Cases On Loan

THIRD DIVISION
[G.R. No. 130994. September 18, 2002]
SPOUSES FELIMON and MARIA BARRERA, petitioners, vs. SPOUSES

EMILIANO and MARIA CONCEPCION LORENZO, respondents.
DECISION
SANDOVAL-GUTIERREZ, J.:
On December 4, 1990, spouses Felimon and Maria Barrera, petitioners,

borrowed P230,000.00 from spouses Miguel and Mary Lazaro. The loan was
secured by a real estate mortgage[1] over petitioners residential lot consisting
of 432 square meters located at Bunlo, Bocaue, Bulacan and registered in
their names under Transfer Certificate of Title (TCT) T-42.373 (M)[2] of the
Registry of Deeds of Bulacan.
A month and a half later, the Lazaro spouses needed money and
informed petitioners that they would transfer the loan to spouses Emiliano
and Maria Concepcion Lorenzo, respondents. Consequently, on May 14,
1991, petitioners executed another real estate mortgage[3] over their lot, this
time in favor of the respondents to secure the loan of P325,000.00, which
the latter claimed as the amount they paid spouses Lazaro. The mortgage
contract provides, among others, that the new loan shall be payable within
three (3) months, or until August 14, 1991; that it shall earn interest at 5%
per month; and that should petitioners fail to pay their loan within the said
period, the mortgage shall be foreclosed.
When petitioners failed to pay their loan in full on August 14, 1991,
respondents allowed them to complete their payment until December 23,
1993. On this date, they made a total payment of P687,000.00.
On January 17, 1994, respondents wrote petitioners demanding payment
of P325,000.00, plus interest, otherwise they would foreclose the
mortgage.[4] In turn, petitioners responded, claiming that they have overpaid
their obligation and demanding the return of their land title and refund of their
excess payment.[5] This prompted respondents to file a petition[6] for
extrajudicial foreclosure of mortgage with the Office of the Ex-Officio Sheriff,
Malolos, Bulacan, docketed therein as EJF 19-94.
For their part, petitioners filed with the Regional Trial Court (RTC), Branch
17, Malolos, Bulacan, a complaint for the return of their TCT No. T-42.373
(M), sum of money and damages, with application for a temporary restraining
order and preliminary injunction, docketed as Civil Case No. 156-M-94.[7]
In their opposition[8] to the application for a preliminary injunction,
respondents alleged that petitioners loan has been restructured three times
and that their unpaid balance as of March 14, 1994 was P543,622.00.
After hearing petitioners application for a preliminary injunction, the RTC
issued an order,[9] enjoining the sheriff from proceeding with the foreclosure
of mortgage, upon their posting of a bond in the amount of P543,622.00.
Thereafter, trial on the merits ensued.
On July 31, 1995, the RTC rendered judgment,[10] the dispositive portion
of which reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor

of the plaintiffs (now petitioners) and against the defendants (now
respondents), ordering the latter:
1. to return to the plaintiffs the amount of P215,750.00 representing the

overpaid amount;
2. to return to the plaintiffs the owners copy of TCT No. T-42.373 (M)
offered as security;
3. to pay P20,000.000 as attorneys fees;
4. to pay the costs of the suit.
The writ of preliminary injunction issued on March 21, 1994 is hereby made
permanent.
SO ORDERED."[11]
The trial court held that the stipulated 5% monthly interest to be paid by
petitioners corresponds only to the period from May 14, 1991 up to August
14, 1991, the term of the loan. Thereafter, the monthly interest should be
12% per annum. The trial court concluded that petitioners made an
overpayment of P214,750.00.
Upon appeal, docketed as CA GR-CV No. 51095, the Court of Appeals,
in a Decision[12] dated June 18, 1997, held:
We reverse.
The law and jurisprudence clearly provide that if the debt produces interest,
payment of the principal shall not be deemed to have been made until the
interests have been covered. (Article 1253, New Civil Code; Gobonseng,
Jr. vs. Court of Appeals, 246 SCRA 472). Once it is admitted that an
obligation bears interest, partial payments are to be applied first on account
of the interest and then to reduce the principal. (San Jose vs. Ortega, 11
Phil. 442; Sunico vs. Ramirez, 14 Phil. 500). We thus find no support,
whether in law or in jurisprudence, for the Decision of the court a quo to
apply the bigger amounts of P40,000.00, P37,000.00, P50,000.00 among
others, given several times by the Barrera spouses x x x for the payment of
the principal loan when the interests due on the loan that have
accumulated through the years have not been fully satisfied.
We also do not agree that the stipulated monthly interest of 5% was to

apply only to the 3-month effectivity period of the loan. This is a flawed and
a grossly unfair interpretation of the terms and conditions of the agreement
of the parties. To rule in this wise is to sanction the irregular performance of
ones obligation. The Barrera spouses will be emboldened not to pay their
loan within the agreed period of 3-months since on the fourth month and
thereafter, they do not have to pay anymore the 5% monthly interest, but
only the 12% legal interest per annum, or a measly 1% interest per
month. Such an interpretation is totally unfair and unjust to the creditors
who could have used their money in some other ways. Until such time that
the Barreras have fully paid their total indebtedness, the 5% monthly
interest subsists, there being no stipulation to the contrary.
While we commiserate with the plight of the Barrera spouses, we cannot

change the terms of the loan agreement between them and the Lorenzos
as the courts have no right to make contracts for (the) parties. (Tolentino
and Manio vs. Gonzales Sy Chian, 5 Phil. 577). A contract is the law
between the parties which not even this Court can interfere with. The only
requirement is that the same be not contrary to law, morals and good
customs x x x (Article 1306, New Civil Code). We find the agreement to pay
a 5% monthly interest until the loan is fully paid to be reasonable and
sanctioned by regular usage and practice.
The Barreras should, therefore, be required to pay the balance of their

indebtedness, including the interests thereof. Failure to pay the same
should warrant the foreclosure of their mortgaged property to satisfy their
obligation to the Lorenzo spouses.[13]
Petitioners filed a motion for reconsideration but was denied.[14]

Hence this petition.
The sole issue for our resolution is whether the 5% monthly interest on
the loan was only for three (3) months, or from May 14, 1991 up to August
14, 1991, as maintained by petitioners, or until the loan was fully paid, as
claimed by respondents.
When the terms of a contract are clear and leave no doubt as to the
intention of the contracting parties, the literal meaning of its stipulations
governs.[15] In such cases, courts have no authority to alter a contract by
construction or to make a new contract for the parties; its duty is confined to
the interpretation of the one which they have made for themselves without
regard to its wisdom or folly as the court cannot supply material stipulations
or read into the contract words which it does not contain.[16] It is only when
the contract is vague and ambiguous that courts are permitted to resort to
construction of its terms and determine the intention of the parties therein.
The salient provisions of the mortgage contract read:
a) Ang sanglaang ito ay sa loob lamang ng tatlong (3) buwan, o
hanggang sa Agosto 14, 1991.
b) Ang tubo na aming napagkasunduan ay 5%, o cinco por
ciento isang buwan.
c) Na sakaling mabayaran ko ang aming pagkakautang sa mag-
asawa na P325,000.00 ang kasulatang ito ay wala ng lakas at
kabuluhan, subalit kung hindi ko mabayaran ang aming
pinagkakautangan sa takdang panahong 3 buwan sila ay
binibigyan ko nang laya at kapangyarihan na masubasta nila ang
lupang aming ipinanagot sa labas ng hukuman sa bisa ng Batas
Blg. 3135 at susog nito at akong may utang ang siyang sagot sa
lahat ng gastos at pati bayad sa abogado sa nasabing subasta sa
labas ng hukuman.[17] (emphasis supplied)
It is clear from the above stipulations that the loan shall be payable within
three (3) months, or from May 14, 1991 up to August 14, 1991. During such
period, the loan shall earn an interest of 5% per month. Furthermore, the
contract shall have no force and effect once the loan shall have been fully
paid within the three-month period, otherwise, the mortgage shall be
foreclosed extrajudicially under Act No. 3135.
Records show that upon maturity of the loan on August 14, 1991,
petitioners failed to pay their entire obligation. Instead of exercising their right
to have the mortgage foreclosed, respondents allowed petitioners to pay the
loan on a monthly installment basis until December, 1993. It bears emphasis
that there is no written agreement between the parties that the loan will
continue to bear 5% monthly interest beyond the agreed three-month
period. Respondent Ma. Concepcion Lorenzo testified as follows:
Atty. Marcos:
Q Now, based on this document which was marked as Exh. 1, there is
no dispute that the monthly interest for the three month period that is
from May 14, 1991 to August 14, 1991 is 5% monthly interest, there
is no dispute about that. Now, Miss Witness, my question is, could
you go over the entire document that Exh. 1 and please tell this Hon.
Court whether there is a provision in clear and unequivocal terms
providing for that monthly interest after August 14, 1991?
A No, sir, there is none.
Q Are you sure of that?
A Yes, sir.
Q You mean to say there is no stipulation in that document providing for
the 5% monthly interest to the loan after August 14, 1991?
A Yes, sir, they are supposed to return my money.
Court:
Q After they failed to comply with that provision, was there any
subsequent agreement between you and the plaintiffs?
xxx
Q Was there an agreement?
A There was, your Honor.
Q What was that agreement about?
A Verbal agreement, your Honor?
Q Why was that agreement not reduced into writing?
A It was not reduced into writing, your Honor.
Q Why?
A I am in good faith, your Honor.[18]
Article 1956 of the Civil Code mandates that (n)o interest shall be
due unless it has been expressly stipulated in writing. Applying this
provision, the trial court correctly held that the monthly interest of 5%
corresponds only to the three-month period of the loan, or from May 14, 1991
to August 14, 1991, as agreed upon by the parties in writing. Thereafter, the
interest rate for the loan is 12% per annum. In Eastern Shipping Lines, Inc.
vs. Court of Appeals,[19] this Court laid down the following doctrine:
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. (emphasis
supplied)
The above ruling was reiterated in Sulit vs. Court of Appeals,[20] Crismina
Garments vs. Court of Appeals,[21] Eastern Assurance and Surety
Corporation vs. Court of Appeals,[22] Catungal vs. Hao,[23] and Yong et al. vs.
Tiu et al..[24] Thus, the Court of Appeals erred in reversing the RTC Decision
and holding that the 5% monthly interest should be paid by petitioners even
beyond August 14, 1991.
WHEREFORE, the assailed Decision of the Court of Appeals dated June
18, 1997 and its Resolution dated October 17, 1997 are REVERSED and
SET ASIDE. The Decision of the Regional Trial Court, Branch 17, Malolos,
Bulacan dated July 31, 1995 is REINSTATED.
SO ORDERED.
Puno, (Chairman), Panganiban, Corona, and Carpio-Morales,
JJ., concur.
THIRD DIVISION
SEBASTIAN SIGA-AN, G.R. No. 173227

Petitioner,
Present:
YNARES-SANTIAGO,
Chairperson,
AUSTRIA-MARTINEZ,
-versus CHICO-NAZARIO,
NACHURA, and
LEONARDO-DE CASTRO,* JJ.
Promulgated:
ALICIA VILLANUEVA,
Respondent. January 20, 2009
x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION
CHICO-NAZARIO, J.:
Before Us is a Petition[1] for Review on Certiorari under Rule 45 of the

Rules of Court seeking to set aside the Decision,[2] dated 16 December 2005,
and Resolution,[3] dated 19 June 2006 of the Court of Appeals in CA-G.R.
CV No. 71814, which affirmed in toto the Decision,[4] dated 26 January 2001,
of the Las Pinas City Regional Trial Court, Branch 255, in Civil Case No. LP-
98-0068.
The facts gathered from the records are as follows:

On 30 March 1998, respondent Alicia Villanueva filed a complaint[5] for
sum of money against petitioner Sebastian Siga-an before the Las Pinas City
Regional Trial Court (RTC), Branch 255, docketed as Civil Case No. LP-98-
0068. Respondent alleged that she was a businesswoman engaged in
supplying office materials and equipments to the Philippine Navy Office
(PNO) located at Fort Bonifacio, Taguig City, while petitioner was a military
officer and comptroller of the PNO from 1991 to 1996.
Respondent claimed that sometime in 1992, petitioner approached her

inside the PNO and offered to loan her the amount of P540,000.00. Since
she needed capital for her business transactions with the PNO, she accepted
petitioners proposal. The loan agreement was not reduced in writing. Also,
there was no stipulation as to the payment of interest for the loan.[6]
On 31 August 1993, respondent issued a check worth P500,000.00 to

petitioner as partial payment of the loan. On 31 October 1993, she issued
another check in the amount of P200,000.00 to petitioner as payment of the
remaining balance of the loan. Petitioner told her that since she paid a total
amount of P700,000.00 for the P540,000.00 worth of loan, the excess
amount of P160,000.00 would be applied as interest for the loan. Not
satisfied with the amount applied as interest, petitioner pestered her to pay
additional interest. Petitioner threatened to block or disapprove her
transactions with the PNO if she would not comply with his demand. As all
her transactions with the PNO were subject to the approval of petitioner as
comptroller of the PNO, and fearing that petitioner might block or unduly
influence the payment of her vouchers in the PNO, she conceded. Thus, she
paid additional amounts in cash and checks as interests for the loan. She
asked petitioner for receipt for the payments but petitioner told her that it was
not necessary as there was mutual trust and confidence between them.
According to her computation, the total amount she paid to petitioner for the
loan and interest accumulated to P1,200,000.00.[7]
Thereafter, respondent consulted a lawyer regarding the propriety of
paying interest on the loan despite absence of agreement to that effect. Her
lawyer told her that petitioner could not validly collect interest on the loan
because there was no agreement between her and petitioner regarding
payment of interest. Since she paid petitioner a total amount
of P1,200,000.00 for the P540,000.00 worth of loan, and upon being advised
by her lawyer that she made overpayment to petitioner, she sent a demand
letter to petitioner asking for the return of the excess amount of P660,000.00.
Petitioner, despite receipt of the demand letter, ignored her claim for
reimbursement.[8]
Respondent prayed that the RTC render judgment ordering petitioner

to pay respondent (1) P660,000.00 plus legal interest from the time of
demand; (2) P300,000.00 as moral damages; (3) P50,000.00 as exemplary
damages; and (4) an amount equivalent to 25% of P660,000.00 as attorneys
fees.[9]
In his answer[10] to the complaint, petitioner denied that he offered a

loan to respondent. He averred that in 1992, respondent approached and
asked him if he could grant her a loan, as she needed money to finance her
business venture with the PNO. At first, he was reluctant to deal with
respondent, because the latter had a spotty record as a supplier of the PNO.
However, since respondent was an acquaintance of his officemate, he
agreed to grant her a loan. Respondent paid the loan in full.[11]
Subsequently, respondent again asked him to give her a loan. As

respondent had been able to pay the previous loan in full, he agreed to grant
her another loan. Later, respondent requested him to restructure the
payment of the loan because she could not give full payment on the due
date. He acceded to her request. Thereafter, respondent pleaded for another
restructuring of the payment of the loan. This time he rejected her plea. Thus,
respondent proposed to execute a promissory note wherein she would
acknowledge her obligation to him, inclusive of interest, and that she would
issue several postdated checks to guarantee the payment of her obligation.
Upon his approval of respondents request for restructuring of the loan,
respondent executed a promissory note dated 12 September 1994 wherein
she admitted having borrowed an amount of P1,240,000.00, inclusive of
interest, from petitioner and that she would pay said amount in March 1995.
Respondent also issued to him six postdated checks amounting
to P1,240,000.00 as guarantee of compliance with her obligation.
Subsequently, he presented the six checks for encashment but only one
check was honored. He demanded that respondent settle her obligation, but
the latter failed to do so. Hence, he filed criminal cases for Violation of the
Bouncing Checks Law (Batas Pambansa Blg. 22) against respondent. The
cases were assigned to the Metropolitan Trial Court of Makati City, Branch
65 (MeTC).[12]
Petitioner insisted that there was no overpayment because respondent

admitted in the latters promissory note that her monetary obligation as of 12
September 1994 amounted to P1,240,000.00 inclusive of interests. He
argued that respondent was already estopped from complaining that she
should not have paid any interest, because she was given several times to
settle her obligation but failed to do so. He maintained that to rule in favor of
respondent is tantamount to concluding that the loan was given interest-
free. Based on the foregoing averments, he asked the RTC to dismiss
respondents complaint.
After trial, the RTC rendered a Decision on 26 January 2001 holding

that respondent made an overpayment of her loan obligation to petitioner
and that the latter should refund the excess amount to the former. It
ratiocinated that respondents obligation was only to pay the loaned amount
of P540,000.00, and that the alleged interests due should not be included in
the computation of respondents total monetary debt because there was no
agreement between them regarding payment of interest. It concluded that
since respondent made an excess payment to petitioner in the amount
of P660,000.00 through mistake, petitioner should return the said amount to
respondent pursuant to the principle of solutio indebiti.[13]
The RTC also ruled that petitioner should pay moral damages for the
sleepless nights and wounded feelings experienced by respondent. Further,
petitioner should pay exemplary damages by way of example or correction
for the public good, plus attorneys fees and costs of suit.
The dispositive portion of the RTC Decision reads:
WHEREFORE, in view of the foregoing evidence and in the

light of the provisions of law and jurisprudence on the matter,
judgment is hereby rendered in favor of the plaintiff and against
the defendant as follows:
(1) Ordering defendant to pay plaintiff the amount

of P660,000.00 plus legal interest of 12% per annum computed
from 3 March 1998 until the amount is paid in full;
of P300,000.00 as moral damages;

of P50,000.00 as exemplary damages;

equivalent to 25% of P660,000.00 as attorneys fees; and
(5) Ordering defendant to pay the costs of suit.[14]
Petitioner appealed to the Court of Appeals. On 16 December 2005,

the appellate court promulgated its Decision affirming in toto the RTC
Decision, thus:
WHEREFORE, the foregoing considered, the instant

appeal is hereby DENIED and the assailed decision [is]
AFFIRMED in toto.[15]
Petitioner filed a motion for reconsideration of the appellate courts
decision but this was denied.[16] Hence, petitioner lodged the instant petition
before us assigning the following errors:
I.
THE RTC AND THE COURT OF APPEALS ERRED IN RULING

THAT NO INTEREST WAS DUE TO PETITIONER;
II.
THE RTC AND THE COURT OF APPEALS ERRED IN

APPLYING THE PRINCIPLE OF SOLUTIO INDEBITI.[17]
Interest is a compensation fixed by the parties for the use or

forbearance of money. This is referred to as monetary interest. Interest may
also be imposed by law or by courts as penalty or indemnity for damages.
This is called compensatory interest.[18] The right to interest arises only by
virtue of a contract or by virtue of damages for delay or failure to pay the
principal loan on which interest is demanded.[19]
Article 1956 of the Civil Code, which refers to monetary

interest,[20] specifically mandates that no interest shall be due unless it has
been expressly stipulated in writing. As can be gleaned from the foregoing
provision, payment of monetary interest is allowed only if: (1) there was an
express stipulation for the payment of interest; and (2) the agreement for the
payment of interest was reduced in writing. The concurrence of the two
conditions is required for the payment of monetary interest. Thus, we have
held that collection of interest without any stipulation therefor in writing is
prohibited by law.[21]
It appears that petitioner and respondent did not agree on the payment
of interest for the loan. Neither was there convincing proof of written
agreement between the two regarding the payment of interest. Respondent
testified that although she accepted petitioners offer of loan amounting
to P540,000.00, there was, nonetheless, no verbal or written agreement for
her to pay interest on the loan.[22]
Petitioner presented a handwritten promissory note dated 12

September 1994[23] wherein respondent purportedly admitted owing
petitioner capital and interest. Respondent, however, explained that it was
petitioner who made a promissory note and she was told to copy it in her
own handwriting; that all her transactions with the PNO were subject to the
approval of petitioner as comptroller of the PNO; that petitioner threatened
to disapprove her transactions with the PNO if she would not pay interest;
that being unaware of the law on interest and fearing that petitioner would
make good of his threats if she would not obey his instruction to copy the
promissory note, she copied the promissory note in her own handwriting; and
that such was the same promissory note presented by petitioner as alleged
proof of their written agreement on interest.[24] Petitioner did not rebut the
foregoing testimony. It is evident that respondent did not really consent to
the payment of interest for the loan and that she was merely tricked and
coerced by petitioner to pay interest. Hence, it cannot be gainfully said that
such promissory note pertains to an express stipulation of interest or written
agreement of interest on the loan between petitioner and respondent.
Petitioner, nevertheless, claims that both the RTC and the Court of
Appeals found that he and respondent agreed on the payment of 7% rate of
interest on the loan; that the agreed 7% rate of interest was duly admitted by
respondent in her testimony in the Batas Pambansa Blg. 22 cases he filed
against respondent; that despite such judicial admission by respondent, the
RTC and the Court of Appeals, citing Article 1956 of the Civil Code, still held
that no interest was due him since the agreement on interest was not
reduced in writing; that the application of Article 1956 of the Civil Code should
not be absolute, and an exception to the application of such provision should
be made when the borrower admits that a specific rate of interest was agreed
upon as in the present case; and that it would be unfair to allow respondent
to pay only the loan when the latter very well knew and even admitted in the
Batas Pambansa Blg. 22 cases that there was an agreed 7% rate of interest
on the loan.[25]
We have carefully examined the RTC Decision and found that the RTC
did not make a ruling therein that petitioner and respondent agreed on the
payment of interest at the rate of 7% for the loan. The RTC clearly stated
that although petitioner and respondent entered into a valid oral contract of
loan amounting to P540,000.00, they, nonetheless, never intended the
payment of interest thereon.[26] While the Court of Appeals mentioned in its
Decision that it concurred in the RTCs ruling that petitioner and respondent
agreed on a certain rate of interest as regards the loan, we consider this as
merely an inadvertence because, as earlier elucidated, both the RTC and
the Court of Appeals ruled that petitioner is not entitled to the payment of
interest on the loan. The rule is that factual findings of the trial court deserve
great weight and respect especially when affirmed by the appellate
court.[27] We found no compelling reason to disturb the ruling of both courts.
Petitioners reliance on respondents alleged admission in the Batas

Pambansa Blg. 22 cases that they had agreed on the payment of interest at
the rate of 7% deserves scant consideration. In the said case, respondent
merely testified that after paying the total amount of loan, petitioner ordered
her to pay interest.[28] Respondent did not categorically declare in the same
case that she and respondent made an express stipulation in writing as
regards payment of interest at the rate of 7%. As earlier discussed, monetary
interest is due only if there was an express stipulation in writing for the
payment of interest.
There are instances in which an interest may be imposed even in the

absence of express stipulation, verbal or written, regarding payment of
interest. Article 2209 of the Civil Code states that if the obligation consists in
the payment of a sum of money, and the debtor incurs delay, a legal interest
of 12% per annum may be imposed as indemnity for damages if no
stipulation on the payment of interest was agreed upon. Likewise, Article
2212 of the Civil Code provides that interest due shall earn legal interest from
the time it is judicially demanded, although the obligation may be silent on
this point.
All the same, the interest under these two instances may be imposed
only as a penalty or damages for breach of contractual obligations. It cannot
be charged as a compensation for the use or forbearance of money. In other
words, the two instances apply only to compensatory interest and not to
monetary interest.[29] The case at bar involves petitioners claim for monetary
interest.
Further, said compensatory interest is not chargeable in the instant

case because it was not duly proven that respondent defaulted in paying the
loan. Also, as earlier found, no interest was due on the loan because there
was no written agreement as regards payment of interest.
Apropos the second assigned error, petitioner argues that the principle
of solutio indebiti does not apply to the instant case. Thus, he cannot be
compelled to return the alleged excess amount paid by respondent as
interest.[30]
Under Article 1960 of the Civil Code, if the borrower of loan pays
interest when there has been no stipulation therefor, the provisions of the
Civil Code concerning solutio indebiti shall be applied. Article 2154 of the
Civil Code explains the principle of solutio indebiti. Said provision provides
that if something is received when there is no right to demand it, and it was
unduly delivered through mistake, the obligation to return it arises. In such a
case, a creditor-debtor relationship is created under a quasi-contract
whereby the payor becomes the creditor who then has the right to demand
the return of payment made by mistake, and the person who has no right to
receive such payment becomes obligated to return the same. The quasi-
contract of solutio indebiti harks back to the ancient principle that no one
shall enrich himself unjustly at the expense of another.[31] The principle
of solutio indebiti applies where (1) a payment is made when there exists no
binding relation between the payor, who has no duty to pay, and the person
who received the payment; and (2) the payment is made through mistake,
and not through liberality or some other cause.[32] We have held that the
principle of solutio indebiti applies in case of erroneous payment of undue
interest.[33]
It was duly established that respondent paid interest to

petitioner. Respondent was under no duty to make such payment because
there was no express stipulation in writing to that effect. There was no
binding relation between petitioner and respondent as regards the payment
of interest. The payment was clearly a mistake. Since petitioner received
something when there was no right to demand it, he has an obligation to
return it.
We shall now determine the propriety of the monetary award and

damages imposed by the RTC and the Court of Appeals.
Records show that respondent received a loan amounting

to P540,000.00 from petitioner.[34] Respondent issued two checks with a total
worth of P700,000.00 in favor of petitioner as payment of the loan.[35] These
checks were subsequently encashed by petitioner.[36] Obviously, there was
an excess of P160,000.00 in the payment for the loan. Petitioner claims that
the excess of P160,000.00 serves as interest on the loan to which he was
entitled. Aside from issuing the said two checks, respondent also paid cash
in the total amount of P175,000.00 to petitioner as interest.[37] Although no
receipts reflecting the same were presented because petitioner refused to
issue such to respondent, petitioner, nonetheless, admitted in his Reply-
Affidavit[38] in the Batas Pambansa Blg. 22 cases that respondent paid him a
total amount of P175,000.00 cash in addition to the two checks. Section 26
Rule 130 of the Rules of Evidence provides that the declaration of a party as
to a relevant fact may be given in evidence against him. Aside from the
amounts of P160,000.00 and P175,000.00 paid as interest, no other proof of
additional payment as interest was presented by respondent. Since we have
previously found that petitioner is not entitled to payment of interest and that
the principle of solutio indebiti applies to the instant case, petitioner should
return to respondent the excess amount of P160,000.00 and P175,000.00 or
the total amount of P335,000.00. Accordingly, the reimbursable amount to
respondent fixed by the RTC and the Court of Appeals should be reduced
from P660,000.00 to P335,000.00.
As earlier stated, petitioner filed five (5) criminal cases for violation of
Batas Pambansa Blg. 22 against respondent. In the said cases, the MeTC
found respondent guilty of violating Batas Pambansa Blg. 22 for issuing five
dishonored checks to petitioner. Nonetheless, respondents conviction
therein does not affect our ruling in the instant case. The two checks, subject
matter of this case, totaling P700,000.00 which respondent claimed as
payment of the P540,000.00 worth of loan, were not among the five checks
found to be dishonored or bounced in the five criminal cases. Further, the
MeTC found that respondent made an overpayment of the loan by reason of
the interest which the latter paid to petitioner.[39]
Article 2217 of the Civil Code provides that moral damages may be
recovered if the party underwent physical suffering, mental anguish, fright,
serious anxiety, besmirched reputation, wounded feelings, moral shock,
social humiliation and similar injury. Respondent testified that she
experienced sleepless nights and wounded feelings when petitioner refused
to return the amount paid as interest despite her repeated demands. Hence,
the award of moral damages is justified. However, its corresponding amount
of P300,000.00, as fixed by the RTC and the Court of Appeals, is exorbitant
and should be equitably reduced. Article 2216 of the Civil Code instructs that
assessment of damages is left to the discretion of the court according to the
circumstances of each case. This discretion is limited by the principle that
the amount awarded should not be palpably excessive as to indicate that it
was the result of prejudice or corruption on the part of the trial court. [40] To
our mind, the amount of P150,000.00 as moral damages is fair, reasonable,
and proportionate to the injury suffered by respondent.
Article 2232 of the Civil Code states that in a quasi-contract, such

as solutio indebiti, exemplary damages may be imposed if the defendant
acted in an oppressive manner. Petitioner acted oppressively when he
pestered respondent to pay interest and threatened to block her transactions
with the PNO if she would not pay interest. This forced respondent to pay
interest despite lack of agreement thereto. Thus, the award of exemplary
damages is appropriate. The amount of P50,000.00 imposed as exemplary
damages by the RTC and the Court is fitting so as to deter petitioner and
other lenders from committing similar and other serious wrongdoings.[41]
Jurisprudence instructs that in awarding attorneys fees, the trial court

must state the factual, legal or equitable justification for awarding the
same.[42] In the case under consideration, the RTC stated in its Decision that
the award of attorneys fees equivalent to 25% of the amount paid as interest
by respondent to petitioner is reasonable and moderate considering the
extent of work rendered by respondents lawyer in the instant case and the
fact that it dragged on for several years.[43] Further, respondent testified that
she agreed to compensate her lawyer handling the instant case such
amount.[44] The award, therefore, of attorneys fees and its amount equivalent
to 25% of the amount paid as interest by respondent to petitioner is proper.
Finally, the RTC and the Court of Appeals imposed a 12% rate of legal
interest on the amount refundable to respondent computed from 3 March
1998 until its full payment. This is erroneous.
We held in Eastern Shipping Lines, Inc. v. Court of Appeals,[45] that

when an obligation, not constituting a loan or forbearance of money is
breached, an interest on the amount of damages awarded may be imposed
at the rate of 6% per annum. We further declared that when the judgment of
the court awarding a sum of money becomes final and executory, the rate of
legal interest, whether it is a loan/forbearance of money or not, shall be 12%
per annum from such finality until its satisfaction, this interim period being
deemed equivalent to a forbearance of credit.
In the present case, petitioners obligation arose from a quasi-contract

of solutio indebiti and not from a loan or forbearance of money. Thus, an
interest of 6% per annum should be imposed on the amount to be refunded
as well as on the damages awarded and on the attorneys fees, to be
computed from the time of the extra-judicial demand on 3 March 1998,[46] up
to the finality of this Decision. In addition, the interest shall become 12% per
annum from the finality of this Decision up to its satisfaction.
WHEREFORE, the Decision of the Court of Appeals in CA-G.R. CV

No. 71814, dated 16 December 2005, is hereby AFFIRMED with the
following MODIFICATIONS: (1) the amount of P660,000.00 as refundable
amount of interest is reduced to THREE HUNDRED THIRTY FIVE
THOUSAND PESOS (P335,000.00); (2) the amount of P300,000.00
imposed as moral damages is reduced to ONE HUNDRED FIFTY
THOUSAND PESOS (P150,000.00); (3) an interest of 6% per annum is
imposed on the P335,000.00, on the damages awarded and on the attorneys
fees to be computed from the time of the extra-judicial demand on 3 March
1998 up to the finality of this Decision; and (4) an interest of 12% per annum
is also imposed from the finality of this Decision up to its satisfaction. Costs
against petitioner.
SO ORDERED.
MINITA V. CHICO-NAZARIO
Associate Justice
WE CONCUR:
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson
MA. ALICIA AUSTRIA-MARTINEZ ANTONIO EDUARDO B. NACHURA

Associate Justice Associate Justice
TERESITA J. LEONARDO-DE CASTRO

Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision were reached in

consultation before the case was assigned to the writer of the opinion of the
Courts Division.
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson, Third Division
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division
Chairpersons Attestation, it is hereby certified that the conclusions in the
above Decision were reached in consultation before the case was assigned
to the writer of the opinion of the Courts Division.
REYNATO S. PUNO
Chief Justice
Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 187678 April 10, 2013
SPOUSES IGNACIO F. JUICO and ALICE P. JUICO, Petitioners,

vs.
CHINA BANKING CORPORATION, Respondent.
DECISION
VILLARAMA, JR., J.:
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 sums of !!6,216,000 and ₱4, 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 ₱19,201,776.63 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
₱10,300,000.
On May 8, 2001, petitioners received8 a demand letter9 dated May 2, 2001

from respondent for the payment of ₱8,901,776.63, 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) ₱8,901,776.63 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 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 ₱10,300,000. Petitioners contended that should they be held
liable for any deficiency, it should be only for ₱55,000 representing the
difference between the total outstanding obligation of ₱10,355,000 and the
bid price of ₱10,300,000. 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
₱100,000 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 ₱19,201,776.6312 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
1âwphi1
Principal balance of PN# 5070010520. . . . . . . . . . . . .
. 4,139,000.00
Interest on ₱4,139,000.00 fr. 04-Nov-99
04-Nov-2000 366 days @ 15.00%. . . . . . . . . . . . . . . . . 622,550.96
04-Dec-2000 30 days @ 24.50%. . . . . . . . . . . . . . . . . . 83,346.99
Interest on ₱4,139,000.00 fr. 04-Dec-2000
04-Jan-2001 31 days @ 21.50%. . . . . . . . . . . . . . . . . .
. 75,579.27
Interest on ₱4,139,000.00 fr. 04-Jan-2001
04-Feb-2001 31 days @ 19.50%. . . . . . . . . . . . . . . . . . 68,548.64
Interest on ₱4,139,000.00 fr. 04-Feb-2001
23-Feb-2001 19 days @ 18.00%. . . . . . . . . . . . . . . . . . 38,781.86
Penalty charge @ 1/10 of 1% of the total amount due
(₱4,139,000.00 from 11-04-99 to 02-23-2001 @
1/10 of 1% per day). . . . . . . . . . . . . . . . . 1,974,303.00
Sub-total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,002,110.73
PN# 507-0010513 due on 04-07-2004
Principal balance of PN# 5070010513. . . . . . . . . . . . .
. 6,216,000.00
Interest on ₱6,216,000.00 fr. 06-Oct-99
04-Nov-2000 395 days @ 15.00%. . . . . . . . . . . . . . . . . 1,009,035.62
04-Dec-2000 30 days @ 24.50%. . . . . . . . . . . . . . . . . . 125,171.51
Interest on ₱6,216,000.00 fr. 04-Dec-2000
04-Jan-2001 31 days @ 21.50%. . . . . . . . . . . . . . . . . .
. 113,505.86
Interest on ₱6,216,000.00 fr. 04-Jan-2001
04-Feb-2001 31 days @ 19.50%. . . . . . . . . . . . . . . . . . 102,947.18
Interest on ₱6,216,000.00 fr. 04-Feb-2001
23-Feb-2001 19 days @ 18.00%. . . . . . . . . . . . . . . . . . 58,243.07
Penalty charge @ 1/10 of 1% of the total amount due
(₱6,216,000.00 from 10-06-99 to 02-23-2001 @
1/10 of 1% per day). . . . . . . . . . . . . . . . . 3,145,296.00
10,770,199.2
Subtotal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
17,772,309.9
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Less: A/P applied to balance of principal (55,000.00)
17,456,160.5
Less: Accounts payable L & D (261,149.39) 7
Add: 10% Attorney’s Fee 1,745,616.06
19,201,776.6
Total amount due 3
10,300,000.0
Less: Bid Price 0
TOTAL DEFICIENCY AMOUNT AS OF
13
FEB. 23, 2001 8,901,776.63
Petitioners thereafter received a demand letter14 dated May 2, 2001 from

respondent’s counsel for the deficiency amount of ₱8,901,776.63. Ms. Yu
further testified that based on the Statement of Account15 dated March 15,
2002 which she prepared, the outstanding balance of petitioners was
₱15,190,961.48.16
On cross-examination, Ms. Yu reiterated that the interest rate changes

every month based on the prevailing market rate and she notified
petitioners of the prevailing rate by calling them monthly before their
account becomes past due. When asked if there was any written authority
from petitioners for respondent to increase the interest rate unilaterally, she
answered that petitioners signed a promissory note indicating that they
agreed to pay interest at the prevailing rate.17
Petitioner Ignacio F. Juico testified that prior to the release of the loan, he
was required to sign a blank promissory note and was informed that the
interest rate on the loan will be based on prevailing market rates. Every
month, respondent informs him by telephone of the prevailing interest rate.
At first, he was able to pay his monthly amortizations but when he 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
obligation under them before he signed the same.19
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. ₱8,901,776.63 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
The trial court agreed with respondent that when the mortgaged property
was sold at public auction on February 23, 2001 for ₱10,300,000 there
remained a balance of ₱8,901,776.63 since before foreclosure, the total
amount due on the two promissory notes aggregated to ₱19,201,776.63
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
₱8,901,776.63.
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 commercial 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 "no interest shall be due unless it has been
expressly stipulated in writing."
The binding effect of any agreement between parties to a contract is

premised on two settled principles: (1) that any obligation arising from
contract has the force of law between the parties; and (2) that there must
be mutuality between the parties based on their essential equality. Any
contract which appears to be heavily weighed in favor of one of the parties
so as to lead to an unconscionable result is void. Any stipulation regarding
the validity or compliance of the contract which is left solely to the will of
one of the parties, is likewise, invalid.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
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 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 case30 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 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.34While 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."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 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
account with Solidbank belonging to any one of us. The adjustment of the
interest rate shall be effective from the date indicated in the written notice
sent to us by the bank, or if no date is indicated, from the time the notice
was sent.
6. Should We/I disagree to the interest rate adjustment, We/I shall prepay
all amounts due under this Note or Loan within thirty (30) days from the
receipt by anyone of us of the written notice. Otherwise, We/I shall be
deemed to have given our consent to the interest rate adjustment."
The stipulations on interest rate repricing are valid because (1) the parties
mutually agreed on said stipulations; (2) repricing takes effect only upon
Solidbank’s written notice to Permanent of the new interest rate; and (3)
Permanent has the option to prepay its loan if Permanent and Solidbank do
not agree on the new interest rate. The phrases "irrevocably authorize," "at
any time" and "adjustment of the interest rate shall be effective from the
date indicated in the written notice sent to us by the bank, or if no date is
indicated, from the time the notice was sent," emphasize that Permanent
should receive a written notice from Solidbank as a condition for the
adjustment of the interest rates. (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.
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.42 (Emphasis supplied.)
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’ 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 the
foregoing provisions of the promissory notes. In fact, petitioner Ignacio, a
physician engaged in the medical supply business, admitted having
understood his obligations before signing them. At no time did petitioners
protest the new rates imposed on their loan even when their property was
foreclosed by respondent.
This notwithstanding, 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.45
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.46 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.
Based on the August 29, 2000 demand letter of China Bank, petitioners’
total principal obligation under the two promissory notes which they failed
to settle is ₱10,355,000. However, due to China Bank’s unilateral increases
in the interest rates from 15% to as high as 24.50% and penalty charge of
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 ₱19,201,776.63.
Note that the original amount of principal loan almost doubled in only 16
months. The Court also finds the penalty charges imposed excessive and
arbitrary, hence the same is hereby reduced to 1% per month or 12% per
annum.1âwphi1
Petitioners’ Statement of Account, as of February 23, 2001, the date of the

foreclosure proceedings, should thus be modified as follows:
Principal ₱10,355,000.00
Interest at 15% per annum
₱10,355,000 x .15 x 477 days/365 days 2,029,863.70
Penalty at 12% per annum 1,623 ,890. 96
₱10,355,000 x .12 x 477days/365 days
Sub-Total 14,008,754.66
Less: A/P applied to balance of principal (55,000.00)
Less: Accounts payable L & D (261,149.39)
13,692,605.27
Add: Attorney's Fees 1,369,260.53
Total Amount Due 15,061,865.79
Less: Bid Price 10,300,000.00
TOTAL DEFICIENCY AMOUNT 4,761,865.79
WHEREFORE, the petition for review on certiorari is PARTLY GRANTED.

