the
complaint in this case;
2) the sum of P50,000.00 as
attorney's fees;
3) the costs.1
After the said decision became final
and executory, a writ of execution
was forthwith' issued on September
14, 1995. Said writ of execution
however, was not served.
An alias writ of execution was,
thereafter, applied for and granted in
October 1996. Despite earnest
efforts, the sheriff found no property
under the name of Butuan Shipping
Lines and/or petitioner Khe Hong
Cheng to levy or garnish for the
satisfaction of the trial court's
decision. When the sheriff,
accompanied by counsel of
respondent Philam, went to Butuan
City on January 17, 1997, to enforce
the alias writ of execution, they
discovered that petitioner Khe Hong
Cheng no longer had any property
and that he had conveyed the
subject properties to his children.
On February 25, 1997, respondent
Philam filed a complaint with the
Regional Trial Court of Makati City,
Branch 147, for the rescission of the
deeds of donation executed by
petitioner Khe Hong Cheng in favor
of his children and for the nullification
of their titles (Civil Case No.97-415).
Respondent Philam alleged, inter
alia, that petitioner Khe Hong Cheng
executed the aforesaid deeds in
fraud of his creditors, including
respondent Philam.2
Petitioners subsequently filed their
answer to the complaint a quo. They
moved for its dismissal on the
ground that the action had already
prescribed. They posited that the
registration of the deeds of donation
on December 27, 1989 constituted
constructive notice and since the
complaint a quo was filed only on
February 25, 1997, or more than four
(4) years after said registration, the
action was already barred by
prescription.3
Acting thereon, the trial court denied
the motion to dismiss. It held that
respondent Philam's complaint had
not yet prescribed. According to the
trial court, the prescriptive period
began to run only from December
29, 1993, the date of the decision of
the trial court in Civil Case No.
13357.4
On appeal by petitioners, the CA
affirmed the trial court's decision in
favor of respondent Philam. The CA
declared that the action to rescind
the donations had not yet prescribed.
Citing Articles 1381 and 1383 of the
Civil Code, the CA basically ruled
that the four year period to institute
the action for rescission began to run
only in January 1997, and not when
the decision in the civil case became
final and executory on December 29,
1993. The CA reckoned the accrual
of respondent Philam's cause of
action on January 1997, the time
when it first learned that the
judgment award could not be
satisfied because the judgment
creditor, petitioner Khe Hong Cheng,
had no more properties in his name.
Prior thereto, respondent Philam had
not yet exhausted all legal means for
the satisfaction of the decision in its
favor, as prescribed under Article
1383 of the Civil Code.5
The Court of Appeals thus denied
the petition for certiorari filed before
it, and held that the trial court did not
commit any error in denying
petitioners' motion to dismiss. Their
motion for reconsideration was
likewise dismissed in the appellate
court's resolution dated July 11, HOLDING THAT
2000. PRESCRIPTION BEGINS TO
RUN WHEN IN JANUARY 1997
Petitioners now assail the aforesaid THE SHERIFF WENT TO
decision and resolution of the CA BUTUAN CITY IN SEARCH OF
alleging that: PROPERTIES OF PETITIONER
I FELIX KHE CHENG TO
SATISFY THE JUDGMENT IN
PUBLIC RESPONDENT CIVIL CASE NO.13357 AND
GRAVELY ERRED AND ACTED FOUND OUT THAT AS EARLY
IN GRAVE ABUSE OF AS DEC. 20, 1989,
DISCRETION WHEN IT PETITIONERS KHE CHENG
DENIED THE PETITION TO EXECUTED THE DEEDS OF
DISMISS THE CASE BASED DONATIONS IN FAVOR OF HIS
ON THE GROUND OF CO-PETITIONERS THAT THE
PRESCRIPTION. ACTION FOR RESCISSION
ACCRUED BECAUSE
II PRESCRIPTION BEGAN TO
PUBLIC RESPONDENT RUN WHEN THESE
COURT OF APPEALS DONATIONS WERE
GRAVELY ERRED IN REGISTERED WITH THE
REGISTER OF DEEDS IN
 DECEMBER 1989, AND WHEN
THE COMPLAINT WAS FILED
ONLY IN FEBRUARY 1997,
MORE THAN FOUR YEARS
HAVE ALREADY LAPSED AND
THEREFORE, IT HAS
ALREADY PRESCRIBED.6
Essentially, the issue for resolution
posed by petitioners is this: When
did the four (4) year prescriptive
period as provided for in Article 1389
of the Civil Code for respondent
Philam to file its action for rescission
of the subject deeds of donation
commence to run?
