G.R. No.
L-49101 October 24, 1983 The factual findings of respondent Court of Appeals being conclusive upon this Court, We hereby adopt the
RAOUL S.V. BONNEVIE and HONESTO V. BONNEVIE, petitioners,
vs.
THE HONORABLE COURT OF APPEALS and THE PHILIPPINE BANK OF COMMERCE, respondents.
Edgardo I. De Leon for petitioners.
Siguion Reyna, Montecillo & Associates for private respondent.
GUERRERO, J:
Petition for review on certiorari seeking the reversal of the decision of the defunct Court of Appeals, now
Intermediate Appellate Court, in CA-G.R. No. 61193-R, entitled "Honesto Bonnevie vs. Philippine Bank of
Commerce, et al.," promulgated August 11, 1978 1 as well as the Resolution denying the motion for
reconsideration.
The complaint filed on January 26, 1971 by petitioner Honesto Bonnevie with the Court of First Instance of Rizal
against respondent Philippine Bank of Commerce sought the annulment of the Deed of Mortgage dated
December 6, 1966 executed in favor of the Philippine Bank of Commerce by the spouses Jose M. Lozano and
Josefa P. Lozano as well as the extrajudicial foreclosure made on September 4, 1968. It alleged among others
that (a) the Deed of Mortgage lacks consideration and (b) the mortgage was executed by one who was not the
owner of the mortgaged property. It further alleged that the property in question was foreclosed pursuant to
Act No. 3135 as amended, without, however, complying with the condition imposed for a valid foreclosure.
Granting the validity of the mortgage and the extrajudicial foreclosure, it finally alleged that respondent Bank
should have accepted petitioner's offer to redeem the property under the principle of equity said justice.
On the other hand, the answer of defendant Bank, now private respondent herein, specifically denied most of
the allegations in the complaint and raised the following affirmative defenses: (a) that the defendant has not
given its consent, much less the requisite written consent, to the sale of the mortgaged property to plaintiff and
the assumption by the latter of the loan secured thereby; (b) that the demand letters and notice of foreclosure
were sent to Jose Lozano at his address; (c) that it was notified for the first time about the alleged sale after it
had foreclosed the Lozano mortgage; (d) that the law on contracts requires defendant's consent before Jose
Lozano can be released from his bilateral agreement with the former and doubly so, before plaintiff may be
substituted for Jose Lozano and Alfonso Lim; (e) that the loan of P75,000.00 which was secured by mortgage,
after two renewals remain unpaid despite countless reminders and demands; of that the property in question
remained registered in the name of Jose M. Lozano in the land records of Rizal and there was no entry, notation
or indication of the alleged sale to plaintiff; (g) that it is an established banking practice that payments against
accounts need not be personally made by the debtor himself; and (h) that it is not true that the mortgage, at
the time of its execution and registration, was without consideration as alleged because the execution and
registration of the securing mortgage, the signing and delivery of the promissory note and the disbursement of
the proceeds of the loan are mere implementation of the basic consensual contract of loan.
After petitioner Honesto V. Bonnevie had rested his case, petitioner Raoul SV Bonnevie filed a motion for
intervention. The intervention was premised on the Deed of Assignment executed by petitioner Honesto
Bonnevie in favor of petitioner Raoul SV Bonnevie covering the rights and interests of petitioner Honesto
Bonnevie over the subject property. The intervention was ultimately granted in order that all issues be resolved
in one proceeding to avoid multiplicity of suits.
On March 29, 1976, the lower court rendered its decision, the dispositive portion of which reads as follows:
WHEREFORE, all the foregoing premises considered, judgment is hereby rendered
dismissing the complaint with costs against the plaintiff and the intervenor.
After the motion for reconsideration of the lower court's decision was denied, petitioners appealed to
respondent Court of Appeals assigning the following errors:
1. The lower court erred in not finding that the real estate mortgage executed by Jose
Lozano was null and void;
2. The lower court erred in not finding that the auction sale decide on August 19, 1968
was null and void;
3. The lower court erred in not allowing the plaintiff and the intervenor to redeem the
property;
4. The lower court erred in not finding that the defendant acted in bad faith; and
5. The lower court erred in dismissing the complaint.
On August 11, 1978, the respondent court promulgated its decision affirming the decision of the lower court,
and on October 3. 1978 denied the motion for reconsideration. Hence, the present petition for review.
facts found the trial court and found by the Court of Appeals to be consistent with the evidence adduced during
trial, to wit:
It is not disputed that spouses Jose M. Lozano and Josefa P. Lozano were the owners of the property
which they mortgaged on December 6, 1966, to secure the payment of the loan in the principal
amount of P75,000.00 they were about to obtain from defendant-appellee Philippine Bank of
Commerce; that on December 8, 1966, executed in favor of plaintiff-appellant the Deed of Sale with
Mortgage ,, for and in consideration of the sum of P100,000.00, P25,000.00 of which amount being
payable to the Lozano spouses upon the execution of the document, and the balance of P75,000.00
being payable to defendant- appellee; that on December 6, 1966, when the mortgage was executed
by the Lozano spouses in favor of defendant-appellee, the loan of P75,000.00 was not yet received
them, as it was on December 12, 1966 when they and their co-maker Alfonso Lim signed the
promissory note for that amount; that from April 28, 1967 to July 12, 1968, plaintiff-appellant made
payments to defendant-appellee on the mortgage in the total amount of P18,944.22; that on May 4,
1968, plaintiff-appellant assigned all his rights under the Deed of Sale with Assumption of Mortgage
to his brother, intervenor Raoul Bonnevie; that on June 10, 1968, defendant-appellee applied for the
foreclosure of the mortgage, and notice of sale was published in the Luzon Weekly Courier on June
30, July 7, and July 14, 1968; that auction sale was conducted on August 19, 1968, and the property
was sold to defendant-appellee for P84,387.00; and that offers from plaintiff-appellant to repurchase
the property failed, and on October 9, 1969, he caused an adverse claim to be annotated on the title
of the property. (Decision of the Court of Appeals, p. 5).
Presented for resolution in this review are the following issues:
I
Whether the real estate mortgage executed by the spouses Lozano in favor of
respondent bank was validly and legally executed.
II
Whether the extrajudicial foreclosure of the said mortgage was validly and legally
effected.
III
Whether petitioners had a right to redeem the foreclosed property.
IV
Granting that petitioners had such a right, whether respondent was justified in refusing
their offers to repurchase the property.
As clearly seen from the foregoing issues raised, petitioners' course of action is three-fold. They primarily attack
the validity of the mortgage executed by the Lozano spouses in favor of respondent Bank. Next, they attack the
validity of the extrajudicial foreclosure and finally, appeal to justice and equity. In attacking the validity of the
deed of mortgage, they contended that when it was executed on December 6, 1966, there was yet no principal
obligation to secure as the loan of P75,000.00 was not received by the Lozano spouses "So much so that in the
absence of a principal obligation, there is want of consideration in the accessory contract, which consequently
impairs its validity and fatally affects its very existence." (Petitioners' Brief, par. 1, p. 7).
This contention is patently devoid of merit. From the recitals of the mortgage deed itself, it is clearly seen that
the mortgage deed was executed for and on condition of the loan granted to the Lozano spouses. The fact that
the latter did not collect from the respondent Bank the consideration of the mortgage on the date it was
executed is immaterial. A contract of loan being a consensual contract, the herein contract of loan was
perfected at the same time the contract of mortgage was executed. The promissory note executed on
December 12, 1966 is only an evidence of indebtedness and does not indicate lack of consideration of the
mortgage at the time of its execution.
Petitioners also argued that granting the validity of the mortgage, the subsequent renewals of the original loan,
using as security the same property which the Lozano spouses had already sold to petitioners, rendered the
mortgage null and void,
This argument failed to consider the provision 2 of the contract of mortgage which prohibits the sale,
disposition of, mortgage and encumbrance of the mortgaged properties, without the written consent of the
mortgagee, as well as the additional proviso that if in spite of said stipulation, the mortgaged property is sold,
the vendee shall assume the mortgage in the terms and conditions under which it is constituted. These
provisions are expressly made part and parcel of the Deed of Sale with Assumption of Mortgage.
Petitioners admit that they did not secure the consent of respondent Bank to the sale with assumption of
mortgage. Coupled with the fact that the sale/assignment was not registered so that the title remained in the
name of the Lozano spouses, insofar as respondent Bank was concerned, the Lozano spouses could rightfully
1
and validly mortgage the property. Respondent Bank had every right to rely on the certificate of title. It was not
bound to go behind the same to look for flaws in the mortgagor's title, the doctrine of innocent purchaser for
value being applicable to an innocent mortgagee for value. (Roxas vs. Dinglasan, 28 SCRA 430; Mallorca vs. De
Ocampo, 32 SCRA 48). Another argument for the respondent Bank is that a mortgage follows the property