The February 20, 2009 · Decision and April 27, 2009 Resolution of the
Court of Appeals in CA G.R. CV No. 80338 are hereby MODIFIED.
Petitioners Spouses Ignacio F. Juico and Alice P. Juico are hereby
ORDERED to pay jointly and severally respondent China Banking
Corporation ₱4, 7 61 ,865. 79 representing the amount of deficiency
inclusive of interest, penalty charge and attorney's fees. Said amount shall
bear interest at 12% per annum, reckoned from the time of the filing of the
complaint until its full satisfaction.
No pronouncement as to costs.
SO ORDERED.
MARTIN S. VILLARAMA, JR.

Associate Justice
WE CONCUR:
MARIA LOURDES P. A. SERENO

Chief Justice
Chairperson
TERESITA J. LEONARDO-DE
LUCAS P. BERSAMIN
CASTRO
Associate Justice
Associate Justice
BIENVENIDO L. REYES
Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the 1987 Constitution, I certify that
the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Court's
Division.

Chief Justice
Footnotes
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 47.
3
Id. at 48-51. Penned by Judge Maria Cristina J. Cornejo.
4
Records, p. 36.
5
Id. at 35.
6
Id. at 60-62.
7
Id. at 55-56.
8
Id. at 66.
9
Id. at 63-64.
10
Id. at 1-5.
11
Id. at 17-19.
12
TSN, April 1, 2002, pp. 6-18, 30-33.
13
Records, pp. 8-9.
14
Id. at 63-64.
15
Id. at 67-68.
16
TSN, April 1, 2002, pp. 20-23.
17
Id. at 27-35.
18
TSN, April 4, 2003, pp. 8-17.
19
Id. at 18-23.
20
Rollo, p. 51.
21
Sps. Almeda v. Court of Appeals, 326 Phil. 309, 316 (1996).
22
Sps. Florendo v. Court of Appeals, 333 Phil. 535, 543 (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.
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 (1991).
26
Supra note 22, at 348, 354-355 & 358.
27
Supra note 22, at 137-138.
28
Supra note 25, at 797, 798.
29
As cited in Philippine National Bank v. Court of Appeals, 328 Phil.
54, 61-62 (1996).
30
Philippine National Bank v. Court of Appeals, supra note 25, at 22.
31
Supra note 29, at 63.
32
Supra note 25, at 529, 533-535.
33
Id. at 537.
34
New Sampaguita Builders Construction, Inc. (NSBCI) v. Philippine
National Bank, 479 Phil. 483, 497-498 (2004).
35
Id. at 498, citing Imperial v. Jaucian, 471 Phil. 484, 494 (2004),
further citing Spouses Solangon v. Salazar, 412 Phil. 816, 822
(2001), and Sps. Almeda v. Court of Appeals, supra note 21, at 319.
36
Records, pp. 35-36.
37
G.R. No. 148325, September 3, 2007, 532 SCRA 43.
38
Id. at 50-51.
39
G.R. No. 171925, July 23, 2010, 625 SCRA 275, 284-285.
40
Supra note 36.
41
357 Phil. 250 (1998).
42
Id. at 260.
43
Bangko Sentral ng Pilipinas v. Santamaria, 443 Phil. 108, 119
(2003), citing Art. 1374, Civil Code.
44
<www.bsp.gov.ph/downloads/publications/faqs/intrates.pdf>
(visited April 3, 2013).
45
New Sampaguita Builders Construction, Inc. v. Philippine National
Bank, supra note 34, at 497.
46
See Philippine National Bank v. Rocamora, G.R. No. 164549,
September 18, 2009, 600 SCRA 395, 407, citing Banco Filipino
Savings & Mortgage Bank v. Navarro, supra note 22.
The Lawphil Project - Arellano Law Foundation
CONCURRING OPINION
SERENO, J.:
I fully concur with the majority that the increases in interest rates
unilaterally imposed by China Bank without petitioners' assent violates the
principle of mutuality of contracts. This principle renders void a contract
containing a provision that makes its fulfillment exclusively dependent upon
the uncontrolled will of one of the contracting parties.1 In this case, the
provision reads:
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.2 It 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,5citing 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
adjudging 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 I% per month until the
amount/s or installments/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.10 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 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

creditors and debtors in the drafting of valid escalation clauses. Firstly, as a
matter of equity and consistent with P.O. 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. 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.

Chief Justice
Footnotes
1
See Decision citing Garcia v. Rita Legarda, Inc., 128 Phil. 590, 594-
595 ( 1967).
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.
4
Insular Bank of Asia and America v. Spouses Salazar, 242 Phil.
757, 761 (1988); Philippine National Bank v. Spouses Rocamora,
G.R. No. 164549, 18 September 2009, 600 SCRA 395, 406.
5
408 Phil. 803 (2001).
6
357 Phil. 250 (1998).
7
8
Lotto Restaurant Corporation v. BPI Family Savings Bank, Inc.,
G.R. No. 177260, 30 March 20 II, 646 SCRA 699.
9
Banco Filipino Savings and Mortgage Bank v. Judge Navarro, 236
Phil. 370 (1987); Equitable PCI Bank v. Ng Sheung Ngor, G.R. No.
171545, 19 December 2007, 541 SCRA 223, 241.
SUPREME COURT
Manila
EN BANC
G.R. No. 97412 July 12, 1994
EASTERN SHIPPING LINES, INC., petitioner,

vs.
HON. COURT OF APPEALS AND MERCANTILE INSURANCE
COMPANY, INC., respondents.
Alojada & Garcia and Jimenea, Dala & Zaragoza for petitoner.
Zapa Law Office for private respondent.
VITUG, J.:
The issues, albeit not completely novel, are: (a) whether or not a claim for
damage sustained on a shipment of goods can be a solidary, or joint and
several, liability of the common carrier, the arrastre operator and the
customs broker; (b) whether the payment of legal interest on an award for
loss or damage is to be computed from the time the complaint is filed or
from the date the decision appealed from is rendered; and (c) whether the
applicable rate of interest, referred to above, is twelve percent (12%) or six
percent (6%).
The findings of the court a quo, adopted by the Court of Appeals, on the
antecedent and undisputed facts that have led to the controversy are
hereunder reproduced:
This is an action against defendants shipping company,

arrastre operator and broker-forwarder for damages sustained
by a shipment while in defendants' custody, filed by the insurer-
subrogee who paid the consignee the value of such
losses/damages.
On December 4, 1981, two fiber drums of riboflavin were
shipped from Yokohama, Japan for delivery vessel "SS
EASTERN COMET" owned by defendant Eastern Shipping
Lines under Bill of Lading
No. YMA-8 (Exh. B). The shipment was insured under plaintiff's
Marine Insurance Policy No. 81/01177 for P36,382,466.38.
Upon arrival of the shipment in Manila on December 12, 1981,

it was discharged unto the custody of defendant Metro Port
Service, Inc. The latter excepted to one drum, said to be in bad
order, which damage was unknown to plaintiff.
On January 7, 1982 defendant Allied Brokerage Corporation

received the shipment from defendant Metro Port Service, Inc.,
one drum opened and without seal (per "Request for Bad Order
Survey." Exh. D).
On January 8 and 14, 1982, defendant Allied Brokerage

Corporation made deliveries of the shipment to the consignee's
warehouse. The latter excepted to one drum which contained
spillages, while the rest of the contents was adulterated/fake
(per "Bad Order Waybill" No. 10649, Exh. E).
Plaintiff contended that due to the losses/damage sustained by

said drum, the consignee suffered losses totaling P19,032.95,
due to the fault and negligence of defendants. Claims were
presented against defendants who failed and refused to pay the
same (Exhs. H, I, J, K, L).
As a consequence of the losses sustained, plaintiff was

compelled to pay the consignee P19,032.95 under the
aforestated marine insurance policy, so that it became
subrogated to all the rights of action of said consignee against
defendants (per "Form of Subrogation", "Release" and
Philbanking check, Exhs. M, N, and O). (pp. 85-86, Rollo.)
There were, to be sure, other factual issues that confronted both courts.
Here, the appellate court said:
Defendants filed their respective answers, traversing the

material allegations of the complaint contending that: As for
defendant Eastern Shipping it alleged that the shipment was
discharged in good order from the vessel unto the custody of
Metro Port Service so that any damage/losses incurred after
the shipment was incurred after the shipment was turned over
to the latter, is no longer its liability (p. 17, Record); Metroport
averred that although subject shipment was discharged unto its
custody, portion of the same was already in bad order (p. 11,
Record); Allied Brokerage alleged that plaintiff has no cause of
action against it, not having negligent or at fault for the
shipment was already in damage and bad order condition when
received by it, but nonetheless, it still exercised extra ordinary
care and diligence in the handling/delivery of the cargo to
consignee in the same condition shipment was received by it.
From the evidence the court found the following:
The issues are:
1. Whether or not the shipment sustained

losses/damages;
2. Whether or not these losses/damages were

sustained while in the custody of defendants (in
whose respective custody, if determinable);
3. Whether or not defendant(s) should be held liable

for the losses/damages (see plaintiff's pre-Trial
Brief, Records, p. 34; Allied's pre-Trial Brief,
adopting plaintiff's Records, p. 38).
As to the first issue, there can be no doubt that the

shipment sustained losses/damages. The two
drums were shipped in good order and condition, as
clearly shown by the Bill of Lading and Commercial
Invoice which do not indicate any damages drum
that was shipped (Exhs. B and C). But when on
December 12, 1981 the shipment was delivered to
defendant Metro Port Service, Inc., it excepted to
one drum in bad order.
Correspondingly, as to the second issue, it follows
that the losses/damages were sustained while in the
respective and/or successive custody and
possession of defendants carrier (Eastern), arrastre
operator (Metro Port) and broker (Allied Brokerage).
This becomes evident when the Marine Cargo
Survey Report (Exh. G), with its "Additional Survey
Notes", are considered. In the latter notes, it is
stated that when the shipment was "landed on
vessel" to dock of Pier # 15, South Harbor, Manila
on December 12, 1981, it was observed that "one
(1) fiber drum (was) in damaged condition, covered
by the vessel's Agent's Bad Order Tally Sheet
No. 86427." The report further states that when
defendant Allied Brokerage withdrew the shipment
from defendant arrastre operator's custody on
January 7, 1982, one drum was found opened
without seal, cello bag partly torn but contents
intact. Net unrecovered spillages was
15 kgs. The report went on to state that when the
drums reached the consignee, one drum was found
with adulterated/faked contents. It is obvious,
therefore, that these losses/damages occurred
before the shipment reached the consignee while
under the successive custodies of defendants.
Under Art. 1737 of the New Civil Code, the common
carrier's duty to observe extraordinary diligence in
the vigilance of goods remains in full force and
effect even if the goods are temporarily unloaded
and stored in transit in the warehouse of the carrier
at the place of destination, until the consignee has
been advised and has had reasonable opportunity
to remove or dispose of the goods (Art. 1738, NCC).
Defendant Eastern Shipping's own exhibit, the
"Turn-Over Survey of Bad Order Cargoes" (Exhs. 3-
Eastern) states that on December 12, 1981 one
drum was found "open".
and thus held:

WHEREFORE, PREMISES CONSIDERED,
judgment is hereby rendered:
A. Ordering defendants to pay plaintiff, jointly and severally:
1. The amount of P19,032.95, with the present legal

interest of 12% per annum from October 1, 1982,
the date of filing of this complaints, until fully paid
(the liability of defendant Eastern Shipping, Inc.
shall not exceed US$500 per case or the CIF value
of the loss, whichever is lesser, while the liability of
defendant Metro Port Service, Inc. shall be to the
extent of the actual invoice value of each package,
crate box or container in no case to exceed
P5,000.00 each, pursuant to Section 6.01 of the
Management Contract);
2. P3,000.00 as attorney's fees, and
3. Costs.
B. Dismissing the counterclaims and

crossclaim of defendant/cross-claimant
Allied Brokerage Corporation.
SO ORDERED. (p. 207, Record).
Dissatisfied, defendant's recourse to US.
The appeal is devoid of merit.
After a careful scrutiny of the evidence on record. We find that

the conclusion drawn therefrom is correct. As there is sufficient
evidence that the shipment sustained damage while in the
successive possession of appellants, and therefore they are
liable to the appellee, as subrogee for the amount it paid to the
consignee. (pp. 87-89, Rollo.)
The Court of Appeals thus affirmed in toto the judgment of the court
a quo.
In this petition, Eastern Shipping Lines, Inc., the common carrier, attributes
error and grave abuse of discretion on the part of the appellate court when
—
I. IT HELD PETITIONER CARRIER JOINTLY AND

SEVERALLY LIABLE WITH THE ARRASTRE OPERATOR
AND CUSTOMS BROKER FOR THE CLAIM OF PRIVATE
RESPONDENT AS GRANTED IN THE QUESTIONED
DECISION;
II. IT HELD THAT THE GRANT OF INTEREST ON THE CLAIM

OF PRIVATE RESPONDENT SHOULD COMMENCE FROM
THE DATE OF THE FILING OF THE COMPLAINT AT THE
RATE OF TWELVE PERCENT PER ANNUM INSTEAD OF
FROM THE DATE OF THE DECISION OF THE TRIAL COURT
AND ONLY AT THE RATE OF SIX PERCENT PER ANNUM,
PRIVATE RESPONDENT'S CLAIM BEING INDISPUTABLY
UNLIQUIDATED.
The petition is, in part, granted.
In this decision, we have begun by saying that the questions raised by

petitioner carrier are not all that novel. Indeed, we do have a fairly good
number of previous decisions this Court can merely tack to.
The common carrier's duty to observe the requisite diligence in the

shipment of goods lasts from the time the articles are surrendered to or
unconditionally placed in the possession of, and received by, the carrier for
transportation until delivered to, or until the lapse of a reasonable time for
their acceptance by, the person entitled to receive them (Arts. 1736-1738,
Civil Code; Ganzon vs. Court of Appeals, 161 SCRA 646; Kui Bai vs. Dollar
Steamship Lines, 52 Phil. 863). When the goods shipped either are lost or
arrive in damaged condition, a presumption arises against the carrier of its
failure to observe that diligence, and there need not be an express finding
of negligence to hold it liable (Art. 1735, Civil Code; Philippine National
Railways vs. Court of Appeals, 139 SCRA 87; Metro Port Service vs. Court
of Appeals, 131 SCRA 365). There are, of course, exceptional cases when
such presumption of fault is not observed but these cases, enumerated in
Article 17341 of the Civil Code, are exclusive, not one of which can be
applied to this case.
The question of charging both the carrier and the arrastre operator with the
obligation of properly delivering the goods to the consignee has, too, been
passed upon by the Court. In Fireman's Fund Insurance vs. Metro Port
Services (182 SCRA 455), we have explained, in holding the carrier and
the arrastre operator liable in solidum, thus:
The legal relationship between the consignee and the arrastre

operator is akin to that of a depositor and warehouseman (Lua
Kian v. Manila Railroad Co., 19 SCRA 5 [1967]. The
relationship between the consignee and the common carrier is
similar to that of the consignee and the arrastre operator
(Northern Motors, Inc. v. Prince Line, et al., 107 Phil. 253
[1960]). Since it is the duty of the ARRASTRE to take good
care of the goods that are in its custody and to deliver them in
good condition to the consignee, such responsibility also
devolves upon the CARRIER. Both the ARRASTRE and the
CARRIER are therefore charged with the obligation to deliver
the goods in good condition to the consignee.
We do not, of course, imply by the above pronouncement that the arrastre

operator and the customs broker are themselves always and necessarily
liable solidarily with the carrier, or vice-versa, nor that attendant facts in a
given case may not vary the rule. The instant petition has been brought
solely by Eastern Shipping Lines, which, being the carrier and not having
been able to rebut the presumption of fault, is, in any event, to be held
liable in this particular case. A factual finding of both the court a quo and
the appellate court, we take note, is that "there is sufficient evidence that
the shipment sustained damage while in the successive possession of
appellants" (the herein petitioner among them). Accordingly, the liability
imposed on Eastern Shipping Lines, Inc., the sole petitioner in this case, is
inevitable regardless of whether there are others solidarily liable with it.
It is over the issue of legal interest adjudged by the appellate court that
deserves more than just a passing remark.
Let us first see a chronological recitation of the major rulings of this Court:
The early case of Malayan Insurance Co., Inc., vs. Manila Port
Service,2 decided3 on 15 May 1969, involved a suit for recovery of money
arising out of short deliveries and pilferage of goods. In this case, appellee
Malayan Insurance (the plaintiff in the lower court) averred in its complaint
that the total amount of its claim for the value of the undelivered goods
amounted to P3,947.20. This demand, however, was neither established in
its totality nor definitely ascertained. In the stipulation of facts later entered
into by the parties, in lieu of proof, the amount of P1,447.51 was agreed
upon. The trial court rendered judgment ordering the appellants
(defendants) Manila Port Service and Manila Railroad Company to pay
appellee Malayan Insurance the sum of P1,447.51 with legal interest
thereon from the date the complaint was filed on 28 December 1962 until
full payment thereof. The appellants then assailed, inter alia, the award of
legal interest. In sustaining the appellants, this Court ruled:
Interest upon an obligation which calls for the payment of

money, absent a stipulation, is the legal rate. Such interest
normally is allowable from the date of demand, judicial or
extrajudicial. The trial court opted for judicial demand as the
starting point.
But then upon the provisions of Article 2213 of the Civil Code,
interest "cannot be recovered upon unliquidated claims or
damages, except when the demand can be established with
reasonable certainty." And as was held by this Court in Rivera
vs. Perez,4 L-6998, February 29, 1956, if the suit were for
damages, "unliquidated and not known until definitely
ascertained, assessed and determined by the courts after proof
(Montilla c. Corporacion de P.P. Agustinos, 25 Phil. 447;
Lichauco v. Guzman,
38 Phil. 302)," then, interest "should be from the date of the
decision." (Emphasis supplied)
The case of Reformina vs. Tomol,5 rendered on 11 October 1985, was for
"Recovery of Damages for Injury to Person and Loss of Property." After
trial, the lower court decreed:
WHEREFORE, judgment is hereby rendered in favor of the

plaintiffs and third party defendants and against the defendants
and third party plaintiffs as follows:
Ordering defendants and third party plaintiffs Shell and Michael,

Incorporated to pay jointly and severally the following persons:
xxx xxx xxx
(g) Plaintiffs Pacita F. Reformina and Francisco Reformina the

sum of P131,084.00 which is the value of the boat F B Pacita III
together with its accessories, fishing gear and equipment minus
P80,000.00 which is the value of the insurance recovered and
the amount of P10,000.00 a month as the estimated monthly
loss suffered by them as a result of the fire of May 6, 1969 up to
the time they are actually paid or already the total sum of
P370,000.00 as of June 4, 1972 with legal interest from the
filing of the complaint until paid and to pay attorney's fees of
P5,000.00 with costs against defendants and third party
plaintiffs. (Emphasis supplied.)
On appeal to the Court of Appeals, the latter modified the amount of

damages awarded but sustained the trial court in adjudging legal
interest from the filing of the complaint until fully paid. When the
appellate court's decision became final, the case was remanded to
the lower court for execution, and this was when the trial court issued
its assailed resolution which applied the 6% interest per
annum prescribed in Article 2209 of the Civil Code. In their petition for
review on certiorari, the petitioners contended that Central Bank
Circular
No. 416, providing thus —
By virtue of the authority granted to it under Section 1 of Act

2655, as amended, Monetary Board in its Resolution No. 1622
dated July 29, 1974, has prescribed that the rate of interest for
the loan, or forbearance of any money, goods, or credits and
the rate allowed in judgments, in the absence of express
contract as to such rate of interest, shall be twelve (12%)
percent per annum. This Circular shall take effect immediately.
(Emphasis found in the text) —
should have, instead, been applied. This Court6 ruled:
The judgments spoken of and referred to are judgments in

litigations involving loans or forbearance of any money, goods
or credits. Any other kind of monetary judgment which has
nothing to do with, nor involving loans or forbearance of any
money, goods or credits does not fall within the coverage of the
said law for it is not within the ambit of the authority granted to
the Central Bank.
xxx xxx xxx
Coming to the case at bar, the decision herein sought to be

executed is one rendered in an Action for Damages for injury to
persons and loss of property and does not involve any loan,
much less forbearances of any money, goods or credits. As
correctly argued by the private respondents, the law applicable
to the said case is Article 2209 of the New Civil Code which
reads —
Art. 2209. — If the obligation consists in the

payment of a sum of money, and the debtor incurs
in delay, the indemnity for damages, there being no
stipulation to the contrary, shall be the payment of
interest agreed upon, and in the absence of
stipulation, the legal interest which is six percent per
annum.
The above rule was reiterated in Philippine Rabbit Bus Lines, Inc.,
v. Cruz,7 promulgated on 28 July 1986. The case was for damages
occasioned by an injury to person and loss of property. The trial court
awarded private respondent Pedro Manabat actual and compensatory
damages in the amount of P72,500.00 with legal interest thereon from the
filing of the complaint until fully paid. Relying on the Reformina
v. Tomol case, this Court8 modified the interest award from 12% to 6%
interest per annum but sustained the time computation thereof, i.e., from
the filing of the complaint until fully paid.
In Nakpil and Sons vs. Court of Appeals,9 the trial court, in an action for the
recovery of damages arising from the collapse of a building, ordered,
inter alia, the "defendant United Construction Co., Inc. (one of the
petitioners)
. . . to pay the plaintiff, . . . , the sum of P989,335.68 with interest at the
legal rate from November 29, 1968, the date of the filing of the complaint
until full payment . . . ." Save from the modification of the amount granted
by the lower court, the Court of Appeals sustained the trial court's decision.
When taken to this Court for review, the case, on 03 October 1986, was
decided, thus:
WHEREFORE, the decision appealed from is hereby

MODIFIED and considering the special and environmental
circumstances of this case, we deem it reasonable to render a
decision imposing, as We do hereby impose, upon the
defendant and the third-party defendants (with the exception of
Roman Ozaeta) a solidary (Art. 1723, Civil Code, Supra.
p. 10) indemnity in favor of the Philippine Bar Association of
FIVE MILLION (P5,000,000.00) Pesos to cover all damages
(with the exception to attorney's fees) occasioned by the loss of
the building (including interest charges and lost rentals) and an
additional ONE HUNDRED THOUSAND (P100,000.00) Pesos
as and for attorney's fees, the total sum being payable upon the
finality of this decision. Upon failure to pay on such finality,
twelve (12%) per cent interest per annum shall be imposed
upon aforementioned amounts from finality until paid. Solidary
costs against the defendant and third-party defendants (Except
Roman Ozaeta). (Emphasis supplied)
A motion for reconsideration was filed by United Construction,

contending that "the interest of twelve (12%) per cent per
annum imposed on the total amount of the monetary award was in
contravention of law." The Court10 ruled out the applicability of the
Reformina and Philippine Rabbit Bus Lines cases and, in its
resolution of 15 April 1988, it explained:
There should be no dispute that the imposition of 12% interest

pursuant to Central Bank Circular No. 416 . . . is applicable only
in the following: (1) loans; (2) forbearance of any money, goods
or credit; and
(3) rate allowed in judgments (judgments spoken of refer to
judgments involving loans or forbearance of any money, goods
or credits. (Philippine Rabbit Bus Lines Inc. v. Cruz, 143 SCRA
160-161 [1986]; Reformina v. Tomol, Jr., 139 SCRA 260
[1985]). It is true that in the instant case, there is neither a loan
or a forbearance, but then no interest is actually imposed
provided the sums referred to in the judgment are paid upon the
finality of the judgment. It is delay in the payment of such final
judgment, that will cause the imposition of the interest.
It will be noted that in the cases already adverted to, the rate of
interest is imposed on the total sum, from the filing of the
complaint until paid; in other words, as part of the judgment for
damages. Clearly, they are not applicable to the instant case.
(Emphasis supplied.)
The subsequent case of American Express International, Inc.,

vs. Intermediate Appellate Court11 was a petition for review
on certiorari from the decision, dated 27 February 1985, of the then
Intermediate Appellate Court reducing the amount of moral and exemplary
damages awarded by the trial court, to P240,000.00 and P100,000.00,
respectively, and its resolution, dated 29 April 1985, restoring the amount
of damages awarded by the trial court, i.e., P2,000,000.00 as moral
damages and P400,000.00 as exemplary damages with interest thereon at
12% per annum from notice of judgment, plus costs of suit. In a decision of
09 November 1988, this Court, while recognizing the right of the private
respondent to recover damages, held the award, however, for moral
damages by the trial court, later sustained by the IAC, to be inconceivably
large. The Court12 thus set aside the decision of the appellate court and
rendered a new one, "ordering the petitioner to pay private respondent the
sum of One Hundred Thousand (P100,000.00) Pesos as moral damages,
with
six (6%) percent interest thereon computed from the finality of this decision
until paid. (Emphasis supplied)
Reformina came into fore again in the 21 February 1989 case of Florendo
v. Ruiz13 which arose from a breach of employment contract. For having
been illegally dismissed, the petitioner was awarded by the trial court moral
and exemplary damages without, however, providing any legal interest
thereon. When the decision was appealed to the Court of Appeals, the
latter held:
WHEREFORE, except as modified hereinabove the decision of

the CFI of Negros Oriental dated October 31, 1972 is affirmed
in all respects, with the modification that defendants-appellants,
except defendant-appellant Merton Munn, are ordered to pay,
jointly and severally, the amounts stated in the dispositive
portion of the decision, including the sum of P1,400.00 in
concept of compensatory damages, with interest at the legal
rate from the date of the filing of the complaint until fully
paid(Emphasis supplied.)
The petition for review to this Court was denied. The records were
thereupon transmitted to the trial court, and an entry of judgment was
made. The writ of execution issued by the trial court directed that only
compensatory damages should earn interest at 6% per annum from
the date of the filing of the complaint. Ascribing grave abuse of
discretion on the part of the trial judge, a petition
for certiorari assailed the said order. This Court said:
. . . , it is to be noted that the Court of Appeals ordered the

payment of interest "at the legal rate" from the time of the filing
of the complaint. . . Said circular [Central Bank Circular No.
416] does not apply to actions based on a breach of
employment contract like the case at bar. (Emphasis supplied)
The Court reiterated that the 6% interest per annum on the damages
should be computed from the time the complaint was filed until the
amount is fully paid.
Quite recently, the Court had another occasion to rule on the

matter. National Power Corporation vs. Angas,14decided on 08 May 1992,
involved the expropriation of certain parcels of land. After conducting a
hearing on the complaints for eminent domain, the trial court ordered the
petitioner to pay the private respondents certain sums of money as just
compensation for their lands so expropriated "with legal interest thereon . .
. until fully paid." Again, in applying the 6% legal interest per annum under
the Civil Code, the Court15 declared:
. . . , (T)he transaction involved is clearly not a loan or

forbearance of money, goods or credits but expropriation of
certain parcels of land for a public purpose, the payment of
which is without stipulation regarding interest, and the interest
adjudged by the trial court is in the nature of indemnity for
damages. The legal interest required to be paid on the amount
of just compensation for the properties expropriated is
manifestly in the form of indemnity for damages for the delay in
the payment thereof. Therefore, since the kind of interest
involved in the joint judgment of the lower court sought to be
enforced in this case is interest by way of damages, and not by
way of earnings from loans, etc. Art. 2209 of the Civil Code
shall apply.
Concededly, there have been seeming variances in the above holdings.

The cases can perhaps be classified into two groups according to the
similarity of the issues involved and the corresponding rulings rendered by
the court. The "first group" would consist of the cases of Reformina
v. Tomol (1985), Philippine Rabbit Bus Lines v. Cruz(1986), Florendo
v. Ruiz (1989)
and National Power Corporation v. Angas (1992). In the "second group"
would be Malayan Insurance Company v.Manila Port Service (1969),
Nakpil and Sons v. Court of Appeals (1988), and American Express
International v.Intermediate Appellate Court (1988).
In the "first group", the basic issue focuses on the application of either the
6% (under the Civil Code) or 12% (under the Central Bank Circular)
interest per annum. It is easily discernible in these cases that there has
been a consistent holding that the Central Bank Circular imposing the 12%
interest per annum applies only to loans or forbearance16 of money, goods
or credits, as well as to judgments involving such loan or forbearance of
money, goods or credits, and that the 6% interest under the Civil Code
governs when the transaction involves the payment of indemnities in the
concept of damage arising from the breach or a delay in the performance of
obligations in general. Observe, too, that in these cases, a common time
frame in the computation of the 6% interest per annum has been
applied, i.e., from the time the complaint is filed until the adjudged amount
is fully paid.
The "second group", did not alter the pronounced rule on the application of
the 6% or 12% interest per annum,17depending on whether or not the
amount involved is a loan or forbearance, on the one hand, or one of
indemnity for damage, on the other hand. Unlike, however, the "first group"
which remained consistent in holding that the running of the legal interest
should be from the time of the filing of the complaint until fully paid, the
"second group" varied on the commencement of the running of the legal
interest.
Malayan held that the amount awarded should bear legal interest from the
date of the decision of the court a quo,explaining that "if the suit were for
damages, 'unliquidated and not known until definitely ascertained,
assessed and determined by the courts after proof,' then, interest 'should
be from the date of the decision.'" American Express International
v. IAC, introduced a different time frame for reckoning the 6% interest by
ordering it to be "computed from the finality of (the) decision until paid." The
Nakpil and Sons case ruled that 12% interest per annum should be
imposed from the finality of the decision until the judgment amount is paid.
The ostensible discord is not difficult to explain. The factual circumstances

may have called for different applications, guided by the rule that the courts
are vested with discretion, depending on the equities of each case, on the
award of interest. Nonetheless, it may not be unwise, by way of clarification
and reconciliation, to suggest the following rules of thumb for future
guidance.
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-

contracts, delicts or quasi-delicts18 is breached, the contravenor can be
held liable for damages.19 The provisions under Title XVIII on "Damages" of
the Civil Code govern in determining the measure of recoverable
damages.20
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.21 Furthermore, the interest
due shall itself earn legal interest from the time it is judicially
demanded.22 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
116923 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is

at the discretion of the court24 at the rate of 6% per annum.25 No interest,
however, shall be adjudged on unliquidated claims or damages except
when or until the demand can be established with reasonable
certainty.26 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.
WHEREFORE, the petition is partly GRANTED. The appealed decision is

AFFIRMED with the MODIFICATION that the legal interest to be paid is
SIX PERCENT (6%) on the amount due computed from the decision,
dated
03 February 1988, of the court a quo. A TWELVE PERCENT (12%)
interest, in lieu of SIX PERCENT (6%), shall be imposed on such amount
upon finality of this decision until the payment thereof.
SO ORDERED.
Narvasa, C.J., Cruz, Feliciano, Padilla, Bidin, Regalado, Davide, Jr.,

Romero, Bellosillo, Melo, Quiason, Puno and Kapunan, JJ., concur.
Mendoza, J., took no part.
#Footnotes
1 Art. 1734. Common carriers are responsible for the loss,

destruction, or deterioration of the goods, unless the same is
due to any of the following causes only:
(1) Flood, storm, earthquake, lightning, or other natural

disaster or calamity;
(2) Act of the public enemy in war, whether international
or civil;
(3) Act or omission of the shipper or owner of the goods;
(4) The character of the goods or defects in the packing

or in the containers;
(5) Order or act of competent public authority.
2 28 SCRA 65.
3 Penned by Justice Conrado Sanchez, concurred in by

Justices Jose B.L. Reyes, Arsenio Dizon, Querube Makalintal,
Calixto Zaldivar, Enrique Fernando, Francisco Capistrano,
Claudio Teehankee and Antonio Barredo, Chief Justice Roberto
Concepcion and Justice Fred Ruiz Castro were on official
leave.
4 The correct caption of the case is "Claro Rivera vs. Amadeo

Matute, L-6998,
29 February 1956," 98 Phil. 516.
5 139 SCRA 260, 265.
6 Penned by Justice Serafin Cuevas, concurred in by Justices

Hermogenes Concepcion, Jr., Vicente Abad Santos, Ameurfina
Melencio-Herrera, Venicio Escolin, Lorenzo Relova, Hugo
Gutierrez, Jr., Buenaventura de la Fuente, Nestor Alampay and
Lino Patajo. Justice Ramon Aquino concurred in the result.
Justice Efren Plana filed a concurring and dissenting opinion,
concurred in by Justice Claudio Teehankee while Chief Justice
Felix Makasiar concurred with the separate opinion of Justice
Plana.
7 143 SCRA 158.
8 Penned by then Justice, now Chief Justice, Andres Narvasa,

concurred in by Justices Pedro Yap, Ameurfina Melencio-
Herrera, Isagani A. Cruz and Edgardo Paras.
9 160 SCRA 334.
10 Penned by Justice Edgardo Paras, with the concurrence of

Justices Marcelo Fernan, Teodoro Padilla, Abdulwahid Bidin,
and Irene Cortes. Justice Hugo Gutierrez, Jr., took no part
because he was the ponente in the Court of Appeals.
11 167 SCRA 209.
12 Rendered per curiam with the concurrence of then Chief

Justice Marcelo Fernan, Justices Andres Narvasa, Isagani A.
Cruz, Emilio Gancayco, Teodoro Padilla, Abdulwahid Bidin,
Abraham Sarmiento, Irene Cortes, Carolina Griño-Aquino, Leo
Medialdea and Florenz Regalado. Justices Ameurfina
Melencio-Herrera and Hugo Gutierrez, Jr., took no part
because they did not participate in the deliberations. Justices
Edgardo Paras and Florentino Feliciano also took no part.
13 170 SCRA 461.
14 208 SCRA 542.
15 Penned by Justice Edgardo Paras with the concurrence of

Justices Ameurfina Melencio-Herrera, Teodoro Padilla, Florenz
Regalado and Rodolfo Nocon.
16 Black's Law Dictionary (1990 ed., 644) citing the case of

Hafer v. Spaeth,
22 Wash. 2d 378, 156 P.2d 408, 411 defines the
word forbearance, within the context of usury law, as a
contractual obligation of lender or creditor to refrain, during
given period of time, from requiring borrower or debtor to repay
loan or debt then due and payable.
17 In the case of Malayan Insurance, the application of the 6%

and 12% interest per annum has no bearing considering that
this case was decided upon before the issuance of Circular No.
416 by the Central Bank.
18 Art. 1157. Obligations arise from.