The petition is without merit.
Article 1389 of the Civil Code simply
provides that, "The action to claim
rescission must be commenced
within four years." Since this
provision of law is silent as to when
the prescriptive period would
commence, the general rule, i.e.,
from the moment the cause of action
accrues, therefore, applies. Article
1150 of the Civil Code is particularly
instructive:
Art. 1150. The time for
prescription for all kinds of
actions, when there is no special
provision which ordains
otherwise, shall be counted from
the day they may be brought.
Indeed, this Court enunciated the
principle that it is the legal possibility
of bringing the action which
determines the starting point for the
computation of the prescriptive
period for the action.7 Article 1383 of
the Civil Code provides as follows:
 Art. 1383. An action for
rescission is subsidiary; it cannot
be instituted except when the
party suffering damage has no
other legal means to obtain
reparation for the same.
It is thus apparent that an action to
rescind or an accion pauliana must
be of last resort, availed of only after
all other legal remedies have been
exhausted and have been proven
futile. For an accion pauliana to
accrue, the following requisites must
concur:
1) That the plaintiff asking for
rescission has a credit prior to,
the alienation, although
demandable later; 2) That the
debtor has made a subsequent
contract conveying a patrimonial
benefit to a third person; 3) That
the creditor has no other legal
remedy to satisfy his claim, but
would benefit by rescission of
the conveyance to the third
person; 4) That the act being
impugned is fraudulent; 5) That
the third person who received
the property conveyed, if by
onerous title, has been an
accomplice in the
fraud.8 (Emphasis ours)
We quote with approval the following
disquisition of the CA on the matter:
An accion pauliana accrues only
when the creditor discovers that
he has no other legal remedy for
the satisfaction of his claim
against the debtor other than
an accion pauliana. The accion
pauliana is an action of a last
resort. For as long as the
creditor still has a remedy at law
for the enforcement of his claim
against the debtor, the creditor
will not have any cause of action
against the creditor for
rescission of the contracts
entered into by and between the
debtor and another person or
persons. Indeed, an accion
pauliana presupposes a
judgment and the issuance by
the trial court of a writ of
execution for the satisfaction of
the judgment and the failure of
the Sheriff to enforce and satisfy
the judgment of the court. It
presupposes that the creditor
has exhausted the property of
the debtor. The date of the
decision of the trial court against
the debtor is immaterial. What is
important is that the credit of the
plaintiff antedates that of the
fraudulent alienation by the
debtor of his property. After all,
the decision of the trial court
against the debtor will retroact to
the time when the debtor
became indebted to the
creditor.9
Petitioners, however, maintain that
the cause of action of respondent
Philam against them for the
rescission of the deeds of donation
accrued as early as December 27,
1989, when petitioner Khe Hong
Cheng registered the subject
conveyances with the Register of
Deeds. Respondent Philam allegedly
had constructive knowledge of the
execution of said deeds under
Section 52 of Presidential Decree
No. 1529, quoted infra, as follows:
Section 52. Constructive
knowledge upon registration. -
Every conveyance, mortgage,
lease, lien, attachment, order,
judgment, instrument or entry
affecting registered land shall, if
registered, filed or entered in the
Office of the Register of Deeds
for the province or city where the
land to which it relates lies, be
constructive notice to all persons
from the time of such registering,
filing, or entering.