whoever the possessor may be and subjects the fulfillment of the obligation for whose security it was
constituted. Finally, it can also be said that petitioners voluntarily assumed the mortgage when they entered
into the Deed of Sale with Assumption of Mortgage. They are, therefore, estopped from impugning its validity
whether on the original loan or renewals thereof.
Petitioners next assail the validity and legality of the extrajudicial foreclosure on the following grounds:
a) petitioners were never notified of the foreclosure sale.
b) The notice of auction sale was not posted for the period required by law.
c) publication of the notice of auction sale in the Luzon Weekly Courier was not in
accordance with law.
The lack of notice of the foreclosure sale on petitioners is a flimsy ground. Respondent Bank not being a party to
the Deed of Sale with Assumption of Mortgage, it can validly claim that it was not aware of the same and hence,
it may not be obliged to notify petitioners. Secondly, petitioner Honesto Bonnevie was not entitled to any
notice because as of May 14, 1968, he had transferred and assigned all his rights and interests over the
property in favor of intervenor Raoul Bonnevie and respondent Bank not likewise informed of the same. For the
same reason, Raoul Bonnevie is not entitled to notice. Most importantly, Act No. 3135 does not require
personal notice on the mortgagor. The requirement on notice is that:
Section 3. Notice shall be given by posting notices of the sale for not less than twenty
days in at least three public places of the municipality or city where the property is
situated, and if such property is worth more than four hundred pesos, such notice shall
also be published once a week for at least three consecutive weeks in a newspaper of
general circulation in the municipality or city
In the case at bar, the notice of sale was published in the Luzon Courier on June 30, July 7 and July 14, 1968 and
notices of the sale were posted for not less than twenty days in at least three (3) public places in the
Municipality where the property is located. Petitioners were thus placed on constructive notice.
The case of Santiago vs. Dionisio, 92 Phil. 495, cited by petitioners is inapplicable because said case involved a
judicial foreclosure and the sale to the vendee of the mortgaged property was duly registered making the
mortgaged privy to the sale.
As regards the claim that the period of publication of the notice of auction sale was not in accordance with law,
namely: once a week for at least three consecutive weeks, the Court of Appeals ruled that the publication of
notice on June 30, July 7 and July 14, 1968 satisfies the publication requirement under Act No. 3135
notwithstanding the fact that June 30 to July 14 is only 14 days. We agree. Act No. 3135 merely requires that
such notice shall be published once a week for at least three consecutive weeks." Such phrase, as interpreted by
this Court in Basa vs. Mercado, 61 Phil. 632, does not mean that notice should be published for three full weeks.
The argument that the publication of the notice in the "Luzon Weekly Courier" was not in accordance with law
as said newspaper is not of general circulation must likewise be disregarded. The affidavit of publication,
executed by the Publisher, business/advertising manager of the Luzon Weekly Courier, stares that it is "a
newspaper of general circulation in ... Rizal, and that the Notice of Sheriff's sale was published in said paper on
June 30, July 7 and July 14, 1968. This constitutes prima facie evidence of compliance with the requisite
publication. Sadang vs. GSIS, 18 SCRA 491).
To be a newspaper of general circulation, it is enough that "it is published for the dissemination of local news
and general information; that it has a bona fide subscription list of paying subscribers; that it is published at
regular intervals." (Basa vs. Mercado, 61 Phil. 632). The newspaper need not have the largest circulation so long
as it is of general circulation. Banta vs. Pacheco, 74 Phil. 67). The testimony of three witnesses that they do read
the Luzon Weekly Courier is no proof that said newspaper is not a newspaper of general circulation in the
province of Rizal.
Whether or not the notice of auction sale was posted for the period required by law is a question of fact. It can
no longer be entertained by this Court. (see Reyes, et al. vs. CA, et al., 107 SCRA 126). Nevertheless, the records
show that copies of said notice were posted in three conspicuous places in the municipality of Pasig, Rizal
namely: the Hall of Justice, the Pasig Municipal Market and Pasig Municipal Hall. In the same manner, copies of
said notice were also posted in the place where the property was located, namely: the Municipal Building of San
Juan, Rizal; the Municipal Market and on Benitez Street. The following statement of Atty. Santiago Pastor, head
of the legal department of respondent bank, namely:
Q How many days were the notices posted in these two places,
if you know?
A We posted them only once in one day. (TSN, p. 45, July 25,
1973)
is not a sufficient countervailing evidence to prove that there was no compliance with the posting requirement
in the absence of proof or even of allegation that the notices were removed before the expiration of the
twenty- day period. A single act of posting (which may even extend beyond the period required by law) satisfies
the requirement of law. The burden of proving that the posting requirement was not complied with is now
shifted to the one who alleges non-compliance.
On the question of whether or not the petitioners had a right to redeem the property, We hold that the Court
of Appeals did not err in ruling that they had no right to redeem. No consent having been secured from
respondent Bank to the sale with assumption of mortgage by petitioners, the latter were not validly substituted
as debtors. In fact, their rights were never recorded and hence, respondent Bank is charged with the obligation
to recognize the right of redemption only of the Lozano spouses. But even granting that as purchaser or
assignee of the property, as the case may be, the petitioners had acquired a right to redeem the property,
petitioners failed to exercise said right within the period granted by law. Thru certificate of sale in favor of
appellee was registered on September 2, 1968 and the one year redemption period expired on September 3,
1969. It was not until September 29, 1969 that petitioner Honesto Bonnevie first wrote respondent and offered
to redeem the property. Moreover, on September 29, 1969, Honesto had at that time already transferred his
rights to intervenor Raoul Bonnevie.
On the question of whether or not respondent Court of Appeals erred in holding that respondent Bank did not
act in bad faith, petitioners rely on Exhibit "B" which is the letter of lose Lozano to respondent Bank dated
December 8, 1966 advising the latter that Honesto Bonnevie was authorized to make payments for the amount
secured by the mortgage on the subject property, to receive acknowledgment of payments, obtain the Release
of the Mortgage after full payment of the obligation and to take delivery of the title of said property. On the
assumption that the letter was received by respondent Bank, a careful reading of the same shows that the
plaintiff was merely authorized to do acts mentioned therein and does not mention that petitioner is the new
owner of the property nor request that all correspondence and notice should be sent to him.
The claim of appellants that the collection of interests on the loan up to July 12, 1968 extends the maturity of
said loan up to said date and accordingly on June 10, 1968 when defendant applied for the foreclosure of the
mortgage, the loan was not yet due and demandable, is totally incorrect and misleading. The undeniable fact is
that the loan matured on December 26, 1967. On June 10, 1968, when respondent Bank applied for foreclosure,
the loan was already six months overdue. Petitioners' payment of interest on July 12, 1968 does not thereby
make the earlier act of respondent Bank inequitous nor does it ipso facto result in the renewal of the loan. In
order that a renewal of a loan may be effected, not only the payment of the accrued interest is necessary but
also the payment of interest for the proposed period of renewal as well. Besides, whether or not a loan may be
renewed does not solely depend on the debtor but more so on the discretion of the bank. Respondent Bank
may not be, therefore, charged of bad faith.
WHEREFORE, the appeal being devoid of merit, the decision of the Court of Appeals is hereby AFFIRMED. Costs
against petitioners.
SO ORDERED.
Aquino, J., concur.
Makasiar (Chairman), Abad Santos and Escolin, JJ., concurs in the result.
Concepcion J J., took no part.
De Castro, J., is on leave.
2
G.R. No. L-17474 October 25, 1962
REPUBLIC OF THE PHILIPPINES, plaintiff-appellee,
vs.
JOSE V. BAGTAS, defendant,
FELICIDAD M. BAGTAS, Administratrix of the Intestate Estate left by the late Jose V. Bagtas, petitioner-
appellant.
D. T. Reyes, Liaison and Associates for petitioner-appellant.
Office of the Solicitor General for plaintiff-appellee.
PADILLA, J.:
The Court of Appeals certified this case to this Court because only questions of law are raised.
On 8 May 1948 Jose V. Bagtas borrowed from the Republic of the Philippines through the Bureau of Animal
Industry three bulls: a Red Sindhi with a book value of P1,176.46, a Bhagnari, of P1,320.56 and a Sahiniwal, of
P744.46, for a period of one year from 8 May 1948 to 7 May 1949 for breeding purposes subject to a
government charge of breeding fee of 10% of the book value of the bulls. Upon the expiration on 7 May 1949 of
the contract, the borrower asked for a renewal for another period of one year. However, the Secretary of
Agriculture and Natural Resources approved a renewal thereof of only one bull for another year from 8 May
1949 to 7 May 1950 and requested the return of the other two. On 25 March 1950 Jose V. Bagtas wrote to the
Director of Animal Industry that he would pay the value of the three bulls. On 17 October 1950 he reiterated his