(1) Law;
(2) Contracts;
(3) Quasi-contracts;
(4) Acts or omissions punished by law; and
(5) Qausi-delicts."
19 Art. 1170. Those who in the performance of their obligations

are guilty of fraud, negligence, or delay, and those who in any
manner contravene the tenor thereof, are liable for damages.
20 Art. 2195. The provisions of this Title (on Damages) shall be

respectively applicable to all obligations mentioned in article
1157.
21 Art. 1956. No interest shall be due unless it has been

expressly stipulated in writing.
22 Art. 2212. Interest due shall earn legal interest from the time
it is judicially demanded, although the obligation may be silent
upon this point.
23 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) When the obligation or the law expressly so declare;

or
(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) 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."
24 Art. 2210. Interest may, in the discretion of the court, be

allowed upon damages awarded for breach of contract.
Art. 2211. In crimes and quasi-delicts, interest as a part of the

damages may, in a proper case, be adjudicated in the
discretion of the court.
25 Art. 2209. If the obligation consists in the payment of a sum

of money, and the debtor incurs in delay, the indemnity for
damages, there being no stipulation to the contrary, shall be the
payment of the interest agreed upon, and in the absence of
stipulation, the legal interest, which is six per cent per annum.
26 Art. 2213. Interest cannot be recovered upon unliquidated

claims or damages, except when the demand can be
established with reasonable certainty.
SUPREME COURT
Manila
EN BANC
G.R. No. 189871 August 13, 2013
DARIO NACAR, PETITIONER,

vs.
GALLERY FRAMES AND/OR FELIPE BORDEY, JR., RESPONDENTS.
DECISION
PERALTA, J.:
This is a petition for review on certiorari assailing the Decision1 dated

September 23, 2008 of the Court of Appeals (CA) in CA-G.R. SP No.
98591, and the Resolution2 dated October 9, 2009 denying petitioner’s
motion for reconsideration.
The factual antecedents are undisputed.
Petitioner Dario Nacar filed a complaint for constructive dismissal before

the Arbitration Branch of the National Labor Relations Commission (NLRC)
against respondents Gallery Frames (GF) and/or Felipe Bordey, Jr.,
docketed as NLRC NCR Case No. 01-00519-97.
On October 15, 1998, the Labor Arbiter rendered a Decision3 in favor of

petitioner and found that he was dismissed from employment without a
valid or just cause. Thus, petitioner was awarded backwages and
separation pay in lieu of reinstatement in the amount of ₱158,919.92. The
dispositive portion of the decision, reads:
With the foregoing, we find and so rule that respondents failed to discharge
the burden of showing that complainant was dismissed from employment
for a just or valid cause. All the more, it is clear from the records that
complainant was never afforded due process before he was terminated. As
such, we are perforce constrained to grant complainant’s prayer for the
payments of separation pay in lieu of reinstatement to his former position,
considering the strained relationship between the parties, and his apparent
reluctance to be reinstated, computed only up to promulgation of this
decision as follows:
SEPARATION PAY
Date Hired = August 1990
Rate = ₱198/day
Date of Decision = Aug. 18, 1998
Length of Service = 8 yrs. & 1 month
₱198.00 x 26 days x 8 months = ₱41,184.00
BACKWAGES
Date Dismissed = January 24, 1997
Rate per day = ₱196.00
Date of Decisions = Aug. 18, 1998
a) 1/24/97 to 2/5/98 = 12.36 mos.
₱196.00/day x 12.36 mos. = ₱62,986.56
b) 2/6/98 to 8/18/98 = 6.4 months
Prevailing Rate per day = ₱62,986.00
₱198.00 x 26 days x 6.4 mos. = ₱32,947.20
TOTAL = ₱95.933.76
xxxx
WHEREFORE, premises considered, judgment is hereby rendered finding

respondents guilty of constructive dismissal and are therefore, ordered:
To pay jointly and severally the complainant the amount of sixty-two

thousand nine hundred eighty-six pesos and 56/100 (₱62,986.56) Pesos
representing his separation pay;
To pay jointly and severally the complainant the amount of nine (sic) five
thousand nine hundred thirty-three and 36/100 (₱95,933.36) representing
his backwages; and
All other claims are hereby dismissed for lack of merit.
SO ORDERED.4
Respondents appealed to the NLRC, but it was dismissed for lack of merit
in the Resolution5 dated February 29, 2000. Accordingly, the NLRC
sustained the decision of the Labor Arbiter. Respondents filed a motion for
reconsideration, but it was denied.6
Dissatisfied, respondents filed a Petition for Review on Certiorari before the

CA. On August 24, 2000, the CA issued a Resolution dismissing the
petition. Respondents filed a Motion for Reconsideration, but it was likewise
denied in a Resolution dated May 8, 2001.7
Respondents then sought relief before the Supreme Court, docketed as

G.R. No. 151332. Finding no reversible error on the part of the CA, this
Court denied the petition in the Resolution dated April 17, 2002.8
An Entry of Judgment was later issued certifying that the resolution became
final and executory on May 27, 2002.9The case was, thereafter, referred
back to the Labor Arbiter. A pre-execution conference was consequently
scheduled, but respondents failed to appear.10
On November 5, 2002, petitioner filed a Motion for Correct Computation,

praying that his backwages be computed from the date of his dismissal on
January 24, 1997 up to the finality of the Resolution of the Supreme Court
on May 27, 2002.11 Upon recomputation, the Computation and Examination
Unit of the NLRC arrived at an updated amount in the sum of
₱471,320.31.12
On December 2, 2002, a Writ of Execution13 was issued by the Labor

Arbiter ordering the Sheriff to collect from respondents the total amount of
₱471,320.31. Respondents filed a Motion to Quash Writ of Execution,
arguing, among other things, that since the Labor Arbiter awarded
separation pay of ₱62,986.56 and limited backwages of ₱95,933.36, no
more recomputation is required to be made of the said awards. They
claimed that after the decision becomes final and executory, the same
cannot be altered or amended anymore.14 On January 13, 2003, the Labor
Arbiter issued an Order15 denying the motion. Thus, an Alias Writ of
Execution16 was issued on January 14, 2003.
Respondents again appealed before the NLRC, which on June 30, 2003
issued a Resolution17 granting the appeal in favor of the respondents and
ordered the recomputation of the judgment award.
On August 20, 2003, an Entry of Judgment was issued declaring the

Resolution of the NLRC to be final and executory. Consequently, another
pre-execution conference was held, but respondents failed to appear on
time. Meanwhile, petitioner moved that an Alias Writ of Execution be issued
to enforce the earlier recomputed judgment award in the sum of
₱471,320.31.18
The records of the case were again forwarded to the Computation and
Examination Unit for recomputation, where the judgment award of
petitioner was reassessed to be in the total amount of only ₱147,560.19.
Petitioner then moved that a writ of execution be issued ordering

respondents to pay him the original amount as determined by the Labor
Arbiter in his Decision dated October 15, 1998, pending the final
computation of his backwages and separation pay.
On January 14, 2003, the Labor Arbiter issued an Alias Writ of Execution to
satisfy the judgment award that was due to petitioner in the amount of
₱147,560.19, which petitioner eventually received.
Petitioner then filed a Manifestation and Motion praying for the re-
computation of the monetary award to include the appropriate interests.19
On May 10, 2005, the Labor Arbiter issued an Order20 granting the motion,
but only up to the amount of ₱11,459.73. The Labor Arbiter reasoned that it
is the October 15, 1998 Decision that should be enforced considering that it
was the one that became final and executory. However, the Labor Arbiter
reasoned that since the decision states that the separation pay and
backwages are computed only up to the promulgation of the said decision,
it is the amount of ₱158,919.92 that should be executed. Thus, since
petitioner already received ₱147,560.19, he is only entitled to the balance
of ₱11,459.73.
Petitioner then appealed before the NLRC,21 which appeal was denied by
the NLRC in its Resolution22 dated September 27, 2006. Petitioner filed a
Motion for Reconsideration, but it was likewise denied in the
Resolution23dated January 31, 2007.
Aggrieved, petitioner then sought recourse before the CA, docketed as CA-
G.R. SP No. 98591.
On September 23, 2008, the CA rendered a Decision24 denying the

petition. The CA opined that since petitioner no longer appealed the
October 15, 1998 Decision of the Labor Arbiter, which already became final
and executory, a belated correction thereof is no longer allowed. The CA
stated that there is nothing left to be done except to enforce the said
judgment. Consequently, it can no longer be modified in any respect,
except to correct clerical errors or mistakes.
Petitioner filed a Motion for Reconsideration, but it was denied in the

Resolution25 dated October 9, 2009.
Hence, the petition assigning the lone error:
WITH DUE RESPECT, THE HONORABLE COURT OF APPEALS

SERIOUSLY ERRED, COMMITTED GRAVE ABUSE OF DISCRETION
AND DECIDED CONTRARY TO LAW IN UPHOLDING THE
QUESTIONED RESOLUTIONS OF THE NLRC WHICH, IN TURN,
SUSTAINED THE MAY 10, 2005 ORDER OF LABOR ARBITER MAGAT
MAKING THE DISPOSITIVE PORTION OF THE OCTOBER 15, 1998
DECISION OF LABOR ARBITER LUSTRIA SUBSERVIENT TO AN
OPINION EXPRESSED IN THE BODY OF THE SAME DECISION.26
Petitioner argues that notwithstanding the fact that there was a computation
of backwages in the Labor Arbiter’s decision, the same is not final until
reinstatement is made or until finality of the decision, in case of an award of
separation pay. Petitioner maintains that considering that the October 15,
1998 decision of the Labor Arbiter did not become final and executory until
the April 17, 2002 Resolution of the Supreme Court in G.R. No. 151332
was entered in the Book of Entries on May 27, 2002, the reckoning point for
the computation of the backwages and separation pay should be on May
27, 2002 and not when the decision of the Labor Arbiter was rendered on
October 15, 1998. Further, petitioner posits that he is also entitled to the
payment of interest from the finality of the decision until full payment by the
respondents.
On their part, respondents assert that since only separation pay and limited
backwages were awarded to petitioner by the October 15, 1998 decision of
the Labor Arbiter, no more recomputation is required to be made of said
awards. Respondents insist that since the decision clearly stated that the
separation pay and backwages are "computed only up to [the]
promulgation of this decision," and considering that petitioner no longer
appealed the decision, petitioner is only entitled to the award as computed
by the Labor Arbiter in the total amount of ₱158,919.92. Respondents
added that it was only during the execution proceedings that the petitioner
questioned the award, long after the decision had become final and
executory. Respondents contend that to allow the further recomputation of
the backwages to be awarded to petitioner at this point of the proceedings
would substantially vary the decision of the Labor Arbiter as it violates the
rule on immutability of judgments.
The petition is meritorious.
The instant case is similar to the case of Session Delights Ice Cream and
Fast Foods v. Court of Appeals (Sixth Division),27 wherein the issue
submitted to the Court for resolution was the propriety of the computation of
the awards made, and whether this violated the principle of immutability of
judgment. Like in the present case, it was a distinct feature of the judgment
of the Labor Arbiter in the above-cited case that the decision already
provided for the computation of the payable separation pay and backwages
due and did not further order the computation of the monetary awards up to
the time of the finality of the judgment. Also in Session Delights, the
dismissed employee failed to appeal the decision of the labor arbiter. The
Court clarified, thus:
In concrete terms, the question is whether a re-computation in the course

of execution of the labor arbiter's original computation of the awards made,
pegged as of the time the decision was rendered and confirmed with
modification by a final CA decision, is legally proper. The question is posed,
given that the petitioner did not immediately pay the awards stated in the
original labor arbiter's decision; it delayed payment because it continued
with the litigation until final judgment at the CA level.
A source of misunderstanding in implementing the final decision in this
case proceeds from the way the original labor arbiter framed his decision.
The decision consists essentially of two parts.
The first is that part of the decision that cannot now be disputed because it
has been confirmed with finality. This is the finding of the illegality of the
dismissal and the awards of separation pay in lieu of reinstatement,
backwages, attorney's fees, and legal interests.
The second part is the computation of the awards made. On its face, the
computation the labor arbiter made shows that it was time-bound as can be
seen from the figures used in the computation. This part, being merely a
computation of what the first part of the decision established and declared,
can, by its nature, be re-computed. This is the part, too, that the petitioner
now posits should no longer be re-computed because the computation is
already in the labor arbiter's decision that the CA had affirmed. The public
and private respondents, on the other hand, posit that a re-computation is
necessary because the relief in an illegal dismissal decision goes all the
way up to reinstatement if reinstatement is to be made, or up to the finality
of the decision, if separation pay is to be given in lieu reinstatement.
That the labor arbiter's decision, at the same time that it found that an
illegal dismissal had taken place, also made a computation of the award, is
understandable in light of Section 3, Rule VIII of the then NLRC Rules of
Procedure which requires that a computation be made. This Section in part
states:
[T]he Labor Arbiter of origin, in cases involving monetary awards and at all
events, as far as practicable, shall embody in any such decision or order
the detailed and full amount awarded.
Clearly implied from this original computation is its currency up to the

finality of the labor arbiter's decision. As we noted above, this implication is
apparent from the terms of the computation itself, and no question would
have arisen had the parties terminated the case and implemented the
decision at that point.
However, the petitioner disagreed with the labor arbiter's findings on all
counts - i.e., on the finding of illegality as well as on all the consequent
awards made. Hence, the petitioner appealed the case to the NLRC which,
in turn, affirmed the labor arbiter's decision. By law, the NLRC decision is
final, reviewable only by the CA on jurisdictional grounds.
The petitioner appropriately sought to nullify the NLRC decision on

jurisdictional grounds through a timely filed Rule 65 petition for certiorari.
The CA decision, finding that NLRC exceeded its authority in affirming the
payment of 13th month pay and indemnity, lapsed to finality and was
subsequently returned to the labor arbiter of origin for execution.
It was at this point that the present case arose. Focusing on the core illegal
dismissal portion of the original labor arbiter's decision, the implementing
labor arbiter ordered the award re-computed; he apparently read the
figures originally ordered to be paid to be the computation due had the
case been terminated and implemented at the labor arbiter's level. Thus,
the labor arbiter re-computed the award to include the separation pay and
the backwages due up to the finality of the CA decision that fully terminated
the case on the merits. Unfortunately, the labor arbiter's approved
computation went beyond the finality of the CA decision (July 29, 2003) and
included as well the payment for awards the final CA decision had deleted -
specifically, the proportionate 13th month pay and the indemnity awards.
Hence, the CA issued the decision now questioned in the present petition.
We see no error in the CA decision confirming that a re-computation is

necessary as it essentially considered the labor arbiter's original decision in
accordance with its basic component parts as we discussed above. To
reiterate, the first part contains the finding of illegality and its monetary
consequences; the second part is the computation of the awards or
monetary consequences of the illegal dismissal, computed as of the time of
the labor arbiter's original decision.28
Consequently, from the above disquisitions, under the terms of the decision
which is sought to be executed by the petitioner, no essential change is
made by a recomputation as this step is a necessary consequence that
flows from the nature of the illegality of dismissal declared by the Labor
Arbiter in that decision.29 A recomputation (or an original computation, if no
previous computation has been made) is a part of the law – specifically,
Article 279 of the Labor Code and the established jurisprudence on this
provision – that is read into the decision. By the nature of an illegal
dismissal case, the reliefs continue to add up until full satisfaction, as
expressed under Article 279 of the Labor Code. The recomputation of the
consequences of illegal dismissal upon execution of the decision does not
constitute an alteration or amendment of the final decision being
implemented. The illegal dismissal ruling stands; only the computation of
monetary consequences of this dismissal is affected, and this is not a
violation of the principle of immutability of final judgments.30
That the amount respondents shall now pay has greatly increased is a
consequence that it cannot avoid as it is the risk that it ran when it
continued to seek recourses against the Labor Arbiter's decision. Article
279 provides for the consequences of illegal dismissal in no uncertain
terms, qualified only by jurisprudence in its interpretation of when
separation pay in lieu of reinstatement is allowed. When that happens, the
finality of the illegal dismissal decision becomes the reckoning point instead
of the reinstatement that the law decrees. In allowing separation pay, the
final decision effectively declares that the employment relationship ended
so that separation pay and backwages are to be computed up to that
point.31
Finally, anent the payment of legal interest. In the landmark case of

Eastern Shipping Lines, Inc. v. Court of Appeals,32 the Court laid down the
guidelines regarding the manner of computing legal interest, to wit:
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 be adjudged on unliquidated
claims or damages except when or until the demand can be
established with reasonable certainty. Accordingly, where the
demand is established with reasonable certainty, the interest shall
begin to run from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code) but when such certainty cannot
be so reasonably established at the time the demand is made, the
interest shall begin to run only from the date the judgment of the court
is made (at which time the quantification of damages may be deemed
to have been reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be on the amount
finally adjudged.
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.33
Recently, however, the Bangko Sentral ng Pilipinas Monetary Board (BSP-

MB), in its Resolution No. 796 dated May 16, 2013, approved the
amendment of Section 234 of Circular No. 905, Series of 1982 and,
accordingly, issued Circular No. 799,35 Series of 2013, effective July 1,
2013, the pertinent portion of which reads:
The Monetary Board, in its Resolution No. 796 dated 16 May 2013,
approved the following revisions governing the rate of interest in the
absence of stipulation in loan contracts, thereby amending Section 2 of
Circular No. 905, Series of 1982:
Section 1. The rate of interest for the loan or forbearance of any money,
goods or credits and the rate allowed in judgments, in the absence of an
express contract as to such rate of interest, shall be six percent (6%) per
annum.
Section 2. In view of the above, Subsection X305.136 of the Manual of

Regulations for Banks and Sections 4305Q.1,37 4305S.338 and
4303P.139 of the Manual of Regulations for Non-Bank Financial Institutions
are hereby amended accordingly.
This Circular shall take effect on 1 July 2013.

Thus, from the foregoing, in the absence of an express stipulation as to the
rate of interest that would govern the parties, the rate of legal interest for
loans or forbearance of any money, goods or credits and the rate allowed
in judgments shall no longer be twelve percent (12%) per annum - as
reflected in the case of Eastern Shipping Lines40and Subsection X305.1 of
the Manual of Regulations for Banks and Sections 4305Q.1, 4305S.3 and
4303P.1 of the Manual of Regulations for Non-Bank Financial Institutions,
before its amendment by BSP-MB Circular No. 799 - but will now be six
percent (6%) per annum effective July 1, 2013. It should be noted,
nonetheless, that the new rate could only be applied prospectively and not
retroactively. Consequently, the twelve percent (12%) per annum legal
interest shall apply only until June 30, 2013. Come July 1, 2013 the new
rate of six percent (6%) per annum shall be the prevailing rate of interest
when applicable.
Corollarily, in the recent case of Advocates for Truth in Lending, Inc. and
Eduardo B. Olaguer v. Bangko Sentral Monetary Board,41 this Court
affirmed the authority of the BSP-MB to set interest rates and to issue and
enforce Circulars when it ruled that "the BSP-MB may prescribe the
maximum rate or rates of interest for all loans or renewals thereof or the
forbearance of any money, goods or credits, including those for loans of
low priority such as consumer loans, as well as such loans made by
pawnshops, finance companies and similar credit institutions. It even
authorizes the BSP-MB to prescribe different maximum rate or rates for
different types of borrowings, including deposits and deposit substitutes, or
loans of financial intermediaries."
Nonetheless, with regard to those judgments that have become final and
executory prior to July 1, 2013, said judgments shall not be disturbed and
shall continue to be implemented applying the rate of interest fixed
therein.1awp++i1
To recapitulate and for future guidance, the guidelines laid down in the
case of Eastern Shipping Lines42 are accordingly modified to embody BSP-
MB Circular No. 799, as follows:
I. When an obligation, regardless of its source, i.e., law, contracts,

quasi-contracts, delicts or quasi-delicts is breached, the contravenor
can be held liable for damages. The provisions under Title XVIII on
"Damages" of the Civil Code govern in determining the measure of
recoverable damages.1âwphi1
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:
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 6% 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.
When an obligation, not constituting a loan or forbearance of money, is

at the discretion of the court at the rate of 6% per annum. No interest,
however, shall be adjudged on unliquidated claims or damages, except
when or until the demand can be established with reasonable certainty.
Accordingly, where the demand is established with reasonable certainty,
the interest shall begin to run from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code), but when such certainty cannot be so
reasonably established at the time the demand is made, the interest shall
begin to run only from the date the judgment of the court is made (at which
time the quantification of damages may be deemed to have been
reasonably ascertained). The actual base for the computation of legal
interest shall, in any case, be on the amount finally adjudged.
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 6% per annum from such
finality until its satisfaction, this interim period being deemed to be by then
an equivalent to a forbearance of credit.
And, in addition to the above, judgments that have become final and
executory prior to July 1, 2013, shall not be disturbed and shall continue to
be implemented applying the rate of interest fixed therein.
WHEREFORE, premises considered, the Decision dated September 23,

2008 of the Court of Appeals in CA-G.R. SP No. 98591, and the Resolution
dated October 9, 2009 are REVERSED and SET ASIDE. Respondents are
Ordered to Pay petitioner:
(1) backwages computed from the time petitioner was illegally

dismissed on January 24, 1997 up to May 27, 2002, when the
Resolution of this Court in G.R. No. 151332 became final and
executory;
(2) separation pay computed from August 1990 up to May 27, 2002 at
the rate of one month pay per year of service; and
(3) interest of twelve percent (12%) per annum of the total monetary
awards, computed from May 27, 2002 to June 30, 2013 and six
percent (6%) per annum from July 1, 2013 until their full satisfaction.
The Labor Arbiter is hereby ORDERED to make another recomputation of

the total monetary benefits awarded and due to petitioner in accordance
with this Decision.
SO ORDERED.
DIOSDADO M. PERALTA
Associate Justice
WE CONCUR:

Chief Justice
PRESBITERO J. VELASCO,
ANTONIO T. CARPIO
JR.
Associate Justice
Associate Justice
TERESITA J. LEONARDO-DE
ARTURO D. BRION
CASTRO
Associate Justice
Associate Justice
LUCAS P. BERSAMIN MARIANO C. DEL CASTILLO

ROBERTO A. ABAD MARTIN S VILLARAMA, JR.
JOSE PORTUGAL PEREZ JOSE CATRAL MENDOZA

ESTELA M. PERLAS-
BIENVENIDO L. REYES
BERNABE
Associate Justice
Associate Justice
MARVIC MARIO VICTOR F. LEONEN

Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified

that the conclusions in the above Decision had been reached in
Court.

Chief Justice
Footnotes
1
Penned by Associate Justice Vicente S. E. Veloso, with Associate
Justices Rebecca De Guia-Salvador and Ricardo R. Rosario,
concurring; rollo, pp. 33-48.
2
Id. at 32.
3
Id. at 79-84.
4
Id. at 82-84. (Emphasis supplied.)
5
Id. at 85-93.
6
Resolution dated July 24, 2000, id. at 94-96.
7
Rollo, p. 35.
8
Id. at 35-36.
9
Id. at 36.
10
Id. at 100.
11
Id.
12
Id. at 101.
13
Id. at 97-102.
14
Id. at 37.
15
Id. at 103-108.
16
Id. at 109-113.
17
Id. at 114-117.
18
Id. at 101.
19
Id. at 40.
20
Id. at 65-69.
21
Id. at 70-74.
22
Id. at 60-64.
23
Id. at 58-59.
24
Id. at 33-48.
25
Id. at 32.
26
Id. at 27.
27
G.R. No. 172149, February 8, 2010, 612 SCRA 10.
28
Session Delights Ice Cream and Fast Foods v. Court of Appeals
(Sixth Division), supra, at 21-23.
29
Id. at 25.
30
Id. at 25-26.
31
Id. at 26.
32
G.R. No. 97412, July 12, 1994, 234 SCRA 78.
33
Eastern Shipping Lines, Inc. v. Court of Appeals, supra, at 95-97.
(Citations omitted; italics in the original).
34
SECTION 2. The rate of interest for the loan or forbearance of any
money, goods or credits and the rate allowed in judgments, in the
absence of express contract as to such rate of interest, shall continue
to be twelve percent (12%) per annum.
35
Rate of interest in the absence of stipulation; Dated June 21, 2013.
36
§ X305.1 Rate of interest in the absence of stipulation. The rate of
interest for the loan or forbearance of any money, goods or credits
and the rate allowed in judgments, in the absence of expressed
contract as to such rate of interest, shall be twelve percent (12%) per
annum.
37
The Section is under Q Regulations or Regulations Governing Non-
Bank Financial Institutions
Performing Quasi-Banking Functions. It reads:
§ 4305Q.1 (2008 - 4307Q.6) Rate of interest in the absence of

stipulation. The rate of interest for the loan or forbearance of
any money, goods or credit and the rate allowed in judgments,
in the absence of express contract as to such rate of interest,
shall be twelve percent (12%) per annum.
38
The Section is under S Regulations or Regulations Governing Non-
Stock Savings and Loan Associations. It reads:
§ 4305S.3 Interest in the absence of contract. In the absence of

express contract, the rate of interest for the loan or forbearance
of any money, goods or credit and the rate allowed in judgment
shall be twelve percent (12%) per annum.
39
The Section is under P Regulations or Regulations Governing
Pawnshops. It reads:
§ 4303P.1 Rate of interest in the absence of stipulation. The

rate of interest for a loan or forbearance of money in the
absence of an expressed contract as to such rate of interest,
shall be twelve percent (12%) per annum. (Circular No. 656
dated 02 June 2009)
40
41
G.R. No. 192986, January 15, 2013, 688 SCRA 530, 547.
42
Supra note 32.
Supreme Court
Manila
FIRST DIVISION
JOCELYN M. TOLEDO , G.R. No. 172139

Petitioner,
Present:
CORONA, C. J., Chairperson,

- versus - LEONARDO-DE CASTRO,
DEL CASTILLO,
ABAD,⃰ and
PEREZ, JJ.
MARILOU M. HYDEN, Promulgated:

Respondent. December 8, 2010
x-----------------------------------------------------------
--------x
DECISION
DEL CASTILLO, J.:
It is true that the imposition of an unconscionable rate of interest on a money debt

is immoral and unjust and the court may come to the aid of the aggrieved party to
that contract. However, before doing so, courts have to consider the settled
principle that the law will not relieve a party from the effects of an unwise, foolish
or disastrous contract if such party had full awareness of what she was doing.
This Petition for Review on Certiorari[1] assails the Decision[2] dated August 24,
2005 of the Court of Appeals (CA) in CA-G.R. CV No. 79805, which affirmed the
Decision dated March 10, 2003[3] of the Regional Trial Court (RTC),
Branch 22, Cebu City in Civil Case No. CEB-22867. Also assailed is the
Resolution dated March 8, 2006 denying the motion for reconsideration.
Factual Antecedents
Petitioner Jocelyn M. Toledo (Jocelyn), who was then the Vice-President of the
College Assurance Plan (CAP) Phils., Inc., obtained several loans from
respondent Marilou M. Hyden (Marilou). The transactions are briefly summarized
below:
1) August 15, 1993
P 30,000.00
2) April 21, 1994 100,000.00
3) October 2, 1995 30,000.00
4) October 9, 1995 30,000.00
5) May 22, 1997 100,000.00 with 7% monthly
interest
TOTAL AMOUNT OF P 290,000.00[4]
LOAN
From August 15, 1993 up to December 31, 1997, Jocelyn had been religiously
paying Marilou the stipulated monthly interest by issuing checks and depositing
sums of money in the bank account of the latter. However, the total principal
amount of P290,000.00 remained unpaid. Thus, in April 1998, Marilou visited
Jocelyn in her office at CAP in Cebu City and asked Jocelyn and the other
employees who were likewise indebted to her to acknowledge their debts. A
document entitled Acknowledgment of Debt[5] for the amount of P290,000.00 was
signed by Jocelyn with two of her subordinates as witnesses. The said amount
represents the principal consolidated amount of the aforementioned previous
debts due on December 25, 1998. Also on said occasion, Jocelyn issued five
checks to Marilou representing renewal payment of her five previous loans, viz:
Check No. 0010761 dated . . . . . . . P 30,000.00

September 2, 1998 ..
Check No. 0010762 dated . . . . . . 30,000.00
September 9, 1998 ...
Check No. 0010763 dated . . . . . . 30,000.00
Check No. 0010764 dated . . . . . . 100,000.00
Check No. 0010765 dated . . . . . . 100,000.00
TOTAL P 290,000.00
In June 1998, Jocelyn asked Marilou for the recall of Check No. 0010761 in
the amount of P30,000.00 and replaced the same with six checks, in staggered
amounts, namely:
Check No. 0010494 dated July 2, . . . . . . . P 6,625.00
1998 ..
Check No. 0010495 dated August . . . . . . 6,300.00
2, 1998 ...
Check No. 0010496 dated . . . . . . 5,975.00
Check No. 0010497 dated October . . . . . . 6,500.00
2, 1998 ...
Check No. 0010498 dated . . . . . . 5,325.00
November 2, 1998 ...
Check No. 0010499 dated . . . . . . 5,000.00
December 2, 1998 ...
TOTAL P 35,725.00
After honoring Check Nos. 0010494, 0010495 and 0010496, Jocelyn ordered the
stop payment on the remaining checks and on October 27, 1998, filed with the
RTC of Cebu City a complaint[6] against Marilou for Declaration of Nullity and
Payment, Annulment, Sum of Money, Injunction and Damages.
Jocelyn averred that Marilou forced, threatened and intimidated her into signing
the Acknowledgment of Debt and at the same time forced her to issue the seven
postdated checks. She claimed that Marilou even threatened to sue her for
violation of Batas Pambansa (BP) Blg. 22 or the Bouncing Checks Law if she will
not sign the said document and draw the above-mentioned checks. Jocelyn
further claimed that the application of her total payment of P528,550.00 to interest
alone is illegal, unfounded, unjust, oppressive and contrary to law because there
was no written agreement to pay interest.
On November 23, 1998, Marilou filed an Answer[7] with Special Affirmative
Defenses and Counterclaim alleging that Jocelyn voluntarily obtained the said
loans knowing fully well that the interest rate was at 6% to 7% per month. In fact,
a 6% to 7% advance interest was already deducted from the loan amount given
to Jocelyn.
Ruling of the Regional Trial Court
The court a quo did not find any showing that Jocelyn was forced,
threatened, or intimidated in signing the document referred to as Acknowledgment
of Debt and in issuing the postdated checks. Thus, in its March 10, 2003 Decision
the trial court ruled in favor of Marilou, viz:
WHEREFORE, premised on the foregoing, the Court hereby

declares the document Acknowledgment of Debt valid and binding.
PLAINTIFF is indebted to DEFENDANT [for] the amount of TWO
HUNDRED NINETY THOUSAND (P290,000.00) PESOS since
December 25, 1998 less the amount of EIGHTEEN THOUSAND
NINE HUNDRED (P18,900.00) PESOS, equivalent to the three
checks made good (P6,625.00 dated 07-02-1998; P6,300.00 dated
08-02-1998; and P5,975.00 dated 09-02-1998).
Consequently, PLAINTIFF is hereby ordered to pay

DEFENDANT the amount of TWO HUNDRED SEVENTY ONE
THOUSAND ONE HUNDRED (P271,100.00) PESOS due on
December 25, 1998 with a 12% interest per annum or 1% interest per
month until such time that the said amount shall have been fully paid.
SO ORDERED.[8]
On March 26, 2003, Jocelyn filed an Earnest Motion for Reconsideration,[9] which
was denied by the trial court in its Order[10] dated April 29, 2003 stating that it finds
no sufficient reason to disturb its March 10, 2003 Decision.
Ruling of the Court of Appeals
On appeal, Jocelyn asserts that she had made payments in the total
amount of P778,000.00 for a principal amount of loan of only P290,000.00. What
is appalling, according to Jocelyn, was that such payments covered only the
interest because of the excessive, iniquitous, unconscionable and exorbitant
imposition of the 6% to 7% monthly interest.
On August 24, 2005, the CA issued its Decision which provides:
WHEREFORE, premises considered, the Decision dated

March 10, 2003 and the Order dated April 29, 2003, of the Regional
Trial Court, 7th Judicial Region, Branch 22, Cebu City, in Civil Case
No. CEB-22867 are hereby AFFIRMED. No pronouncement as to
costs.
SO ORDERED.[11]
The Motion for Reconsideration[12] filed by Jocelyn was denied by the CA through
its Resolution[13] dated March 8, 2006.
Issues
Hence, this petition raising the following issues:
I.
Whether the CA gravely erred when it held that the imposition of
interest at the rate of six percent (6%) to seven percent (7%) is not
contrary to law, morals, good customs, public order or public policy.
II.
Whether the CA gravely erred when it failed to declare that the
Acknowledgment of Debt is an inexistent contract that is void from
the very beginning pursuant to Article 1409 of the New Civil Code.
Petitioners Arguments
Jocelyn posits that the CA erred when it held that the imposition of interest at the
rates of 6% to 7% per month is not contrary to law, not unconscionable and not
contrary to morals. She likewise contends that the CA erred in ruling that the
Acknowledgment of Debt is valid and binding. According to Jocelyn, even
assuming that the execution of said document was not attended with force, threat
and intimidation, the same must nevertheless be declared null and void for being
contrary to law and public policy. This is borne out by the fact that the payments
in the total amount of P778,000.00 was applied to interest payment alone. This
only proves that the transaction was iniquitous, excessive, oppressive and
unconscionable.
Respondents Arguments
On the other hand, Marilou would like this Court to consider the fact that the
document referred to as Acknowledgment of Debt was executed in the safe
surroundings of the office of Jocelyn and it was witnessed by two of her staff. If at
all there had been coercion, then Jocelyn could have easily prevented her staff
from affixing their signatures to said document. In fact, petitioner had admitted that
she was the one who went to the tables of her staff to let them sign the said
document.
Our Ruling
The petition is without merit.
The 6% to 7% interest per month paid by

Jocelyn is not excessive under the
circumstances of this case.
In view of Central Bank Circular No. 905 s. 1982, which suspended the Usury Law
ceiling on interest effective January 1, 1983, parties to a loan agreement have
wide latitude to stipulate interest rates. Nevertheless, such stipulated interest rates
may be declared as illegal if the same is unconscionable.[14] There is certainly
nothing in said circular which 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.[15] In fact, in Medel v. Court of Appeals,[16] we
annulled a stipulated 5.5% per month or 66% per annum interest with additional
service charge of 2% per annum and penalty charge of 1% per month on
a P500,000.00 loan for being excessive, iniquitous, unconscionable and
exorbitant.
In this case, however, we cannot consider the disputed 6% to 7% monthly interest
rate to be iniquitous or unconscionable vis--vis the principle laid down
in Medel. Noteworthy is the fact that in Medel, the defendant-spouses were never
able to pay their indebtedness from the very beginning and when their obligations
ballooned into a staggering sum, the creditors filed a collection case against
them. In this case, there was no urgency of the need for money on the part of
Jocelyn, the debtor, which compelled her to enter into said loan transactions. She
used the money from the loans to make advance payments for prospective clients
of educational plans offered by her employer. In this way, her sales production
would increase, thereby entitling her to 50% rebate on her sales. This is the
reason why she did not mind the 6% to 7% monthly interest. Notably too, a
business transaction of this nature between Jocelyn and Marilou continued for
more than five years. Jocelyn religiously paid the agreed amount of interest until
she ordered for stop payment on some of the checks issued to Marilou. The
checks were in fact sufficiently funded when she ordered the stop payment and
then filed a case questioning the imposition of a 6% to 7% interest rate for being
allegedly iniquitous or unconscionable and, hence, contrary to morals.
It was clearly shown that before Jocelyn availed of said loans, she knew fully well
that the same carried with it an interest rate of 6% to 7% per month, yet she did
not complain. In fact, when she availed of said loans, an advance interest of 6%
to 7% was already deducted from the loan amount, yet she never uttered a word
of protest.
After years of benefiting from the proceeds of the loans bearing an interest
rate of 6% to 7% per month and paying for the same, Jocelyn cannot now go to
court to have the said interest rate annulled on the ground that it is excessive,
iniquitous, unconscionable, exorbitant, and absolutely revolting to the conscience
of man. This is so because among the maxims of equity are (1) he who seeks
equity must do equity, and (2) he who comes into equity must come with clean
hands. The latter is a frequently stated maxim which is also expressed in the
principle that he who has done inequity shall not have equity. It signifies that a
litigant may be denied relief by a court of equity on the ground that his conduct
has been inequitable, unfair and dishonest, or fraudulent, or deceitful as to the
controversy in issue. [17]
We are convinced that Jocelyn did not come to court for equitable relief with equity
or with clean hands. It is patently clear from the above summary of the facts that
the conduct of Jocelyn can by no means be characterized as nobly fair, just, and
reasonable. This Court likewise notes certain acts of Jocelyn before filing the case
with the RTC. In September 1998, she requested Marilou not to deposit her
checks as she can cover the checks only the following month. On the next month,
Jocelyn again requested for another extension of one month. It turned out that she
was only sweet-talking Marilou into believing that she had no money at that
time. But as testified by Serapio Romarate,[18] an employee of the Bank of
Commerce where Jocelyn is one of their clients, there was an available balance
of P276,203.03 in the latters account and yet she ordered for the stop payments
of the seven checks which can actually be covered by the available funds in said
account. She then caught Marilou by surprise when she surreptitiously filed a case
for declaration of nullity of the document and for damages.
The document Acknowledgment of Debt is

valid and binding.
Jocelyn seeks for the nullification of the document entitled Acknowledgment of

Debt and wants this Court to declare that she is no longer indebted to Marilou in
the amount of P290,000.00 as she had already paid a total amount
of P778,000.00. She claims that said document is an inexistent contract that is
void from the very beginning as clearly provided for by Article 1409[19] of the New
Civil Code.
Jocelyn further claims that she signed the said document and issued the seven
postdated checks because Marilou threatened to sue her for violation of BP Blg.
22.
Jocelyn is misguided. Even if there was indeed such threat made by

Marilou, the same is not considered as threat that would vitiate consent. Article
1335 of the New Civil Code is very specific on this matter. It provides:
Art. 1335. There is violence when in order to wrest consent,

serious or irresistible force is employed.
xxxx
A threat to enforce ones claim through competent

authority, if the claim is just or legal, does not vitiate
consent. (Emphasis supplied.)
Clearly, we cannot grant Jocelyn the relief she seeks.
As can be seen from the records of the case, Jocelyn has failed to prove her claim
that she was made to sign the document Acknowledgment of Debt and draw the
seven Bank of Commerce checks through force, threat and intimidation. As earlier
stressed, said document was signed in the office of Jocelyn, a high ranking
executive of CAP, and it was Jocelyn herself who went to the table of her two
subordinates to procure their signatures as witnesses to the execution of said
document. If indeed, she was forced to sign said document, then Jocelyn should
have immediately taken the proper legal remedy. But she did not. Furthermore, it
must be noted that after the execution of said document, Jocelyn honored the first
three checks before filing the complaint with the RTC. If indeed she was forced
she would never have made good on the first three checks.
It is provided, as one of the conclusive presumptions under Rule 131, Section
2(a), of the Rules of Court that, Whenever a party has, by his own declaration, act
or omission, intentionally and deliberately led another to believe a particular thing
to be true, and to act upon such belief, he cannot, in any litigation arising out of
such declaration, act or omission, be permitted to falsify it. This is known as the
principle of estoppel.
The essential elements of estoppel are: (1) conduct amounting to false

representation or concealment of material facts or at least calculated to convey
the impression that the facts are otherwise than, and inconsistent with, those
which the party subsequently attempts to assert; (2) intent, or at least expectation,
that this conduct shall be acted upon by, or at least influence, the other party; and,
(3) knowledge, actual or constructive, of the real facts.[20]
Here, it is uncontested that Jocelyn had in fact signed the Acknowledgment of

Debt in April 1998 and two of her subordinates served as witnesses to its
execution, knowing fully well the nature of the contract she was entering into. Next,
Jocelyn issued five checks in favor of Marilou representing renewal payment of
her loans amounting to P290,000.00. In June 1998, she asked to recall Check
No. 0010761 in the amount of P30,000.00 and replaced the same with six checks,
in staggered amounts. All these are indicia that Jocelyn treated the
Acknowledgment of Debt as a valid and binding contract.
More significantly, Jocelyn already availed herself of the benefits of the

Acknowledgment of Debt, the validity of which she now impugns. As aptly found
by the RTC and the CA, Jocelyn was making a business out of the loaned
amounts. She was actually using the money to make advance payments for her
prospective clients so that her sales production would increase. Accordingly, she
did not mind the 6% to 7% interest per month as she was getting a 50% rebate
on her sales.
Clearly, by her own acts, Jocelyn is estopped from impugning the validity of the
Acknowledgment of Debt. [A] party to a contract cannot deny the validity thereof
after enjoying its benefits without outrage to ones sense of justice and
fairness.[21] It is a long established doctrine that the law does not relieve a party
from the effects of an unwise, foolish or disastrous contract, entered into with all
the required formalities and with full awareness of what she was doing. Courts
have no power to relieve parties from obligations voluntarily assumed, simply
because their contracts turned out to be disastrous or unwise investments.[22]
WHEREFORE, the instant petition for review on certiorari is DENIED. The

Decision of the Court of Appeals in CA-G.R. CV No. 79805 dated August 24, 2005
affirming the Decision dated March 10, 2003 of the Regional Trial Court, Branch
22, Cebu City, in Civil Case No. CEB-22867 is AFFIRMED.
SO ORDERED.
MARIANO C. DEL CASTILLO

Associate Justice
WE CONCUR:
RENATO C. CORONA
Chief Justice
Chairperson
TERESITA J. LEONARDO-DE CASTRO ROBERTO A. ABAD

JOSE PORTUGAL PEREZ
Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the
conclusions in the above Decision had been reached in consultation before the
case was assigned to the writer of the opinion of the Courts Division.
RENATO C. CORONA
Chief Justice
⃰
In lieu of Associate Justice Presbitero J. Velasco, Jr., per Special Order No.
917 dated November 24, 2010.
[1]
Rollo, pp. 3-26.
[2]
CA rollo, pp. 65-75; penned by Associate Justice Mercedes Gozo-Dadole
and concurred in by Associate Justices Isaias P. Dicdican and Ramon M.
Bato, Jr.
[3]
Records, pp. 341-349; penned by Judge Pampio A. Abarintos.
[4]
Id. at 342.
[5]
Id. at 8.
[6]
Id. at 1-9.
[7]
Id. at 12-24.
[8]
Id. at 349.
[9]
Id. at 350-354.
[10]
Id. at 364-365.
[11]
CA rollo, p.75.
[12]
Id. at 76-90.
[13]
Id. at 113-114.
[14]
Ruiz v. Court of Appeals, 449 Phil. 419, 434 (2003).
[15]
Spouses Almeda v. Court of Appeals, 326 Phil. 309, 319 (1996).
[16]
359 Phil. 820 (1998).
[17]
University of the Philippines v. Catungal, Jr., 338 Phil. 728, 743-744
(1997).
[18]
TSN, January 15, 2002, p. 8.
[19]
Art. 1409. The following contracts are inexistent and void from the
beginning:
(1) Those whose cause, object or purpose is contrary to law, morals,
good customs, public order or public policy;
xxxx
[20]
Philippine National Bank v. Court of Appeals, 367 Phil. 508, 516 (1999).
[21]
Lim v. Queensland Tokyo Commodities, Inc., 424 Phil. 35, 45 (2002).
[22]
Esguerra v. Court of Appeals, 335 Phil. 58, 69 (1997).
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 197861 June 5, 2013
SPOUSES FLORENTINO T. MALLARI and AUREA V.