Petitioners argument that the Civil
Code must yield to the Mortgage and
Registration Laws is misplaced, for in
no way does this imply that the
specific provisions of the former may
be all together ignored. To count the
four year prescriptive period to
rescind an allegedly fraudulent
contract from the date of registration
of the conveyance with the Register
of Deeds, as alleged by the
petitioners, would run counter to
Article 1383 of the Civil Code as well
as settled jurisprudence. It would
likewise violate the third requisite to
file an action for rescission of an
allegedly fraudulent conveyance of
property, i.e., the creditor has no
other legal remedy to satisfy his
claim.
An accion pauliana thus
presupposes the following: 1) A
judgment; 2) the issuance by the trial
court of a writ of execution for the
satisfaction of the judgment, and 3)
the failure of the sheriff to enforce
and satisfy the judgment of the court.
It requires that the creditor has
exhausted the property of the debtor:
The date of the decision of the trial
court is immaterial. What is important
is that the credit of the plaintiff
antedates that of the fraudulent
alienation by the debtor of his
property. After all, the decision of the
trial court against the debtor will
retroact to the time when the debtor
became indebted to the creditor.
Tolentino, a noted civilist, explained:
"xxx[T]herefore, credits with
suspensive term or condition are
excluded, because the accion
pauliana presupposes a
judgment and unsatisfied
execution, which cannot exist
when the debt is not yet
demandable at the time the
rescissory action is brought.
Rescission is a subsidiary
action, which presupposes that
the creditor has exhausted the
property of the debtor which is
impossible in credits which
cannot be enforced because of a
suspensive term or condition.
While it is necessary that the
credit of the plaintiff in
the accion pauliana must be
prior to the fraudulent alienation,
the date of the judgment
enforcing it is immaterial. Even if
the judgment be subsequent to
the alienation, it is merely
declaratory with retroactive
effect to the date when the credit
was constituted."10
These principles were reiterated by
the Court when it explained the
requisites of an accion pauliana in
greater detail, to wit:
"The following successive
measures must be taken by a
creditor before he may bring an
action for rescission of an
allegedly fraudulent sale: (1)
exhaust the properties of the
debtor through levying by
attachment and execution upon
all the property of the debtor,
except such as are exempt from
execution; (2) exercise all the
rights and actions of the debtor,
save those personal to him
(accion subrogatoria); and (3)
seek rescission of the contracts
executed by the debtor in fraud
of their rights (accion
pauliana). Without availing of the
first and second remedies, i.e..
exhausting the properties of the
debtor or subrogating
themselves in Francisco Bareg's
transmissible rights and actions.
petitioners simply: undertook the
third measure and filed an action
for annulment of sale. This
cannot be done."11 (Emphasis
ours)
In the same case, the Court also
quoted the rationale of the CA when
it upheld the dismissal of the accion
pauliana on the basis of lack of
cause of action:
"In this case, plaintiffs
appellants had not even
commenced an action against
defendants-appellees Bareng for
 the collection of the alleged
indebtedness, Plaintiffs-
appellants had not even tried to
exhaust the property of
defendants-appellees Bareng,
Plaintiffs-appellants, in seeking
the rescission of the contracts of
sale entered into between
defendants-appellees, failed to
show and prove that defendants-
appellees Bareng had no other
property, either at the time of the
sale or at the time this action
was filed, out of which they
could have collected this (sic)
debts." (Emphasis ours)
Even if respondent Philam was
aware, as of December 27, 1989,
that petitioner Khe Hong Cheng had
executed the deeds of donation in
favor of his children, the complaint
against Butuan Shipping Lines
and/or petitioner Khe Hong Cheng
was still pending before the trial
court. Respondent Philam had no
inkling, at the time, that the trial
court’s judgment would be in its favor
and further, that such judgment
would not be satisfied due to the
deeds of donation executed by
petitioner Khe Hong Cheng during
the pendency of the case. Had
respondent Philam filed his
complaint on December 27, 1989,
such complaint would have been
dismissed for being premature. Not
only were all other legal remedies for
the enforcement of respondent
Philam's claims not yet exhausted at
the time the needs of donation were
executed and registered.
Respondent Philam would also not
have been able to prove then that
petitioner Khe Hong Cheng had no
more property other than those
covered by the subject deeds to
satisfy a favorable judgment by the
trial court.