desire to buy them at a value with a deduction of yearly depreciation to be approved by the Auditor General.
On 19 October 1950 the Director of Animal Industry advised him that the book value of the three bulls could not
be reduced and that they either be returned or their book value paid not later than 31 October 1950. Jose V.
Bagtas failed to pay the book value of the three bulls or to return them. So, on 20 December 1950 in the Court
of First Instance of Manila the Republic of the Philippines commenced an action against him praying that he be
ordered to return the three bulls loaned to him or to pay their book value in the total sum of P3,241.45 and the
unpaid breeding fee in the sum of P199.62, both with interests, and costs; and that other just and equitable
relief be granted in (civil No. 12818).
On 5 July 1951 Jose V. Bagtas, through counsel Navarro, Rosete and Manalo, answered that because of the bad
peace and order situation in Cagayan Valley, particularly in the barrio of Baggao, and of the pending appeal he
had taken to the Secretary of Agriculture and Natural Resources and the President of the Philippines from the
refusal by the Director of Animal Industry to deduct from the book value of the bulls corresponding yearly
depreciation of 8% from the date of acquisition, to which depreciation the Auditor General did not object, he
could not return the animals nor pay their value and prayed for the dismissal of the complaint.
After hearing, on 30 July 1956 the trial court render judgment —
. . . sentencing the latter (defendant) to pay the sum of P3,625.09 the total value of the three bulls
plus the breeding fees in the amount of P626.17 with interest on both sums of (at) the legal rate
from the filing of this complaint and costs.
On 9 October 1958 the plaintiff moved ex parte for a writ of execution which the court granted on 18 October
and issued on 11 November 1958. On 2 December 1958 granted an ex-parte motion filed by the plaintiff on
November 1958 for the appointment of a special sheriff to serve the writ outside Manila. Of this order
appointing a special sheriff, on 6 December 1958, Felicidad M. Bagtas, the surviving spouse of the defendant
Jose Bagtas who died on 23 October 1951 and as administratrix of his estate, was notified. On 7 January 1959
she file a motion alleging that on 26 June 1952 the two bull Sindhi and Bhagnari were returned to the Bureau
Animal of Industry and that sometime in November 1958 the third bull, the Sahiniwal, died from gunshot
wound inflicted during a Huk raid on Hacienda Felicidad Intal, and praying that the writ of execution be quashed
and that a writ of preliminary injunction be issued. On 31 January 1959 the plaintiff objected to her motion. On
6 February 1959 she filed a reply thereto. On the same day, 6 February, the Court denied her motion. Hence,
this appeal certified by the Court of Appeals to this Court as stated at the beginning of this opinion.
It is true that on 26 June 1952 Jose M. Bagtas, Jr., son of the appellant by the late defendant, returned the
Sindhi and Bhagnari bulls to Roman Remorin, Superintendent of the NVB Station, Bureau of Animal Industry,
Bayombong, Nueva Vizcaya, as evidenced by a memorandum receipt signed by the latter (Exhibit 2). That is why
in its objection of 31 January 1959 to the appellant's motion to quash the writ of execution the appellee prays
"that another writ of execution in the sum of P859.53 be issued against the estate of defendant deceased Jose
V. Bagtas." She cannot be held liable for the two bulls which already had been returned to and received by the
appellee.
The appellant contends that the Sahiniwal bull was accidentally killed during a raid by the Huk in November
1953 upon the surrounding barrios of Hacienda Felicidad Intal, Baggao, Cagayan, where the animal was kept,
and that as such death was due to force majeure she is relieved from the duty of returning the bull or paying its
value to the appellee. The contention is without merit. The loan by the appellee to the late defendant Jose V.
Bagtas of the three bulls for breeding purposes for a period of one year from 8 May 1948 to 7 May 1949, later
on renewed for another year as regards one bull, was subject to the payment by the borrower of breeding fee
of 10% of the book value of the bulls. The appellant contends that the contract was commodatum and that, for
that reason, as the appellee retained ownership or title to the bull it should suffer its loss due to force majeure.
A contract of commodatum is essentially gratuitous.1 If the breeding fee be considered a compensation, then
the contract would be a lease of the bull. Under article 1671 of the Civil Code the lessee would be subject to the
responsibilities of a possessor in bad faith, because she had continued possession of the bull after the expiry of
the contract. And even if the contract be commodatum, still the appellant is liable, because article 1942 of the
Civil Code provides that a bailee in a contract of commodatum —
. . . is liable for loss of the things, even if it should be through a fortuitous event:
(2) If he keeps it longer than the period stipulated . . .
(3) If the thing loaned has been delivered with appraisal of its value, unless there is a stipulation
exempting the bailee from responsibility in case of a fortuitous event;
The original period of the loan was from 8 May 1948 to 7 May 1949. The loan of one bull was renewed for
another period of one year to end on 8 May 1950. But the appellant kept and used the bull until November
1953 when during a Huk raid it was killed by stray bullets. Furthermore, when lent and delivered to the
deceased husband of the appellant the bulls had each an appraised book value, to with: the Sindhi, at
P1,176.46, the Bhagnari at P1,320.56 and the Sahiniwal at P744.46. It was not stipulated that in case of loss of
the bull due to fortuitous event the late husband of the appellant would be exempt from liability.
The appellant's contention that the demand or prayer by the appellee for the return of the bull or the payment
of its value being a money claim should be presented or filed in the intestate proceedings of the defendant who
died on 23 October 1951, is not altogether without merit. However, the claim that his civil personality having
ceased to exist the trial court lost jurisdiction over the case against him, is untenable, because section 17 of
Rule 3 of the Rules of Court provides that —
After a party dies and the claim is not thereby extinguished, the court shall order, upon proper
notice, the legal representative of the deceased to appear and to be substituted for the deceased,
within a period of thirty (30) days, or within such time as may be granted. . . .
and after the defendant's death on 23 October 1951 his counsel failed to comply with section 16 of Rule 3
which provides that —
Whenever a party to a pending case dies . . . it shall be the duty of his attorney to inform the court
promptly of such death . . . and to give the name and residence of the executory administrator,
guardian, or other legal representative of the deceased . . . .
The notice by the probate court and its publication in the Voz de Manila that Felicidad M. Bagtas had been issue
letters of administration of the estate of the late Jose Bagtas and that "all persons having claims for monopoly
against the deceased Jose V. Bagtas, arising from contract express or implied, whether the same be due, not
due, or contingent, for funeral expenses and expenses of the last sickness of the said decedent, and judgment
for monopoly against him, to file said claims with the Clerk of this Court at the City Hall Bldg., Highway 54,
Quezon City, within six (6) months from the date of the first publication of this order, serving a copy thereof
upon the aforementioned Felicidad M. Bagtas, the appointed administratrix of the estate of the said deceased,"
is not a notice to the court and the appellee who were to be notified of the defendant's death in accordance
with the above-quoted rule, and there was no reason for such failure to notify, because the attorney who
appeared for the defendant was the same who represented the administratrix in the special proceedings
instituted for the administration and settlement of his estate. The appellee or its attorney or representative
could not be expected to know of the death of the defendant or of the administration proceedings of his estate
instituted in another court that if the attorney for the deceased defendant did not notify the plaintiff or its
attorney of such death as required by the rule.
As the appellant already had returned the two bulls to the appellee, the estate of the late defendant is only
liable for the sum of P859.63, the value of the bull which has not been returned to the appellee, because it was
killed while in the custody of the administratrix of his estate. This is the amount prayed for by the appellee in its
objection on 31 January 1959 to the motion filed on 7 January 1959 by the appellant for the quashing of the
writ of execution.
Special proceedings for the administration and settlement of the estate of the deceased Jose V. Bagtas having
been instituted in the Court of First Instance of Rizal (Q-200), the money judgment rendered in favor of the
appellee cannot be enforced by means of a writ of execution but must be presented to the probate court for
payment by the appellant, the administratrix appointed by the court.
ACCORDINGLY, the writ of execution appealed from is set aside, without pronouncement as to costs.
3
G.R. No. 114398 October 24, 1997 WHEREFORE, the Court holds, that the prosecution has established the guilt of the
accused, beyond reasonable doubt, and therefore, imposes upon the accused, Carmen
Liwanag, an Indeterminate Penalty of SIX (6) YEARS, EIGHT (8) MONTHS AND TWENTY
CARMEN LIWANAG, petitioner,
ONE (21) DAYS OF PRISION CORRECCIONAL TO FOURTEEN (14) YEARS AND EIGHT (8)
vs.
MONTHS OF PRISION MAYOR AS MAXIMUM, AND TO PAY THE COSTS.
THE HON. COURT OF APPEALS and THE PEOPLE OF THE PHILIPPINES, represented by the Solicitor
General, respondents.
The accused is likewise ordered to reimburse the private complainant the sum of
P526,650.00, without subsidiary imprisonment, in case of insolvency.