MALLARI, Petitioners,
vs.
PRUDENTIAL BANK (now BANK OF THE PHILIPPINE
ISLANDS), Respondent.
DECISION
PERALTA, J.:
Before us is a Petition for Review on Certiorari under Rule 45, assailing the
Decision1 dated June 17, 2010 and the Resolution2 dated July 20, 2011 of
the Court of Appeals (CA) in CA-G.R. CV No. 65993.
The antecedent facts are as follows:
On December 11, 1984, petitioner Florentino T. Mallari (Florentino)

obtained from respondent Prudential Bank-Tarlac Branch (respondent
bank), a loan in the amount of ₱300,000.00 as evidenced by Promissory
Note (PN) No. BD 84-055.3 Under the promissory note, the loan was
subject to an interest rate of 21% per annum (p.a.), attorney's fees
equivalent to 15% of the total amount due but not less than ₱200.00 and, in
case of default, a penalty and collection charges of 12% p.a. of the total
amount due. The loan had a maturity date of January 10, 1985, but was
renewed up to February 17, 1985. Petitioner Florentino executed a Deed of
Assignment4 wherein he authorized the respondent bank to pay his loan
with his time deposit with the latter in the amount of ₱300,000.00.
On December 22, 1989, petitioners spouses Florentino and Aurea Mallari

(petitioners) obtained again from respondent bank another loan of ₱1.7
million as evidenced by PN No. BDS 606-895 with a maturity date of March
22, 1990. They stipulated that the loan will bear 23% interest p.a.,
attorney's fees equivalent to 15% p.a. of the total amount due, but not less
than ₱200.00, and penalty and collection charges of 12% p.a. Petitioners
executed a Deed of Real Estate Mortgage6 in favor of respondent bank
covering petitioners' property under Transfer Certificate of Title (TCT) No.
T-215175 of the Register of Deeds of Tarlac to answer for the said loan.
Petitioners failed to settle their loan obligations with respondent bank, thus,
the latter, through its lawyer, sent a demand letter to the former for them to
pay their obligations, which when computed up to January 31, 1992,
amounted to ₱571,218.54 for PN No. BD 84-055 and ₱2,991,294.82 for PN
No. BDS 606-89.
On February 25, 1992, respondent bank filed with the Regional Trial Court
(RTC) of Tarlac, a petition for the extrajudicial foreclosure of petitioners'
mortgaged property for the satisfaction of the latter's obligation of
₱1,700,000.00 secured by such mortgage, thus, the auction sale was set
by the Provincial Sheriff on April 23, 1992.7
On April 10, 1992, respondent bank's Assistant Manager sent petitioners

two (2) separate Statements of Account as of April 23, 1992, i.e., the loan
of ₱300,000.00 was increased to ₱594,043.54, while the ₱1,700,000.00
loan was already ₱3,171,836.18.
On April 20, 1992, petitioners filed a complaint for annulment of mortgage,

deeds, injunction, preliminary injunction, temporary restraining order and
damages claiming, among others, that: (1) the ₱300,000.00 loan obligation
should have been considered paid, because the time deposit with the same
amount under Certificate of Time Deposit No. 284051 had already been
assigned to respondent bank; (2) respondent bank still added the
₱300,000.00 loan to the ₱1.7 million loan obligation for purposes of
applying the proceeds of the auction sale; and (3) they realized that there
were onerous terms and conditions imposed by respondent bank when it
tried to unilaterally increase the charges and interest over and above those
stipulated. Petitioners asked the court to restrain respondent bank from
proceeding with the scheduled foreclosure sale.
Respondent bank filed its Answer with counterclaim arguing that: (1) the
interest rates were clearly provided in the promissory notes, which were
used in computing for interest charges; (2) as early as January 1986,
petitioners' time deposit was made to apply for the payment of interest of
their ₱300,000.00 loan; and (3) the statement of account as of April 10,
1992 provided for a computation of interest and penalty charges only from
May 26, 1989, since the proceeds of petitioners' time deposit was applied
to the payment of interest and penalty charges for the preceding period.
Respondent bank also claimed that petitioners were fully apprised of the
bank's terms and conditions; and that the extrajudicial foreclosure was
sought for the satisfaction of the second loan in the amount of ₱1.7 million
covered by PN No. BDS 606-89 and the real estate mortgage, and not the
₱300,000.00 loan covered by another PN No. 84-055.
In an Order8 dated November 10, 1992, the RTC denied the Application for
a Writ of Preliminary Injunction. However, in petitioners' Supplemental
Motion for Issuance of a Restraining Order and/or Preliminary Injunction to
enjoin respondent bank and the Provincial Sheriff from effecting or
conducting the auction sale, the RTC reversed itself and issued the
restraining order in its Order9 dated January 14, 1993.
Respondent bank filed its Motion to Lift Restraining Order, which the RTC
granted in its Order10 dated March 9, 1993. Respondent bank then
proceeded with the extrajudicial foreclosure of the mortgaged property. On
July 7, 1993, a Certificate of Sale was issued to respondent bank being the
highest bidder in the amount of ₱3,500,000.00.
Subsequently, respondent bank filed a Motion to Dismiss Complaint11 for

failure to prosecute action for unreasonable length of time to which
petitioners filed their Opposition.12 On November 19, 1998, the RTC issued
its Order13 denying respondent bank's Motion to Dismiss Complaint.
Trial thereafter ensued. Petitioner Florentino was presented as the lone

witness for the plaintiffs. Subsequently, respondent bank filed a Demurrer
to Evidence.
On November 15, 1999, the RTC issued its Order14 granting respondent's
demurrer to evidence, the dispositive portion of which reads:
WHEREFORE, this case is hereby ordered DISMISSED. Considering there

is no evidence of bad faith, the Court need not order the plaintiffs to pay
damages under the general concept that there should be no premium on
the right to litigate.
NO COSTS.
SO ORDERED.15
The RTC found that as to the ₱300,000.00 loan, petitioners had assigned
petitioner Florentino's time deposit in the amount of ₱300,000.00 in favor of
respondent bank, which maturity coincided with petitioners' loan maturity.
Thus, if the loan was unpaid, which was later extended to February 17,
1985, respondent bank should had just applied the time deposit to the loan.
However, respondent bank did not, and allowed the loan interest to
accumulate reaching the amount of ₱594,043.54 as of April 10, 1992,
hence, the amount of ₱292,600.00 as penalty charges was unjust and
without basis.
As to the ₱1.7 million loan which petitioners obtained from respondent bank
after the ₱300,000.00 loan, it had reached the amount of ₱3,171,836.18
per Statement of Account dated April 27, 1993, which was computed based
on the 23% interest rate and 12% penalty charge agreed upon by the
parties; and that contrary to petitioners' claim, respondent bank did not add
the ₱300,000.00 loan to the ₱1.7 million loan obligation for purposes of
applying the proceeds of the auction sale.
The RTC found no legal basis for petitioners' claim that since the total
obligation was ₱1.7 million and respondent bank's bid price was ₱3.5
million, the latter should return to petitioners the difference of ₱1.8 million. It
found that since petitioners' obligation had reached ₱2,991,294.82 as of
January 31, 1992, but the certificate of sale was executed by the sheriff
only on July 7, 1993, after the restraining order was lifted, the stipulated
interest and penalty charges from January 31, 1992 to July 7, 1993 added
to the loan already amounted to ₱3.5 million as of the auction sale.
The RTC found that the 23% interest rate p.a., which was then the
prevailing loan rate of interest could not be considered unconscionable,
since banks are not hospitable or equitable institutions but are entities
formed primarily for profit. It also found that Article 1229 of the Civil Code
invoked by petitioners for the reduction of the interest was not applicable,
since petitioners had not paid any single centavo of the ₱1.7 million loan
which showed they had not complied with any part of the obligation.
Petitioners appealed the RTC decision to the CA. A Comment was filed by
respondent bank and petitioners filed their Reply thereto.
On June 17, 2010, the CA issued its assailed Decision, the dispositive
portion of which reads:
WHEREFORE, the instant appeal is hereby DENIED. The Order dated

November 15, 1999 issued by the Regional Trial Court (RTC), Branch 64,
Tarlac City, in Civil Case No. 7550 is hereby AFFIRMED.16
The CA found that the time deposit of ₱300,000.00 was equivalent only to
the principal amount of the loan of ₱300,000.00 and would not be sufficient
to cover the interest, penalty, collection charges and attorney's fees agreed
upon, thus, in the Statement of Account dated April 10, 1992, the
outstanding balance of petitioners' loan was ₱594,043.54. It also found not
persuasive petitioners' claim that the ₱300,000.00 loan was added to the
₱1.7 million loan. The CA, likewise, found that the interest rates and
penalty charges imposed were not unconscionable and adopted in toto the
findings of the RTC on the matter.
Petitioners filed their Motion for Reconsideration, which the CA denied in a

Resolution dated July 20, 2011.
Hence, petitioners filed this petition for review arguing that:
THE HON. COURT OF APPEALS ERRED IN AFFIRMING THE ORDER

OF THE RTC-BRANCH 64, TARLAC CITY, DATED NOVEMBER 15, 1999,
DESPITE THE FACT THAT THE SAME IS CONTRARY TO SETTLED
JURISPRUDENCE ON THE MATTER.17
The issue for resolution is whether the 23% p.a. interest rate and the 12%
p.a. penalty charge on petitioners' ₱1,700,000.00 loan to which they
agreed upon is excessive or unconscionable under the circumstances.
Parties are free to enter into agreements and stipulate as to the terms and
conditions of their contract, but such freedom is not absolute. As Article
1306 of the Civil Code provides, "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." Hence, if the stipulations in the contract are
valid, the parties thereto are bound to comply with them, since such
contract is the law between the parties. In this case, petitioners and
respondent bank agreed upon on a 23% p.a. interest rate on the ₱1.7
million loan. However, petitioners now contend that the interest rate of 23%
p.a. imposed by respondent bank is excessive or unconscionable, invoking
our ruling in Medel v. Court of Appeals,18 Toring v. Spouses Ganzon-
Olan,19 and Chua v. Timan.20
We are not persuaded.
In Medel v. Court of Appeals,21 we found the stipulated interest rate of 66%

p.a. or a 5.5% per month on a ₱500,000.00 loan excessive,
unconscionable and exorbitant, hence, contrary to morals if not against the
law and declared such stipulation void. In Toring v. Spouses Ganzon-
Olan,22 the stipulated interest rates involved were 3% and 3.81% per month
on a ₱10 million loan, which we find under the circumstances excessive
and reduced the same to 1% per month. While in Chua v. Timan,23 where
the stipulated interest rates were 7% and 5% a month, which are equivalent
to 84% and 60% p.a., respectively, we had reduced the same to 1% per
month or 12% p.a. We said that 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, unconscionable and exorbitant, hence,
the stipulation was void for being contrary to morals.24
In this case, the interest rate agreed upon by the parties was only 23% p.a.,
or less than 2% per month, which are much lower than those interest rates
agreed upon by the parties in the above-mentioned cases. Thus, there is
no similarity of factual milieu for the application of those cases.
We do not consider the interest rate of 23% p.a. agreed upon by petitioners
and respondent bank to be unconscionable.
In Villanueva v. Court of Appeals,25 where the issue raised was whether the
24% p.a. stipulated interest rate is unreasonable under the circumstances,
we answered in the negative and held:
In Spouses Zacarias Bacolor and Catherine Bacolor v. Banco Filipino

Savings and Mortgage Bank, Dagupan City Branch, this Court held that the
interest rate of 24% per annum on a loan of ₱244,000.00, agreed upon by
the parties, may not be considered as unconscionable and excessive. As
such, the Court ruled that the borrowers cannot renege on their obligation
to comply with what is incumbent upon them under the contract of loan as
the said contract is the law between the parties and they are bound by its
stipulations.
Also, in Garcia v. Court of Appeals, this Court sustained the agreement of
the parties to a 24% per annum interest on an ₱8,649,250.00 loan finding
the same to be reasonable and clearly evidenced by the amended credit
line agreement entered into by the parties as well as two promissory notes
executed by the borrower in favor of the lender.
Based on the above jurisprudence, the Court finds that the 24% per annum
interest rate, provided for in the subject mortgage contracts for a loan of
₱225,000.00, may not be considered unconscionable. Moreover,
considering that the mortgage agreement was freely entered into by both
parties, the same is the law between them and they are bound to comply
with the provisions contained therein.26
Clearly, jurisprudence establish that the 24% p.a. stipulated interest rate
was not considered unconscionable, thus, the 23% p.a. interest rate
imposed on petitioners' loan in this case can by no means be considered
excessive or unconscionable.
We also do not find the stipulated 12% p.a. penalty charge excessive or
unconscionable.
In Ruiz v. CA,27 we held:
The 1% surcharge on the principal loan for every month of default is

valid.1âwphi1 This surcharge or penalty stipulated in a loan agreement in
case of default partakes of the nature of liquidated damages under Art.
2227 of the New Civil Code, and is separate and distinct from interest
payment. Also referred to as a penalty clause, it is expressly recognized by
law. It is an accessory undertaking to assume greater liability on the part of
an obligor in case of breach of an obligation. The obligor would then be
bound to pay the stipulated amount of indemnity without the necessity of
proof on the existence and on the measure of damages caused by the
breach. x x x28 And in Development Bank of the Philippines v. Family
Foods Manufacturing Co., Ltd.,29 we held that:
x x x The enforcement of the penalty can be demanded by the creditor only

when the non-performance is due to the fault or fraud of the debtor. The
non-performance gives rise to the presumption of fault; in order to avoid the
payment of the penalty, the debtor has the burden of proving an excuse -
the failure of the performance was due to either force majeure or the acts of
the creditor himself.30
Here, petitioners defaulted in the payment of their loan obligation with
respondent bank and their contract provided for the payment of 12% p.a.
penalty charge, and since there was no showing that petitioners' failure to
perform their obligation was due to force majeure or to respondent bank's
acts, petitioners cannot now back out on their obligation to pay the penalty
charge. A contract is the law between the parties and they are bound by
the stipulations therein.
WHEREFORE, the petition for review is DENIED. The Decision dated June
17, 2010 and the Resolution dated July 20, 2011 of the Court of Appeals
are hereby AFFIRMED.
SO ORDERED.
DIOSDADO M. PERALTA
Associate Justice
WE CONCUR:
PRESBITERO J. VELASCO, JR.

Associate Justice
Chairperson
ROBERTO A. ABAD JOSE CATRAL MENDOZA


Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision had been reached in
Court’s Division.

Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution and the Division
Chairperson's Attestation, I certify that the conclusions in the above
Decision had been reached in consultation before the case was assigned
to the writer of the opinion of the Court's Division.

Chief Justice
Footnotes
1
Penned by Associate Justice Juan Q. Enriquez, Jr., with Associate
Justices Ramon M. Bato, Jr. and Fiorito S. Macalino. concurring;
rollo, pp. 30-37.
2
Id. at 40-41.
3
Id. at 43.
4
Id. at 47.
5
Id at 44.
6
Id. at 45-46.
7
Id. at 48.
8
Per Presiding Judge Edilberto Aquino; id. at 89-93.
9
Rollo, pp. 94-96.
10
Per Executive Judge Augusto N. Felix; id. at 116-117;
11
Rollo, pp. 126-130.
12
Id. at 132-133.
13
Per Presiding Judge Edgardo F. Sundiam; id. at 134-135;
14
Rollo, pp. 199-204.
15
Id. at 204.
16
Id. at 36. (Emphasis in the original.)
17
Id. at 19.
18
359 Phil. 820 (1998).
19
G.R. No. 168782, October 10, 2008, 568 SCRA 376.
20
G.R. No. 170452, August 13, 2008, 562 SCRA 146.
21
Supra note 18.
22
Supra note 19.
23
Supra note 20.
24
Id. at 149-150.
25
G.R. No. 163433, August 22, 2011, 655 SCRA 707.
26
Id. at 716-717. (Italics in the original)
27
449 Phil. 419 (2003).
28
Id. at 435.
29
G.R. No. 180458, July 30, 2009, 594 SCRA 461.
30
Development Bank of the Philippines v. Family Foods
Manufacturing Co., Ltd., supra, at 473, citing Development Bank of
the Philippines v. Go, G.R. No. 168779, September 14, 2007, 533
SCRA 460, 470-471.
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 182963 June 3, 2013
SPOUSES DEO AGNER and MARICON AGNER, Petitioners,

vs.
BPI FAMILY SAVINGS BANK, INC., Respondent.
DECISION
PERALTA, J.:
This is a petition for review on certiorari assailing the April 30, 2007
Decision1 and May 19, 2008 Resolution2of the Court of Appeals in CAG.R.
CV No. 86021, which affirmed the August 11, 2005 Decision3 of the
Regional Trial Court, Branch 33, Manila City.
On February 15, 2001, petitioners spouses Deo Agner and Maricon Agner
executed a Promissory Note with Chattel Mortgage in favor of Citimotors,
Inc. The contract provides, among others, that: for receiving the amount of
Php834, 768.00, petitioners shall pay Php 17,391.00 every 15th day of
each succeeding month until fully paid; the loan is secured by a 2001
Mitsubishi Adventure Super Sport; and an interest of 6% per month shall be
imposed for failure to pay each installment on or before the stated due
date.4
On the same day, Citimotors, Inc. assigned all its rights, title and interests
in the Promissory Note with Chattel Mortgage to ABN AMRO Savings
Bank, Inc. (ABN AMRO), which, on May 31, 2002, likewise assigned the
same to respondent BPI Family Savings Bank, Inc.5
For failure to pay four successive installments from May 15, 2002 to August
15, 2002, respondent, through counsel, sent to petitioners a demand letter
dated August 29, 2002, declaring the entire obligation as due and
demandable and requiring to pay Php576,664.04, or surrender the
mortgaged vehicle immediately upon receiving the letter.6 As the demand
was left unheeded, respondent filed on October 4, 2002 an action for
Replevin and Damages before the Manila Regional Trial Court (RTC).
A writ of replevin was issued.7 Despite this, the subject vehicle was not
seized.8 Trial on the merits ensued. On August 11, 2005, the Manila RTC
Br. 33 ruled for the respondent and ordered petitioners to jointly and
severally pay the amount of Php576,664.04 plus interest at the rate of 72%
per annum from August 20, 2002 until fully paid, and the costs of suit.
Petitioners appealed the decision to the Court of Appeals (CA), but the CA
affirmed the lower court’s decision and, subsequently, denied the motion
for reconsideration; hence, this petition.
Before this Court, petitioners argue that: (1) respondent has no cause of
action, because the Deed of Assignment executed in its favor did not
specifically mention ABN AMRO’s account receivable from petitioners; (2)
petitioners cannot be considered to have defaulted in payment for lack of
competent proof that they received the demand letter; and (3) respondent’s
remedy of resorting to both actions of replevin and collection of sum of
money is contrary to the provision of Article 14849 of the Civil Code and the
Elisco Tool Manufacturing Corporation v. Court of Appeals10ruling.
The contentions are untenable.
With respect to the first issue, it would be sufficient to state that the matter
surrounding the Deed of Assignment had already been considered by the
trial court and the CA. Likewise, it is an issue of fact that is not a proper
subject of a petition for review under Rule 45. An issue is factual when the
doubt or difference arises as to the truth or falsehood of alleged facts, or
when the query invites calibration of the whole evidence, considering
mainly the credibility of witnesses, existence and relevancy of specific
surrounding circumstances, their relation to each other and to the whole,
and the probabilities of the situation.11 Time and again, We stress that this
Court is not a trier of facts and generally does not weigh anew evidence
which lower courts have passed upon.
As to the second issue, records bear that both verbal and written demands
were in fact made by respondent prior to the institution of the case against
petitioners.12 Even assuming, for argument’s sake, that no demand letter
was sent by respondent, there is really no need for it because petitioners
legally waived the necessity of notice or demand in the Promissory Note
with Chattel Mortgage, which they voluntarily and knowingly signed in favor
of respondent’s predecessor-in-interest. Said contract expressly stipulates:
In case of my/our failure to pay when due and payable, any sum which
I/We are obliged to pay under this note and/or any other obligation which
I/We or any of us may now or in the future owe to the holder of this note or
to any other party whether as principal or guarantor x x x then the entire
sum outstanding under this note shall, without prior notice or demand,
immediately become due and payable. (Emphasis and underscoring
supplied)
A provision on waiver of notice or demand has been recognized as legal

and valid in Bank of the Philippine Islands v. Court of Appeals,13 wherein
We held:
The Civil Code in Article 1169 provides that one incurs in delay or is in
default from the time the obligor demands the fulfillment of the obligation
from the obligee. However, the law expressly provides that demand is not
necessary under certain circumstances, and one of these circumstances is
when the parties expressly waive demand. Hence, since the co-signors
expressly waived demand in the promissory notes, demand was
unnecessary for them to be in default.14
Further, the Court even ruled in Navarro v. Escobido15 that prior demand is
not a condition precedent to an action for a writ of replevin, since there is
nothing in Section 2, Rule 60 of the Rules of Court that requires the
applicant to make a demand on the possessor of the property before an
action for a writ of replevin could be filed.
Also, petitioners’ representation that they have not received a demand

letter is completely inconsequential as the mere act of sending it would
suffice. Again, We look into the Promissory Note with Chattel Mortgage,
which provides:
All correspondence relative to this mortgage, including demand letters,

summonses, subpoenas, or notifications of any judicial or extrajudicial
action shall be sent to the MORTGAGOR at the address indicated on this
promissory note with chattel mortgage or at the address that may hereafter
be given in writing by the MORTGAGOR to the MORTGAGEE or his/its
assignee. The mere act of sending any correspondence by mail or by
personal delivery to the said address shall be valid and effective notice to
the mortgagor for all legal purposes and the fact that any communication is
not actually received by the MORTGAGOR or that it has been returned
unclaimed to the MORTGAGEE or that no person was found at the address
given, or that the address is fictitious or cannot be located shall not excuse
or relieve the MORTGAGOR from the effects of such notice.16 (Emphasis
and underscoring supplied)
The Court cannot yield to petitioners’ denial in receiving respondent’s

demand letter. To note, their postal address evidently remained unchanged
from the time they executed the Promissory Note with Chattel Mortgage up
to time the case was filed against them. Thus, the presumption that "a letter
duly directed and mailed was received in the regular course of the
mail"17 stands in the absence of satisfactory proof to the contrary.
Petitioners cannot find succour from Ting v. Court of Appeals18 simply

because it pertained to violation of Batas Pambansa Blg. 22 or the
Bouncing Checks Law. As a higher quantum of proof – that is, proof
beyond reasonable doubt – is required in view of the criminal nature of the
case, We found insufficient the mere presentation of a copy of the demand
letter allegedly sent through registered mail and its corresponding registry
receipt as proof of receiving the notice of dishonor.
Perusing over the records, what is clear is that petitioners did not take
advantage of all the opportunities to present their evidence in the
proceedings before the courts below. They miserably failed to produce the
original cash deposit slips proving payment of the monthly amortizations in
question. Not even a photocopy of the alleged proof of payment was
appended to their Answer or shown during the trial. Neither have they
demonstrated any written requests to respondent to furnish them with
official receipts or a statement of account. Worse, petitioners were not able
to make a formal offer of evidence considering that they have not marked
any documentary evidence during the presentation of Deo Agner’s
testimony.19
Jurisprudence abounds that, in civil cases, one who pleads payment has
the burden of proving it; the burden rests on the defendant to prove
payment, rather than on the plaintiff to prove non-payment.20 When the
creditor is in possession of the document of credit, proof of non-payment is
not needed for it is presumed.21 Respondent's possession of the
Promissory Note with Chattel Mortgage strongly buttresses its claim that
the obligation has not been extinguished. As held in Bank of the Philippine
Islands v. Spouses Royeca:22
x x x The creditor's possession of the evidence of debt is proof that the

debt has not been discharged by payment. A promissory note in the hands
of the creditor is a proof of indebtedness rather than proof of payment. In
an action for replevin by a mortgagee, it is prima facie evidence that the
promissory note has not been paid. Likewise, an uncanceled mortgage in
the possession of the mortgagee gives rise to the presumption that the
mortgage debt is unpaid.23
Indeed, when the existence of a debt is fully established by the evidence

contained in the record, the burden of proving that it has been extinguished
by payment devolves upon the debtor who offers such defense to the claim
of the creditor.24 The debtor has the burden of showing with legal certainty
that the obligation has been discharged by payment.25
Lastly, there is no violation of Article 1484 of the Civil Code and the Court’s
decision in Elisco Tool Manufacturing Corporation v. Court of Appeals.26
In Elisco, petitioner's complaint contained the following prayer:
WHEREFORE, plaintiffs pray that judgment be rendered as follows:
ON THE FIRST CAUSE OF ACTION
Ordering defendant Rolando Lantan to pay the plaintiff the sum of

₱39,054.86 plus legal interest from the date of demand until the whole
obligation is fully paid;
ON THE SECOND CAUSE OF ACTION
To forthwith issue a Writ of Replevin ordering the seizure of the motor

vehicle more particularly described in paragraph 3 of the Complaint, from
defendant Rolando Lantan and/or defendants Rina Lantan, John Doe,
Susan Doe and other person or persons in whose possession the said
motor vehicle may be found, complete with accessories and equipment,
and direct deliver thereof to plaintiff in accordance with law, and after due
hearing to confirm said seizure and plaintiff's possession over the same;
PRAYER COMMON TO ALL CAUSES OF ACTION

1. Ordering the defendant Rolando Lantan to pay the plaintiff an
amount equivalent to twenty-five percent (25%) of his outstanding
obligation, for and as attorney's fees;
2. Ordering defendants to pay the cost or expenses of collection,

repossession, bonding fees and other incidental expenses to be
proved during the trial; and
3. Ordering defendants to pay the costs of suit.
Plaintiff also prays for such further reliefs as this Honorable Court may
deem just and equitable under the premises.27
The Court therein ruled:
The remedies provided for in Art. 1484 are alternative, not cumulative. The
exercise of one bars the exercise of the others. This limitation applies to
contracts purporting to be leases of personal property with option to buy by
virtue of Art. 1485. The condition that the lessor has deprived the lessee of
possession or enjoyment of the thing for the purpose of applying Art. 1485
was fulfilled in this case by the filing by petitioner of the complaint for
replevin to recover possession of movable property. By virtue of the writ of
seizure issued by the trial court, the deputy sheriff seized the vehicle on
August 6, 1986 and thereby deprived private respondents of its use. The
car was not returned to private respondent until April 16, 1989, after two (2)
years and eight (8) months, upon issuance by the Court of Appeals of a writ
of execution.
Petitioner prayed that private respondents be made to pay the sum of

₱39,054.86, the amount that they were supposed to pay as of May 1986,
plus interest at the legal rate. At the same time, it prayed for the issuance
of a writ of replevin or the delivery to it of the motor vehicle "complete
with accessories and equipment." In the event the car could not be
delivered to petitioner, it was prayed that private respondent Rolando
Lantan be made to pay petitioner the amount of ₱60,000.00, the "estimated
actual value" of the car, "plus accrued monthly rentals thereof with interests
at the rate of fourteen percent (14%) per annum until fully paid." This prayer
of course cannot be granted, even assuming that private respondents have
defaulted in the payment of their obligation. This led the trial court to say
that petitioner wanted to eat its cake and have it too.28
In contrast, respondent in this case prayed:
(a) Before trial, and upon filing and approval of the bond, to forthwith
issue a Writ of Replevin ordering the seizure of the motor vehicle
above-described, complete with all its accessories and equipments,
together with the Registration Certificate thereof, and direct the
delivery thereof to plaintiff in accordance with law and after due
hearing, to confirm the said seizure;
(b) Or, in the event that manual delivery of the said motor vehicle
cannot be effected to render judgment in favor of plaintiff and against
defendant(s) ordering them to pay to plaintiff, jointly and severally, the
sum of ₱576,664.04 plus interest and/or late payment charges
thereon at the rate of 72% per annum from August 20, 2002 until fully
paid;
(c) In either case, to order defendant(s) to pay jointly and severally:
(1) the sum of ₱297,857.54 as attorney’s fees, liquidated

damages, bonding fees and other expenses incurred in the
seizure of the said motor vehicle; and
(2) the costs of suit.
Plaintiff further prays for such other relief as this Honorable Court may
deem just and equitable in the premises.29
Compared with Elisco, the vehicle subject matter of this case was never
recovered and delivered to respondent despite the issuance of a writ of
replevin. As there was no seizure that transpired, it cannot be said that
petitioners were deprived of the use and enjoyment of the mortgaged
vehicle or that respondent pursued, commenced or concluded its actual
foreclosure. The trial court, therefore, rightfully granted the alternative
prayer for sum of money, which is equivalent to the remedy of "exacting
fulfillment of the obligation." Certainly, there is no double recovery or unjust
enrichment30 to speak of.1âwphi1
All the foregoing notwithstanding, We are of the opinion that the interest of
6% per month should be equitably reduced to one percent (1%) per month
or twelve percent (12%) per annum, to be reckoned from May 16, 2002
until full payment and with the remaining outstanding balance of their car
loan as of May 15, 2002 as the base amount.
Settled is the principle which this Court has affirmed in a number of cases
that stipulated interest rates of three percent (3%) per month and higher
are excessive, iniquitous, unconscionable, and exorbitant.31 While Central
Bank 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.32 Since the stipulation on the interest rate is
void for being contrary to morals, if not against the law, it is as if there was
no express contract on said interest rate; thus, the interest rate may be
reduced as reason and equity demand.33
WHEREFORE, the petition is DENIED and the Court AFFIRMS WITH

MODIFICATION the April 30, 2007 Decision and May 19, 2008 Resolution
of the Court of Appeals in CA-G.R. CV No. 86021. Petitioners spouses Deo
Agner and Maricon Agner are ORDERED to pay, jointly and severally,
respondent BPI Family Savings Bank, Inc. ( 1) the remaining outstanding
balance of their auto loan obligation as of May 15, 2002 with interest at one
percent ( 1 o/o) per month from May 16, 2002 until fully paid; and (2) costs
of suit.
SO ORDERED.
DIOSDADO M. PERALTA
Associate Justice
WE CONCUR:

Associate Justice
Chairperson
ROBERTO A. ABAD JOSE CATRAL MENDOZA


Associate Justice
ATTESTATION
Court's Division.

Associate Justice
CERTIFICATION

Chief Justice
Footnotes
1
Penned by Associate Justice Vicente Q. Roxas, with Associate
Justices Josefina Guevara-Salonga and Ramon R. Garcia
concurring; rollo, pp. 49-54.
2
Id. at 56.
3
Records, pp. 149-151.
4
Id. at 28.
5
Id. at 29, 33-35.
6
Id. at 36.
7
Id. at 40.
8
TSN, November 23, 2004, p. 15.
9
ART. 1484. In a contract of sale of personal property, the price of
which is payable in installments, the vendor may exercise any of the
following remedies:
(1) Exact fulfillment of the obligation, should the vendee fail to

pay;
(2) Cancel the sale, should the vendee's failure to pay cover
two or more installments;
(3) Foreclose the chattel mortgage on the thing sold, if one has
been constituted, should the vendee's failure to pay cover two
or more installments. In this case, he shall have no further
action against the purchaser to recover any unpaid balance of
the price. Any agreement to the contrary shall be void.
10
G.R. No. 109966, May 31, 1999, 307 SCRA 731.
11
Royal Cargo Corporation v. DFS Sports Unlimited, Inc., G.R. No.
158621, December 10, 2008, 573 SCRA 414, 421.
12
TSN, November 23, 2004, p. 11.
13
523 Phil. 548 (2006).
14
Id. at 560.
15
G.R. No. 153788, November 27, 2009, 606 SCRA 1, 20-21.
16
Records, p. 31.
17
RULES OF COURT, Rule 131, Sec. 3 (v).
18
398 Phil. 481 (2000).
19
Records, p. 145.
20
Royal Cargo Corporation v. DFS Sports Unlimited, Inc., supra note
11, at 422; Bank of the Philippine Islands v. Spouses Royeca, G.R.
No. 176664, July 21, 2008, 559 SCRA 207, 216; Benguet
Corporation v. Department of Environment and Natural Resources-
Mines Adjudication Board, G.R. No. 163101, February 13, 2008, 545
SCRA 196, 213; Citibank, N.A. v. Sabeniano, 535 Phil. 384, 419
(2006); Keppel Bank Philippines, Inc. v. Adao, 510 Phil. 158, 166-167
(2005); and Far East Bank and Trust Company v. Querimit, 424 Phil.
721, 730-731 (2002).
21
Tai Tong Chuache & Co. v. Insurance Commission, 242 Phil. 104,
112 (1988).
22
Supra note 20.
23
Bank of the Philippine Islands v. Spouses Royeca, id. at 219.
24
Id. at 216; Citibank, N.A. v. Sabeniano, supra note 20; and Coronel
v. Capati, 498 Phil. 248, 255 (2005).
25
Royal Cargo Corporation v. DFS Sports Unlimited, Inc., supra note
11, at 422; Bank of the Philippine Islands v. Spouses Royeca, supra
note 20; Benguet Corporation v. Department of Environment and
Natural Resources-Mines Adjudication Board, supra note 20;
Citibank, N.A. v. Sabeniano, supra note 20; Coronel v. Capati, supra
note 24, at 256; and Far East Bank and Trust Company v. Querimit,
supra note 20.
26
Supra note 10.
27
Elisco Tool Manufacturing Corporation v. Court of Appeals, id. at
735-736.
28
Id. at 743-744.
29
Records, pp. 24-25.
30
In Cabrera v. Ameco Contractors Rental, Inc. (G.R. No. 201560,
June 20, 2012 Second Division Minute Resolution), We held:
The principle of unjust enrichment is provided under Article 22

of the Civil Code which provides: Article 22. Every person who
through an act of performance by another, or any other means,
acquires or comes into possession of something at the expense
of the latter without just or legal ground, shall return the same to
him.
There is unjust enrichment "when a person unjustly retains a
benefit to the loss of another, or when a person retains money
or property of another against the fundamental principles of
justice, equity and good conscience." The principle of unjust
enrichment requires two conditions: (1) that a person is
benefited without a valid basis or justification, and (2) that such
benefit is derived at the expense of another.
31
Arthur F. Menchavez v. Marlyn M. Bermudez, G.R. No. 185368,
October 11, 2012.
32
Macalinao v. Bank of the Philippine Islands, G.R. No. 175490,
September 17, 2009, 600 SCRA 67, 77, citing Chua v. Timan, G.R.
No. 170452, August 13, 2008, 562 SCRA 146, 149-150.
33
Arthur F. Menchavez v. Marlyn M. Bermudez, G.R. No. 185368,
October 11, 2012, citing Macalinao v. Bank of the Philippine Islands,
supra, at 77, and Chua v. Timan, supra, at 150.
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 194201 November 27, 2013
SPOUSES BAYANI H. ANDAL AND GRACIA G. ANDAL, Petitioners,

vs.
PHILIPPINE NATIONAL BANK REGISTER OF DEEDS OF BATANGAS
CITY JOSE C. CORALES, Respondents.
DECISION
PEREZ, J.:
Before the Court is a Petition for Review on Certiorari1 under Rule 45 of the
Rules of Court seeking to partially set aside the Decision,2 dated 30 March
2010, and the Resolution,3 dated 13 October 2010, of the Court of Appeals
(CA) in CA-G.R. CV No. 91250. The challenged Decision dismissed the
appeal of herein respondent Philippine National Bank (respondent bank)
and affirmed the decision of the Regional Trial Court (RTC), Branch 84,
Batangas City with the modification that the interest rate to be applied by
respondent bank on the principal loan obligation of petitioners Spouses
per annum, to be computed from default.
As found by the CA, the facts of this case are as follows:
x x x on September 7, 1995, [petitioners-spouses] obtained a loan from

[respondent bank] in the amount of ₱21,805,000.00, for which they
executed twelve (12) promissory notes x x x [undertaking] to pay
[respondent bank] the principal loan with varying interest rates of 17.5% to
27% per interest period. It was agreed upon by the parties that the rate of
interest may be increased or decreased for the subsequent interest
periods, with prior notice to [petitioners-spouses], in the event of changes in
interest rates prescribed by law or the Monetary Board x x x, or in the
bank’s overall cost of funds.
To secure the payment of the said loan, [petitioners-spouses] executed in
favor of [respondent bank] a real estate mortgage using as collateral five
(5) parcels of land including all improvements therein, all situated in
Batangas City and covered by Transfer Certificate of Title (TCT) Nos. T-
641, T-32037, T-16730, T-31193 and RT 363 (3351) of the Registry of
Deeds of Batangas City, in the name of [petitioners-spouses].
Subsequently, [respondent bank] advised [petitioners-spouses] to pay their

loan obligation, otherwise the former will declare the latter’s loan due and
demandable. On July 17, 2001, [petitioners-spouses] paid ₱14,800,000.00
to [respondent bank] to avoid foreclosure of the properties subject of the
real estate mortgage. Accordingly, [respondent bank] executed a release of
real estate mortgage over the parcels of land covered by TCT Nos. T-
31193 and RT-363 (3351). However, despite payment x x x, [respondent
bank] proceeded to foreclose the real estate mortgage, particularly with
respect to the three (3) parcels of land covered by TCT Nos. T-641, T-
32037 and T-16730 x x x.
x x x [A] public auction sale of the properties proceeded, with the