It bears stressing that petitioner Khe
Hong Cheng even expressly
declared and represented that he
had reserved to himself property
sufficient to answer for his debts
contracted prior to this date:
"That the DONOR further states,
for the same purpose as
expressed in the next preceding
paragraph, that this donation is
not made with the object of
defrauding his creditors having
reserved to himself property
sufficient to answer his debts
contracted prior to this date".12
As mentioned earlier, respondent
Philam only learned about the
unlawful conveyances made by
petitioner Khe Hong Cheng in
January 1997 when its counsel
accompanied the sheriff to Butuan
City to attach the properties of
petitioner Khe Hong Cheng. There
they found that he no longer had any
properties in his name. It was only
then that respondent Philam's action
for rescission of the deeds of
donation accrued because then it
could be said that respondent Philam
had exhausted all legal means to
satisfy the trial court's judgment in its
favor. Since respondent Philam filed
its complaint for accion
pauliana against petitioners on
February 25, 1997, barely a month
from its discovery that petitioner Khe
Hong Cheng had no other property
to satisfy the judgment award against
him, its action for rescission of the
subject deeds clearly had not yet
prescribed.1âwphi1.nêt
A final point. Petitioners now
belatedly raise on appeal the
defense of improper venue claiming
that respondent Philam's complaint is
a real action and should have been
filed with the RTC of Butuan City
since the property subject matter or
the donations are located therein.
Suffice it to say that petitioners are
already deemed to have waived their
right to question the venue of the
instant case. Improper venue should
be objected to as follows 1) in a
motion to dismiss filed within the time
but before the filing of the
answer;13 or 2) in the answer as an
affirmative defense over which, in the
discretion of the court, a preliminary
hearing may be held as if a motion to
dismiss had been filed.14 Having
failed to either file a motion to
dismiss on the ground of improper of
venue or include the same as an
affirmative defense in their answer,
petitioners are deemed to have their
right to object to improper venue.
WHEREFORE, premises
considered, the petition is
hereby DENIED for lack of merit.
SO ORDERED.
March 8, 2017
G.R. No. 225562
WILLIAM C. LOUH, JR. and IRENE
L. LOUH,, Petitioners
vs
BANK OF THE PHILIPPINE
ISLANDS, Respondent
RESOLUTION
REYES, J.:
Before the Court is the instant
petition for review on certiorari  filed
1 from the use of the credit cards and
by William C. Louh, Jr. (William) and
Irene L. Louh (Irene) (collectively, the
Spouses Louh) to assail the
Decision  and Resolution,  dated
2 3
August 11, 2015 and May 23, 2016,
respectively, of the Court of Appeals
(CA) in CA-G.R. CV No. 100754.
Antecedents
The herein respondent, Bank of the
Philippine Islands (BPI), issued a
credit card in William's name, with
Irene as the extension card holder.
Pursuant to the terms and conditions
of the cards' issuance, 3.5% finance
charge and 6% late payment charge
shall be imposed monthly upon
unpaid credit availments.
4
The Spouses Louh made purchases
paid regularly based on the amounts
indicated in the Statement of
Accounts (SO As). However, they
were remiss in their obligations
starting October 14, 2009.  As of
5
August 15, 2010, their account was
unsettled prompting BPI to send
written demand letters dated August
7, 2010, January 25, 2011 and May
19, 2011. By September 14, 2010,
they owed BPI the total amount of
₱533,836.27. Despite repeated
verbal and written demands, the
Spouses Louh failed to pay BPI. 6
On August 4, 2011, BPI filed before prescribed period, which ended on
the Regional Trial Court (RTC) of March 4, 2012.