SO ORDERED.
ROMERO, J.:

Said decision was affirmed with modification by the Court of Appeals in a decision dated November 29, 1993,
Petitioner was charged with the crime of estafa before the Regional Trial Court (RTC), Branch 93, Quezon City, in
the decretal portion of which reads:
an information which reads as follows.

WHEREFORE, in view of the foregoing, the judgment appealed from is hereby affirmed
That on or between the month of May 19, 1988 and August, 1988 in Quezon City,
with the correction of the nomenclature of the penalty which should be: SIX (6) YEARS,
Philippines and within the jurisdiction of this Honorable Court, the said accused, with
EIGHT (8) MONTHS and TWENTY ONE (21) DAYS of prision mayor, as minimum, to
intent of gain, with unfaithfulness, and abuse of confidence, did then and there,
FOURTEEN (14) YEARS and EIGHT (8) MONTHS of reclusion temporal, as maximum. In all
willfully, unlawfully and feloniously defraud one ISIDORA ROSALES, in the following
other respects, the decision is AFFIRMED.
manner, to wit: on the date and in the place aforementioned, said accused received in
trust from the offended party cash money amounting to P536,650.00, Philippine
Currency, with the express obligation involving the duty to act as complainant's agent in SO ORDERED.
purchasing local cigarettes (Philip Morris and Marlboro cigarettes), to resell them to
several stores, to give her commission corresponding to 40% of the profits; and to
Her motion for reconsideration having been denied in the resolution of March 16, 1994, Liwanag filed the
return the aforesaid amount of offended party, but said accused, far from complying her
instant petition, submitting the following assignment of errors:
aforesaid obligation, and once in possession thereof, misapplied, misappropriated and
converted the same to her personal use and benefit, despite repeated demands made
upon her, accused failed and refused and still fails and refuses to deliver and/or return 1. RESPONDENT APPELLATE COURT GRAVELY ERRED IN THE AFFIRMING THE
the same to the damage and prejudice of the said ISIDORA ROSALES, in the CONVICTION OF THE ACCUSED-PETITIONER FOR THE CRIME OF ESTAFA, WHEN CLEARLY
aforementioned amount and in such other amount as may be awarded under the THE CONTRACT THAT EXIST (sic) BETWEEN THE ACCUSED-PETITIONER AND
provision of the Civil Code. COMPLAINANT IS EITHER THAT OF A SIMPLE LOAN OR THAT OF A PARTNERSHIP OR
JOINT VENTURE HENCE THE NON RETURN OF THE MONEY OF THE COMPLAINANT IS
PURELY CIVIL IN NATURE AND NOT CRIMINAL.
CONTRARY TO LAW.

2. RESPONDENT APPELLATE COURT GRAVELY ERRED IN NOT ACQUITTING THE ACCUSED-

The antecedent facts are as follows:
PETITIONER ON GROUNDS OF REASONABLE DOUBT BY APPLYING THE "EQUIPOISE
RULE".
Petitioner Carmen Liwanag (Liwanag) and a certain Thelma Tabligan went to the house of complainant Isidora
Rosales (Rosales) and asked her to join them in the business of buying and selling cigarettes. Convinced of the
Liwanag advances the theory that the intention of the parties was to enter into a contract of partnership,
feasibility of the venture, Rosales readily agreed. Under their agreement, Rosales would give the money needed
wherein Rosales would contribute the funds while she would buy and sell the cigarettes, and later divide the
to buy the cigarettes while Liwanag and Tabligan would act as her agents, with a corresponding 40%
profits between
commission to her if the goods are sold; otherwise the money would be returned to Rosales. Consequently,
them. 1 She also argues that the transaction can also be interpreted as a simple loan, with Rosales lending to her
Rosales gave several cash advances to Liwanag and Tabligan amounting to P633,650.00.
the amount stated on an installment basis.2

During the first two months, Liwanag and Tabligan made periodic visits to Rosales to report on the progress of
The Court of Appeals correctly rejected these pretenses.
the transactions. The visits, however, suddenly stopped, and all efforts by Rosales to obtain information
regarding their business proved futile.
While factual findings of the Court of Appeals are conclusive on the parties and not reviewable by the Supreme
Court, and carry more weight when these affirm the factual findings of the trial court, 3 we deem it more
Alarmed by this development and believing that the amounts she advanced were being misappropriated,
expedient to resolve the instant petition on its merits.
Rosales filed a case of estafa against Liwanag.

Estafa is a crime committed by a person who defrauds another causing him to suffer damages, by means of
After trial on the merits, the trial court rendered a decision dated January 9, 1991, finding Liwanag guilty as
unfaithfulness or abuse of confidence, or of false pretenses of fraudulent acts.4
charged. The dispositive portion of the decision reads thus:

4
From the foregoing, the elements of estafa are present, as follows: (1) that the accused defrauded another by
abuse of confidence or deceit; and (2) that damage or prejudice capable of pecuniary estimation is caused to
the offended party or third party, 5 and it is essential that there be a fiduciary relation between them either in
the form of a trust, commission or administration.6

The receipt signed by Liwanag states thus:

May 19, 1988 Quezon City

Received from Mrs. Isidora P. Rosales the sum of FIVE HUNDRED TWENTY SIX
THOUSAND AND SIX HUNDRED FIFTY PESOS (P526,650.00) Philippine Currency, to
purchase cigarrets (sic) (Philip & Marlboro) to be sold to customers. In the event the said
cigarrets (sic) are not sold, the proceeds of the sale or the said products (shall) be
returned to said Mrs. Isidora P. Rosales the said amount of P526,650.00 or the said
items on or before August 30, 1988.