[respondent bank] emerging as the highest and winning bidder.
Accordingly, on August 30, 2002, a certificate of sale of the properties
involved was issued. [Respondent bank] consolidated its ownership over
the said properties and TCT Nos. T-52889, T-52890, and T-52891 were
issued in lieu of the cancelled TCT[s] x x x. This prompted [petitioners-
spouses] to file x x x a complaint for annulment of mortgage, sheriff’s
certificate of sale, declaration of nullity of the increased interest rates and
penalty charges plus damages, with the RTC of Batangas City.
In their amended complaint, [petitioners-spouses] alleged that they tried to

religiously pay their loan obligation to [respondent bank], but the exorbitant
rate of interest unilaterally determined and imposed by the latter prevented
the former from paying their obligation. [Petitioners-spouses] also alleged
that they signed the promissory notes in blank, relying on the
representation of [respondent bank] that they were merely proforma [sic]
bank requirements. Further, [petitioners-spouses] alleged that the unilateral
increase of interest rates and exorbitant penalty charges are akin to unjust
enrichment at their expense, giving [respondent bank] no right to foreclose
their mortgaged properties. x x x.
xxxx
On August 27, 2004 [respondent bank] filed its answer, denying the
allegations in the complaint. x x x [respondent bank] alleged that: the
penalty charges imposed on the loan was expressly stipulated under the
credit agreements and in the promissory notes; although [petitioners-
spouses] paid to [respondent bank] ₱14,800,000.00 on July 10, 2001, the
former was still indebted to the latter in the amount of ₱33,960,633.87;
assuming arguendo that the imposition was improper, the foreclosure of the
mortgaged properties is in order since [respondent bank’s] bid in the
amount of ₱28,965,100.00 was based on the aggregate appraised rates of
the foreclosed properties. x x x4
After trial, the RTC rendered judgment5 in favor of petitioners-spouses and

against respondent bank, ordering that:
1. The rate of interest should be reduced as it is hereby reduced to 6% in

accordance with Article 2209 of the Civil Code effective the next 30, 31 and
180 days respectively from the date of the twelve (12) promissory notes x x
x covered by the real estate x x x mortgages, to be applied on a declining
balance of the principal after the partial payments of ₱14,800,00.00 (paid
July 17, 2001) and ₱2,000,000.006 (payments of ₱300,000.00 on October
1, 1999, ₱1,800,000.00 as [of] December 1, 1999, ₱700,000.00 [on]
January 31, 2000) per certification of [respondent bank] to be reckoned at
(sic) the dates the said payments were made, thus the corrected amounts
of the liability for principal balance and the said 6% charges per annum
shall be the new basis for the [petitioners-spouses] to make payments to
the [respondent bank] x x x which shall automatically extinguish and
release the mortgage contracts and the outstanding liabilities of the
[petitioners-spouses]; [respondent bank] shall then surrender the new
transfer certificates of title x x x in its name to the [c]ourt x x x, [c]anceling
the penalty charges.
xxxx
3. Declaring as illegal and void the foreclosure sales x x x, the Certificates

of Sales and the consolidation of titles of the subject real properties,
including the cancellation of the new Transfer Certificates of Title x x x in
the name of the [respondent] bank and reinstating Transfer Certificates of
Title Nos. T-641, T-32037 and T-16730 in the names of the [petitioners-
spouses]; the latter acts to be executed by the Register of Deeds of
Batangas City.7
The foregoing disposition of the RTC was based on the following findings of
fact:
As of this writing the [respondent] bank have (sic) not complied with the
said orders as to the interest rates it had been using on the loan of
[petitioners-spouses] and the monthly computation of interest vis a vis (sic)
the total shown in the statement of account as of Aug 30, 2002. Such
refusal amounts to suppression of evidence thus tending to show that the
interest used by the bank was unilaterally increased without the written
consent of the [petitioners-spouses]/borrower as required by law and
Central Bank Circular No. 1171. The latter circular provides that any
increase of interest in a given interest period will have to be expressly
agreed to in writing by the borrower. The mortgaged properties were
subject of foreclosure and were sold on August 30, 2002 and the
[respondent] bank’s statement of account as of August 30, 2002 x x x
shows unpaid interest up to July 17, 2001 of ₱12,695,718.99 without
specifying the rate of interest for each interest period of thirty days. Another
statement of account of [respondent bank] x x x as [of] the date of
foreclosure on August 30, 2002 shows account balance of ₱20,505,916.51
with a bid price of ₱28,965,100.00 and showing an interest of
₱16,163,281.65. Again, there are no details of the interest used for each
interest period from the time these loans were incurred up to the date of
foreclosure. These statements of account together with the stated interest
and expenses after foreclosure were furnished by the [respondent] bank
during the court hearings. The central legal question is that there is no
agreement in writing from the [petitioners-spouses]/borrowers for the
interest rate for each interest period neither from the data coming from the
Central Bank or the cost of money which is understood to mean the interest
cost of the bank deposits form the public. Such imposition of the increased
interest without the consent of the borrower is null and void pursuant to
Article 1956 of the Civil Code and as held in the pronouncement of the
Supreme Court in several cases and C.B. Circular No. 1191 that the
interest rate for each re-pricing period under the floating rate of interest is
subject to mutual agreement in writing. Art. 1956 states that no interest is
due unless it has been expressly stipulated and agreed to in writing.
Any stipulation where the fixing of interest rate is the sole prerogative of the
creditor/mortgagee, belongs to the class of potestative condition which is
null and void under Art. 1308 of the New Civil Code. The fulfillment of a
condition cannot be left to the sole will of [one of] the contracting parties.
xxxx
In the instant case, if the interest is declared null and void, the foreclosure
sale for a higher amount than what is legally due is likewise null and void
because under the Civil Code, a mortgage may be foreclosed only to
enforce the fulfillment of the obligation for whose security it was constituted
(Art. 2126, Civil Code).
xxxx
Following the declaration of nullity of the stipulation on floating rate of

interest since no interest may be collected based on the stipulation that is
null and void and legally inexistent and unenforceable. x x x. Since the
interest imposed is illegal and void only the rate of 6% interest per month
shall be imposed as liquidated damages under Art. 2209 of the Civil Code.
It is worth mentioning that these forms used by the bank are pre- printed
forms and therefore contracts of adhesion and x x x any dispute or doubt
concerning them shall be resolved in favor of the x x x borrower. This (sic)
circumstances tend to support the contention of the [petitioners-spouses]
that they were made to sign the real estate mortgages/promissory notes in
blank with respect to the interest rates.
xxxx
[Respondent bank has] no right to foreclose [petitioners-spouses’] property

and any foreclosure thereof is illegal, unreasonable and void, since
[petitioners-spouses] are not and cannot be considered in default for their
inability to pay the arbitrarily, illegally, and unconscionably adjusted interest
rates and penalty charges unilaterally made and imposed by [respondent]
bank.
The [petitioners-spouses] submitted to the court certified copies of the

weighted average of Selected Domestic Interest Rates of the local banks
obtained from the Bangko Sentral ng Pilipinas Statistical Center and it
shows a declining balance of interest rates x x x.
xxxx
There is no showing by the [respondent bank] that any of the foregoing rate
was ever used to increase or decrease the interest rates charged upon the
[petitioners-spouses’] mortgage loan for the 30 day repricing period
subsequent to the first 30 days from [the] dates of the promissory notes.
These documents submitted being certified public documents are entitled
to being taken cognizance of by the court as an aid to its decision making.
x x x.8
Respondent bank appealed the above judgment of the trial court to the CA.
Its main contention is that the lower court erred in ordering the re-
computation of petitioners-spouses’ loans and applying the interest rate of
6% per annum. According to respondent bank, the stipulation on the
interest rates of 17.5% to 27%, subject to periodic adjustments, was
voluntarily agreed upon by the parties; hence, it was not left to the sole will
of respondent bank. Thus, the lower court erred in reducing the interest
rate to 6% and in setting aside the penalty charges, as such is contrary to
the principle of the obligatory force of contracts under Articles 1315 and
1159 of the Civil Code.9
The CA disposed of the issue in the following manner:
We partly agree with [respondent bank’s] contention.
Settled is the rule that the contracting parties are free to enter into
stipulations, clauses, terms and conditions as they may deem convenient,
as long as these are not contrary to law, morals, good customs, public
order or public policy. Pursuant to Article 1159 of the Civil Code, these
obligations arising from such contracts have the force of law between the
parties and should be complied with in good faith. x x x.
xxxx
In the case at bar, [respondent bank] and [petitioners-spouses] expressly

stipulated in the promissory notes the rate of interest to be applied to the
loan obtained by the latter from the former, x x x.
xxxx
[Respondent bank] insists that [petitioner-spouses] agreed to the interest

rates stated in the promissory notes since the latter voluntarily signed the
same. However, we find more credible and believable the version of
[petitioners-spouses] that they were made to sign the said promissory
notes in blank with respect to the rate of interest and penalty charges, and
subsequently, [respondent] bank filled in the blanks, imposing high interest
rate beyond which they were made to understand at the time of the signing
of the promissory notes.
xxxx
The signing by [petitioners-spouses] of the promissory notes in blank

enabled [respondent] bank to impose interest rates on the loan obligation
without prior notice to [petitioners-spouses]. The unilateral determination
and imposition of interest rates by [respondent] bank without [petitioners-
spouses’] assent is obviously violative of the principle of mutuality of
contracts ordained in Article 1308 of the Civil Code x x x.
xxxx
[Respondent bank’s] act converted the loan agreement into a contract of

adhesion where the parties do not bargain on equal footing, the weaker
party’s participation, herein [petitioners-spouses], being reduced to the
alternative to take it or leave it. [Respondent] bank tried to sidestep this
issue by averring that [petitioners-spouses], as businessmen, were on
equal footing with [respondent bank] as far as the subject loan agreements
are concerned. That may be true insofar as entering into the original loan
agreements and mortgage contracts are concerned. However, that does
not hold true when it comes to the unilateral determination and imposition
of the escalated interest rates imposed by [respondent] bank.
xxxx
The Court further notes that in the case at bar, [respondent] bank imposed
different rates in the twelve (12) promissory notes: interest rate of 18% in
five (5) promissory notes; 17.5% in two (2) promissory notes; 23% in one
(1) promissory note; and 27% in three (3) promissory notes. Obviously, the
interest rates are excessive and arbitrary. Thus, the foregoing interest rates
imposed on [petitioners-spouses’] loan obligation without their knowledge
and consent should be disregarded, not only for being iniquitous and
exorbitant, but also for being violative of the principle of mutuality of
contracts.
However, we do not agree with the trial court in fixing the rate of interest of
6%. It is well-settled that when an obligation is breached and consists in the
payment of a sum of money, i.e., loan or forbearance of money, the interest
due shall be that which may have been stipulated in writing. In the absence
of stipulation, the rate of interest shall be 12% interest per annum to be
computed from default, i.e., from judicial or extra-judicial demand and
subject to the provisions of Article 1169 of the Civil Code. Since the interest
rates printed in the promissory notes are void for the reasons above-stated,
the rate of interest to be applied to the loan should be 12% per annum
only.10
The CA, consequently, dismissed respondent bank’s appeal and affirmed

the decision of the trial court with the modification that the rate of interest
shall be 12% per annum instead of 6%. Respondent bank filed a Motion for
Reconsideration of the CA decision. Petitioners-spouses, on the other
hand, filed a comment praying for the denial of respondent bank’s motion
for reconsideration. They also filed an "Urgent Manifestation"11 calling the
attention of the CA to its respective decisions in the cases of Spouses
Enrique and Epifania Mercado v. China Banking Corporation, et. al. (CA-
GR CV No. 75303)12 and Spouses Bonifacio Caraig and Ligaya Caraig v.
The Ex-Officio Sheriff of RTC, Batangas City, et. al. (CA-G.R. CV No.
76029).13
According to petitioners-spouses, in Spouses Mercado v. China Banking,

the Special Seventh Division of the CA held that where the interest rate is
potestative, the entire interest is null and void and no interest is due.
On the other hand, in the case of Spouses Caraig v. The Ex-Officio Sheriff
of RTC, Batangas City, the then Ninth Division of the CA ruled that under
the doctrine of operative facts, no interest is due after the auction sale
because the loan is paid in kind by the auction sale, and interest shall
commence to run again upon finality of the judgment declaring the auction
sale null and void.14
The CA denied respondent bank’s Motion for Reconsideration for lack of

merit. It likewise found no merit in petitioners-spouses’ contention that no
interest is due on their principal loan obligation from the time of foreclosure
until finality of the judgment annulling the foreclosure sale. According to the
CA:
x x x Notably, this Court disregarded the stipulated rate[s] of interest on the

subject promissory notes after finding that the same are iniquitous and
exorbitant, and for being violative of the principle of mutuality of contracts.
Nevertheless, in Equitable PCI Bank v. Ng Sheung Ngor, the Supreme
Court ruled that because the escalation clause was annulled, the principal
amount of the loan was subject to the original or stipulated interest rate of
interest, and that upon maturity, the amount due was subject to legal
interest at the rate of 12% per annum. In this case, while we similarly
annulled the escalation clause contained in the promissory notes, this
Court opted not to impose the original rates of interest stipulated therein for
being excessive, the same being 17.5% to 27% per interest period.
Relevantly, the High Court held in Asian Cathay Finance and Leasing
Corporation v. Spouses Cesario Gravador and Norma De Vera, et. al. that
stipulations authorizing the imposition of iniquitous or unconscionable
interest are contrary to morals, if not against the law. x x x. The nullity of
the stipulation on the usurious interest does not, however, affect the
lender’s right to recover the principal of the loan. The debt due is to be
considered without the stipulation of the excessive interest. A legal interest
of 12% per annum will be added in place of the excessive interest formerly
imposed.
Following the foregoing rulings of the Supreme Court, it is clear that the
imposition by this Court of a 12% rate of interest per annum on the principal
loan obligation of [petitioners-spouses], computed from the time of default,
is proper as it is consistent with prevailing jurisprudence.
While the decisions of the Special Seventh Division and the Ninth Division
of this Court in CA-G.R. CV No. 75303 and in CA-G.R. No. 76029 are final
and executory, the same merely have persuasive effect but do not
outweigh the decisions of the Supreme Court which we are duty-bound to
follow, conformably with the principle of stare decisis.
The doctrine of stare decisis enjoins adherence to judicial

precedents.1âwphi1 It requires courts in a country to follow the rule
established in a decision of the Supreme Court thereof. That decision
becomes a judicial precedent to be followed in subsequent cases by all
courts in the land. The doctrine of stare decisis is based on the principle
that once a question of law has been examined and decided, it should be
deemed settled and closed to further argument.15 (Emphasis supplied.)
Petitioners-spouses are now before us, reiterating their position that no

interest should be imposed on their loan, following the respective
pronouncements of the CA in the Caraig and Mercado Cases. Petitioners-
spouses insist that "if the application of the doctrine of operative facts is
upheld, as applied in Caraig vs. Alday, x x x, interest in the instant case
would be computed only from the finality of judgment declaring the
foreclosure sale null and void. If Mercado vs. China Banking Corporation x
x x, applying by analogy the rule on void usurious interest to void
potestative interest rate, is further sustained, no interest is due when the
potestative interest rate stipulation is declared null and void, as in the
instant case.16
Our Ruling
We dismiss the appeal.
We cannot subscribe to the contention of petitioners-spouses that no

interest should be due on the loan they obtained from respondent bank, or
that, at the very least, interest should be computed only from the finality of
the judgment declaring the foreclosure sale null and void, on account of the
exorbitant rate of interest imposed on their loan.
It is clear from the contract of loan between petitioners-spouses and

respondent bank that petitioners-spouses, as borrowers, agreed to the
payment of interest on their loan obligation. That the rate of interest was
subsequently declared illegal and unconscionable does not entitle
petitioners-spouses to stop payment of interest.1âwphi1 It should be
emphasized that only the rate of interest was declared void. The stipulation
requiring petitioners-spouses to pay interest on their loan remains valid and
binding. They are, therefore, liable to pay interest from the time they
defaulted in payment until their loan is fully paid.
It is worth mentioning that both the RTC and the CA are one in saying that
"[petitioners-spouses] cannot be considered in default for their inability to
pay the arbitrary, illegal and unconscionable interest rates and penalty
charges unilaterally imposed by [respondent] bank."17 This is precisely the
reason why the foreclosure proceedings involving petitioners-spouses’
properties were invalidated. As pointed out by the CA, "since the interest
rates are null and void, [respondent] bank has no right to foreclose
[petitioners-spouses’] properties and any foreclosure thereof is illegal. x x x.
Since there was no default yet, it is premature for [respondent] bank to
foreclose the properties subject of the real estate mortgage contract."18
Thus, for the purpose of computing the amount of liability of petitioners-
spouses, they are considered in default from the date the Resolution of the
Court in G.R. No. 194164 (Philippine National Bank v. Spouses Bayani H.
Andal and Gracia G. Andal) – which is the appeal interposed by respondent
bank to the Supreme Court from the judgment of the CA – became final
and executory. Based on the records of G.R. No. 194164, the Court denied
herein respondent bank’s appeal in a Resolution dated 10 January 2011.
The Resolution became final and executory on 20 May 2011.19
In addition, pursuant to Circular No. 799, series of 2013, issued by the

Office of the Governor of the Bangko Sentral ng Pilipinas on 21 June 2013,
and in accordance with the ruling of the Supreme Court in the recent case
of Dario Nacar v. Gallery Frames and/or Felipe Bordey, Jr.,20 effective 1
July 2013, the rate of interest for the loan or forbearance of any money,
goods or credits and the rate allowed in judgments, in the absence of an
express contract as to such rate of interest, shall be six percent (6%) per
annum. Accordingly, the rate of interest of 12% per annum on petitioners-
spouses’ obligation shall apply from 20 May 2011 – the date of default –
until 30 June 2013 only. From 1 July 2013 until fully paid, the legal rate of
6% per annum shall be applied to petitioners-spouses’ unpaid obligation.
IN VIEW OF THE FOREGOING, the Petition is DENIED and the Judgment

of the Court of Appeals in CA-G.R. CV No. 91250 is AFFIRMED with the
MODIFICATION that the 12% interest per annum shall be applied from the
date of default until 30 June 2013 only, after which date and until fully paid,
the outstanding obligation of petitioners-spouses shall earn interest at 6%
per annum. Let the records of this case be remanded to the trial court for
the proper computation of the amount of liability of petitioners Spouses
Bayani H. Andal and Gracia G. Andal, in accordance with the
pronouncements of the Court herein and with due regard to the payments
previously made by petitioners-spouses.
SO ORDERED.
JOSE PORTUGAL PEREZ

Associate Justice
WE CONCUR:
ANTONIO T. CARPIO
Associate Justice
ARTURO D. BRION MARIANO C. DEL CASTILLO
ROBERTO A. ABAD*
Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision were reached in

Court’s Division.
ANTONIO T. CARPIO
Associate Justice
Chairperson, Second Division
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division
Chairperson s Attestation, it is hereby certified that the conclusions in the
above Decision were reached in consultation before the case was assigned
to the writer of the opinion of the Court’s Division.
MA. LOURDES P. A. SERENO

Chief Justice
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 192371 January 15, 2014
LAND BANK OF THE PHILIPPINES, Petitioner,

vs.
EMMANUEL OÑATE, Respondent.
DECISION
DEL CASTILLO, J.:
This Petition for Review on Certiorari1 assails the December 18, 2009
Decision2 of the Court of Appeals (CA) in CA-G.R. CV No. 89346, which
affirmed with modification the May 31, 2006 Decision3 of the Regional Trial
Court (RTC), Branch 141 Makati City. The RTC dismissed the
Complaint4 for Sum of Money, which petitioner Land Bank of the
Philippines (Land Bank) filed against respondent Emmanuel C. Oñate
(Oñate), and ordered Land Bank to return the amount of ₱1,471,416.52 it
unilaterally debited from his accounts. On separate appeals by both parties,
the CA affirmed the RTC Decision with modification that Land Bank was
further ordered to pay Oñate the sums of ₱60,663,488.11 and
US$3,210,222.85 representing the undocumented withdrawals and
drawings from his trust accounts with 12% per annum interest compounded
annually from June 21, 1991 until fully paid.
Also assailed is the CA’s May 27, 2010 Resolution5 denying Land Bank’s
Motion for Reconsideration.6
Factual Antecedents
Land Bank is a government financial institution created under Republic Act

No. 3844.7 From 1978 to 1980, Oñate opened and maintained seven trust
accounts with Land Bank, more particularly described as follows:
Trust Account No. Date Opened Beginning Balance

01-014 09.07.78 ₱250,000.008
01-017 11.16.78 1,312,896.009
01-024 02.23.79 900,000.0010
01-075 10.08.79 500,000.0011
01-082 10.25.79 200,001.0012
01-089 03.18.80 43.9813
01-125 03.13.80 188,161.0014
Each trust account was covered by an Investment Management Account

(IMA) with Full Discretion15 and has a corresponding passbook where
deposits and withdrawals were recorded. Pertinent portions common to the
IMAs read:
You [Land Bank] are appointed as my agent with full powers and discretion,
subject only to the following provisions:
1. You are authorized to hold, invest and reinvest the Fund and keep
the same invested, in your sole discretion, without distinction between
principal and income, in any assets which you deem advisable,
without being restricted to those of the character authorized for
fiduciaries under any present or future law.
2. You shall have full power and authority:
(a) to treat all the Fund as one aggregate amount for purposes
of investment, and to deposit all or any part thereof with a
reputable bank including your own commercial banking
department;
(b) to pay all costs, expenses and charges incurred in

connection with the administration, preservation, maintenance
and protection of the Fund and to charge the same to the Fund;
(c) to vote in person or by proxy on any stocks, bonds or other

securities held by you, for my/our account;
(d) to borrow money for the Fund (from your banking
department or from others) with or without giving securities from
the Fund;
(e) to cause any asset of the Fund to be issued, held or

registered in your name or in the name of your nominee, or in
such form that title will pass by delivery, provided your records
shall indicate the true ownership of such assets;
(f) to hold the Fund in cash and to invest the same in fixed
income placements traded and sold by your own Money Market
Division; and
(g) to sign all documents pertinent to the transaction which you

will make in behalf of this Account.
3. All actions taken by you hereunder shall be for my account and

risk. Except for willful default or gross misconduct, you shall not be
liable for any loss or depreciation in the value of the assets of the
Fund arising from any cause whatsoever.
4. You shall maintain accurate records of all investments, receipts,

disbursements and other transactions of the Account. Records
relating thereto shall be open at all reasonable times to inspection
and audit by me either personally or through duly authorized
representatives. Statements consisting of a balance sheet, portfolio
analysis, statement of income and expenses, and summary of
investment changes are to be sent to me/us quarterly.
I/We shall approve such accounting by delivering in writing to

you a statement to that effect or by failure to express objection
to such accounting in writing delivered to you within thirty (30)
days from my receipt of the accounting.
Upon your receipt of a written approval of the accounting, or

upon the passage of said period of time within which objections
may be filed, without written objections having been delivered
to you, such accounting shall be deemed to be approved, and
you shall be released and discharged as to all items, matters
and things set forth in such accounting as if such accounting
had been settled and allowed by a decree of a court of
competent jurisdiction, in an action or proceeding in which you
and I were parties.16 (Emphasis supplied)
In a letter17 dated October 8, 1981, however, Land Bank

demanded from Oñate the return of ₱4 million it claimed to
have been inadvertently deposited to Trust Account No. 01-125
as his additional funds but actually represents the total amount
of the checks issued to Land Bank by its corporate borrowers
as payment for their pre-terminated loans. Oñate refused. To
settle the matter, a meeting was held, but the parties failed to
reach an agreement. Since then, the issue of "miscrediting"
remained unsettled. Then on June 21, 1991, Land Bank
unilaterally applied the outstanding balance in all of Oñate’s
trust accounts against his resulting indebtedness by reason of
the "miscrediting" of funds. Although it exhausted the funds in
all of Oñate’s trust accounts, Land Bank was able to debit the
amount of ₱1,528,583.48 only.18
Proceedings before the Regional Trial Court
To recoup the remaining balance of Oñate’s indebtedness,

Land Bank filed a Complaint19 for Sum of Money seeking to
recover the amount of ₱8,222,687.8920 plus interest at the legal
rate of 12% per annum computed from May 15, 1992 until fully
paid. Pertinent portions of Land Bank’s Complaint reads:
5. By virtue of the Deeds of Revocable Trust executed on January 9,

198921 [sic] and February 5, 198922 [sic] by Philippine Virginia
Tobacco Administration (PVTA) and Philippine Virginia Tobacco
Board (PVTB), LANDBANK likewise became a Trustee of certain
funds belonging to PVTA and PVTB.
6. As authorized under the [Deeds] of Revocable Trust, on October

10, 1980, LANDBANK invested ₱4 Million of the trust accounts of
PVTA and PVTB, through a direct lending scheme to the following
companies:
(a) Republic Telephone Company, Inc. (RETELCO), under

Promissory Note No. 1145 dated October 10, 1980, for
₱1,021,250.00 with maturity date on November 24, 1980,
subject to automatic roll-over up to October 10, 1981 at 17%
interest per annum.
(b) Philippine Blooming Mills Company, Inc. (PBM), under

Promissory Note (unnumbered) dated October 10, 1980, for
₱1,021,250.00, with maturity date on November 24, 1980,
subject to automatic roll-over up to October 10, 1981, at 17%
interest per annum;
(c) Cheng Ban Yek (CBY), under Promissory Note

(unnumbered) dated October 10, 1980, for ₱1,023,138.89, with
maturity date on November 28, 1980, subject to automatic roll-
over up to October 10, 1981, at 17% interest per annum;
(d) Philippine Tobacco Filters Corporation (PHILTOFIL), under

Promissory Note (unnumbered) dated October 10, 1980, for
₱1,021,250.00, with maturity date on November 24, 1980,
subject to automatic roll-over up to October 10, 1981, at 17%
interest per annum.
xxxx
7. Pursuant to such direct loan transactions granted to the

aforementioned companies, LANDBANK issued four (4) cashier’s
checks for ₱1 Million each payable to RETELCO, PBM, CBY, and
PHILTOFIL x x x
8. On or about November 24 and 28, 1980, the aforesaid borrowers

(RETELCO, PBM, CBY, AND PHILTOFIL), pre-terminated their
corresponding loans and paid their respective obligations in the form
of checks payable to LANDBANK and delivered by [Oñate’s]
representative, Mr. Eduardo Polonio.
9. When the checks were delivered, [Oñate] fraudulently

misrepresented to LANDBANK that they were [Oñate’s] additional
capital contribution to his personal trust account. On the basis of this
misrepresentation, LANDBANK credited the payments made by the
aforementioned corporate borrowers to [Oñate’s] Trust Account No.
01-125.
10. After the payments were credited to his personal trust account,
Oñate proceeded to withdraw the same, to the damage and prejudice
of LANDBANK as the owner thereof.23
In his Answer (With Compulsory Counterclaim),24 Oñate asserted that the

setoff was without legal and factual bases. He specifically denied any
knowledge or involvement in the transaction between Land Bank and its
clients Philippine Virginia Tobacco Administration (PVTA) and Philippine
Virginia Tobacco Board (PVTB). He also denied that he made fraudulent
misrepresentation to induce the bank to deposit to his Trust Account No.
01-125 as his additional capital the payments allegedly tendered by the
bank’s corporate borrowers. He maintained that all the funds in his
accounts came from legitimate sources and that he was totally unaware of
and had nothing to do with the alleged "miscrediting." While Oñate admitted
having received the October 8, 1981 demand letter, he argued that he did
not acquiesce thereto and, in fact, disputed the same during a meeting with
an officer of Land Bank. He also refuted Land Bank’s claim that it formally
demanded for the return of the disputed amount as the September 3, 1991
letter25 it alluded to is not a demand letter. It was sent in response to his
counsel’s letter requesting for an accounting of his trust accounts.
By way of compulsory counterclaim, Oñate pointed out that per Balance

Sheets26 as of June 30, 1982 the funds in his trust accounts already totaled
₱35,555,464.78. And as of January 1993, the accumulated balance of his
accounts reached ₱229,222,160.25 and $3,472,683.94 computed as
follows:
With interest at the rate of eighteen percent (18%) compounded every

ninety (90) days from the third quarter of 1982 to January, 1993, the
trustor’s equity of ₱35,555,464.78 has earned interest in the amount of
₱193,666,695.47. Adding the trustor’s equity to the aforesaid accrued
interest thereon, [Oñate’s] peso deposits [in] his trust accounts with plaintiff
bank have an accumulated balance of ₱229,222,160.25 as of January
1993 .
But that is not all. [Oñate’s] dollar deposits to Trust Account No. 01-014
(which is for an "Undisclosed Principal") from the period July-September,
1980 alone, already amounted to $1,690,943.78. x x x
With interest at the rate of six percent (6%) compounded every ninety (90)
days from the first quarter of 1981, the said dollar deposits have earned
interest of $1,781,740.16 up to January, 1993. Thus, [Oñate’s] dollar
deposits [in] Trust Account No. 01-014 have an aggregate balance of
$3,472,683.94 as of January 1993.27
Hence, even if the amount of ₱8,222,687.89 as of May 15, 1992 is

deducted from the outstanding balance of his trust accounts as of January
1993, the bank still owes him ₱220,999,472.36 on top of his dollar deposits
amounting to $3,472,683.94.
Oñate prayed that a judgment be issued dismissing the Complaint and

ordering Land Bank to pay him:
i) The sum of ₱220,999,472.36, representing the outstanding balance

on the peso deposits [of Oñate’s] various trust accounts as of
January 1993, with interest thereon from said date at the rate of
eighteen percent (18%) compounded every ninety (90) days, until the
said amount is fully paid;
ii) The sum of $3,472,683.94, representing the aggregate balance as

of January 1993 on [Oñate’s] dollar deposits [in] Trust Account No.
01-014, with interest thereon from said date at the rate of six percent
(6%) compounded every ninety (90) days, until the said amount is
fully paid;
iii) The sum of ₱100,000,000.00 as and by way of moral damages;
iv) The sum of ₱50,000,000.00 as and by way of exemplary

damages; and
v) The sum of ₱15,000,000.00, or 20% of all sums collected,

whichever is higher, as and for attorney's fees, the further sum of
₱3,000.00 as appearance fee for each hearing attended, and such
other sums that may be proved during the trial as litigation
expenses.28
Upon Oñate’s motion, the RTC issued an Order29 dated May 27, 1994,
creating a Board of Commissioners (the Board) for the purpose of
examining the records of Oñate’s seven trust accounts, as well as to
determine the total amount of deposits, withdrawals, funds invested,
earnings, and expenses incurred. It was composed of Atty. Engracio M.
Escasinas, the Clerk of Court of the RTC of Makati City, as the Chairman;
and, Atty. Ma. Cristina C. Malab and Ms. Adeliza M. Jaranilla representing
Land Bank and Oñate, respectively, as members.
Initially, the Board submitted three reports.30 But for clarity, the trial court
ordered31 the Board to reconvene and to submit a consolidated report
furnishing copies of the same to both parties, who were given 10 days from
receipt thereof to file their respective comments thereto. The Board
complied and on August 16, 2004 submitted its consolidated report.32 As
summarized by the RTC, the said consolidated report revealed that there
were undocumented and over withdrawals and drawings33 from Oñate’s
trust accounts:
Thus, the Commissioners’ Report showed that the total amount of drawings
and withdrawals from each account without withdrawal slips are as follows:
In Trust Account No. 01-014, there was a total withdrawals [sic] without
withdrawal slips but reflected in the passbook in the amount of
₱45,103,297.33 and this account showed a negative balance of
₱40,367,342.34. On the dollar deposit under the same trust account, there
was a total [withdrawal] without withdrawal slips but reflected in the
passbook in the amount of $3,210,222.85.
In Trust Account No. 01-017, there was a total withdrawal without

withdrawal slips in the amount of ₱2,682,088.58 and there was an over
withdrawal of ₱11,738,470.53 and $30,000.00.

withdrawal slips of ₱900,000.00 and over withdrawal of ₱13,310,328.01.
In Trust Account No. 01-075, there was a total withdrawal of ₱500,000.00

without withdrawal slips and there was a negative balance of
₱33,342,132.64 and $286,399.34 on the dollar account.
In Trust Account No. 01-082, the total amount of withdrawal without

withdrawal slips but reflected in the passbook was ₱1,782,741.86 and there
was an over withdrawal of ₱14,031.63.
withdrawal slips in the amount of ₱5,054,809.00 but the report indicated
that there was a negative balance of ₱1,296,441.92.

withdrawal slips in the amount of ₱4,640,551.34 and there was a negative
balance of ₱58,327,459.23.34
On even date, the Board also submitted a Manifestation35 informing the

RTC that its findings as to the outstanding balance of each trust account
may not be accurate considering that it was not given ample opportunity to
collate and sort out the documents related to each trust account and that
there may have been double take up of accounts since the documents
previously reviewed may have been considered again in subsequent
reports.
In his Comment,36 Oñate asserted that the undocumented withdrawals

mentioned in the consolidated report should not be considered as cash
outflows. Rather, they should be treated as unauthorized transactions and
the amounts subject thereof must be credited back to his accounts.
Land Bank did not file any comment or objection to the Board’s
consolidated comment.
During the pre-trial conference, the parties agreed that they would submit
the case for decision based on the reports of the Board after they have
submitted their respective memoranda. They also stipulated on the
following issues for resolution of the RTC:
1. Whether x x x Oñate could claim on Trust Account Nos. 01-014

and 01-017 which were opened for an undisclosed principal;
2. Whether x x x the undocumented withdrawals and drawings are

considered valid and regular and, conversely, if in the negative,
whether x x x such amounts shall be credited [back] to the
accounts.37
In his Memorandum38 filed on July 12, 2005, Oñate reiterated that Land
Bank should be held liable for the undocumented withdrawals and
drawings. For its part, Land Bank posited, inter alia, that Trust Account
Nos. 01-014 and 01-017 should be excluded from the computation of
Oñate’s counterclaim considering his allegation that said accounts are
owned by an undisclosed principal whom/which he failed to join as
indispensable party. Land Bank further theorized that Oñate must answer
for the negative balances as revealed by the Board’s reports.39
Thereafter, the case was submitted for decision.
On May 31, 2006, the RTC rendered a Decision40 dismissing Land Bank’s
Complaint for its failure to establish that the amount of ₱4,086,888.89
allegedly "miscredited" to Oñate’s Trust Account No. 01-125 actually came
from the investments of PVTA and PVTB. Hence, the RTC ordered Land
Bank to restore the total amount of ₱1,471,416.52 which the bank
unilaterally debited from Oñate’s five trust accounts.41
With regard to Oñate’s counterclaim for the recovery of ₱220,999,472.36,

as well as the alleged US$3,472,683.94 balance of his dollar deposits in
Trust Account No. 01-014, the RTC ruled that under the IMAs, Land Bank
had the authority to withdraw funds (as in fact it was at all times in
possession of the passbooks) from Oñate’s accounts even without a letter
of instruction or withdrawal slip coming from Oñate. It thus gave weight to
the entries in the passbooks since the same were made in the ordinary
course of business. The RTC also ruled that Oñate is deemed to have
approved the entries in the statements of account that were sent to him as
he never interposed any objection thereto within the period given him to do
so.
Anent Land Bank’s claim for the negative balances, the RTC likewise
denied the same for Land Bank never sought them in its Complaint.
Moreover, being the manager of the funds and keeper of the records, the
RTC held that Land Bank should not have allowed further withdrawals if
there were no more funds.
The RTC likewise debunked Land Bank’s argument that Oñate’s

counterclaim with respect to Trust Account Nos. 01-014 and 01-017 should
be dismissed for his failure to join his undisclosed principal. According to
the RTC, Land Bank should have earlier invoked such defense when it filed
its answer to the counterclaim. Also, if it is true that said accounts are not
owned by Oñate, then the bank had no right to apply the funds in said
accounts as payment for the alleged personal indebtedness of Oñate.
The dispositive portion of the RTC’s Decision reads:
WHEREFORE, in view of all the foregoing, decision is hereby rendered

dismissing the complaint and ordering [Land Bank] to pay [Oñate] the total
amount of ₱1,471,416.52 representing the total amount of funds debited
from the five (5) trust accounts of the defendant with legal rate of interest of
12% per annum, compounded yearly, effective on 21 June 1991 until fully
paid.
SO ORDERED.42
Land Bank filed a Motion for Reconsideration.43 In an Order44 dated July

11, 2006, however, the RTC denied the same.
Both parties appealed to the CA.
In its December 18, 2009 Decision,45 the CA denied Land Bank’s appeal
and granted that of Oñate. The CA affirmed the RTC’s ruling that Land
Bank failed to establish the source of the funds it claimed to have been
erroneously credited to Oñate’s account. With respect to Oñate’s appeal,
the CA agreed that he is entitled to the unaccounted withdrawals which, as
found by the Board, stood at ₱60,663,488.11 and $3,210,222.85.46 The
CA’s ruling is anchored on the bank’s failure to observe Sections X401 and
X425 of the Bangko Sentral ng Pilipinas Manual of Regulation for Banks
(MORB) requiring it to give full disclosure of the services it offered and
conduct its dealings with transparency, as well as to render reports that
would sufficiently apprise its clients of the significant developments in the
administration of their accounts. Aside from allowing undocumented
withdrawals, the CA likewise noted that Land Bank failed to keep an
accurate record and render an accounting of Oñate’s accounts. For the CA,
the entries in the passbooks are not sufficient because they do not specify
where the funds withdrawn from Oñate’s accounts were invested.
The dispositive portion of the CA’s Decision reads:
WHEREFORE, the appeal of plaintiff-appellant Land Bank is DENIED.