Makati City a Complaint  for
7

Collection of a Sum of Money. On July 24, 2012, the RTC issued an

Order  declaring the Spouses Louh
13

On February 21, 2012, William filed in default and setting BPI's ex-

before the RTC a Motion for parte presentation of evidence on
Extension of Time to File an Answer August 7, 2012. The Branch Clerk of
or Responsive Pleading.  In its
8
Court thereafter submitted a
Order  dated February 27, 2012, the
9
Commissioner's Report  dated
14

RTC granted an extension of 15 September 7, 2012, and the RTC

days or up to March 4, 2012, but the considered the case submitted for
Spouses Louh still failed to comply decision on November 27, 2012. 15

within the prescribed period. 10

On November 29, 2012, the RTC

On June 11, 2012, BPI filed a motion rendered a Decision,  the fallo of
16

to declare the Spouses Louh in which ordered the Spouses Louh to

default.  Before the RTC can rule on
11
solidarily pay BPI (1) P533,836.27
BPI's motion, the Spouses Louh filed plus 12% finance and 12% late
an Answer  on July 20, 2012 or more
12
payment annual charges starting
than three months after the from August 7, 2010 until full
payment, and (2) 25% of the amount
due as attorney's fees, plus
₱l,000.00 per court hearing and
₱8,064.00 as filing or docket fees;
and (3) costs of suit. 17
The RTC explained that BPI had
adduced preponderant evidence
proving that the Spouses Louh had
in fact availed of credit
accommodations from the use of the
cards. However, the RTC found the
3.5% finance and 6% late payment
monthly charges  imposed by BPI as
18
iniquitous and unconscionable.
Hence, both charges were reduced
to 1 % monthly. Anent the award of
attorney's fees equivalent to 25% of
the amount due, the RTC found the
same to be within the terms of the
parties' agreement. 19
The Spouses Louh filed a Motion for
Reconsideration,  which the RTC
20
denied in the Order  issued on April
21
8, 2013. The appeal  they filed was
22
likewise denied by the CA in the
herein assailed decision and
resolution.
In affirming in toto the RTC's
judgment, the CA explained that the
Spouses Louh were properly
declared in default for their failure to
file an answer within the
reglementary period. The Spouses
Louh further filed no motion to set
aside the order of default. The CA
also found that BPI had offered
ample evidence, to wit: (1) delivery
receipts pertaining to the credit cards
and the terms and conditions
governing the use thereof signed by
the Spouses Louh; (2) computer-
generated authentic copies of the
SOAs; and (3) demand letters sent
by BPI, which the Spouses Louh
received but ignored. As to the
award of attorney's fees, the CA
ruled that the terms governing the
use of the cards explicitly stated that
should the account be referred to a
collection agency, then 25% of the
amount due shall be charged as
attorney's fees.23
In the herein assailed
Resolution  dated May 23, 2016, the
24
CA denied the Spouses Louh's
Motion for Reconsideration. 25
Issue
Aggrieved, the Spouses Louh are
before the Court raising the sole
issue of whether or not the CA erred
in sustaining BPI's complaint. 26
The Spouses Louh pray for the
dismissal of BPI's suit. They likewise
seek a relaxation of procedural rules
claiming that their failure to file a
timely Answer was due to William's
medical condition, which required
him to undergo a heart by-pass
surgery.  They further alleged that
27
BPI failed to establish its case by
preponderance of evidence.
Purportedly, BPI did not amply prove
that the Spouses Louh had in fact
received and accepted the SO As,
which were, however, unilaterally
prepared by the bank.  They allege
28
the same circumstance as to the
receipt of the demand letters. The
computations likewise did not show
the specific amounts pertaining to
the principal, interests and penalties.
They point out that since their credit
limit was only ₱326,000.00, it is
evident that the amount of
₱533,836.27 demanded by BPI
included unconscionable charges. 29
BPI failed to file a comment to the
instant petition within the prescribed
period, which expired on September
23, 2016.
Ruling of the Court
The Court affirms the herein assailed
decision and resolution, but modifies
the principal amount and attorney's
fees awarded by the RTC and the
CA.
The Spouses Louh reiterate that the
RTC wrongly declared them in
default since by reason of William's
sickness, they were entitled to a
relaxation of the rules. Moreover, BPI
had failed to offer preponderant
evidence relative to the actual
amount of the Spouses Louh's
indebtedness.
The foregoing claims are untenable.
In Magsino v. De Ocampo,  the
30
Court instructs that:
Procedural rules are tools designed
to facilitate the adjudication of cases.