(
S
G
D

&

T
h
u
m
b
e
d
m
a
r Signed in the presence of:
k
e
d (Sgd) Illegible (Sgd) Doming Z. Baligad
)
The language of the receipt could not be any clearer. It indicates that the money delivered to Liwanag was for a
(
specific purpose, that is, for the purchase of cigarettes, and in the event the cigarettes cannot be sold, the
s
money must be returned to Rosales.
i
c
Thus, even assuming) that a contract of partnership was indeed entered into by and between the parties, we
have ruled that when money or property have been received by a partner for a specific purpose (such as that
obtaining C
A and he later misappropriated it, such partner is guilty of estafa.7
in the instant case)
R
M
Neither can the transaction be considered a loan, since in a contract of loan once the money is received by the
E
debtor, ownership over the same is transferred. 8 Being the owner, the borrower can dispose of it for whatever
N
purpose he may deem proper.
L
I
In the instant petition, however, it is evident that Liwanag could not dispose of the money as she pleased
because it was onlyW delivered to her for a single purpose, namely, for the purchase of cigarettes, and if this was
not possible then Ato return the money to Rosales. Since in this case there was no transfer of ownership of the
money delivered, N Liwanag is liable for conversion under Art. 315, par. l(b) of the Revised Penal Code.

5
WHEREFORE, in view of the foregoing, the appealed decision of the Court of Appeals dated November 29, 1993,
is AFFIRMED. Costs against petitioner.
SO ORDERED.
Melo, Francisco and Panganiban, JJ., concur.
Narvasa, C.J., is on leave.
[G.R. No. 116285. October 19, 2001]
ANTONIO TAN, petitioner, vs. COURT OF APPEALS and the CULTURAL CENTER OF THE
PHILIPPINES, respondents.
DECISION
DE LEON, JR., J.:
Before us is a petition for review of the Decision[1] dated August 31, 1993 and Resolution[2] dated July 13,
1994 of the Court of Appeals affirming the Decision[3] dated May 8, 1991 of the Regional Trial Court (RTC) of
Manila, Branch 27.
The facts are as follows:
On May 14, 1978 and July 6, 1978, petitioner Antonio Tan obtained two (2) loans each in the principal
amount of Two Million Pesos (P2,000,000.00), or in the total principal amount of Four Million Pesos
(P4,000,000.00) from respondent Cultural Center of the Philippines (CCP, for brevity) evidenced by two (2)
promissory notes with maturity dates on May 14, 1979 and July 6, 1979, respectively.Petitioner defaulted but
after a few partial payments he had the loans restructured by respondent CCP, and petitioner accordingly
executed a promissory note (Exhibit A) on August 31, 1979 in the amount of Three Million Four Hundred Eleven
Thousand Four Hundred Twenty-One Pesos and Thirty-Two Centavos (P3,411,421.32) payable in five (5)
installments. Petitioner Tan failed to pay any installment on the said restructured loan of Three Million Four
Hundred Eleven Thousand Four Hundred Twenty-One Pesos and Thirty-Two Centavos (P3,411,421.32), the last
installment falling due on December 31, 1980. In a letter dated January 26, 1982, petitioner requested and
proposed to respondent CCP a mode of paying the restructured loan, i.e., (a) twenty percent (20%) of the
principal amount of the loan upon the respondent giving its conformity to his proposal; and (b) the balance on
the principal obligation payable in thirty-six (36) equal monthly installments until fully paid. On October 20,
1983, petitioner again sent a letter to respondent CCP requesting for a moratorium on his loan obligation until
the following year allegedly due to a substantial deduction in the volume of his business and on account of the
peso devaluation. No favorable response was made to said letters. Instead, respondent CCP, through counsel,
wrote a letter dated May 30, 1984 to the petitioner demanding full payment, within ten (10) days from receipt
of said letter, of the petitioners restructured loan which as of April 30, 1984 amounted to Six Million Eighty-
Eight Thousand Seven Hundred Thirty-Five Pesos and Three Centavos (P6,088,735.03).
On August 29, 1984, respondent CCP filed in the RTC of Manila a complaint for collection of a sum of
money, docketed as Civil Case No. 84-26363, against the petitioner after the latter failed to settle his said
restructured loan obligation. The petitioner interposed the defense that he merely accommodated a friend,
Wilson Lucmen, who allegedly asked for his help to obtain a loan from respondent CCP.Petitioner claimed that
he has not been able to locate Wilson Lucmen. While the case was pending in the trial court, the petitioner filed
a Manifestation wherein he proposed to settle his indebtedness to respondent CCP by proposing to make a
down payment of One Hundred Forty Thousand Pesos (P140,000.00) and to issue twelve (12) checks every
beginning of the year to cover installment payments for one year, and every year thereafter until the balance is
fully paid. However, respondent CCP did not agree to the petitioners proposals and so the trial of the case
ensued.
On May 8, 1991, the trial court rendered a decision, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendant, ordering defendant to
pay plaintiff, the amount of P7,996,314.67, representing defendants outstanding account as of August 28, 1986,
with the corresponding stipulated interest and charges thereof, until fully paid, plus attorneys fees in an
amount equivalent to 25% of said outstanding account, plus P50,000.00, as exemplary damages, plus costs.
Defendants counterclaims are ordered dismissed, for lack of merit.
SO ORDERED.[4]
The trial court gave five (5) reasons in ruling in favor of respondent CCP. First, it gave little weight to the
petitioners contention that the loan was merely for the accommodation of Wilson Lucmen for the reason that
the defense propounded was not credible in itself. Second, assuming, arguendo, that the petitioner did not
personally benefit from the said loan, he should have filed a third party complaint against Wilson Lucmen, the
alleged accommodated party but he did not. Third, for three (3) times the petitioner offered to settle his loan
obligation with respondent CCP. Fourth, petitioner may not avoid his liability to pay his obligation under the
promissory note (Exh. A) which he must comply with in good faith pursuant to Article 1159 of the New Civil
Code. Fifth, petitioner is estopped from denying his liability or loan obligation to the private respondent.
The petitioner appealed the decision of the trial court to the Court of Appeals insofar as it charged
interest, surcharges, attorneys fees and exemplary damages against the petitioner. In his appeal, the petitioner
asked for the reduction of the penalties and charges on his loan obligation. He abandoned his alleged defense in
the trial court that he merely accommodated his friend, Wilson Lucmen, in obtaining the loan, and instead
admitted the validity of the same. On August 31, 1993, the appellate court rendered a decision, the dispositive
portion of which reads:
WHEREFORE, with the foregoing modification, the judgment appealed from is hereby AFFIRMED.
SO ORDERED.[5]
In affirming the decision of the trial court imposing surcharges and interest, the appellate court held
that:
We are unable to accept appellants (petitioners) claim for modification on the basis of alleged partial or
irregular performance, there being none. Appellants offer or tender of payment cannot be deemed as a partial
or irregular performance of the contract, not a single centavo appears to have been paid by the defendant.
However, the appellate court modified the decision of the trial court by deleting the award for
exemplary damages and reducing the amount of awarded attorneys fees to five percent (5%), by ratiocinating
as follows:
Given the circumstances of the case, plus the fact that plaintiff was represented by a government lawyer, We
believe the award of 25% as attorneys fees and P500,000.00 as exemplary damages is out of proportion to the
actual damage caused by the non-performance of the contract and is excessive, unconscionable and iniquitous.
In a Resolution dated July 13, 1994, the appellate court denied the petitioners motion for
reconsideration of the said decision.
6
 Hence, this petition anchored on the following assigned errors:
I supplied)
THE HONORABLE COURT OF APPEALS COMMITTED A MISTAKE IN GIVING ITS IMPRIMATUR
TO THE DECISION OF THE TRIAL COURT WHICH COMPOUNDED INTEREST ON SURCHARGES.
II
THE HONORABLE COURT OF APPEALS ERRED IN NOT SUSPENDING IMPOSITION OF INTEREST
FOR THE PERIOD OF TIME THAT PRIVATE RESPONDENT HAS FAILED TO ASSIST PETITIONER IN
APPLYING FOR RELIEF OF LIABILITY THROUGH THE COMMISSION ON AUDIT AND THE OFFICE
OF THE PRESIDENT.
III
THE HONORABLE COURT OF APPEALS ERRED IN NOT DELETING AWARD OF ATTORNEYS FEES