The appeal of defendant-appellant Emmanuel Oñate is hereby partially
GRANTED. Accordingly, the May 31, 2006 Decision of the Regional Trial
Court, Branch 141, Makati City is hereby MODIFIED in that, in addition to
the previous grant of ₱1,471,416.52 representing the total amount of funds
debited from defendant-appellant Oñate’s trust accounts, plaintiff-appellant
Land Bank is hereby ordered to pay defendant-appellant Oñate the sum of
₱60,663,488.11 and $3,210,222.85 representing the undocumented
withdrawals it debited from the latter’s trust account with interest at the rate
of 12% per annum, compounded yearly from June 21, 1991 until fully paid.
SO ORDERED.47
Land Bank filed a Motion for Reconsideration.48 In a Resolution49 dated

May 27, 2010, however, the CA denied its motion. Hence, Land Bank filed
the instant Petition for Review on
Certiorari based on the following issues:
Issues
1. WHETHER X X X THE ENTRIES IN THE PASSBOOK ISSUED

BY LBP IN OÑATE’S TRUST ACCOUNT (EXPRESS TRUST)
COVERED BY AN INVESTMENT MANAGEMENT AGREEMENT
(IMA) WITH FULL DISCRETION ARE SUFFICIENT TO MEET THE
"RULE ON PRESUMPTION OF REGULARITY OF ENTRIES IN THE
COURSE OF BUSINESS" PROVIDED FOR UNDER SECTION 43,
RULE 130 OF THE RULES OF COURT.
2. WHETHER X X X OÑATE IS ENTITLED TO CLAIM FOR

₱1,471,416.52 WHICH IS NOT PLEADED AS COUNTERCLAIM IN
HIS ANSWER PURSUANT TO SECTION 2, RULE 9 OF THE
RULES OF COURT.
3. WHETHER X X X OÑATE IS ENTITLED TO THE AWARD OF

₱60,663,488.11 AND $3,210,222.85 REPRESENTING THE
ALLEGED UNDOCUMENTED WITHDRAWALS DEBITED FROM
HIS TRUST ACCOUNTS ON THE GROUND OF LBP’S ALLEGED
FAILURE TO MEET THE STANDARDS SET FORTH UNDER THE
2008 MANUAL ON REGULATIONS FOR BANKS (MORB) ISSUED
BY BSP.
4. WHETHER X X X OÑATE MAY SUE [ON] TRUST ACCOUNT
NOS. 01-014 AND 01-017 OPENED FOR AN UNDISCLOSED
PRINCIPAL WITHOUT JOINING HIS UNDISCLOSED PRINCIPAL.
5. WHETHER X X X THE AWARD OF INTEREST TO OÑATE AT

THE RATE OF TWELVE PERCENT (12%) PER ANNUM,
COMPOUNDED YEARLY FROM JUNE 21, 1991 UNTIL FULLY
PAID, IS VIOLATIVE OF ARTICLE 1959 OF THE CIVIL CODE.50
Land Bank’s Arguments
Land Bank disputes the ruling of both lower courts that it failed to prove the
fact of "miscrediting" the amount of ₱4,086,888.89 to Oñate’s Trust
Account No. 01-125 as the deposit slips pertaining thereto were not
presented. Land Bank maintains that in trust accounts the passbooks are
always in the bank’s possession so that it can record the cash inflows and
outflows even without the corresponding deposit or withdrawal slips. Citing
Section 43, Rule 130 of the Rules of Court, it asserts that the entries in the
passbooks must be accepted as proof of the regularity of the transactions
reflected in the trust accounts, including the "miscrediting" of
₱4,086,888.89, for they were made in the regular course of business. In
addition, said entries are supported by demand letters dated October 8,
198151 and September 3, 1991,52 as well as a Statement of Account53 as of
May 15, 1992. Land Bank avers that Oñate never questioned the
statements of account and the reports it presented to him and, hence, he is
deemed to have approved all of them.
Land Bank also imputes error on the lower courts in ordering the
restoration of the amount of ₱1,471,416.52 it debited from Oñate’s five trust
accounts because he never sought it in his Answer.
Petitioner bank vigorously argues that Oñate is not entitled to the

undocumented withdrawals amounting to ₱60,663,488.11 and
$3,210,222.85. According to Land Bank, in holding it liable for the said
amounts, the CA erroneously relied on the 2008 MORB which was not yet
in existence at the time the transactions subject of this case were made or
even at the time when Land Bank filed its Complaint. In any case, Land
Bank insists that it made proper accounting and apprised Oñate of the
status of his investments in accordance with the terms of the IMAs. In its
demand letter54 dated September 3, 1991 Land Bank made a full disclosure
that the total outstanding balance of all the trust accounts amounted to
₱1,471,416.52, but that the same was setoff to recoup the "miscredited"
funds. It faults Oñate for not interposing any objection as his silence
constitutes as his approval after 30 days from receipt thereof. Land Bank
asseverates that Oñate could have also inspected and audited the records
of his accounts at any reasonable time. But he never did.
Land Bank likewise faults the CA in treating the undocumented withdrawals

as unauthorized transactions as the Board’s reports do not state anything
to that effect. It claims that the CA’s reliance on the consolidated report in
awarding the extremely huge amounts of ₱60,663,488.11 and
$3,210,222.85 is a grievous mistake because the Board itself already
manifested that said report "may not be accurate." Consequently too, Land
Bank asserts that the reports of the Board cannot prevail over the entries in
the passbooks which were made in the regular course of business.
Land Bank further states that as computed by the Board, the amount of
negative balances in Oñate’s accounts reached ₱131,747,487.02 and
$818,674.71.55 It thus proposes that if the CA awarded to Oñate the
undocumented withdrawals on the basis of the Board’s reports, then it
should have also awarded to Land Bank said negative balances or over
withdrawals as reflected in the same reports. After all, Oñate admitted in
his Answer that all withdrawals from his trust accounts were done in the
ordinary course of business.
Furthermore, Land Bank claims that it argued before the CA that Oñate
cannot sue on Trust Account Nos. 01-014 and 01-017. While Oñate alleged
that said accounts were opened for an undisclosed principal, he did not,
however, join as an indispensable party said principal in violation of Section
3, Rule 3 of the Rules of Court.56 Unfortunately, the CA sidestepped the
issue and proceeded to grant Oñate the unaccounted withdrawals from
said accounts in the aggregate amounts of ₱47,785,385.91 and
$3,210,222.85. Following Quilatan v. Heirs of Lorenzo Quilatan,57 Land
Bank insists that this case should be remanded to the trial court even if the
issue of failure to implead an indispensable party was raised for the first
time in a Motion for Reconsideration of the trial court’s Decision.
Finally, Land Bank questions the ruling of the CA imposing 12% per annum
rate of interest. It contends that trust accounts are in the nature of "Express
Trust" and not in the nature of a regular deposit account where a debtor-
creditor relationship exists between the bank and its depositor. It was not
indebted to Oñate but merely held and managed his funds. There being no
loan or forbearance of money involved, in the absence of stipulation, the
applicable rate of interest is only 6% per annum. Land Bank claims that the
CA further erred when it compounded the 12% interest even in the absence
of any such stipulation.
Oñate’s Arguments
In opposing the Petition, Oñate argues that the issues raised by Land Bank
involve factual matters not proper in a petition for review on certiorari. He
posits that the Petition does not fall under any of the exceptions where this
Court could review factual issues.
As to Land Bank’s allegation that he cannot claim the funds without

divulging and impleading as an indispensable party his undisclosed
principal, Oñate points out that in his Answer (With Compulsory
Counterclaim) he alleged that Trust Account Nos. 01-014 and 01-017 were
opened for an "undisclosed principal." Yet Land Bank did not controvert his
allegation. It is, therefore, too late in the day for Land Bank to invoke non-
joinder of principal as an indispensable party. Besides, when he executed
the IMAs, he was acting for himself and on behalf of an undisclosed
principal. Hence, he could claim and recover the amounts owing not only to
himself but also to his undisclosed principal.
Oñate likewise asserts that Land Bank, as uniformly found by both lower
courts, failed to prove by preponderance of evidence the fact of
"miscrediting." As to the demand letters adverted to by Land Bank, Oñate
asserts that the lower courts did not consider the same because they were
not formally offered. Land Bank also failed to present competent and
sufficient evidence that he admitted his indebtedness on account of the
"miscrediting" of funds. Since Land Bank failed to prove the fact of
"miscrediting" it had no right to debit any amount from his accounts and
must restore whatever funds it had debited therefrom. Oñate also denies
having failed to seek the return of the funds debited from his account.
Oñate further claims that in 1982 his peso trust accounts had a total
balance of ₱35,555,464.78 while the dollar trust accounts had a balance of
US$1,690,943.78. Since then, however, he never received any report or
update regarding his accounts until the bank sent him financial reports
dated June 30, 1991 indicating that the balances of his trust accounts had
been unilaterally setoff. According to Oñate, Land Bank’s failure to keep an
accurate record of his accounts and to make proper accounting violate
several circulars of the Central Bank.58 Hence, it is only proper to require
the bank to return the undocumented withdrawals which, as found by the
Board, amount to ₱60,663,488.11 and $3,210,222.82. In addition, Oñate
points out Land Bank’s failure to keep an accurate record of his accounts
as shown by the huge amounts of unsupported withdrawals and drawings
which constitutes willful default if not gross misconduct in violation of the
IMAs which, in turn, makes the bank liable for its actions.
Anent Land Bank’s invocation that the entries in the passbook made in the
ordinary course of business are presumed correct and regular, Oñate
argues that such presumption does not relieve the trustee, Land Bank in
this case, from presenting evidence that the undocumented withdrawals
and drawings were authorized. In any case, the presumption invoked by
Land Bank does not lie as one of its elements – that the entrant must be
deceased or unable to testify – is lacking. Land Bank cannot also excuse
itself for failing to regularly submit to him accounting reports as, anyway, he
was free to inspect the records at any reasonable day. Oñate emphasizes
that it is the duty of the bank to keep him updated with significant
developments in his accounts.
In refutation of Land Bank’s claim to negative balances and over

withdrawals, Oñate posits that the bank cannot benefit from its own
negligence in mismanaging the trust accounts.
Lastly, Oñate defends the CA’s grant of 12% per annum rate of interest as
under BSP Circular No. 416, said rate shall be applied in cases where
money is transferred from one person to another and the obligation to
return the same or a portion thereof is adjudged. In any event, Land Bank
is estopped from disputing said rate for Land Bank itself applied the same
12% per annum rate of interest when it sought to recover the amount
allegedly "miscredited" to his account. As to the compounding of interest,
Oñate claims that the parties intended that interest income shall be
capitalized and shall form part of the principal.
Our Ruling
We deny the Petition.

The issues raised are factual and do not
involve questions of law.
From the very start the issues involved in this case are factual – the very
reason why the RTC created a Board of Commissioners to assist it in
examining the records pertaining to Oñate’s accounts and determine the
respective cash inflows and outflows in said accounts. Thereafter, the
parties agreed to submit the case based on the Board’s reports. And when
the controversy reached the CA, the appellate court basically conducted an
"assiduous assessment of the evidentiary records."59 No question of law
was ever raised for determination of the lower courts. Now, Land Bank
practically beseeches us to assess the probative weight of the
documentary evidence on record to resolve the same basic issues of (i)
whether Land Bank "miscredited" ₱4,086,888.89 to Trust Account No. 01-
125 and (ii) "whether x x x the undocumented withdrawals and drawings
are considered valid and regular and, conversely, if in the negative,
whether x x x such amounts shall be credited to the accounts."60
These issues could be resolved by consulting the evidence extant on

records, such as the IMAs, the passbooks, the letters of instructions,
withdrawal and deposit slips, statements of account, and the Board’s
reports. Land Bank’s heavy reliance on Section 43, Rule 130 of the Rules
of Court61 also attests to the factual nature of the issues involved in this
case. "Well-settled is the rule that in petitions for review on certiorari under
Rule 45, only questions of law can be raised."62 In Velayo-Fong v. Spouses
Velayo,63 we defined a question of law as distinguished from a question of
fact:
A question of law arises when there is doubt as to what the law is on a

certain state of facts, while there is a question of fact when the doubt arises
as to the truth or falsity of the alleged facts.
For a question to be one of law, the same must not involve an examination
of the probative value of the evidence presented by the litigants or any of
them. The resolution of the issue must rest solely on what the law provides
on the given set of circumstances. Once it is clear that the issue invites a
review of the evidence presented, the question posed is one of fact. Thus,
the test of whether a question is one of law or of fact is not the appellation
given to such question by the party raising the same; rather, it is whether
the appellate court can determine the issue raised without reviewing or
evaluating the evidence, in which case, it is a question of law; otherwise, it
is a question of fact. (Italics supplied)
While there are recognized exceptions64 to this rule, none exists in this
case.
Anent Land Bank’s contention that the determination of whether the CA

erred in retroactively applying the 2008 MORB poses a legal question, the
same deserves scant consideration. True, the CA included in its ratio
decidendi a discussion on the 2008 MORB to give emphasis to the duties
of banks to keep an accurate record and regularly apprise their clients of
the status of their accounts. But the issue of whether Land Bank failed to
comply with those duties can be resolved even without the MORB as the
same duties are also imposed on Land Bank by the IMAs, the contract that
primarily governs the parties in this case. "As a general rule, a contract is
the law between the parties. Thus, ‘from the moment the contract is
perfected, the parties are bound not only to the fulfilment of what has been
expressly stipulated but also to all consequences which, according to their
nature, may be in keeping with good faith, usage and law.’ Also, ‘the
stipulations of the contract being the law between the parties, courts have
no alternative but to enforce them as they were agreed [upon] and written’
x x x."65
Based on the factual milieu of this case even without touching on the
MORB, we found that Land Bank still failed to perform its bounden duties to
keep accurate records and render regular accounting. We also found no
cogent reason to disturb the other factual findings of the CA.
Land Bank failed to prove that the

"miscredited" funds came from the
proceeds of the pre-terminated loans of
its corporate borrowers.
Land Bank argues that the entries in the passbooks were made in the
regular course of business and should be accepted as prima facie evidence
of the facts stated therein. But before entries made in the course of
business may qualify under the exception to the hearsay rule and given
weight, the party offering them must establish that: (1) the person who
made those entries is dead, outside the country, or unable to testify; (2) the
entries were made at, or near the time of the transaction to which they
refer; (3) the entrant was in a position to know the facts stated therein; (4)
the entries were made in the professional capacity or in the course of duty
of the entrant; and, (5) the entries were made in the ordinary or regular
course of business or duty.66
Here, Land Bank has neither identified the persons who made the entries in
the passbooks nor established that they are already dead or unable to
testify as required by Section 43,67 Rule 130 of the Rules of Court. Also,
and as correctly opined by the CA, "[w]hile the deposit entries in the bank’s
passbook enjoy a certain degree of presumption of regularity x x x," the
same do "not indicate or explain the source of the funds being deposited or
withdrawn from an individual account."68 They are mere prima facie proof of
what are stated therein – the dates of the transactions, the amounts
deposited or withdrawn, and the outstanding balances. They do not
establish that the total amount of ₱4,086,888.89 deposited in Oñate’s Trust
Account No. 01-125 in November 1980 came from the proceeds of the pre-
terminated loans of Land Bank’s corporate borrowers. It would be too
presumptuous to immediately conclude that said amount came from the
checks paid to Land Bank by its corporate borrowers just because the
maturity dates of the loans coincided with the dates said total amount was
deposited. There must be proof showing an unbroken link between the
proceeds of the pre-terminated loans and the amount allegedly
"miscredited" to Oñate’s Trust Account No. 01-125. As a bank and
custodian of records, Land Bank could have easily produced documents
showing that its borrowers pre-terminated their loans, the checks they
issued as payment for such loans, and the deposit slips used in depositing
those checks. But it did not.
Land Bank did not also bother to explain how Oñate or his representative,
Eduardo Polonio (Polonio), obtained possession of the checks when,
according to it, the corporate borrowers issued the checks in its name as
payment for their loans.69 Under paragraph 8 of its Complaint, Land Bank
alleged that its corporate borrowers "paid their respective obligations in the
form of checks payable to LANDBANK x x x".70 If it is true, then why were
the checks credited to Oñate’s account? Unless subsequently endorsed to
Oñate, said checks can only be deposited in the account of the payee
appearing therein. We cannot thus lend credence to Land Bank’s excuse
that the proximate cause of the alleged "miscrediting" was the fraudulent
representation of Polonio, for assuming that the latter indeed employed
fraudulent machinations, with the degree of prudence expected of banks,
Land Bank and its tellers could have easily detected that Oñate was not the
intended payee. In Traders Royal Bank v. Radio Philippines Network,
Inc.,71 we held that petitioner bank was remiss in its duty and obligation for
accepting and paying a check to a person other than the payee appearing
on the face of the check sans valid endorsement. Consequently, it was
made liable for its own negligence and in disregarding established banking
rules and procedures.
We are also groping in the dark as to the number of checks allegedly

deposited by Polonio to Oñate’s Trust Account No. 01-125. According to
Land Bank, the entire amount of ₱4,086,888.89 represents the proceeds of
the pre-terminated loans of four of its clients, namely, RETELCO, PBM,
CBY and PHILTOFIL. But it could only point to two entries made on two
separate dates in the passbook as reproduced below:
Date WITHDRAWAL DEPOSIT BALANCE

xxx xxx ₱250,704.60
24NOV80 159,000.00 409,704.60
24NOV80 3,063,750.00CK 3,473,454.60
24NOV80 42,000.00 3,431,454.60
25NOV80 275,923.75 CK 3,707,378.35
25NOV 80 1,235,962.00 2,471,416.35
26NOV80 193,800.00 CK 2,665,216.35
26NOV80 250,000.00 CK 2,915,216.35
2,915,216.35
26NOV80 2,915,216.35
321,188.38 CK 3,236,404.73
26NOV80 1,373,167.00 1,863,237.73
27NOV80 1,021,250.00 CK 2,884,487.73
28NOV80 70,833.33 CK 2,955,321.06
27NOV80 919,300.00 2,036,021.06
28NOV80 1,023,138.89 CK 3,059,159.9572
Were there only two checks issued as payment for the separate loans of
these four different entities? These hanging questions only confirm the
correctness of the lower courts’ uniform conclusion that Land Bank failed to
prove that the amount allegedly "miscredited" to Oñate’s account came
from the proceeds of the pre-terminated loans of its clients. It is worth
emphasizing that in civil cases, the party making the allegations has the
burden of proving them by preponderance of evidence. Mere allegation is
not sufficient.73
As a consequence of its failure to prove

the source of the claimed "miscredited"
funds, Land Bank had no right to debit
the total amount of ₱1,471,416.52 and
must, therefore, restore the same.
In view of the above, Land Bank’s argument that the lower courts erred in
ordering the return of the amount of ₱1,471,416.52 it debited from Oñate’s
five trust accounts since he did not seek such relief in his Answer as a
counterclaim, falls flat on its face. The order to restore the debited amount
is consistent with the lower courts’ ruling that Land Bank failed to prove that
the amount of ₱4,086,888.89 was "miscredited" to Oñate’s account and,
hence, it had no right to seek reimbursement or debit any amount from his
accounts in payment therefor.
Without such right, Land Bank should return the amount of ₱1,471,416.52 it
debited from Oñate’s accounts in its attempt to recoup what it allegedly lost
due to "miscrediting." Moreover, contrary to Land Bank’s assertion, Oñate
contested the bank’s application of the balance of his trust accounts in
payment for the allegedly "miscredited" amount in his Answer (With
Compulsory Counterclaim) for being "without any factual and legal
[bases]."74
Land Bank was remiss in performing

its duties under the IMAs and as a
banking institution.
The contractual relation between Land Bank and Oñate in this case is
primarily governed by the IMAs. Paragraph 4 thereof expressly imposed on
Land Bank the duty to maintain accurate records of all his investments,
receipts, disbursements and other transactions relating to his accounts. It
also obliged Land Bank to provide Oñate with quarterly balance sheets,
statements of income and expenses, summary of investments, etc. Thus:
4. You shall maintain accurate records of all investments, receipts,

disbursements and other transactions of the Account. Records relating
thereto shall be open at all reasonable times to inspection and audit by me
either personally or through duly authorized representatives.
Statements consisting of a balance sheet, portfolio analysis, statement of

income and expenses, and summary of investment changes are to be sent
to me/us quarterly.
I/We shall approve such accounting by delivering in writing to you a

statement to that effect or by failure to express objections to such
accounting in writing delivered to you within thirty (30) days from my receipt
of the accounting.
Upon your receipt of a written approval of the accounting, or upon the

passage of said period of time within which objections may be filed, without
written objections having been delivered to you, such accounting shall be
deemed to be approved, and you shall be released and discharged as to all
items, matters and things set forth in such accounting as if such accounting
had been settled and allowed by a decree of a court of competent
jurisdiction, in an action or proceeding in which you and I were
parties.75 (Emphasis supplied)
These are the obligations of Land Bank which it should have faithfully
complied with in good faith.76 Unfortunately, Land Bank failed in its
contractual duties to maintain accurate records of all investments and to
regularly furnish Oñate with financial statements relating to his accounts.
Had Land Bank kept an accurate record there would have been no need for
the creation of a Board of Commissioners or at least the latter’s work would
have been a lot easier and more accurate. But because of Land Bank’s
inefficient record keeping, the Board performed the tedious task of trying to
reconcile messy and incomplete records. The lackadaisical attitude of Land
Bank in keeping an updated record of Oñate’s accounts is aggravated by
its reluctance to accord the Board full and unrestricted access to the
records when it was conducting a review of the accounts upon the orders of
the trial court. Thus, in its Manifestation77 dated August 16, 2004, the Board
informed the trial court that its report pertaining to outstanding balances
may not be accurate because "the documents were then in the custody of
Land Bank and the documents to be reviewed by the Board at a designated
hearing depended on what was released by the then handling lawyer of
Land Bank." They were "not given the opportunity to collate/sort-out the
documents related to each trust account"78and "the folders being reviewed
contained documents related to different trust accounts."79 As a result,
"[t]here may have been double take up of accounts since the documents
previously reviewed may have been repeatedly considered in the
reports."80
For its failure to faithfully comply with

its obligations under the IMAs and for
having agreed to submit the case on the
basis of the reports of the Board of
Commissioners, the latter’s findings are
binding on Land Bank.
Because of Land Bank’s failure to keep an updated and accurate record of

Oñate’s account, it would have been difficult, if not impossible, to determine
with some degree of accuracy the outstanding balances in Oñate’s
accounts. Indeed, the creation of a Board of Commissioners was a
significant development in this case as it facilitated the examination of the
records and helped in the determination of the balances in each of Oñate’s
accounts. In a span of four years, the Board held 60 meetings and scoured
the voluminous and scattered records of subject accounts. In the course
thereof, it found several undocumented withdrawals and over withdrawals.
Thereafter, the Board submitted its consolidated report, to which Land
Bank did not file its comment despite having been given the opportunity to
do so. It did not question the result of the examinations conducted by the
Board, particularly the Board’s computation of the outstanding balance in
each account, the existence of undocumented and over withdrawals, and
how often the bank sent Oñate statements of account. In fact, during the
pre-trial conference, Land Bank agreed to submit the case based on the
reports of the Board.
Consequently, we found no cogent reason to deviate from the same course

taken by the CA – give weight to the consolidated report of the Board and
treat it as competent and sufficient evidence of what are stated therein.
After all, the dearth of evidentiary documents that could have shed light on
the alleged unintended crediting and unexplained withdrawals was brought
about by Land Bank’s failure to maintain accurate records as required by
the IMAs. In Simex International (Manila), Inc. v. Court of Appeals,81 we
elucidated on the nature of banking business and the responsibility of
banks:
The banking system is an indispensable institution in the modern world and

plays a vital role in the economic life of every civilized nation. Whether as
mere passive entities for the safekeeping and saving of money or as active
instruments of business and commerce, banks have become an ubiquitous
presence among the people, who have come to regard them with respect
and even gratitude and, most of all, confidence. Thus, even the humble
wage-earner has not hesitated to entrust his life’s savings to the bank of his
choice, knowing that they will be safe in its custody and will even earn
some interest for him. The ordinary person, with equal faith, usually
maintains a modest checking account for security and convenience in the
settling of his monthly bills and the payment of ordinary expenses. As for
business entities like the petitioner, the bank is a trusted and active
associate that can help in the running of their affairs, not only in the form of
loans when needed but more often in the conduct of their day-to-day
transactions like the issuance or encashment of checks.
In every case, the depositor expects the bank to treat his account with the
utmost fidelity, whether such account consists only of a few hundred pesos
or of millions. The bank must record every single transaction accurately,
down to the last centavo and as promptly as possible. This has to be done
if the account is to reflect at any given time the amount of money the
depositor can dispose of as he sees fit, confident that the bank will deliver it
as and to whomever he directs. x x x
The point is that as a business affected with public interest and because of
the nature of its functions, the bank is under obligations to treat the
accounts of its depositors with meticulous care, always having in mind the
fiduciary nature of their relationship. x x x (Emphasis supplied)
As to the conceded inaccuracies in the reports, we cannot allow Land Bank

to benefit therefrom. Time and again, we have cautioned banks to spare no
effort in ensuring the integrity of the records of its clients.82 And in
Philippine National Bank v. Court of Appeals,83 we held that "as between
parties where negligence is imputable to one and not to the other, the
former must perforce bear the consequences of its neglect." In this case,
the Board could have submitted a more accurate report had Land Bank
faithfully complied with its duty of maintaining a complete and accurate
record of Oñate’s accounts. But the Board could not find and present the
corresponding slips for the withdrawals reflected in the passbooks. In
addition, and as earlier mentioned, Land Bank was less than cooperative
when the Board was examining the records of Oñate’s accounts. It did not
give the Board enough leeway to go over the records systematically or in
orderly fashion. Hence, we cannot allow Land Bank to benefit from possible
inaccuracies in the reports.
Neither does Oñate’s failure to exercise his rights to inspect the records
and audit his accounts excuse the bank from sending the required notices,
for under the IMAs it behooved upon Land Bank to keep him fully informed
of the status of his investments by sending him regular reports and
statements. Oñate’s failure to inspect the record of his accounts should
neither be construed as his waiver to be furnished with updates on his
accounts nor authority for the bank to make undocumented withdrawals. As
aptly opined by the CA:
x x x The least that Land Bank could have done was to keep a detailed
quarterly report on [its] file. In this case, Land Bank did away with this
procedure that made [its] records a complete mess of voluminous and
meaningless records of numerous folders containing more than 7,600
leaves/pages and some 90 passbooks, with 1,355 leaves/pages of entries,
corresponding to the seven (7) Trust Accounts.
The passbook entries alone are insufficient compliance with Land Bank’s
duty to keep "accurate records of all investments, receipts, disbursements
and other transactions of the Account." These passbooks do not inform
what investments were made on the funds withdrawn. Moreover, these
passbook entries do not show if the amounts purported to have been
invested were indeed received by the concerned entity, facility, or borrower.
From these entries alone, Oñate would have no way of knowing where his
money went.84
But Land Bank next postulates that if Oñate is entitled to the

undocumented withdrawals on the basis of the reports of the Board, then it
should also be entitled to the negative balances or over withdrawals as
reflected in the same reports.
We cannot agree for a number of reasons. First, as earlier discussed, Land
Bank is guilty of negligence while Oñate (at least insofar as over
withdrawals are concerned) is not. Had Land Bank maintained an accurate
record, it would have readily detected and prevented over withdrawals. But
without any qualms, Land Bank asks for the negative balances, unmindful
that such claim is actually detrimental to its cause because it amounts to an
admission that it allowed over withdrawals. As aptly observed by the CA:
Corollarily, the Court cannot allow Land Bank to recover the negative
balances from Oñate’s trust accounts. Examining the Commissioners’
Report, the Court notes that the funds of Oñate’s trust accounts became
seriously depleted due to the unaccounted withdrawals that Land Bank
charged against his accounts. At any rate, those negative balances on
Oñate’s accounts show Land Bank’s inefficient performance in managing
his trust accounts. Reasonable bank practice and prudence [dictate] that
Land Bank should not have authorized the withdrawal of various sums from
Oñate’s accounts if it would result to overwithdrawals. x x x85
Second, Land Bank never prayed for the recovery of the negative balances
in its Complaint.
It is settled that courts cannot grant a relief not prayed for in the pleadings
or in excess of what is being sought by the party. x x x Due process
considerations require that judgments must conform to and be supported
by the pleadings and evidence presented in court. In Development Bank of
the Philippines v. Teston,86 this Court expounded that:
Due process considerations justify this requirement. It is improper to enter

an order which exceeds the scope of relief sought by the pleadings, absent
notice which affords the opposing party an opportunity to be heard with
respect to the proposed relief. The fundamental purpose of the requirement
that allegations of a complaint must provide the measure of recovery is to
prevent surprise to the defendant.87
Last, during the pre-trial conference, the issue of the validity of

undocumented withdrawals was properly put into issue. The parties also
agreed, as a collateral issue, that should it appear that the bank was not
authorized to make the undocumented withdrawals, the next issue for
consideration would be whether the amount subject thereof should be
credited back to Oñate’s accounts.88 The case of negative balances as
alluded to by Land Bank, however, is different. It was never put into issue
during the pre-trial conference. In Caltex (Philippines), Inc. v. Court of
Appeals,89 we held that "to obviate the element of surprise, parties are
expected to disclose at a pre-trial conference all issues of law and fact
which they intend to raise at the trial, except such as may involve privileged
or impeaching matters. The determination of issues at a pre-trial
conference bars the consideration of other questions on appeal." Land
Bank interposed its claim to the negative balances for the first time only
when it filed its Memorandum with the RTC.
Land Bank knew from the start and

admitted during trial that Trust
Account Nos. 01-014 and 01-017 do not
belong to Oñate; hence, it should not
have debited any amount therefrom to
compensate for the alleged personal
indebtedness of Oñate.
Land Bank claims that Oñate cannot sue on Trust Account Nos. 01-014
and 01-017 without joining as an indispensable party his undisclosed
principal.
But if anyone in this case is guilty of failing to join an indispensable party, it

is Land Bank that first committed a violation. The IMAs covering Trust
Account Nos. 01-014 and 01-017 attached as Annexes "A"90 and
"B,"91respectively, of Land Bank’s Complaint clearly state that Oñate signed
the same "FOR: UNDISCLOSED PRINCIPAL." As party to the said IMAs,
Land Bank knew and ought not to forget that Oñate is merely an agent and
not the owner of the funds in said accounts. Yet Land Bank garnished the
total amount of ₱792,595.25 from Trust Account Nos. 01-014 and 01-017
to answer for the alleged personal indebtedness of Oñate. Worse, when
Land Bank filed its Complaint for Sum of Money, it did not implead said
undisclosed principal or inform the trial court thereof. Now that Oñate is
seeking the restoration of the amounts debited and withdrawn without
withdrawal slips from said accounts, Land Bank is invoking the defense of
failure to implead an indispensable party. We cannot allow Land Bank to do
this. As aptly observed by the trial court:
Under the circumstances obtaining, it is highly unfair, unjust and iniquitous,

to dismiss the suit with respect to the two Trust Accounts after [Land Bank]
had garnished the balances of said accounts to pay the alleged
indebtedness of [Oñate] allegedly incurred by the erroneous crediting of ₱4
million to x x x Trust Account No. 01-125 which does not appear to be
owned by an undisclosed principal. Trust Account No. 01-125 is [Oñate’s]
personal trust account with plaintiff. Stated differently, [Land Bank] having
now recognized and admitted that Trust Account Nos. 01-014 and 01-017
were not owned by [Oñate], it has perforce no right, nay unlawful for it, to
apply the funds in said accounts to pay the alleged indebtedness of
[Oñate’s] personal account. Equity and justice so demand that the funds be
restored to Trust Account Nos. 01-014 and 01-017.92
Oñate protested the contents of the

statements of account at the earliest
opportunity.
As to Land Bank’s insistence that Oñate is deemed to have accepted the

contents of the statements of account for his failure to manifest his
objection thereto within 30 days from receipt thereof, it should be recalled
that from the time the alleged "miscrediting" occurred in November 1980,
the first communication coming from Land Bank was its letter dated
October 8, 1981.93 This, however, was the subject of a failed negotiation
between the parties. Besides, said letter can hardly be considered as an
statement that would apprise Oñate of the status of his investments. It is
not "a balance sheet, portfolio analysis, statement of income and expenses
or a summary of investment changes" as contemplated in paragraph 4 of
the IMAs. It is a demand letter seeking the return of the alleged
"miscredited" amount. The same goes true with Land Bank’s letter dated
September 3, 1991. As can be readily seen from its opening paragraph,
said letter is in response to Oñate’s "demand" for information regarding the
offsetting,94 which Oñate protested and is now one of the issues involved in
this case. In fine, it cannot be said that Oñate approved and adopted the
outstanding balances in his accounts for his failure to object to the contents
of those letters within the 30-day period allotted to him under the IMAs.
From what is available on the voluminous records of this case and as borne
out by the Board’s consolidated report dated August 16, 2004, the
statements which Land Bank sent to Oñate are only the following:
Based on the Annexes95 attached to Oñate’s Answer (With Compulsory

Counterclaim)
ITF No. Balance Sheet Total Liabilities and
As of Trustor’s Equity
01-014 June 30, 1982 ₱1,909,349.80
01-017 June 30, 1982 6,003,616.35
01-089 June 30, 1982 551,267.24
01-082 June 30, 1982 1,915.28
01-075 June 30, 1982 12,113,262.95
01-125 June 30, 1982 13,595,271.16
01-024 June 30, 1982 1,131,854.20
Based on the Consolidated Report
ITF No. Report Details Last Date Balances

of Report
01-024 Schedule of Money Market 03.31.82 ₱453,140.69
Placement
01-075 Statement of Income and 03.31.90 0.00
Expenses Balance Sheet 03.31.90 1,207,501.69
01-014 Schedule of Money Market 06.30.91 14,767.20
Placement Statement of 06.31.91 3,267.19
Income and Expenses 06.31.91 20,673.58
Balance Sheet
01-017 Schedule of Investment 06.30.91 38,502.06
Statement of Income and 06.30.91 10,437.22
Expenses Balance Sheet 06.30.91 39,659.56
01-082 Statement of Income and 06.30.91 59.75
Expenses Balance Sheet 06.30.91 70.28
01-125 Schedule of Investment 06.30.91 44,055.72
Statement of Income and 06.30.91 10,079.16
Expenses Balance Sheet 06.30.91 60,920.42
The patent wide gap between the time Land Bank furnished Oñate with
Balance Sheets as of June 30, 1982 and the date it sent him an Statement
of Income and Expenses, as well as a Balance Sheet, on March 31, 1990
is a clear and gross violation of the IMAs requiring it to furnish him with
balance sheet, portfolio analysis, statement of income and expenses and
the like, quarterly. As to the reports dated June 30, 1991 and letters
subsequent thereto, it should be noted that during those times Oñate had
already interposed his objections to the outstanding balances of his
accounts.96
The proper rate of legal interest.
Land Bank’s argument that the lower courts erred in imposing 12% per
annum rate of interest is likewise devoid of merit. The unilateral offsetting of
funds without legal justification and the undocumented withdrawals are
tantamount to forbearance of money. In the analogous case of Estores v.
Supangan,97 we held that "[the] unwarranted withholding of the money
which rightfully pertains to [another] amounts to forbearance of money
which can be considered as an involuntary loan." Following Eastern
Shipping Lines, Inc. v. Court of Appeals,98 therefore, the applicable rate of
interest in this case is 12% per annum. Besides, Land Bank is estopped
from assailing the award of 12% per annum rate of interest. In its
Complaint, Land Bank arrived at ₱8,222,687.89 as the outstanding
indebtedness of Oñate by using the same 12% per annum rate of interest.
It was only after the lower courts rendered unfavorable decisions that Land
Bank started to insist that the applicable rate of interest is 6% per annum.
Of equal importance is the determination of when the said 12% per annum
rate of interest should commence.1âwphi1Recall that both the RTC and the
CA reckoned the running of the 12% per annum rate of interest from June
21, 1991, or the day Land Bank unilaterally applied the outstanding balance
in all of Oñate’s trust accounts, until fully paid. The compounding of
interest, on the other hand, was based on the provision of the IMAs
granting Land Bank "to hold, invest and reinvest the Fund and keep the
same invested, in your sole discretion, without distinction between principal
and income."
While we find sufficient basis for the compounding of interest, we find it

necessary however to modify the commencement date. In Eastern
Shipping,99 it was observed that the commencement of when the legal
interest should start to run varies depending on the factual circumstances
obtaining in each case.100 As a rule of thumb, it was suggested that "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 made101 (at which time the
quantification of damages may be deemed to have been reasonably
ascertained)."102
In the case at bench, while Oñate protested the setting off, no proof was
presented that he formally demanded for the return of the amount so
debited prior to the filing of the Complaint. Quite understandably so
because at that time he could not determine with some degree of certainty
the outstanding balances of his accounts as Land Bank neglected on its
duty to keep him updated on the status of his accounts. Land Bank even
undertook to furnish him with "the exact computation"103 of what remains in
his accounts after the set off. But this never happened until Land Bank
initiated the Complaint on September 7, 1992. Oñate, on the other hand,
filed his Answer (With Compulsory Counterclaim) on May 26, 1993. In other
words, we cannot reckon the running of the interest prior to the filing of the
Complaint or Oñate’s Counterclaim as no demand prior thereto was made.
Neither could the interest commence to run at the time of filing of any of
aforesaid pleadings (as to constitute judicial demand) since the
undocumented withdrawals in the sums of ₱60,663,488.11 and
US$3,210,222.85, as well as the amount actually debited from all of
Oñate’s accounts, were determined only after the Board submitted its
consolidated report on August 16, 2004 or more than 10 years after Land
Bank and Oñate filed their Complaint and Answer, respectively. Note too
that while Oñate sought to recover the amount of undocumented
withdrawals before the RTC,104 the same was denied in the latter’s May 31,
2006 Decision. The RTC granted Oñate only the total amount of funds
debited from his trust accounts. It was only when the CA rendered its
December 18, 2009 Decision that Oñate was awarded the undocumented
withdrawals. Hence, we find it just and proper to reckon the running of the
interest of 12% per annum, compounded yearly, for the debited amount
and undocumented withdrawals on different dates. The debited amount of
₱1,471,416.52, shall earn interest beginning May 31, 2006 or the day the
RTC rendered its Decision granting said amount to Oñate. As to the
undocumented withdrawals of ₱60,663,488.11 and US 3,210,222.85, the
legal rate of interest should start to run the day the CA promulgated its
Decision on December 18, 2009.
During the pendency of this case, however, the Monetary Board issued
Resolution No. 796 dated May 16, 2013, stating that in the absence of
express stipulation between the parties, the rate of interest in loan or
forbearance of any money, goods or credits and the rate allowed in
judgments shall be 6% per annum. Said Resolution is embodied in Bangko
Sentral ng Pilipinas Circular No. 799, Series of2013, which took effect on
July 1, 2013. Hence, the 12% annual interest mentioned above shall apply
only up to June 30, 2013. Thereafter, or starting July 1, 2013, the
applicable rate of interest for both the debited amount and undocumented
withdrawals shall be 6% per annum compounded annually, until fully paid.
WHEREFORE, the Petition is hereby DENIED and the December 18, 2009
Decision of the Court of Appeals in CA-G.R. CV No. 89346 is AFFIRMED
with modification in that the interest of 12% per annum compounded
annually, for the debited amount of ₱1,471,416.52 shall commence to run
on May 31, 2006, while the same rate of interest shall apply to the
undocumented withdrawals in the amounts of ₱60,663,488.11 and US
3,210,222.85 starting December 18 2009. Beginning July 1, 2013,
however, the applicable rate of interest on all amounts awarded shall earn
interest at the rate of 6% per annum compounded yearly, until fully paid.
SO ORDERED.

Associate Justice
WE CONCUR:
ANTONIO T. CARPIO
Associate Justice
Chairperson
ARTURO D. BRION JOSE PORTUGAL PEREZ

ESTELA M. PERLAS-BERNABE
Associate Justice
ATTESTATION
Court’s Division.
ANTONIO T. CARPIO
Associate Justice
Chairperson
CERTIFICATION
Pursuant to Section 13 Article VIII of the Constitution and the Division

Chairperson s Attestation, I certify that the conclusions in the above
to the writer of the opinion of he Court’s Division.