Courts and litigants alike are thus
enjoined to abide strictly by the rules.
And while the Court, in some
instances, allows a relaxation in the
application of the rules, this, we
stress, was never intended to forge a
bastion for erring litigants to violate
the rules with impunity. The liberality
in the interpretation and application
of the rules applies only in proper
cases and under justifiable causes
and circumstances. While it is true
that litigation is not a game of
technicalities, it is equally true that
every case must be prosecuted in
accordance with the prescribed
procedure to insure an orderly and
speedy administration of justice.
Like all rules, procedural rules should
be followed except only when, for
the most persuasive of reasons, they
may be relaxed to relieve a litigant of
an injustice not commensurate with
the degree of his thoughtlessness in
not complying with the prescribed
procedure.
The rules were instituted to be
faithfully complied with, and allowing
them to be ignored or lightly
dismissed to suit the convenience of
a party like the petitioner was
impermissible. Such rules, often
derided as merely technical, are to
be relaxed only in the furtherance of
justice and to benefit the deserving.
Their liberal construction in
exceptional situations should then
rest on a showing of justifiable
reasons and of at least a reasonable
attempt at compliance with
them.xx x.  (Citations omitted and
31
emphasis and italics ours)
In the case at bar, the CA aptly
pointed out that the Spouses Louh
filed their Answer with the RTC only
on July 20, 2012 or more than three
months after the prescribed period,
which expired on March 4, 2012.
When they were thereafter declared
in default, they filed no motion to set
aside the RTC's order, a remedy
which is allowed under Rule 9,
Section 3  of the Rules of Civil
32
Procedure. The Spouses Louh failed
to show that they exerted due
diligence in timely pursuing their
cause so as to entitle them to a
liberal construction of the rules,
which can only be made in
exceptional cases.
The Spouses Louh claim as well that
BPI's evidence are insufficient to
prove the amounts of the former's
obligation; hence, the complaint
should be dismissed. The Court,
in Macalinao v. BPl,  emphatically
33
ruled that:
Considering the foregoing rule,
respondent BPI should not be made
to suffer for petitioner Macalinao's
failure to file an answer and
concomitantly, to allow the latter to
submit additional evidence by
dismissing or remanding the case for
further reception of evidence.
Significantly, petitioner Macalinao
herself admitted the existence of her
obligation to respondent BPI, albeit
with reservation as to the principal
amount. Thus, a dismissal of the
case would cause great injustice to
respondent BPI. Similarly, a remand
of the case for further reception of
evidence would unduly prolong the
proceedings of the instant case and
render inutile the proceedings
conducted before the lower courts. 34
BPI had offered as evidence the (1)
testimony of Account Specialist
Carlito M. Igos, who executed a
Judicial Affidavit in connection with
the case, and (2) documentary
exhibits, which included the (a)
delivery receipts pertaining to the
credit cards and the terms and
conditions governing the use thereof
signed by the Spouses Louh, (b)
computer-generated authentic copies
of the SOAs,  and (c) demand letters
35
sent by BPI, which the Spouses
Louh received.  The Clerk of Court
36
subsequently prepared a
Commissioner's Report, from which
the RTC based its judgment.
The Spouses Louh slept on their
rights to refute BPI's evidence,
including the receipt of the SO As
and demand letters. BPI cannot be
made to pay for the Spouses Louh 's
negligence, omission or belated
actions.
Be that as it may, the Court finds
excessive the principal amount and
attorneys fees awarded by the RTC
and CA. A modification of the
reckoning date relative to the
computation of the charges is in
order too.