AND IN REDUCING PENALTIES.
Significantly, the petitioner does not question his liability for his restructured loan under the promissory
note marked Exhibit A. The first question to be resolved in the case at bar is whether there are contractual and
legal bases for the imposition of the penalty, interest on the penalty and attorneys fees.
The petitioner imputes error on the part of the appellate court in not totally eliminating the award of
attorneys fees and in not reducing the penalties considering that the petitioner, contrary to the appellate courts
findings, has allegedly made partial payments on the loan. And if penalty is to be awarded, the petitioner is
asking for the non-imposition of interest on the surcharges inasmuch as the compounding of interest on
surcharges is not provided in the promissory note marked Exhibit A. The petitioner takes exception to the
computation of the private respondent whereby the interest, surcharge and the principal were added together
and that on the total sum interest was imposed. Petitioner also claims that there is no basis in law for the
charging of interest on the surcharges for the reason that the New Civil Code is devoid of any provision allowing
the imposition of interest on surcharges.
We find no merit in the petitioners contention. Article 1226 of the New Civil Code provides that:
In obligations with a penal clause, the penalty shall substitute the indemnity for damages and the payment of
interests in case of non-compliance, if there is no stipulation to the contrary. Nevertheless, damages shall be
paid if the obligor refuses to pay the penalty or is guilty of fraud in the fulfillment of the obligation.
The penalty may be enforced only when it is demandable in accordance with the provisions of this Code.
In the case at bar, the promissory note (Exhibit A) expressly provides for the imposition of both interest
and penalties in case of default on the part of the petitioner in the payment of the subjectrestructured
loan. The pertinent[6] portion of the promissory note (Exhibit A) imposing interest and penalties provides that:
For value received, I/We jointly and severally promise to pay to the CULTURAL CENTER OF THE PHILIPPINES at
its office in Manila, the sum of THREE MILLION FOUR HUNDRED ELEVEN THOUSAND FOUR HUNDRED + PESOS
(P3,411,421.32) Philippine Currency, xxx.
xxx xxx xxx
With interest at the rate of FOURTEEN per cent (14%) per annum from the date hereof until paid. PLUS THREE
PERCENT (3%) SERVICE CHARGE.
In case of non-payment of this note at maturity/on demand or upon default of payment of any portion of it
when due, I/We jointly and severally agree to pay additional penalty charges at the rate of TWO per cent (2%)
per month on the total amount due until paid, payable and computed monthly. Default of payment of this note
or any portion thereof when due shall render all other installments and all existing promissory notes made by us
in favor of the CULTURAL CENTER OF THE PHILIPPINES immediately due and demandable. (Underscoring
xxx xxx xxx
The stipulated fourteen percent (14%) per annum interest charge until full payment of the loan
constitutes the monetary interest on the note and is allowed under Article 1956 of the New Civil Code. [7] On the
other hand, the stipulated two percent (2%) per month penalty is in the form of penalty charge which is
separate and distinct from the monetary interest on the principal of the loan.
Penalty on delinquent loans may take different forms. In Government Service Insurance System v. Court
of Appeals,[8] this Court has ruled that the New Civil Code permits an agreement upon a penalty apart from the
monetary interest. If the parties stipulate this kind of agreement, the penalty does not include the monetary
interest, and as such the two are different and distinct from each other and may be demanded
separately. Quoting Equitable Banking Corp. v. Liwanag,[9] the GSIS case went on to state that such a stipulation
about payment of an additional interest rate partakes of the nature of a penalty clause which is sanctioned by
law, more particularly under Article 2209 of the New Civil Code which provides that:
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.
The penalty charge of two percent (2%) per month in the case at bar began to accrue from the time of
default by the petitioner. There is no doubt that the petitioner is liable for both the stipulated monetary
interest and the stipulated penalty charge. The penalty charge is also called penalty or compensatory
interest. Having clarified the same, the next issue to be resolved is whether interest may accrue on the penalty
or compensatory interest without violating the provisions of Article 1959 of the New Civil Code, which provides
that:
Without prejudice to the provisions of Article 2212, interest due and unpaid shall not earn interest. However,
the contracting parties may by stipulation capitalize the interest due and unpaid, which as added principal, shall
earn new interest.
According to the petitioner, there is no legal basis for the imposition of interest on the penalty charge for
the reason that the law only allows imposition of interest on monetary interest but not the charging of interest
on penalty. He claims that since there is no law that allows imposition of interest on penalties, the penalties
should not earn interest. But as we have already explained, penalty clauses can be in the form of penalty or
compensatory interest. Thus, the compounding of the penalty or compensatory interest is sanctioned by and
allowed pursuant to the above-quoted provision of Article 1959 of the New Civil Code considering that:
First, there is an express stipulation in the promissory note (Exhibit A) permitting the compounding of
interest. The fifth paragraph of the said promissory note provides that: Any interest which may be due if not
paid shall be added to the total amount when due and shall become part thereof, the whole amount to bear
interest at the maximum rate allowed by law.[10] Therefore, any penalty interest not paid, when due, shall earn
the legal interest of twelve percent (12%) per annum,[11] in the absence of express stipulation on the specific
rate of interest, as in the case at bar.
Second, Article 2212 of the New Civil Code provides that Interest due shall earn legal interest from the
time it is judicially demanded, although the obligation may be silent upon this point. In the instant case, interest
likewise began to run on the penalty interest upon the filing of the complaint in court by respondent CCP on
August 29, 1984. Hence, the courts a quo did not err in ruling that the petitioner is bound to pay the interest on
the total amount of the principal, the monetary interest and the penalty interest.
The petitioner seeks the elimination of the compounded interest imposed on the total amount based
allegedly on the case of National Power Corporation v. National Merchandising Corporation,[12]wherein we ruled
that the imposition of interest on the damages from the filing of the complaint is unjust where the litigation was
7
prolonged for twenty-five (25) years through no fault of the defendant.However, the ruling in the said National applying for relief from liability. In this connection, the petitioner referred to the private respondents
Power Corporation (NPC) case is not applicable to the case at bar inasmuch as our ruling on the issue of interest letter[16] dated September 28, 1988 addressed to petitioner which partially reads:
in that NPC case was based on equitable considerations and on the fact that the said case lasted for twenty-five
(25) years through no fault of the defendant. In the case at bar, however, equity cannot be considered
Dear Mr. Tan:
inasmuch as there is a contractual stipulation in the promissory note whereby the petitioner expressly agreed
to the compounding of interest in case of failure on his part to pay the loan at maturity. Inasmuch as the said
stipulation on the compounding of interest has the force of law between the parties and does not appear to be xxx xxx xxx
inequitable or unjust, the said written stipulation should be respected.

The private respondents Statement of Account (marked Exhibits C to C-2)[13] shows the following With reference to your appeal for condonation of interest and surcharge, we wish to inform you that the center
breakdown of the petitioners indebtedness as of August 28, 1986: will assist you in applying for relief of liability through the Commission on Audit and Office of the President xxx.

Principal P2,838,454.68 While your application is being processed and awaiting approval, the center will be accepting your proposed
payment scheme with the downpayment of P160,000.00 and monthly remittances of P60,000.00 xxx.