Chief Justice
Footnotes
1
Rollo pp. 11-94.
2
CA rollo pp. 484-511; penned by Associate Justice Jose Catral
Mendoza (now a Member of his Court) and concurred in by Associate
Justices Myrna Dimaranan Vidal and Priscilla J. Baltazar-Padilla.
3
Records, Vol. IV, pp.1358-1387; penned by Judge Manuel D.
Victorio.
4
Id., Vol. I pp. 1-8.
5
CA rollo, pp. 594-595; penned by Associate Justice Priscilla J.
Baltazar-Padilla and concurred in by Associate Justices Fernanda
Lampas Peralta and Michael P. Elbinias.
6
Id. at 518-558.
7
AN ACT TO ORDAIN THE AGRICULTURAL LAND REFORM
CODE AND TO INSTITUTE LAND REFORMS IN THE
PHILIPPINES, INCLUDING THE ABOLITION OF TENANCY AND
THE CHANNELING OF CAPITAL INTO INDUSTRY, PROVIDE FOR
THE NECESSARY IMPLEMENTING AGENCIES, APPROPRIATE
FUNDS THEREFOR AND FOR OTHER PURPOSES. Approved
August 8, 1963.
8
See Passbook 1, Exhibit "D-31."
9
See Passbook 2, Exhibit "F-3."
10
See Passbook 7, Exhibit "C-3."
11
See Passbook 5, Exhibit "B-3."
12
See Passbook 4, Exhibit "A-3."
13
See Passbook 3, Exhibit "E-3."
14
See Passbook 6, Exhibit "G-3."
15
Records, Vol. I, pp. 9-23.
16
Id.
17
Id. at 33.
18
As alleged in paragraph 14 of the Complaint, id. at 5-6. But per
Annex "P" of the same Complaint, id. at 34-35, the total amount
debited was ₱1,471,416.52.
19
Id. at 1-8.
20
Under paragraph 15 of the Complaint, Land Bank explained how it
arrived at the amount of ₱8,222,687.89, viz: 15. [Oñate’s] outstanding
indebtedness to LANDBANK stands at ₱8,222,687.89 as of May 15,
1992, which was computed on the basis of the more than ₱4 Million
erroneously credited to [Oñate] multiplied by 12% interest per annum
from the date of the erroneous crediting up to February 4, 1992,
minus ₱1,528,583.48 representing the balance standing in [Oñate’s]
personal trust accounts which was applied as payment by way of set-
off. x x x (Id. at 6.)
21
Should be 1980.
22
Should be 1980.
23
24
Id. at 138-152.
25
Id. at 34-35.
26
Id. at 153-159.
27
Id. at 144-145. Emphases in the original.
28
Id. at 151-152.
29
Id., Vol. II, pp. 409-410.
30
(i) Report of the Board of Commissioners dated September 24,
1999, id., Vol. V, pp. 1432-1441; (ii) supplemental summary report
dated January 27, 2000, id., Vol. III, pp. 790-797; (iii) second
supplemental report dated April 6, 2000, id. at 811-812.
31
See Order dated May 25, 2004, id., Vol. IV, p. 1216.
32
Id. at 1220-1228.
33
Per commissioners’ consolidated report dated August 16, 2004, id.,
"withdrawals" is defined as cash outflow reflected on the passbooks
of Oñate, while "drawings" is cash outflow from the capital
contribution of Oñate per his Letter of Instructions.
34
Id. at 1380-1381.
35
Id. at 1229-1230.
36
See Comment (Re: Board of Commissioners’ Compliance dated 16
August 2004), id. at 1241-1245.
37
See Order dated June 10, 2005, id. at 1286.
38
Id. at 1288-1307.
39
See Land Bank’s Memorandum dated August 5, 2005, id. at 1319-
1345.
40
Id. at 1358-1387.
41
Broken down as follows: Trust Account No. 01-014, ₱170,172.91;
Trust Account No. 01-017, ₱622,422.34; Trust Account No. 01-082,
₱4,175.88; Trust Account No. 01-089, ₱148,298.79; and, Trust
Account No. 01-125, ₱526,346.61, for a total amount of
₱1,471,416.52.
42
Records, Vol. IV, p. 1387.
43
Id. at 1388-1399.
44
Id. at 1416-1417.
45
CA rollo, pp. 484-511.
46
Broken down as follows:
PESO ACCOUNTS
Trust Account No. Undocumented Withdrawals

01-014 ₱45,103,297.33
01-017 2,682,088.58
01-024 900,000.00
01-075 500,000.00
01-082 1,782,741.86
01-089 5,054,089.00
01-125 4,640,551.34
TOTAL ₱60,663,488.11
DOLLAR ACCOUNT
Trust Account No. Undocumented Withdrawals

01-014 $3,210,222.85
47
48
Id. at 518-558.
49
Id. at 594-595.
50
Rollo, p. 465.
51
Records, Vol. I, p. 33.
52
Id. at 34-35.
53
Id. at 36.
54
Id. at 34-35.
55
See Memorandum dated October 4, 2011, rollo, pp. 443-528, 508.
56
SEC. 3. Representatives as parties. – Where the action is allowed
to be prosecuted or defended by a representative or someone acting
in a fiduciary capacity, the beneficiary shall be included in the title of
the case and shall be deemed to be the real party in interest. A
representative may be a trustee of an express trust, a guardian, an
executor or administrator, or a party authorized by law or these
Rules. An agent acting in his own name and for the benefit of an
undisclosed principal may sue or be sued without joining the principal
except when the contract involves things belonging to the
principal.57 G.R. No. 183059, August 28, 2009, 597 SCRA 519.
58
CBP Circular No. 824-81 dated September 17, 1981; Subsection
2415.1 of the 1982 Manual of Regulations for Banks (MORB); and
CBP Memorandum dated October 16, 1990 and the 1993 MORB.
59
CA rollo, p. 504.
60
See Order dated June 10, 2005, Records, Vol. IV, p. 1286.
61
See paragraph 7 of the Petition, rollo, p. 39.
62
Atiko Trans, Inc. v. Prudential Guarantee and Assurance, Inc., G.R.
No. 167545, August 17, 2011, 655 SCRA 625, 633.
63
539 Phil. 377, 386-387 (2006).
64
Section 4, Rule 3, The Internal Rules of the Supreme Court
enumerates the following exceptions: (a) the conclusion is a finding
grounded entirely on speculation, surmise and conjecture; (b) the
inference made is manifestly mistaken; (c) there is grave abuse of
discretion; (d) the judgment is based on a misapprehension of facts;
(e) the findings of fact are conflicting; (f) the collegial appellate courts
went beyond the issues of the case, and their findings are contrary to
the admissions of both appellant and appellee; (g) the findings of fact
of the collegial appellate courts are contrary to those of the trial court;
(h) said findings of fact are conclusions without citation of specific
evidence on which they are based; (i) the facts set forth in the petition
as well as in the petitioner’s main and reply briefs are not disputed by
the respondents; (j) the findings of fact of the collegial appellate
courts are premised on the supposed evidence, but are contradicted
by the evidence on record; and, (k) all other similar and exceptional
cases warranting a review of the lower courts’ findings of fact.
65
Valarao v. Court of Appeals, 363 Phil. 495, 506 (1999). Citations
omitted.
66
Canque v. Court of Appeals, 365 Phil. 124, 131 (1999).
67
SEC. 43. Entries in the course of business. – Entries made at, or
near the time of the transactions to which they refer, by a person
deceased, or unable to testify, who was in a position to know the
facts therein stated, may be received as prima facie evidence, if such
person made the entries in his professional capacity or in the
performance of duty and in the ordinary or regular course of business
or duty.
68
CA rollo, p. 504.
69
See Land Bank’s Memorandum dated October 13, 2011, rollo, pp.
443-528, 462.
70
71
439 Phil. 475 (2002).
72
Passbook Under Account No. 101 5759-3 with Name of Depositor
LBP ITF 01-125 marked as Exhibits "G-18" to "G-19".
73
Hyatt Elevators and Escalators Corporation v. Cathedral Heights
Building Complex Association, Inc., G.R. No. 173881, December 1,
2010, 636 SCRA 401, 412.
74
75
Id. at 9-23.
76
Article 1159 of the CIVIL CODE OF THE PHILIPPINES provides:
Obligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith.
77
See Manifestation dated August 16, 2004, Records, Vol. IV, pp.
1229-1230.
78
Id.
79
Id.
80
Id.
81
262 Phil. 387, 395-396 (1990).
82
Dycoco, Jr. v. Equitable PCI Bank, G.R. No. 188271, August 16,
2010, 628 SCRA 346, 353.
83
G.R. No. 97995, January 21, 1993, 217 SCRA 347, 358.
84
CA rollo, p. 509.
85
Id. at 505.
86
G.R. No. 174966, February 14, 2008, 545 SCRA 422, 429.
87
Diona v. Balangue, G.R. No. 173559, January 7, 2013, 688 SCRA
22, 35-36.
88
See Order dated June 10, 2005, Records, Vol. IV, p. 1286.
89
G.R. No. 97753, August 10, 1992, 212 SCRA 448, 462.
90
91
Id. at 12-14.
92
Id., Vol. IV, p. 1387.
93
Id., Vol. 1, p. 33.
94
Id. at 34.
95
Id. at 153-159.
96
See Land Bank’s letter to Oñate’s counsel dated June 4, 1991, id.
at 60 as well as the latter’s letter to the former dated June 20, 1991,
id. at 61-62.
97
G.R. No. 175139, April 18, 2012, 670 SCRA 95, 106.
98
G.R. No. 97412, July 12, 1994, 234 SCRA 78.
99
Id.
100
Id. at 94-95.
101
Emphasis supplied.
102
Id. at 96.
103
See Letter dated June 4, 1991, Records, Vol. I, p. 60; Letter dated
June 20, 1991, id.
104
See Comment (Re: Board of Commissioners’ Compliance dated
16 August 2004), id. at 1241-1245.
G.R. No. 211666, February 25, 2015 - REPUBLIC OF THE PHILIPPINES,
REPRESENTED BY THE DEPARTMENT OF PUBLIC WORKS AND
HIGHWAYS, Petitioners, v. ARLENE R. SORIANO, Respondent.
THIRD DIVISION
G.R. No. 211666, February 25, 2015
REPUBLIC OF THE PHILIPPINES, REPRESENTED BY THE

DEPARTMENT OF PUBLIC WORKS AND
HIGHWAYS, Petitioners, v. ARLENE R. SORIANO, Respondent.
DECISION
PERALTA, J.:
Before the Court is a petition for review under Rule 45 of the Rules of Court
assailing the Decision1 dated November 15, 2013 and Order2 dated March 10,
2014 of the Regional Trial Court (RTC), Valenzuela City, Branch 270, in Civil
Case No. 140-V-10.
The antecedent facts are as follows:
On October 20, 2010, petitioner Republic of the Philippines, represented by

the Department of Public Works and Highways (DPWH), filed a Complaint3 for
expropriation against respondent Arlene R. Soriano, the registered owner of a
parcel of land consisting of an area of 200 square meters, situated at Gen. T.
De Leon, Valenzuela City, and covered by Transfer Certificate of Title (TCT)
No. V-13790.4 In its Complaint, petitioner averred that pursuant to Republic
Act (RA) No. 8974, otherwise known as �An Act to Facilitate the Acquisition
of Right-Of-Way, Site or Location for National Government Infrastructure
Projects and for other Purposes,� the property sought to be expropriated
shall be used in implementing the construction of the North Luzon Expressway
(NLEX)- Harbor Link Project (Segment 9) from NLEX to MacArthur Highway,
Valenzuela City.5cralawred
Petitioner duly deposited to the Acting Branch Clerk of Court the amount of
P420,000.00 representing 100% of the zonal value of the subject property.
Consequently, in an Order6 dated May 27, 2011, the RTC ordered the
issuance of a Writ of Possession and a Writ of Expropriation for failure of
respondent, or any of her representatives, to appear despite notice during the
hearing called for the purpose.
In another Order7 dated June 21, 2011, the RTC appointed the following
members of the Board of Commissioners for the determination of just
compensation: (1) Ms. Eunice O. Josue, Officer-in-Charge, RTC, Branch 270,
Valenzuela City; (2) Atty. Cecilynne R. Andrade, Acting Valenzuela City
Assessor, City Assessor�s Office, Valenzuela City; and (3) Engr. Restituto
Bautista, of Brgy. Bisig, Valenzuela City. However, the trial court subsequently
revoked the appointment of the Board for their failure to submit a report as to
the fair market value of the property to assist the court in the determination of
just compensation and directed the parties to submit their respective position
papers.8� Thereafter, the case was set for hearing giving the parties the
opportunity to present and identify all evidence in support of their arguments
therein.
According to the RTC, the records of the case reveal that petitioner adduced
evidence to show that the total amount deposited is just, fair, and equitable.
Specifically, in its Position Paper, petitioner alleged that pursuant to a
Certification issued by the Bureau of Internal Revenue (BIR), Revenue Region
No. 5, the zonal value of the subject property in the amount of P2,100.00 per
square meter is reasonable, fair, and just to compensate the defendant for the
taking of her property in the total area of 200 square meters.9In fact, Tax
Declaration No. C-018-07994, dated November 13, 2009 submitted by
petitioner, shows that the value of the subject property is at a lower rate of
P400.00 per square meter. Moreover, as testified to by Associate Solicitor III
Julie P. Mercurio, and as affirmed by the photographs submitted, the subject
property is poorly maintained, covered by shrubs and weeds, and not
concretely-paved.� It is located far from commercial or industrial
developments in an area without a proper drainage system, can only be
accessed through a narrow dirt road, and is surrounded by adjacent dwellings
of sub-standard materials.
Accordingly, the RTC considered respondent to have waived her right to

adduce evidence and to object to the evidence submitted by petitioner for her
continued absence despite being given several notices to do so.
On November 15, 2013, the RTC rendered its Decision, the dispositive portion
of which reads:chanRoblesvirtualLawlibrary
WHEREFORE, with the foregoing determination of just compensation,

judgment is hereby rendered:
1) Declaring plaintiff to have lawful right to acquire possession of and title to
200 square meters of defendant Arlene R. Soriano�s parcel of land
covered by TCT V-13790 necessary for the construction of the NLEX �
Harbor Link Project (Segment 9) from NLEX to MacArthur Highway
Valenzuela City;
2) Condemning portion to the extent of 200 square meters of the above-
described parcel of land including improvements thereon, if there be any,
free from all liens and encumbrances;
3) Ordering the plaintiff to pay defendant Arlene R. Soriano Php2,100.00 per
square meter or the sum of Four Hundred Twenty Thousand Pesos
(Php420,000.00) for the 200 square meters as fair, equitable, and just
compensation with legal interest at 12% per annum from the taking of the
possession of the property, subject to the payment of all unpaid real
property taxes and other relevant taxes, if there be any;
4) Plaintiff is likewise ordered to pay the defendant consequential damages
which shall include the value of the transfer tax necessary for the transfer
of the subject property from the name of the defendant to that of the
plaintiff;
5) The Office of the Register of Deeds of Valenzuela City, Metro Manila is
directed to annotate this Decision in Transfer Certificate of Title No. V-
13790 registered under the name of Arlene R. Soriano.
cralawlawlibrary
Let a certified true copy of this decision be recorded in the Registry of Deeds
of Valenzuela City.
Records of this case show that the Land Bank Manager�s Check Nos.
0000016913 dated January 21, 2011 in the amount of Php400,000.00 and
0000017263 dated April 28, 2011 in the amount of Php20,000.00 issued by
the Department of Public Works and Highways (DPWH) are already stale.
Thus, the said Office is hereby directed to issue another Manager�s Check in
the total amount Php420,000.00 under the name of the Office of the Clerk of
Court, Regional Trial Court, Valenzuela City earmarked for the instant
case.10cralawlawlibrary
Petitioner filed a Motion for Reconsideration maintaining that pursuant to

Bangko Sentral ng Pilipinas (BSP) Circular No. 799, Series of 2013, which
took effect on July 1, 2013, the interest rate imposed by the RTC on just
compensation should be lowered to 6% for the instant case falls under a loan
or forbearance of money.11 In its Order12 dated March 10, 2014, the RTC
reduced the interest rate to 6% per annum not on the basis of the
aforementioned Circular, but on Article 2209 of the Civil Code,
viz.:chanRoblesvirtualLawlibrary
However, the case of National Power Corporation v. Honorable Zain B. Angas

is instructive.
In the aforementioned case law, which is similar to the instant case, the
Supreme Court had the occasion to rule that it is well-settled that the
aforequoted provision of Bangko Sentral ng Pilipinas Circular applies only to a
loan or forbearance of money, goods or credits. However, the term
�judgments� as used in Section 1 of the Usury Law and the previous
Central Bank Circular No. 416, should be interpreted to mean only judgments
involving loan or forbearance of money, goods or credits, following the
principle of ejusdem generis. And applying said rule on statutory construction,
the general term �judgments� can refer only to judgments in cases involving
loans or forbearance of any money, goods, or credits. Thus, the High Court
held that, Art. 2209 of the Civil Code, and not the Central Bank Circular, is the
law applicable.
Art. 2009 of the Civil Code reads:

�If the obligation consists in the payment of a sum of money, and the debtor
incurs in delay, the indemnity for damages, there being no stipulation to the
contrary, shall be the payment of the interest agreed upon, and in the absence
of stipulation, the legal interest, which is six per cent per
annum.�cralawlawlibrary
Further in that case, the Supreme Court explained that the transaction
involved is clearly not a loan or forbearance of money, goods or credits but
expropriation of certain parcels of land for a public purpose, the payment of
which is without stipulation regarding interest, and the interest adjudged by the
trial court is in the nature of indemnity for damages. The legal interest required
to be paid on the amount of just compensation for the properties expropriated
is manifestly in the form of indemnity for damages for the delay in the payment
thereof. It ultimately held that Art. 2209 of the Civil Code shall
apply.13cralawlawlibrary
On May 12, 2014, petitioner filed the instant petition invoking the following
arguments:chanRoblesvirtualLawlibrary
I.
RESPONDENT IS NOT ENTITLED TO THE LEGAL INTEREST OF 6% PER

ANNUM ON THE AMOUNT OF JUST COMPENSATION OF THE SUBJECT
PROPERTY AS THERE WAS NO DELAY ON THE PART OF
PETITIONER.chanroblesvirtuallawlibrary
II.
BASED ON THE NATIONAL INTERNAL REVENUE CODE OF 1997 AND

THE LOCAL GOVERNMENT CODE, IT IS RESPONDENT�S OBLIGATION
TO PAY THE TRANSFER TAXES.cralawlawlibrary
Petitioner maintains that if property is taken for public use before

compensation is deposited with the court having jurisdiction over the case, the
final compensation must include interests on its just value computed from the
time the property is taken up to the time when compensation is actually paid or
deposited with the court.14 Thus, legal interest applies only when the property
was taken prior to the deposit of payment with the court and only to the extent
that there is delay in payment. In the instant case, petitioner posits that since it
was able to deposit with the court the amount representing the zonal value of
the property before its taking, it cannot be said to be in delay, and thus, there
can be no interest due on the payment of just compensation.15� Moreover,
petitioner alleges that since the entire subject property was expropriated and
not merely a portion thereof, it did not suffer an impairment or decrease in
value, rendering the award of consequential damages nugatory. Furthermore,
petitioner claims that contrary to the RTC�s instruction, transfer taxes, in the
nature of Capital Gains Tax and Documentary Stamp Tax, necessary for the
transfer of the subject property from the name of the respondent to that of the
petitioner are liabilities of respondent and not petitioner.
The petition is partly meritorious.
At the outset, it must be noted that the RTC�s reliance on National Power
Corporation v. Angas is misplaced for the same has already been overturned
by our more recent ruling in Republic v. Court of Appeals,16 wherein we held
that the payment of just compensation for the expropriated property amounts
to an effective forbearance on the part of the State, to
wit:chanRoblesvirtualLawlibrary
Aside from this ruling, Republic notably overturned the Court�s

previous ruling in National Power Corporation v. Angas which held that
just compensation due for expropriated properties is not a loan or
forbearance of money but indemnity for damages for the delay in
payment; since the interest involved is in the nature of damages rather
than earnings from loans, then Art. 2209 of the Civil Code, which fixes
legal interest at 6%, shall apply.
In Republic, the Court recognized that the just compensation due to the
landowners for their expropriated property amounted to an effective
forbearance on the part of the State. Applying the Eastern Shipping
Lines ruling, the Court fixed the applicable interest rate at 12% per annum,
computed from the time the property was taken until the full amount of just
compensation was paid, in order to eliminate the issue of the constant
fluctuation and inflation of the value of the currency over time. In the Court�s
own words:
The Bulacan trial court, in its 1979 decision, was correct in imposing interest[s]
on the zonal value of the property to be computed from the time petitioner
instituted condemnation proceedings and "took" the property in September
1969. This allowance of interest on the amount found to be the value of the
property as of the time of the taking computed, being an effective forbearance,
at 12% per annum should help eliminate the issue of the constant fluctuation
and inflation of the value of the currency over time.
We subsequently upheld Republic�s 12% per annum interest rate on the
unpaid expropriation compensation in the following cases: Reyes v. National
Housing Authority, Land Bank of the Philippines v. Wycoco, Republic v. Court
of Appeals, Land Bank of the Philippines v. Imperial, Philippine Ports Authority
v. Rosales-Bondoc, and Curata v. Philippine Ports Authority.17cralawlawlibrary
Effectively, therefore, the debt incurred by the government on account of the
taking of the property subject of an expropriation constitutes a
forbearance18 which runs contrary to the trial court�s opinion that the same is
in the nature of indemnity for damages calling for the application of Article
2209 of the Civil Code. Nevertheless, in line with the recent circular of the
Monetary Board of the Bangko Sentral ng Pilipinas (BSP-MB) No. 799, Series
of 2013, effective July 1, 2013, the prevailing rate of interest for loans or
forbearance of money is six percent (6%) per annum, in the absence of an
express contract as to such rate of interest.
Notwithstanding the foregoing, We find that the imposition of interest in this

case is unwarranted in view of the fact that as evidenced by the
acknowledgment receipt19 signed by the Branch Clerk of Court, petitioner was
able to deposit with the trial court the amount representing the zonal value of
the property before its taking. As often ruled by this Court, the award of
interest is imposed in the nature of damages for delay in payment which, in
effect, makes the obligation on the part of the government one of forbearance
to ensure prompt payment of the value of the land and limit the opportunity
loss of the owner.20� However, when there is no delay in the payment of just
compensation, We have not hesitated in deleting the imposition of interest
thereon for the same is justified only in cases where delay has been
sufficiently established.21cralawred
The records of this case reveal that petitioner did not delay in its payment of
just compensation as it had deposited the pertinent amount in full due to
respondent on January 24, 2011, or four (4) months before the taking thereof,
which was when the RTC ordered the issuance of a Writ of Possession and a
Writ of Expropriation on May 27, 2011. The amount deposited was deemed by
the trial court to be just, fair, and equitable, taking into account the well-
established factors in assessing the value of land, such as its size, condition,
location, tax declaration, and zonal valuation as determined by the BIR.
Considering, therefore, the prompt payment by the petitioner of the full amount
of just compensation as determined by the RTC, We find that the imposition of
interest thereon is unjustified and should be deleted.
Similarly, the award of consequential damages should likewise be deleted in

view of the fact that the entire area of the subject property is being
expropriated, and not merely a portion thereof, wherein such remaining portion
suffers an impairment or decrease in value, as enunciated in Republic of the
Philippines v. Bank of the Philippine
Islands,22 thus:chanRoblesvirtualLawlibrary
x x x� The general rule is that the just compensation to which the owner of
the condemned property is entitled to is the market value. Market value is that
sum of money which a person desirous but not compelled to buy, and an
owner willing but not compelled to sell, would agree on as a price to be paid
by the buyer and received by the seller. The general rule, however, is
modified where only a part of a certain property is expropriated. In such
a case, the owner is not restricted to compensation for the portion
actually taken, he is also entitled to recover the consequential damage, if
any, to the remaining part of the property.
xxxx
No actual taking of the building is necessary to grant consequential

damages. Consequential damages are awarded if as a result of the
expropriation, the remaining property of the owner suffers from an
impairment or decrease in value. The rules on expropriation clearly provide
a legal basis for the award of consequential damages. Section 6 of Rule 67 of
the Rules of Court provides:
x x x The commissioners shall assess the consequential damages to the
property not taken and deduct from such consequential damages the
consequential benefits to be derived by the owner from the public use or
public purpose of the property taken, the operation of its franchise by the
corporation or the carrying on of the business of the corporation or person
taking the property. But in no case shall the consequential benefits assessed
exceed the consequential damages assessed, or the owner be deprived of the
actual value of his property so taken.
In B.H. Berkenkotter & Co. v. Court of Appeals, we held that:
To determine just compensation, the trial court should first ascertain the
market value of the property, to which should be added the consequential
damages after deducting therefrom the consequential benefits which may
arise from the expropriation. If the consequential benefits exceed the
consequential damages, these items should be disregarded altogether as the
basic value of the property should be paid in every case.23cralawred
cralawlawlibrary
Considering that the subject property is being expropriated in its entirety, there
is no remaining portion which may suffer an impairment or decrease in value
as a result of the expropriation. Hence, the award of consequential damages
is improper.
Anent petitioner�s contention that it cannot be made to pay the value of the
transfer taxes in the nature of capital gains tax and documentary stamp tax,
which are necessary for the transfer of the subject property from the name of
the respondent to that of the petitioner, the same is partly meritorious.
With respect to the capital gains tax, We find merit in petitioner�s posture that
pursuant to Sections 24(D) and 56(A)(3) of the 1997 National Internal
Revenue Code (NIRC), capital gains tax due on the sale of real property is a
liability for the account of the seller, to wit:chanRoblesvirtualLawlibrary
Section 24. Income Tax Rates �
xxxx
(D) Capital Gains from Sale of Real Property. �

(1) In General. � The provisions of Section 39(B) notwithstanding, a final tax
of six percent (6%) based on the gross selling price or current fair market
value as determined in accordance with Section 6(E) of this Code, whichever
is higher, is hereby imposed upon capital gains presumed to have been
realized from the sale, exchange, or other disposition of real property located
in the Philippines, classified as capital assets, including pacto de retro sales
and other forms of conditional sales, by individuals, including estates and
trusts: Provided, That the tax liability, if any, on gains from sales or other
disposition of real property to the government or any of its political
subdivisions or agencies or to government-owned or controlled corporations
shall be determined either under Section 24(A)or under this Subsection, at the
option of the taxpayer.chanrobleslaw
xxxx
Section 56. Payment and Assessment of Income Tax for Individuals and
Corporations. �
(A) Payment of Tax �
xxxx
(3) Payment of Capital Gains Tax. - The total amount of tax imposed and
prescribed under Section 24 (c), 24(D), 27(E)(2), 28(A)(8)(c) and 28(B)(5)(c)
shall be paid on the date the return prescribed therefor is filed by the person
liable thereto: Provided, That if the seller submits proof of his intention to avail
himself of the benefit of exemption of capital gains under existing special laws,
no such payments shall be required : Provided, further, That in case of failure
to qualify for exemption under such special laws and implementing rules and
regulations, the tax due on the gains realized from the original transaction
shall immediately become due and payable, subject to the penalties
prescribed under applicable provisions of this Code: Provided, finally, That if
the seller, having paid the tax, submits such proof of intent within six (6)
months from the registration of the document transferring the real property, he
shall be entitled to a refund of such tax upon verification of his compliance with
the requirements for such exemption.
cralawlawlibrary
Thus, it has been held that since capital gains is a tax on passive income, it is
the seller, not the buyer, who generally would shoulder the tax.24�
Accordingly, the BIR, in its BIR Ruling No. 476-2013, dated December 18,
2013, constituted the DPWH as a withholding agent to withhold the six percent
(6%) final withholding tax in the expropriation of real property for infrastructure
projects.� As far as the government is concerned, therefore, the capital gains
tax remains a liability of the seller since it is a tax on the seller's gain from the
sale of the real estate.25cralawred
As to the documentary stamp tax, however, this Court finds inconsistent

petitioner�s denial of liability to the same. Petitioner cites Section 196 of the
1997 NIRC as its basis in saying that the documentary stamp tax is the liability
of the seller, viz.:chanRoblesvirtualLawlibrary
SECTION 196. Stamp Tax on Deeds of Sale and Conveyances of Real
Property. - On all conveyances, deeds, instruments, or writings, other than
grants, patents or original certificates of adjudication issued by the
Government, whereby any land, tenement or other realty sold shall be
granted, assigned, transferred or otherwise conveyed to the purchaser, or
purchasers, or to any other person or persons designated by such purchaser
or purchasers, there shall be collected a documentary stamp tax, at the rates
herein below prescribed, based on the consideration contracted to be paid for
such realty or on its fair market value determined in accordance with Section
6(E) of this Code, whichever is higher: Provided, That when one of the
contracting parties is the Government, the tax herein imposed shall be based
on the actual consideration:
(a) When the consideration, or value received or contracted to be paid for
such realty, after making proper allowance of any encumbrance, does not
exceed One thousand pesos (P1,000), Fifteen pesos (P15.00).
(b) For each additional One thousand pesos (P1,000), or fractional part
thereof in excess of One thousand pesos (P1,000) of such consideration or
value, Fifteen pesos (P15.00).
When it appears that the amount of the documentary stamp tax payable
hereunder has been reduced by an incorrect statement of the consideration in
any conveyance, deed, instrument or writing subject to such tax the
Commissioner, provincial or city Treasurer, or other revenue officer shall, from
the assessment rolls or other reliable source of information, assess the
property of its true market value and collect the proper tax
thereon.cralawlawlibrary
Yet, a perusal of the provision cited above does not explicitly impute the
obligation to pay the documentary stamp tax on the seller. In fact, according to
the BIR, all the parties to a transaction are primarily liable for the documentary
stamp tax, as provided by Section 2 of BIR Revenue Regulations No. 9-2000,
which reads:26cralawred
SEC. 2. Nature of the Documentary Stamp Tax and Persons Liable for the
Tax. �
(a) In General. - The documentary stamp taxes under Title VII of the Code
is a tax on certain transactions. It is imposed against "the person
making, signing, issuing, accepting, or transferring" the document or
facility evidencing the aforesaid transactions. Thus, in general, it may be
imposed on the transaction itself or upon the document underlying such
act. Any of the parties thereto shall be liable for the full amount of the tax
due: Provided, however, that as between themselves, the said parties may
agree on who shall be liable or how they may share on the cost of the tax.
(b) Exception. - Whenever one of the parties to the taxable transaction is

exempt from the tax imposed under Title VII of the Code, the other party
thereto who is not exempt shall be the one directly liable for the
tax.27cralawlawlibrary
As a general rule, therefore, any of the parties to a transaction shall be liable

for the full amount of the documentary stamp tax due, unless they agree
among themselves on who shall be liable for the same.
In this case, there is no agreement as to the party liable for the documentary
stamp tax due on the sale of the land to be expropriated.� But while petitioner
rejects any liability for the same, this Court must take note of petitioner�s
Citizen�s Charter,28 which functions as a guide for the procedure to be taken
by the DPWH in acquiring real property through expropriation under RA
8974.� The Citizen�s Charter,� issued by petitioner DPWH itself on
December 4, 2013, explicitly provides that the documentary stamp tax,
transfer tax, and registration fee due on the transfer of the title of land in
the name of the Republic shall be shouldered by the implementing
agency of the DPWH, while the capital gains tax shall be paid by the
affected property owner.29 Thus, while there is no specific agreement
between petitioner and respondent, petitioner�s issuance of the Citizen�s
Charter serves as its notice to the public as to the procedure it shall generally
take in cases of expropriation under RA 8974. Accordingly, it will be rather
unjust for this Court to blindly accede to petitioner�s vague rejection of
liability in the face of its issuance of the Citizen�s Charter, which contains a
clear and unequivocal assumption of accountability for the documentary stamp
tax. Had petitioner provided this Court with more convincing basis, apart from
a mere citation of an indefinite provision of the 1997 NIRC, showing that it
should be respondent-seller who shall be liable for the documentary stamp tax
due on the sale of the subject property, its rejection of the payment of the
same could have been sustained.
WHEREFORE, premises considered, the instant petition is PARTIALLY

GRANTED.� The Decision and Order, dated November 15, 2013 and March
10, 2014, respectively, of the Regional Trial Court, Valenzuela City, Branch
270, in Civil Case No. 140-V-10 are hereby MODIFIED, in that the imposition
of interest on the payment of just compensation as well as the award of
consequential damages are deleted. In addition, respondent Arlene R. Soriano
is ORDERED to pay for the capital gains tax due on the transfer of the
expropriated property, while the documentary stamp tax, transfer tax, and
registration fee shall be for the account of petitioner.
SO ORDERED.cralawlawlibrary
Velasco, Jr., (Chairperson), Villarama, Jr., and Reyes, ,* JJ., concur.

Leonen, J., see separate concurring opinion.
Endnotes:
*
Designated Acting Member, in lieu of Associate Justice Francis H. Jardeleza,
per Raffle dated September 8, 2014.
1
Penned by Judge Evangeline M. Francisco; Annex �A� to Petition, rollo,
pp. 27-32.
2
Annex �B� to Petition, id. at 33-34.
3
Annex �D� to Petition, id. at 38-49.
4
Annex �E� to Petition, id. at 50.
5
Id. at 27.
6
Annex �G� to Petition, id. at 53.
7
Annex �H� to Petition, id. at 54.
8
Annex �I� to Petition, id. at 55.
9
Id. at 28.
10
Rollo, pp. 30-32.
11
Id. at 33.
12
Supra note 2.
13
Rollo, pp. 33-34. (Citations omitted)
14
Republic of the Philippines v. Court of Appeals, et al., 433 Phil. 106, 122
(2002).
15
Rollo, p. 16.
16
Supra note 13.
17
Apo Fruits Corporation and Hijo Plantation, Inc. v. Land Bank of the
Philippines, 647 Phil. 251, 274-275 (2010). (Emphasis supplied)
18
Sy v. Local Government of Quezon City, G.R. No. 202690, June 5, 2013,
697 SCRA 621, 631.
19
Rollo, p. 67.
20
Land Bank of the Philippines v. Rivera, G.R. No. 182431, February 27, 2013,
692 SCRA 148, 153, citing Land Bank of the Philippines v. Celada, 515 Phil.
467, 484 (2006) citingLand Bank of the Philippines v. Wycoco, 464 Phil. 83,
100 (2004), further citing Reyes v. National Housing Authority, 443 Phil. 603
(2003).
21
Land Bank of the Philippines v. Escandor, et. al., 647 Phil. 20, 30 (2010),
citing Land Bank of the Philippines v. Celada, 515 Phil. 467, 484 (2006); 479
SCRA 495, 512; see also Apo Fruits Corporation and Hijo Plantation, Inc. v.
Court of Appeals and Land Bank of the Philippines, 622 Phil. 215, 238 (2009).
22
G.R. No. 203039, September 11, 2013, 705 SCRA 650.
23
Republic v. Bank of the Philippine Islands, supra, at 664-666.� (Citations
omitted; emphasis ours)
24
Fort Bonifacio Development Corporation v. Commissioner of Internal
Revenue, G.R. No. 173425, September 4, 2012, 679 SCRA 566, 586,
citing Fort Bonifacio Development Corporation v. Commissioner of Internal
Revenue, 602 Phil. 100, 123 (2009).
25
Chua v. Court of Appeals, 449 Phil. 25, 50 (2003).
26
Philacor Credit Corporation v. Commissioner of Internal Revenue, G.R. No.
169899, February 6, 2013, 690 SCRA 28, 38, citing BIR Revenue Regulations
No. 9-2000, November 22, 2000.
27
Emphasis ours.
28
http://www.dpwh.gov.ph/pdf/DPWH%20Citizen's%20Charter.pdf. (last
accessed February 12, 2015).
29
DPWH Citizen�s Charter, id., p. 22.cralawlawlibrary
CONCURRING OPINION
LEONEN, J.:
I concur in the result.
Republic Act No. 8974, Section 4 provides in part:chanRoblesvirtualLawlibrary
SEC. 4.� Guidelines for Expropriation Proceedings. - Whenever it is

necessary to acquire real property for the right-of-way, site or location for any
national government infrastructure project through expropriation, the
appropriate implementing agency shall initiate the expropriation proceedings
before the proper court under the following guidelines:
a. Upon the filing of the complaint, and after due notice to the
defendant, the implementing agency shall immediately
pay the owner of the property the amount equivalent to the
sum of (1) one hundred percent (100%) of the value of the
property based on the current relevant zonal valuation of the
Bureau of Internal Revenue (BIR); and (2) the value of the
improvements and/or structures as determined under
Section 7 hereof;
....
Upon compliance with the guidelines abovementioned, the court shall

immediately issue to the implementing agency an order to take possession of
the property and start the implementation of the project.� (Emphasis and
underscoring supplied)cralawlawlibrary
Clearly, the state through the agency causing the taking complies with the
requirements for the issuance of a writ of possession only when it pays the
owner.
Of course, the owner may contest the proffered value by the agency1 or the
power of the agency to exercise eminent domain, the necessity of the taking,
or the public character of the use for which the property is being
condemned.� In such cases, the value required by Section 4(a) will be
deposited with the trial court with jurisdiction over the case.
This case does not present these issues, and I am of the view that the
pronouncements should be limited only to cases where there are no
objections to the taking of the property.
Legal interest, whether in the form of monetary interest (for forbearance) or

compensatory interest (for damages) also does not apply in this case.�
In Sun Life of Canada (Philippines), Inc. v. Sandra Tan Kit,2the two (2) kinds of
interest rates were distinguished.3� Monetary interest rate is determined by
parties that enter into a contract of loan, or any other contract involving the
use or forbearance of money.� Thus, monetary interest represents the cost of
letting another person use or borrow money.� On the other hand,
compensatory interest rates are determined by courts as a penalty or
indemnity for damages in monetary judgments.
There is no showing that the owner was denied payment of the amount
deposited by the Department of Public Works and Highways in accordance
with Republic Act No. 8974.
Furthermore, there is no complaint by the landowner of any delay in

payment.� The property was subject to a writ of possession dated March 27,
2011.
Should there be any delay, I am of the view that the value of the property
should be at the time of the taking, but the actual price paid should be
computed using the formula for present value as of the time of payment.4� In
other words, we compute for replacement value.� Monetary interest or
compensatory interest will not be relevant.
Finally, I agree that documentary stamp taxes are not necessarily for the
account of the seller.� This is especially so in expropriation cases where the
sale is coerced and the owner is unwilling.� I, however, doubt whether the
�Citizen�s Charter� of the Department of Public Works and Highways,
published in its website, should have the effect of a regulation.� At best, it is
evidence that can lead to a finding of estoppel if all the elements of that
equitable defense are alleged and proven by the proper party.
ACCORDINGLY, I concur that the Petition be PARTIALLY GRANTED.� The

Decision dated November 15, 2013 and Order dated March 10, 2014 of the
Regional Trial Court in Civil Case No. 140-V-10 are hereby MODIFIED, in that
the imposition of interest on the payment of just compensation and the award
of consequential damages are deleted.� In addition, respondent
is ORDERED to pay for the capital gains tax due to the transfer of the
expropriated property, while the documentary stamp tax, transfer tax, and
registration fee shall be for the account of petitioner.
Endnotes:
1
Rep. Act No. 8974 (2000), sec. 4, par. 4 states:
�In the event that the owner of the property contests the implementing
agency's proffered value, the court shall determine the just compensation to
be paid the owner within sixty (60) days from the date of filing of the
expropriation case.� When the decision of the court becomes final and
executory, the implementing agency shall pay the owner the difference
between the amount already paid and the just compensation as determined by
the court.�
2
G.R. No. 183272, October 15, 2014 [Per J. Del Castillo, Second Division].
3
Id. at 7. �� Monetary interest refers to the compensation set by the parties
for the use or forbearance of money.�� No such interest shall be due unless
it has been expressly stipulated in writing.� �On the other hand,
compensatory interest refers to the penalty or indemnity for damages imposed
by law or by the courts. ��
4
J. Leonen, Separate Opinion in Heirs of Spouses Domingo Tria Consorcia
Camano Tria v. Land Bank of the Philippines, G.R. No. 170245, July 1, 2013,
700 SCRA 188, 205�209 [Per J. Peralta, Third Division].
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 183360 September 8, 2014
ROLANDO C. DE LA PAZ,* Petitioner,

vs.
L & J DEVELOPMENT COMPANY, Respondent.
DECISION
DEL CASTILLO, J.:
"No interest shall be due unless it has been expressly stipulated in

writing."1
This is a Petition for Review on Certiorari2 assailing the February 27, 2008
Decision3 of the Court of Appeals (CA) in CA-G.R. SP No. 100094, which
reversed and set aside the Decision4 dated April 19, 2007 of the Regional
Trial Court (RTC), Branch 192, Marikina City in Civil Case No. 06-1145-MK.
The said RTC Decision affirmed in all respects the Decision5 dated June
30, 2006 of the Metropolitan Trial Court (MeTC), Branch 75, Marikina City
in Civil Case No. 05-7755, which ordered respondent L & J Development
Company (L&J) to pay petitioner Architect Rolando C. De La Paz (Rolando)
its principal obligation of ₱350,000.00, plus 12% interest per
annumreckoned from the filing of the Complaint until full payment of the
obligation.
Likewise assailed is the CA’s June 6, 2008 Resolution6 which denied

Rolando’s Motion for Reconsideration.
Factual Antecedents
On December 27, 2000, Rolando lent ₱350,000.00 without any security to

L&J, a property developer with Atty. Esteban Salonga (Atty. Salonga) as its
President and General Manager. The loan, with no specified maturity date,
carried a 6% monthly interest, i.e., ₱21,000.00. From December 2000 to
August 2003, L&J paid Rolando a total of ₱576,000.007 representing
interest charges.
As L&J failed to pay despite repeated demands, Rolando filed a

Complaint8 for Collection of Sum of Money with Damages against L&J and
Atty. Salonga in his personal capacity before the MeTC, docketed as Civil
Case No. 05-7755. Rolando alleged, amongothers, that L&J’s debtas of
January 2005, inclusive of the monthly interest, stood at ₱772,000.00; that
the 6% monthly interest was upon Atty. Salonga’s suggestion; and, that the
latter tricked him into parting with his money without the loan transaction
being reduced into writing.
In their Answer,9 L&J and Atty. Salonga denied Rolando’s allegations.

While they acknowledged the loan as a corporate debt, they claimed that
the failure to pay the same was due to a fortuitous event, that is, the
financial difficulties brought about by the economic crisis. They further
argued that Rolando cannot enforce the 6% monthly interest for being
unconscionable and shocking to the morals. Hence, the payments already
made should be applied to the ₱350,000.00 principal loan.
During trial, Rolando testified that he had no communication with Atty.