In Macalinao,  where BPI charged
37
the credit cardholder of 3.25%
interest and 6% penalty per
month,  and 25% of the total amount
38
due as attorney's fees, the Court
unequivocally declared that:
[T]his is not the first time that this
Court has considered the interest
rate of 36% per annum as excessive
and unconscionable. We held
in Chua vs. Timan:
The stipulated interest rates of 7%
and 5% per month imposed on
respondents' loans must be equitably
reduced to 1% per month or 12% per
annum. We need not unsettle· the
principle we had affirmed in a
plethora of cases that stipulated
interest rates of 3% per month and
higher are excessive, iniquitous,
unconscionable and exorbitant. Such
stipulations are void for being
contrary to morals, if not against the
law. While C.B. Circular No. 905-82,
which took effect on January 1,
1983, effectively removed the ceiling
on interest rates for both secured
and unsecured loans, regardless of
maturity, nothing in the said circular
could possibly be read as
granting carte blanche authority to
lenders to raise interest rates to
levels which would either enslave
their borrowers or lead to a
hemorrhaging of their assets. x x x
Since the stipulation on the interest
rate is void, it is as if there was no
express contract thereon. Hence,
courts may reduce the interest rate
as reason and equity demand.
The same is true with respect to the
penalty charge. x x x Pertinently,
Article 1229 of the Civil Code states:
Art. 1229. The judge shall equitably
reduce the penalty when the
principal obligation has been partly
or irregularly complied with by the
debtor. Even if there has been no
performance, the penalty may also
be reduced by the courts if it is
iniquitous or unconscionable. x x xx
x x x [T]he stipulated penalty charge
of 3% per month or 36% per annum,
in addition to regular interests, is
indeed iniquitous and
unconscionable.  (Citations and
39
emphasis in the original omitted, and
emphasis ours)
Thus, in Macalinao, the Court
reduced both the interest and penalty
charges to 12% each, and the
attorney's fees to ₱l0,000.00.
In MCMP Construction Corp. v.
Monark Equipment Corp.,  the
40
creditor cumulatively charged the
debtor 60% annually as interest,
penalty and collection fees, and 25%
of the total amount due as attorney's
fees. The Court similarly found the
rates as exorbitant and
unconscionable; hence, directed the
reduction of the annual interest to
12%, penalty and collection charges
to 6%, and attorney's fees to 5%.
The Court explained that attorney's
fees are in the nature of liquidated
damages, which under Article 2227
of the New Civil Code, "shall be
equitably reduced if they are
iniquitos or unconscionable."
41
In the case at bench, BPI imposed a
cumulative annual interest of 114%,
plus 25% of the amount due as
attorney's fees. Inevitably, the RTC
and the CA aptly reduced the
charges imposed by BPI upon the
Spouses Louh. Note that
incorporated in the amount of
₱533,836.27 demanded by BPI as
the Spouses Louh's obligation as of
August 7, 2010 were the higher rates
of finance and late payment charges,
which the comis a quo had properly
directed to be reduced.
In the SOA  dated October 14, 2009,
42
the principal amount indicated was
₱l13,756.83. In accordance
with Macalinao, the finance and late
payment charges to be imposed on
the principal amount of ₱l13,756.83
are reduced to 12% each per
annum, reckoned from October 14,
2009, the date when the Spouses
Louh became initially remiss in the
payment of their obligation to BPI,
until full payment.
Anent BPI's litigation expenses, the
Court retains the RTC and CA' s
disquisition awarding ₱5,064.00 as
filing or docket fees, and costs of
suit.
However, the Court reduces the
attorney's fees to five percent (5%) of
the total amount due from the
Spouses Louh pursuant
to MCMP  and Article 2227 of the
43
New Civil Code.
WHEREFORE, the Decision and
Resolution, dated August 11, 2015
and May 23, 2016, respectively, of
the Court of Appeals in CA-G.R. CV
No. 100754, finding the Spouses
William and Irene Louh liable to the
Bank of the Philippine Islands for the
payment of their past credit
availments, plus finance and late
payment charges of 12% each per
annum, ₱5,064.00 as filing or docket
fees, and costs of suit,
are AFFIRMED. The principal
amount due, reckoning period of the
computation of finance and late
payment charges, and attorney's
fees are, however, MODIFIED as
follows:
(1) the principal amount due is Pl
13,756.83 as indicated in the
Statement of Account dated October
14, 2009;
(2) finance and late payment charges
of twelve percent (12%) each per
annum shall be computed from
October 14, 2009 until full payment;
and
(3) five percent (5%) of the total
amount due is to be paid as
attorney's fees.
SO ORDERED.