Interest P 576,167.89
xxx xxx xxx

Surcharge P4,581,692.10 The petitioner alleges that his obligation to pay the interest and surcharge should have been suspended
because the obligation to pay such interest and surcharge has become conditional, that is dependent on a
future and uncertain event which consists of whether the petitioners request for condonation of interest and
P7,996,314.67
surcharge would be recommended by the Commission on Audit and the Office of the President to the House of
Representatives for approval as required under Section 36 of Presidential Decree No. 1445. Since the condition
The said statement of account also shows that the above amounts stated therein are net of the partial has not happened allegedly due to the private respondents reneging on its promise, his liability to pay the
payments amounting to a total of Four Hundred Fifty-Two Thousand Five Hundred Sixty-One Pesos and Forty- interest and surcharge on the loan has not arisen. This is the petitioners contention.
Three Centavos (P452,561.43) which were made during the period from May 13, 1983 to September 30,
1983.[14] The petitioner now seeks the reduction of the penalty due to the said partial payments.The principal It is our view, however, that the running of the interest and surcharge was not suspended by the private
amount of the promissory note (Exhibit A) was Three Million Four Hundred Eleven Thousand Four Hundred respondents promise to assist the petitioners in applying for relief therefrom through the Commission on Audit
Twenty-One Pesos and Thirty-Two Centavos (P3,411,421.32) when the loan was restructured on August 31, and the Office of the President.
1979. As of August 28, 1986, the principal amount of the said restructured loan has been reduced to Two
First, the letter dated September 28, 1988 alleged to have been sent by the respondent CCP to the
Million Eight Hundred Thirty-Eight Thousand Four Hundred Fifty-Four Pesos and Sixty-Eight Centavos
petitioner is not part of the formally offered documentary evidence of either party in the trial court. That letter
(P2,838,454.68). Thus, petitioner contends that reduction of the penalty is justifiable pursuant to Article 1229 of
cannot be considered evidence pursuant to Rule 132, Section 34 of the Rules of Court which provides that: The
the New Civil Code which provides that: The judge shall equitably reduce the penalty when the principal
court shall consider no evidence which has not been formally offered xxx. Besides, the said letter does not
obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the
contain any categorical agreement on the part of respondent CCP that the payment of the interest and
penalty may also be reduced by the courts if it is iniquitous or unconscionable. Petitioner insists that the penalty
surcharge on the loan is deemed suspended while his appeal for condonation of the interest and surcharge was
should be reduced to ten percent (10%) of the unpaid debt in accordance with Bachrach Motor Company v.
being processed.
Espiritu.[15]
Second, the private respondent correctly asserted that it was the primary responsibility of petitioner to
There appears to be a justification for a reduction of the penalty charge but not necessarily to
inform the Commission on Audit and the Office of the President of his application for condonation of interest
ten percent (10%) of the unpaid balance of the loan as suggested by petitioner. Inasmuch as petitioner has
and surcharge. It was incumbent upon the petitioner to bring his administrative appeal for condonation of
made partial payments which showed his good faith, a reduction of the penalty charge from two percent (2%)
interest and penalty charges to the attention of the said government offices.
per month on the total amount due, compounded monthly, until paid can indeed be justified under the said
provision of Article 1229 of the New Civil Code. On the issue of attorneys fees, the appellate court ruled correctly and justly in reducing the trial courts
award of twenty-five percent (25%) attorneys fees to five percent (5%) of the total amount due.
In other words, we find the continued monthly accrual of the two percent (2%) penalty charge on the
total amount due to be unconscionable inasmuch as the same appeared to have been compounded monthly. WHEREFORE, the assailed Decision of the Court of Appeals is hereby AFFIRMED with MODIFICATION in
that the penalty charge of two percent (2%) per month on the total amount due, compounded monthly, is
Considering petitioners several partial payments and the fact he is liable under the note for the two
hereby reduced to a straight twelve percent (12%) per annum starting from August 28, 1986. With costs against
percent (2%) penalty charge per month on the total amount due, compounded monthly, for twenty-one (21)
the petitioner.
years since his default in 1980, we find it fair and equitable to reduce the penalty charge to a straight twelve
percent (12%) per annum on the total amount due starting August 28, 1986, the date of the last Statement of SO ORDERED.
Account (Exhibits C to C-2). We also took into consideration the offers of the petitioner to enter into a
compromise for the settlement of his debt by presenting proposed payment schemes to respondent CCP. The Bellosillo, (Chairman), Mendoza, Quisumbing, and Buena, JJ., concur.
said offers at compromise also showed his good faith despite difficulty in complying with his loan obligation due
to his financial problems. However, we are not unmindful of the respondents long overdue deprivation of the
use of its money collectible from the petitioner. G.R. No. 141811 November 15, 2001

The petitioner also imputes error on the part of the appellate court for not declaring the suspension of
FIRST METRO INVESTMENT CORPORATION, petitioner,
the running of the interest during that period when the respondent allegedly failed to assist the petitioner in vs.