Salonga prior to the loan transaction but knew him as a lawyer, a son of a
former Senator, and the owner of L&J which developed Brentwood
Subdivision in Antipolo where his associate Nilo Velasco (Nilo) lives. When
Nilo told him that Atty. Salonga and L&J needed money to finish their
projects, heagreed to lend them money. He personally met withAtty.
Salonga and their meeting was cordial.
He narrated that when L&J was in the process of borrowing the

₱350,000.00 from him, it was Arlene San Juan (Arlene), the
secretary/treasurer of L&J, who negotiated the terms and conditions
thereof.She said that the money was to finance L&J’s housing project.
Rolando claimed that it was not he who demanded for the 6% monthly
interest. It was L&J and Atty. Salonga, through Arlene, who insisted on
paying the said interest as they asserted that the loan was only a short-
term one.
Ruling of the Metropolitan Trial Court
The MeTC, in its Decision10 of June 30, 2006, upheld the 6% monthly
interest. In so ruling, it ratiocinated that since L&J agreed thereto and
voluntarily paid the interest at suchrate from 2000 to 2003, it isalready
estopped from impugning the same. Nonetheless, for reasons of equity, the
saidcourt reduced the interest rate to 12% per annumon the remaining
principal obligation of ₱350,000.00. With regard to Rolando’s prayer for
moral damages, the MeTC denied the same as it found no malice or bad
faith on the part ofL&J in not paying the obligation. It likewise relieved Atty.
Salonga of any liability as it found that he merely acted in his official
capacity in obtaining the loan. The MeTC disposed of the case as follows:
WHEREFORE, premises considered, judgment is hereby rendered in favor

of the plaintiff, Arch. Rolando C. Dela Paz, and against the defendant, L & J
Development Co., Inc., as follows:
a) ordering the defendant L & J Development Co., Inc. to pay plaintiff

the amount of Three Hundred Fifty Thousand Pesos (₱350,000.00)
representing the principal obligation, plus interest at the legal rate of
12% per annum to be computed from January 20, 2005, the date of
the filing of the complaint, until the whole obligation is fully paid;
b) ordering the defendant L & J Development Co., Inc. to pay plaintiff

the amount of Five Thousand Pesos (₱5,000.00) as and for
attorney’s fees; and
c) to pay the costs of this suit.
SO ORDERED.11
L&J appealed to the RTC. It asserted in its appeal memorandum12 that

from December 2000 to March 2003, it paid monthly interest of ₱21,000.00
based on the agreed-upon interest rate of 6%monthly and from April 2003
to August 2003, interest paymentsin various amounts.13 The total of interest
payments made amounts to ₱576,000.00 – an amount which is even more
than the principal obligation of ₱350,000.00
L&J insisted that the 6% monthly interest rate is unconscionable and

immoral. Hence, the 12% per annumlegal interest should have been
applied from the time of the constitution of the obligation. At 12% per
annum interest rate, it asserted that the amount of interestit ought to pay
from December 2000 to March 2003 and from April 2003 to August 2003,
only amounts to ₱105,000.00. If this amount is deducted from the total
interest paymentsalready made, which is ₱576,000.00, the amount of
₱471,000.00 appears to have beenpaid over and above what is due.
Applying the rule on compensation, the principal loan of ₱350,000.00
should be set-off against the ₱471,000.00, resulting in the complete
payment of the principal loan.
Unconvinced, the RTC, inits April 19, 2007 Decision,14 affirmed the MeTC
Decision, viz: WHEREFORE, premises considered, the Decision appealed
from is hereby AFFIRMED in all respects, with costs against the appellant.
SO ORDERED.15
Undaunted, L&J went to the CA and echoed its arguments and proposed
computation as proffered before the RTC.
In a Decision16 dated February 27, 2008, the CAreversed and set aside the
RTC Decision. The CA stressed that the parties failedto stipulate in writing
the imposition of interest on the loan. Hence, no interest shall be due
thereon pursuant to Article 1956 of the Civil Code.17 And even if payment of
interest has been stipulated in writing, the 6% monthly interest is still
outrightly illegal and unconscionable because it is contrary to morals, if not
against the law. Being void, this cannot be ratified and may be set up by
the debtor as defense. For these reasons, Rolando cannot collect any
interest even if L&J offered to pay interest. Consequently, he has to return
all the interest payments of ₱576,000.00 to L&J.
Considering further that Rolando and L&J thereby became creditor and
debtor of each other, the CA applied the principle of legal compensation
under Article 1279 of the Civil Code.18 Accordingly, it set off the principal
loan of ₱350,000.00 against the ₱576,000.00 total interest payments
made, leaving an excess of ₱226,000.00, which the CA ordered Rolando to
pay L&J plus interest. Thus:
WHEREFORE, the DECISION DATED APRIL 19, 2007 is REVERSED and

SET ASIDE.
CONSEQUENT TO THE FOREGOING, respondent Rolando C. Dela Paz
is ordered to pay to the petitioner the amount of ₱226,000.00,plus interest
of 12% per annumfrom the finality of this decision.
Costs of suit to be paid by respondent Dela Paz.
SO ORDERED.19
In his Motion for Reconsideration,20 Rolando argued thatthe circumstances

exempt both the application of Article 1956 and of jurisprudence holding
that a 6% monthly interest is unconscionable, unreasonable, and
exorbitant. He alleged that Atty. Salonga, a lawyer, should have taken it
upon himself to have the loan and the stipulated rate of interest
documented but, by way of legal maneuver, Atty. Salonga, whom he fully
trusted and relied upon, tricked him into believing that the undocumented
and uncollateralized loan was withinlegal bounds. Had Atty. Salonga told
him that the stipulated interest should be in writing, he would have readily
assented. Furthermore, Rolando insisted that the 6% monthly interest
ratecould not be unconscionable as in the first place, the interest was not
imposed by the creditor but was in fact offered by the borrower, who also
dictated all the terms of the loan. He stressed that in cases where interest
rates were declared unconscionable, those meant to be protected by such
declaration are helpless borrowers which is not the case here.
Still, the CA denied Rolando’s motion in its Resolution21 of June 6, 2008.
Hence, this Petition.
The Parties’ Arguments
Rolando argues that the 6%monthly interest rateshould not have been
invalidated because Atty. Salonga took advantage of his legal knowledge to
hoodwink him into believing that no document was necessaryto reflect the
interest rate. Moreover, the cases anent unconscionable interest rates that
the CA relied upon involve lenders who imposed the excessive rates,which
are totally different from the case at bench where it is the borrower who
decided on the high interest rate. This case does not fall under a
scenariothat ‘enslaves the borrower or that leads to the hemorrhaging of
his assets’ that the courts seek to prevent.
L&J, in controverting Rolando’s arguments, contends that the interest rate
is subject of negotiation and is agreedupon by both parties, not by the
borrower alone. Furthermore, jurisprudence has nullified interestrates on
loans of 3% per month and higher as these rates are contrary to moralsand
public interest. And while Rolando raises bad faithon Atty. Salonga’s part,
L&J avers thatsuch issue is a question of fact, a matter that cannot be
raised under Rule 45.
Issue
The Court’s determination of whether to uphold the judgment of the CA that

the principal loan is deemed paid isdependent on the validity of the monthly
interest rate imposed. And in determining such validity, the Court must
necessarily delve into matters regarding a) the form of the agreement of
interest under the law and b) the alleged unconscionability of the interest
rate. Our Ruling
The Petition is devoid of merit.
The lack of a written stipulation to pay interest on the loaned amount

disallows a creditor from charging monetary interest.
Under Article 1956 of the Civil Code, no interest shall bedue unless it has
been expressly stipulated in writing. Jurisprudence on the matter also holds
that for interest to be due and payable, two conditions must concur: a)
express stipulation for the payment of interest; and b) the agreement to pay
interest is reduced in writing.
Here, it is undisputed that the parties did not put down in writing their
agreement. Thus, no interest is due. The collection of interest without any
stipulation in writing is prohibited by law.22
But Rolando asserts that his situation deserves an exception to the

application of Article 1956. He blames Atty. Salonga for the lack of a written
document, claiming that said lawyer used his legal knowledge to dupe him.
Rolando thus imputes bad faith on the part of L&J and Atty. Salonga. The
Court, however, finds no deception on the partof L&J and Atty. Salonga.
For one, despite the lack of a document stipulating the payment of interest,
L&J nevertheless devotedly paid interests on the loan. It only stopped when
it suffered from financial difficulties that prevented it from continuously
paying the 6% monthly rate. For another,regardless of Atty. Salonga’s
profession, Rolando who is an architect and an educated man himself
could have been a more reasonably prudent person under the
circumstances. To top it all, he admitted that he had no prior
communication with Atty. Salonga. Despite Atty. Salonga being a complete
stranger, he immediately trusted him and lent his company ₱350,000.00, a
significant amount. Moreover, as the creditor,he could have requested or
required that all the terms and conditions of the loan agreement, which
include the payment of interest, be put down in writing to ensure that he
and L&J are on the same page. Rolando had a choice of not acceding and
to insist that their contract be put in written form as this will favor and
safeguard him as a lender. Unfortunately, he did not. It must be stressed
that "[c]ourts cannot follow one every step of his life and extricate him from
bad bargains, protect him from unwise investments, relieve him from one-
sided contracts,or annul the effects of foolish acts. Courts cannotconstitute
themselves guardians of persons who are not legally incompetent."23
It may be raised that L&J is estopped from questioning the interest rate
considering that it has been paying Rolando interest at such ratefor more
than two and a half years. In fact, in its pleadings before the MeTCand the
RTC, L&J merely prayed for the reduction of interest from 6% monthly to
1% monthly or 12% per annum. However, in Ching v. Nicdao,24 the daily
payments of the debtor to the lender were considered as payment of the
principal amount of the loan because Article 1956 was not complied with.
This was notwithstanding the debtor’s admission that the payments made
were for the interests due. The Court categorically stated therein that
"[e]stoppel cannot give validity to an act that is prohibited by law or one
thatis against public policy."
Even if the payment of interest has been reduced in writing, a 6% monthly

interest rate on a loan is unconscionable, regardless of who between the
parties proposed the rate.
Indeed at present, usury has been legally non-existent in view of the

suspension of the Usury Law25 by Central Bank Circular No. 905 s.
1982.26 Even so, not all interest rates levied upon loans are permitted by
the courts as they have the power to equitably reduce unreasonable
interest rates. In Trade & Investment Development Corporation of the
Philippines v. Roblett Industrial Construction Corporation,27 we said:
While the Court recognizes the right of the parties to enter into contracts
and who are expectedto comply with their terms and obligations, this rule is
not absolute. Stipulated interest rates are illegal if they are unconscionable
and the Court is allowed to temper interest rates when necessary. In
exercising this vested power to determine what is iniquitous and
unconscionable, the Court must consider the circumstances of each case.
What may be iniquitous and unconscionable in onecase, may be just in
another. x x x28
Time and again, it has been ruled 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.29 The Court, however, stresses
that these rates shall be invalidated and shall be reduced only in cases
where the terms of the loans are open-ended, and where the interest rates
are applied for an indefinite period. Hence, the imposition of a specific sum
of ₱40,000.00 a month for six months on a ₱1,000,000.00 loan is not
considered unconscionable.30
In the case at bench, there is no specified period as to the payment of the

loan. Hence, levying 6% monthly or 72% interest per annumis "definitely
outrageous and inordinate."31 The situation that it was the debtor who
insisted on the interest rate will not exempt Rolando from a ruling that the
rate is void. As this Court cited in Asian Cathay Finance and Leasing
Corporation v. Gravador,32 "[t]he 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."33 Indeed, "voluntariness does notmake the stipulation on [an
unconscionable] interest valid."34
As exhaustibly discussed,no monetary interest isdue Rolando pursuant to

Article 1956.1âwphi1 The CA thus correctly adjudged that the excess
interest payments made by L&J should be applied to its principal loan. As
computed by the CA, Rolando is bound to return the excess payment of
₱226,000.00 to L&J following the principle of solutio indebiti.35
However, pursuant to Central Bank Circular No. 799 s. 2013 which took
effect on July 1, 2013,36 the interest imposed by the CA must be
accordingly modified. The ₱226,000.00 which Rolando is ordered to pay
L&J shall earn an interest of 6% per annumfrom the finality of this Decision.
WHEREFORE, the Decision dated February 27, 2008 of the Court of

Appeals in CA-G.R. SP No. 100094 is hereby AFFIRMED with modification
that petitioner Rolando C. De La Paz is ordered to pay respondent L&J
Development Company the amount of ,₱226,000.00, plus interest of 6o/o
per annum from the finality of this Decision until fully paid.
SO ORDERED.

Associate Justice
WE CONCUR:
ANTONIO T. CARPIO**
Associate Justice
ARTURO D. BRION MARTIN S. VILLARAMA, JR.***


Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, I certify that the
conclusions in the above Decision had been reached in consultation before
the case was assigned to the writer of the opinion of the Court's Division.
ANTONIO T. CARPIO
Associate Justice
Acting Chief Justice
Footnotes
* Also spelled as "Dela Paz" in some parts of the records.

** Per Special Order No. 1770 dated August 28, 2014.
*** Per Special Order No. 1767 dated August 27, 2014.
1
CIVIL CODE, Article 1956.
2
Rollo, pp. 10-18
3
CA rollo, pp. 82-89; penned by Associate Justice Lucas P.
Bersamin (now a member of this Court) and concurred in by
Associate Justices Portia Alifio Hormachuelos and Estela M. Perlas-
Bernabe (now also a member of this Court).
4
Id. at 18-26; penned by Judge Geraldine C. Fiel-Macaraig.
5
Id. at 39-43; penned by Judge Alex E. Ruiz.
6
Id. at 106.
7
Id. at 45-46. A total of 30 payments, L & J paid the following:
Date Check No. Amount

12/27/2000 SB 302190 P 21,000.00
1/29/2001 MBTC 435175 21,000.00
3/01/2001 SB 302232 21,000.00
4/30/2001 SB 302296 21,000.00
5/29/2001 SB 302341 21,000.00
6/30/2001 SB 302369 21,000.00
7/30/2001 MBTC 3160280305 21,000.00
8/29/2001 MBTC 3160280332 21,000.00
9/27/2001 MBTC 3160280349 21,000.00
10/29/2001 MBTC 3160280387 21,000.00
11/29/2001 MBTC 3160280421 21,000.00
12/18/2001 MBTC 3160280430 21,000.00
1/29/2002 MBTC 3160280474 21,000.00
2/28/2002 MBTC 3160280501 21,000.00
3/25/2002 MBTC 3160280517 21,000.00
4/29/2002 MBTC 3160280552 21,000.00
5/31/2002 MBTC 3160280588 21,000.00
7/02/2002 MBTC 3160280600 21,000.00
8/06/2002 MBTC 3160280627 21,000.00
8/29/2002 MBTC 3160280648 21,000.00
10/02/2002 MBTC 3160280666 21,000.00
11/12/2002 MBTC 3160280683 21,000.00
1/06/03 21,000.00
1/31/03 21,000.00
3/06/2003 ATB 435323 21,000.00
4/15/2003 16,000.00
5/14/2003 5,000.00
7/04/2003 MBTC 435345 5,000.00
8/04/2003 10,000.00
8/14/2003 15,000.00
Total ₱576,000.00
8
Id. at 28-34.
9
Id. at 35-38.
10
Id. at 39-43.
11
Id. at 43.
12
Id. at 44-53.
13
See note 7.
14
15
Id. at 26.
16
Id. at 82-89.
17
Article 1956. No interest shall be due unless it has been expressly
stipulated in writing.
18
Article 1279. In order that compensation may be proper, it is
necessary:
(1) That each one of the obligors be bound principally, and that
he be at the same time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things

due are consumable, they be of the same kind, and also of the
same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or

controversy, commenced by third persons and communicated
in due time to the debtor.
19
CA rollo, p. 88.
20
Id. at 93-99.
21
Id. at 106.
22
Siga-an v. Villanueva, 596 Phil. 760, 769 (2009).
23
Vales v. Villa, 35 Phil. 769, 788 (1916).
24
G.R. No. 141181, April 27, 2007, 522 SCRA 316, 361.
25
ACT NO. 2655 as amended by Presidential Decree 116.
26
Section 1 states: The rate of interest, including commissions,
premiums, fees and other charges, on a loan or forbearance of any
money, goods, or credits, regardlessof 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.
27
523 Phil. 360 (2006).
28
Id. at 366.
29
Macalinao v. Bank of the Philippine Islands, G.R. No. 175490,
September 17, 2009, 600 SCRA 67, 77, citing Chua v. Timan, G.R.
No. 170452, August 13, 2008, 562 SCRA 146, 149-150.
30
Prisma Construction & Development Corporation v. Menchavez,
G.R. No. 160545, March 9, 2010, 614 SCRA 590, 599.
31
Spouses Solangon v. Salazar, 412 Phil. 816, 823 (2001).
32
G.R. No. 186550, July 5, 2010, 623 SCRA 517.
33
Id. at 524.
34
Menchavez v. Bermudez, G.R. No. 185368, October 11, 2012, 684
SCRA 168, 178.
35
CIVIL CODE, Article 2154. If something is received when there is
no right to demand it, and it was unduly delivered through mistake,
the obligation to return it arises.
36
Issued on June 21, 2013; It provides that the rate ofinterest for the
loan or forbearance of any money, goods or credits and the rate
allowed in judgments, in the absence of an express contract as to
such rate of interest, shall be six percent (6%) per annum.
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 210831 November 26, 2014
SPOUSES TAGUMPAY N. ALBOS and AIDA C. ALBOS, Petitioners,

vs.
SPOUSES NESTOR M. EMBISAN and ILUMINADA A. EMBISAN,
DEPUTY SHERIFF MARINO V. CACHERO, and the REGISTER OF
DEEDS OF QUEZON CITY, Respondents.
DECISION
VELASCO, JR., J.:
Nature of the Case
Before the Court is a Petition for Review on Certiorari under Rule 45 of the
Rules of Court seeking the reversal and the setting aside of the
Decision1 of the Court of Appeals (CA) dated May 29, 2013 and its
Resolution dated January 13, 2014 in CA-G.R. CV No. 93667. Said rulings
upheld the validity of the extra-judicial foreclosure sale over the property
that petitioners, spouses Tagumpay and Aida Albos, mortgaged in favor of
private respondents.
The Facts
On October 17, 1984, petitioners entered into an agreement, denominated

as "Loan with Real Estate Mortgage, "2with respondent spouses Nestor and
Iluminada Embisan (spouses Embisan) in the amount of ₱84,000.00
payable within 90 days with a monthly interest rate of 5%. To secure the
indebtedness, petitioners mortgaged to the spouses Embisan a parcel of
land in Project 3, Quezon City, measuring around 207.6 square meters and
registered under their name, as evidenced by Transfer Certificate Title No.
257697.3
For failure to settle their account upon maturity, petitioner Aida Albos
requested and was given an extension of eleven (11) months, or until
December 17, 1985, within which to pay the loan obligation. However,
when the said deadline came anew, petitioners once again defaulted and
so, on agreement of the parties, another extension of five (5) months, or
until May 17, 1986, was set.
May 17, 1986 came and went but the obligation remained unpaid. Thus,
when the petitioners requested a third extension, as will later be alleged by
the respondent spouses, anadditional eight (8) months was granted on the
condition that the monthly 5% interest from then on, i.e. June 1986
onwards, will be compounded. This stipulation, however, was not reduced
in writing. On February 9, 1987, respondent spouses addressed a letter4 to
petitioners demanding the payment of ₱234,021.90, representing the
unpaid balance and interests from the loan. This was followed, on April 14,
1987, by another letter5 of the same tenor, but this time demanding from
the petitioners the obligation due amounting to ₱258,009.15.
Obviously in a bid to prevent the foreclosure of their mortgaged property,

petitioners paid respondent spouses the sum of ₱44,500.00 on October 2,
1987. The respondent spouses accepted the partial payment of the
principal loan amount owed to them, which, based on the Statement of
Account6 the respondent spouses prepared, by that time, has already
ballooned to ₱296,658.70. As extrapolated from the Statement of Account:
1âwphi1
Month Year Loan Interest Payment Balance
October 1984 84,000.00 84,000.00
November 1984 4,200.00 8,000.00 80,200.00
December 1984 4,200.00 84,400.00
January 1985 4,200.00 4,000.00 84,600.00
February 1985 4,200.00 88,800.00
March 1985 4,200.00 93,000.00
April 1985 4,200.00 97,200.00
May 1985 4,200.00 101,400.00
June 1985 4,200.00 105,600.00
July 1985 4,200.00 109,800.00
August 1985 4,200.00 114,000.00
September 1985 4,200.00 118,200.00
October 1985 4,200.00 122,400.00
November 1985 4,200.00 126,600.00
December 1985 4,200.00 130,800.00
January 1986 4,200.00 135,000.00
February 1986 4,200.00 139,200.00
March 1986 4,200.00 143,400.00
April 1986 4,200.00 147,600.00
May 1986 4,200.00 151,800.00
June 1986 7,590.00 159,390.00
July 1986 7,969.50 167,359.50
August 1986 8,367.98 175,727.45
September 1986 8,786.37 184,513.82
October 1986 9,225.69 192,739.50
November 1986 9,417.50 202,157.00
December 1986 10,107.75 212,264.75
January 1987 10,613.25 222,878.00
February 1987 11,143.90 234,021.90
March 1987 11,701.10 245,723.00
April 1987 12,286.15 258,009.15
May 1987 12,900.45 270,909.60
June 1987 13,545.48 284,455.10
July 1987 14,222.75 298,677.85
August 1987 14,933.90 313,611.75
September 1987 15,680.60 329,292.35
October 1987 44,500.00 284,792.35
Interest for 15 7,119.80 291,912.15
days
Interest for 10 4,746.55 296,658.70
days
Due to petitioners’ failure to settle their indebtedness, respondent spouses

proceeded to extra-judicially foreclose the mortgaged property on October
12, 1987. At the auction sale conducted by the respondent sheriff,
respondent spouses emerged as the highest bidders at ₱330,000.00 and
were later issued a Sheriff’s Certificate of Sale.7
The property was never redeemed, and so the respondent spouses

executed an Affidavit of Consolidation8 over the property on November 23,
1988. The affidavit was subsequently registered with the Registry of Deeds
of Quezon City, consolidating ownership to the spouses Embisan.
Petitioners alleged that afterwards, on February 4, 1989, they were
pressured by the respondent spouses to execute a Contract of Lease9 over
the property wherein the petitioners, as lessees, are obligated to pay the
respondent spouses, as lessors, monthly rent in the amount of ₱2,500.00.
On August 14, 1989, herein petitioners filed a complaint for the annulment
of the Loan with Real Estate Mortgage, Certificate of Sale, Affidavit of
Consolidation, Deed of Final Sale, and Contract of Lease before the
Regional Trial Court of Quezon City (RTC). In their complaint, docketed as
Civil Case No. 89-3246, and later raffled to Branch 99 of the court,
petitioners alleged that the foreclosure sale is void because respondents
only released ₱60,000.00 out of the ₱84,000.00 amount loaned, which has
already been paid. As petitioner Aida Albos testified during trial, she was
able to pay ₱50,000 out of the ₱60,000 principal loan released, and also
₱4,500.00 monthly interests, as evidenced by receipts dated December 19,
1984 and February 9, 1985.10
In their Answer, the spouses Embisan countered that the loan was legally
and validly entered at arms length after a series of meetings and
negotiations; that petitioners agreed to pay compounded interest in
exchange for extending the payment period the third time; that never during
the life of the mortgage did petitioners pay 50,000.00; and, that petitioners,
having defaulted, left the spouses Embisan with no other option except to
extrajudicially foreclose the property security as stipulated in the mortgage.
Ruling of the Trial Court
Following trial, the RTC rendered a Decision11 on December 15, 2008

dismissing the complaint for lack of merit, the dispositive portion of which
reads:
WHEREFORE, in view of the foregoing considerations, the complaint filed

by plaintiff is DISMISSEDfor lack of merit.
Defendants’ counterclaim is denied.
SO ORDERED.
In so doing, the trial court did notgive credence to petitioners’ claim that
only ₱60,000.00 of the loaned amount was released tothem. It also found
that between October 17, 1984 to October 28, 1987, petitioners only paid
the total amount of ₱56,000.00, which is not sufficient to cover both the
principal loan and the accrued interest. In addition, the trial court shrugged
aside petitioners’ contention that they wereforced to affix their signatures in
the adverted Contract of Lease, adding that having signed the lease
agreement, they were estopped from asserting title over the property.
Petitioners filed a Motion for Reconsideration, but the same was denied by
the trial court through a Resolution dated January 13, 2014. Aggrieved,
they elevated the case to the CA.
On appeal, petitioners argued that the imposition by the respondent

spouses of a 5% compounded interest on the loan, without the petitioners’
consent or knowledge, is fraudulent and contrary to public morals.
Respondents, on the other hand, insisted that the compounding of the
interest was agreed upon as a condition for the third and final extension of
time given for the petitioners to make good their promise to pay.
On May 29, 2013, the CA promulgated the assailed Decision, affirming in

toto the ruling of the trial court.1âwphi1 The appellate court held that, under
the circumstances, inasmuch as the request for the third extension––for
another eight months––was made after the expiration of one year and four
months from when the payment first became due, the agreement to
compound the interest was just and reasonable. It added that it was
precisely the petitioners’ repeated non-compliance which prompted the
imposition of a compounded interest rate and, therefore, petitioners could
no longer feign ignorance of its imposition.
Through the challenged Resolution dated January 13, 2014, the CA denied
petitioners’ Motion for Reconsideration.
Hence, the instant petition.
The Issues
Petitioners anchor their plea for the reversal of the assailed Decision on the
following grounds:12
I.
THERE IS NO DOCUMENTARY PROOF TO SHOW THAT THE

PETITIONERS AGREED IN WRITING TO THE IMPOSITION OF THE 5%
COMPOUNDED MONTHLY INTEREST, CONTRARY TO ARTICLE 1956
OF THE CIVIL CODE
II.
THE 5% COMPOUNDED MONTHLY INTEREST UNILATERALLY

IMPOSED BY RESPONDENT EMBISAN ON THE PETITIONERS IS
EXCESSIVE, EXORBITANT, OPPRESSIVE, INIQUITOUS AND
UNCONSCIONABLE, THEREFORE, THE SAME IS VOID FOR BEING
CONTRARY TO LAW AND MORALS
III.
THE FORECLOSURE PROCEEDINGS INSTITUTED BY THE

RESPONDENT SPOUSES EMBISAN SHOULD BE NULLIFIED FOR
BEING BASED ON A WRONG COMPUTATION OF THE OUTSTANDING
LOAN OF THE PETITIONERS WHICH WAS WRONGLY COMPUTED ON
THE BASIS OF A 5% COMPOUNDED MONTHLY INTEREST
Succinctly put, the pivotal issue to be resolved is whether or not the extra-
judicial foreclosure proceedings should be nullified for being based on an
allegedly erroneous computation of the loan’s interest.
Respondent spouses, in their Comment, contend that the issues raised in
the petition are questions of fact that cannot be entertained by this Court;
that parole evidence can be introduced, as was properly appreciated by the
RTC and CA, to ascertain the true intention of the parties on how the
interest on the loan will accrue; and that petitioners’ cause of action is
barred by prescription, counting four (4) years from the original due date of
the loan, which was December 17, 1984.
The Court’s Ruling
The petition is meritorious.
The compounding of interest should be in writing
For academic purposes, We first determine whether or not the stipulation

compounding the interest charged should specifically be indicated in a
written agreement.
We rule in the affirmative.
Article 1956 of the New Civil Code, which refers to monetary interest,
provides:
Article 1956.No interest shall be due unless it has been expressly

stipulated in writing.
As mandated by the foregoing provision, payment of monetary interest

shall be due only if: (1) there was an express stipulation for the payment of
interest; and (2) the agreement for such payment was reduced in writing.
Thus, We have held that collection of interest without any stipulation
thereof in writing is prohibited by law.13
In the case at bar, it is undisputed that the parties have agreed for the loan
to earn 5% monthly interest, the stipulation to that effect put in writing.
When the petitioners defaulted, the period for payment was extended,
carrying over the terms of the original loan agreement, including the 5%
simple interest. However, by the third extension of the loan, respondent
spouses decided to alter the agreement by changing the manner of earning
interest rate, compounding it beginning June 1986. This is apparent from
the Statement of Account prepared by the spouses Embisan themselves.
Given the circumstances, We rule that the first requirement––that there be
an express stipulation for the payment of interest––is not sufficiently
complied with, for purposes of imposing compounded interest on the loan.
The requirement does not only entail reducing in writing the interest rate to
be earned but also the manner of earning the same, if it is to be
compounded. Failure to specify the manner of earning interest, however,
shall not automatically render the stipulation imposing the interest rate void
since it is readily apparent from the contract itself that the parties herein
agreed for the loan to bear interest. Instead, in default of any stipulation on
the manner of earning interest, simple interest shall accrue.
Settled is the rule that ambiguities in a contract are interpreted against the
party that caused the ambiguity. Any ambiguity in a contract whose terms
are susceptible of different interpretations must be read against the party
who drafted it.14 In the extant case, respondent spouses, having imposed,
unilaterally at that, the compounded interest rate, had the correlative duty
of clarifying and reducing in writing how the said interest shall be earned.
Having failed to do so, the silence of the agreement on the manner of
earning interest is a valid argument for prohibiting them from charging
interest at a compounded rate.
Further, by analogy, We have had the occasion to hold that, when a final
money judgment ordered the payment of "legal interest" without mention of
payment of compound interest, a judge who orders payment of compound
interest does so in excess of his authority.15 As held in Philippine American
Accident Insurance v. Flores:16
The judgment which was sought to be executed ordered the payment of

simple "legal interest" only. It said nothing about the payment of compound
interest. Accordingly, when the respondent judge ordered the payment of
compound interest he went beyond the confines of his own judgment which
had been affirmed by the Court of Appeals and which had become final. x x
x Therefore, in default of any unequivocal wording in the contract, the legal
interest stipulated by the parties should be understood to be simple, not
compounded.
Imposing 5% monthly interest, whether compounded or simple, is

unconscionable
Nevertheless, even if there was suchan agreement that interest will be
compounded, We agree with the petitioners that the 5% monthly rate, be it
simple or compounded, written or verbal, is void for being too exorbitant,
thus running afoul of Article 1306 of the New Civil Code, which provides:
Article 1306. The contracting parties may establish such stipulations,

clauses, terms and conditions as they may deem convenient, provided they
are not contrary tolaw, morals, good customs, public order, or public policy.
(emphasis added)
As case law instructs, 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.17
Summarizing the jurisprudential trend towards this direction is the recent

case of Castro v. Tan18 in which We held:
While we agree with petitioners that parties to a loan agreement have wide
latitude to stipulate on any interest ratein view of the Central Bank Circular
No. 905 s. 1982 which suspended the Usury Law ceiling on interest
effective January 1, 1983, it is also worth stressing that interest rates
whenever unconscionable may still be declared illegal. There is certainly
nothing in said circular which 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.
In several cases, we have ruled that stipulations authorizing iniquitous or

unconscionable interests are contrary to morals, if not against the law. In
Medel v. Court of Appeals,19 we annulled a stipulated 5.5% per month or
66% per annum interest on a ₱500,000.00 loan and a 6% per month or
72% per annum interest on a ₱60,000.00 loan, respectively, for being
excessive, iniquitous, unconscionable and exorbitant. In Ruiz v. Court of
Appeals,20 we declared a 3% monthly interest imposed on four separate
loans to be excessive. Inboth cases, the interest rates were reduced to
12% per annum.
In this case, the 5% monthly interest rate, or 60% per annum, compounded
monthly, stipulated in the Kasulatan is even higher than the 3% monthly
interest rate imposed in the Ruiz case. Thus, we similarly hold the 5%
monthly interest to be excessive, iniquitous, unconscionable and exorbitant,
contrary to morals, and the law. It is therefore void ab initio for being
violative of Article 1306 of the Civil Code. With this, and in accord with the
Medel and Ruiz cases, we hold that the Court of Appeals correctly imposed
the legal interest of 12% per annum in place of the excessive interest
stipulated in the Kasulatan. (emphasis added)
As can be gleaned, jurisprudence on the nullity of excessive interest rates

is both clear and consistent. Wefind no cogent reason to deviate therefrom.
As the lender in Castro, respondent spouses herein similarly imposed a 5%
monthly interest in the loan contracted by petitioners. Following the judicial
pronouncement in the said cases, the interest rate so imposed herein is
nullified for being unconscionable. In lieu thereof, a simple interest of 12%
per annum should be imposed.
The foreclosure sale should be Nullified
In view of the above disquisitions, We are constrained to nullify the

foreclosure proceedings with respect to the mortgaged property in this
case, following the doctrine in Heirs of Zoilo and Primitiva Espiritu v.
Landrito.21
In Heirs of Espiritu, the spouses Maximo and Paz Landrito, sometime in

1986, borrowed from the spouses Zoilo and Primitiva Espiritu the amount of
₱350,000.00, secured by a real estatemortgage. Because of the Landritos’
continued inability to pay the loan, the due date for payment was extended
on the condition that the interest that has already accrued shall, from then
on, form part of the principal. As such, after the third extension, the
principal amounted to ₱874,125.00 in only two years. Despite the
extensions, however, the debt remained unpaid, prompting the spouses
Espiritu to foreclose the mortgaged property.
The foreclosure proceeding in Heirs of Espiritu, however, was eventually

nullified by this Court because the Landritos were deprived of the
opportunity to settle the debt, in viewof the overstated amount demanded
from them. As held:
Since the Spouses Landrito, the debtors in this case, were not given an
opportunity to settle their debt, at the correct amount and without the
iniquitous interest imposed, no foreclosure proceedings may be instituted.
A judgment ordering a foreclosure sale is conditioned upon a finding on the
correct amount of the unpaid obligation and the failure of the debtor to pay
the said amount. In this case, it has notyet been shown that the Spouses
Landrito had already failed to pay the correct amount of the debt and,
therefore, a foreclosure sale cannot be conducted in order to answer for the
unpaid debt. x x x
As a result, the subsequent registration of the foreclosure sale cannot

transfer any rights over the mortgaged property to the Spouses Espiritu.
The registration of the foreclosure sale, herein declared invalid, cannot vest
title over the mortgaged property. x x x
Applying Espiritu, the extra-judicial foreclosure of the mortgaged property

dated October 12, 1987 is declarednull, void, and of no legal effect.
WHEREFORE, in view of the foregoing, the petition is GRANTED. The

Decision and Resolution of the Court of Appeals, dated May 29, 2013 and
January 13, 2014, respectively, in CA-G.R. CV No. 93667 are hereby
REVERSED and SET ASIDE. Let a new Decision be entered, the
dispositive portion of which reads:
1. The stipulation in the Loan with Real Estate Mortgage imposing an

interest of 5% monthly is declared void.
2. In view of the nullity of the interest imposed on the loan which

affected the total arrearages upon which foreclosure was based, the
foreclosure of mortgage, Certificate of Sale, Affidavit of Consolidation,
Deed of Final Sale, and Contract of Lease are declared void.
3. The case is remanded to the Regional Trial Court to compute the

current arrearages of petitioners taking into account the partial
payments made by them and the imposition of the simple interest rate
of 12% per annum.
SO ORDERED.

Associate Justice
WE CONCUR:
DIOSDADO M. PERALTA
Associate Justice
MARTIN S. VILLARAMA, JR. BIENVENIDO L. REYES

FRANCIS H. JARDELEZA
Associate Justice
ATTESTATION
Court's Division.

Associate Justice
Chairperson
CERTIFICATION
MARIA LOURDES P.A. SERENO

Chief Justice

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THIRD DIVISION

[G.R. No. 130994. September 18, 2002]

SPOUSES FELIMON and MARIA BARRERA, petitioners, vs. SPOUSES

On December 4, 1990, spouses Felimon and Maria Barrera, petitioners,

WHEREFORE, premises considered, judgment is hereby rendered in favor

1. to return to the plaintiffs the amount of P215,750.00 representing the

3. to pay P20,000.000 as attorneys fees;

4. to pay the costs of the suit.

We also do not agree that the stipulated monthly interest of 5% was to

While we commiserate with the plight of the Barrera spouses, we cannot

The Barreras should, therefore, be required to pay the balance of their

Petitioners filed a motion for reconsideration but was denied.[14]

When the obligation is breached, and it consists in the payment of a sum of

SEBASTIAN SIGA-AN, G.R. No. 173227

Before Us is a Petition[1] for Review on Certiorari under Rule 45 of the

The facts gathered from the records are as follows:

Respondent claimed that sometime in 1992, petitioner approached her

On 31 August 1993, respondent issued a check worth P500,000.00 to

Respondent prayed that the RTC render judgment ordering petitioner

In his answer[10] to the complaint, petitioner denied that he offered a

Subsequently, respondent again asked him to give her a loan. As

Petitioner insisted that there was no overpayment because respondent

After trial, the RTC rendered a Decision on 26 January 2001 holding

The dispositive portion of the RTC Decision reads:

WHEREFORE, in view of the foregoing evidence and in the

(1) Ordering defendant to pay plaintiff the amount

(3) Ordering defendant to pay plaintiff the amount

(4) Ordering defendant to pay plaintiff the amount

(5) Ordering defendant to pay the costs of suit.[14]

Petitioner appealed to the Court of Appeals. On 16 December 2005,

WHEREFORE, the foregoing considered, the instant

THE RTC AND THE COURT OF APPEALS ERRED IN RULING

THE RTC AND THE COURT OF APPEALS ERRED IN

Interest is a compensation fixed by the parties for the use or

Article 1956 of the Civil Code, which refers to monetary

Petitioner presented a handwritten promissory note dated 12

Petitioners reliance on respondents alleged admission in the Batas

There are instances in which an interest may be imposed even in the

Further, said compensatory interest is not chargeable in the instant

It was duly established that respondent paid interest to

We shall now determine the propriety of the monetary award and

Records show that respondent received a loan amounting

Article 2232 of the Civil Code states that in a quasi-contract, such

Jurisprudence instructs that in awarding attorneys fees, the trial court

We held in Eastern Shipping Lines, Inc. v. Court of Appeals,[45] that

In the present case, petitioners obligation arose from a quasi-contract

WHEREFORE, the Decision of the Court of Appeals in CA-G.R. CV

MA. ALICIA AUSTRIA-MARTINEZ ANTONIO EDUARDO B. NACHURA

TERESITA J. LEONARDO-DE CASTRO

I attest that the conclusions in the above Decision were reached in

G.R. No. 187678 April 10, 2013

SPOUSES IGNACIO F. JUICO and ALICE P. JUICO, Petitioners,

VILLARAMA, JR., J.:

Before us is a petition for review on certiorari under Rule 45 of the 1997

The factual antecedents:

Spouses Ignacio F. Juico and Alice P. Juico (petitioners) obtained a loan

When petitioners failed to pay the monthly amortizations due, respondent

On May 8, 2001, petitioners received8 a demand letter9 dated May 2, 2001

In their Answer,11 petitioners admitted the existence of the debt but

Petitioners thereafter received a demand letter14 dated May 2, 2001 from

On cross-examination, Ms. Yu reiterated that the interest rate changes

On cross-examination, petitioner testified that he is a Doctor of Medicine

WHEREFORE, premises considered, the Complaint is hereby sustained,