8
ESTE DEL SOL MOUNTAIN RESERVE, INC., VALENTIN S. DAEZ, JR., MANUEL Q. SALIENTES, MA. ROCIO A. DE
VEGA, ALEXANDER G. ASUNCION, ALBERTO * M. LADORES, VICENTE M. DE VERA, JR., and FELIPE B.
SESE, respondents.
DE LEON, JR., J.:
Before us is a petition for review on certiorari of the Decision1 of the Court of Appeals2 dated November 8, 1999
in CA-G.R. CV No. 53328 reversing the Decision3 of the Regional Trial Court of Pasig City, Branch 159 dated June
2, 1994 in Civil Case No. 39224. Essentially, the Court of Appeals found and declared that the fees provided for
in the Underwriting and Consultancy Agreements executed by and between petitioner First Metro Investment
Corp. (FMIC) and respondent Este del Sol Mountain Reserve, Inc. (Este del Sol) simultaneously with the Loan
Agreement dated January 31, 1978 were mere subterfuges to camouflage the usurious interest charged by
petitioner FMIC.
The facts of the case are as follows:
It appears that on January 31, 1978, petitioner FMIC granted respondent Este del Sol a loan of Seven Million
Three Hundred Eighty-Five Thousand Five Hundred Pesos (P7,385,500.00) to finance the construction and
development of the Este del Sol Mountain Reserve, a sports/resort complex project located at Barrio Puray,
Montalban, Rizal.4
Under the terms of the Loan Agreement, the proceeds of the loan were to be released on staggered basis.
Interest on the loan was pegged at sixteen (16%) percent per annum based on the diminishing balance. The
loan was payable in thirty-six (36) equal and consecutive monthly amortizations to commence at the beginning
of the thirteenth month from the date of the first release in accordance with the Schedule of Amortization.5 In
case of default, an acceleration clause was, among others, provided and the amount due was made subject to a
twenty (20%) percent one-time penalty on the amount due and such amount shall bear interest at the highest
rate permitted by law from the date of default until full payment thereof plus liquidated damages at the rate of
two (2%) percent per month compounded quarterly on the unpaid balance and accrued interests together with
all the penalties, fees, expenses or charges thereon until the unpaid balance is fully paid, plus attorney's fees
equivalent to twenty-five (25%) percent of the sum sought to be recovered, which in no case shall be less than
Twenty Thousand Pesos (P20,000.00) if the services of a lawyer were hired.6
In accordance with the terms of the Loan Agreement, respondent Este del Sol executed several documents7 as
security for payment, among them, (a) a Real Estate Mortgage dated January 31, 1978 over two (2) parcels of
land being utilized as the site of its development project with an area of approximately One Million Twenty-
Eight Thousand and Twenty-Nine (1,028,029) square meters and particularly described in TCT Nos. N-24332 and
N-24356 of the Register of Deeds of Rizal, inclusive of all improvements, as well as all the machineries,
equipment, furnishings and furnitures existing thereon; and (b) individual Continuing Suretyship agreements by
co-respondents Valentin S. Daez, Jr., Manuel Q. Salientes, Ma. Rocio A. De Vega, Alexander G. Asuncion, Alberto
M. Ladores, Vicente M. De Vera, Jr. and Felipe B. Sese, all dated February 2, 1978, to guarantee the payment of
all the obligations of respondent Este del Sol up to the aggregate sum of Seven Million Five Hundred Thousand
Pesos (P7,500,000.00) each.8
Respondent Este del Sol also executed, as provided for by the Loan Agreement, an Underwriting Agreement on
January 31, 1978 whereby petitioner FMIC shall underwrite on a best-efforts basis the public offering of One
Hundred Twenty Thousand (120,000) common shares of respondent Este del Sol's capital stock for a one-time
underwriting fee of Two Hundred Thousand Pesos (P200,000.00). In addition to the underwriting fee, the
Underwriting Agreement provided that for supervising the public offering of the shares, respondent Este del Sol
shall pay petitioner FMIC an annual supervision fee of Two Hundred Thousand Pesos (P200,000.00) per annum
for a period of four (4) consecutive years. The Underwriting Agreement also stipulated for the payment by
respondent Este del Sol to petitioner FMIC a consultancy fee of Three Hundred Thirty-Two Thousand Five
Hundred Pesos (P332,500.00) per annum for a period of four (4) consecutive years. Simultaneous with the
execution of and in accordance with the terms of the Underwriting Agreement, a Consultancy Agreement was
also executed on January 31, 1978 whereby respondent Este del Sol engaged the services of petitioner FMIC for
a fee as consultant to render general consultancy services.9
In three (3) letters all dated February 22, 1978 petitioner billed respondent Este del Sol for the amounts of [a]
Two Hundred Thousand Pesos (P200,000.00) as the underwriting fee of petitioner FMIC in connection with the
public offering of the common shares of stock of respondent Este del Sol; [b] One Million Three Hundred Thirty
Thousand Pesos (P1,330,000.00) as consultancy fee for a period of four (4) years; and [c] Two Hundred
Thousand Pesos (P200,000.00) as supervision fee for the year beginning February, 1978, in accordance to the
Underwriting Agreement.10 The said amounts of fees were deemed paid by respondent Este del Sol to
petitioner FMIC which deducted the same from the first release of the loan.
Since respondent Este del Sol failed to meet the schedule of repayment in accordance with a revised Schedule
of Amortization, it appeared to have incurred a total obligation of Twelve Million Six Hundred Seventy-Nine
Thousand Six Hundred Thirty Pesos and Ninety-Eight Centavos (P12,679,630.98) per the petitioner's Statement
of Account dated June 23, 1980,11 to wit:
STATEMENT OF ACCOUNT OF ESTE DEL SOL MOUNTAIN RESERVE, INC.
AS OF JUNE 23, 1980
PARTICULARS AM
Total amount due as of 11-22-78 per revised amortization schedule dated 1-3-78 P7,999,
Interest on P7,999,631.42 @ 16% p.a. from 11-22-78 to 2-22-79 (92 days) 327,
Balance 8,326,
One time penalty of 20% of the entire unpaid obligations under Section 6.02 (ii) of Loan
Agreement 1,665,
Past due interest under Section 6.02 (iii) of loan Agreement:
@ 19% p.a. from 2-22-79 to 11-30-79 (281 days) 1,481,
@ 21% p.a. from 11-30-79 to 6-23-80 (206 days) 1,200,
Other charges — publication of extra judicial foreclosure of REM made on 5-23-80 & 6-6-80 4,
Total Amount Due and Collectible as of June 23, 1980 P12,679,
Accordingly, petitioner FMIC caused the extrajudicial foreclosure of the real estate mortgage on June 23,
1980.12 At the public auction, petitioner FMIC was the highest bidder of the mortgaged properties for Nine
Million Pesos (P9,000,000.00). The total amount of Three Million One Hundred Eighty-Eight Thousand Six
Hundred Thirty Pesos and Seventy-Five Centavos (P3,188,630.75) was deducted therefrom, that is, for the
publication fee for the publication of the Sheriff's Notice of Sale, Four Thousand Nine Hundred Sixty-Four Pesos
(P4,964.00); for Sheriff's fees for conducting the foreclosure proceedings, Fifteen Thousand Pesos (P15,000.00);
and for Attorney's fees, Three Million One Hundred Sixty-Eight Thousand Six Hundred Sixty-Six Pesos and
Seventy-Five Centavos (P3,168,666.75). The remaining balance of Five Million Eight Hundred Eleven Thousand
Three Hundred Sixty-Nine Pesos and Twenty-Five Centavos (P5,811,369.25) was applied to interests and penalty
charges and partly against the principal, due as of June 23, 1980, thereby leaving a balance of Six Million Eight
Hundred Sixty-Three Thousand Two Hundred Ninety-Seven Pesos and Seventy-Three Centavos (P6,863,297.73)
on the principal amount of the loan as of June 23, 1980.13
Failing to secure from the individual respondents, as sureties of the loan of respondent Este del Sol by virtue of
their continuing surety agreements, the payment of the alleged deficiency balance, despite individual demands
sent to each of them,14 petitioner instituted on November 11, 1980 the instant collection suit15 against the
respondents to collect the alleged deficiency balance of Six Million Eight Hundred Sixty-Three Thousand Two
Hundred Ninety-Seven Pesos and Seventy-Three Centavos (P6,863,297.73) plus interest thereon at twenty-one
(21%) percent per annum from June 24, 1980 until fully paid, and twenty-five (25%) percent thereof as and for
attorney's fees and costs.
9
In their Answer, the respondents sought the dismissal of the case and set up several special and affirmative
defenses, foremost of which is that the Underwriting and Consultancy Agreements executed simultaneously
with and as integral parts of the Loan Agreement and which provided for the payment of Underwriting,
Consultancy and Supervision fees were in reality subterfuges resorted to by petitioner FMIC and imposed upon
respondent Este del Sol to camouflage the usurious interest being charged by petitioner FMIC.16
The petitioner FMIC presented as its witnesses during the trial: Cesar Valenzuela, its former Senior Vice-
President, Felipe Neri, its Vice-President for Marketing, and Dennis Aragon, an Account Manager of its Account
Management Group, as well as documentary evidence. On the other hand, co-respondents Vicente M. De Vera,
Jr. and Valentin S. Daez, Jr., and Perfecto Doroja, former Senior Manager and Assistant Vice-President of FMIC,
testified for the respondents.
After the trial, the trial court rendered its decision in favor of petitioner FMIC, the dispositive portion of which
reads:
WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendants, ordering
defendants jointly and severally to pay to plaintiff the amount of P6,863,297.73 plus 21% interest
per annum, from June 24, 1980, until the entire amount is fully paid, plus the amount equivalent to
25% of the total amount due, as attorney's fees, plus costs of suit.
Defendants' counterclaims are dismissed, for lack of merit.
Finding the decision of the trial court unacceptable, respondents interposed an appeal to the Court of Appeals.
On November 8, 1999, the appellate court reversed the challenged decision of the trial court. The appellate
court found and declared that the fees provided for in the Underwriting and Consultancy Agreements were
mere subterfuges to camouflage the excessively usurious interest charged by the petitioner FMIC on the loan of
respondent Este del Sol; and that the stipulated penalties, liquidated damages and attorney's fees were
"excessive, iniquitous, unconscionable and revolting to the conscience," and declared that in lieu thereof, the
stipulated one time twenty (20%) percent penalty on the amount due and ten (10%) percent of the amount due
as attorney's fees would be reasonable and suffice to compensate petitioner FMIC for those items. Thus, the
appellate court dismissed the complaint as against the individual respondents sureties and ordered petitioner
FMIC to pay or reimburse respondent Este del Sol the amount of Nine Hundred Seventy-One Thousand Pesos
(P971,000.00) representing the difference between what is due to the petitioner and what is due to respondent
Este del Sol, based on the following computation:17
A: DUE TO THE [PETITIONER]
Principal of Loan P7,382,500.00
Add: 20% one-time
Penalty 1,476,500.00
Attorney's fees 900,000.00
Less: Proceeds of foreclosure Sale
Deficiency
B. DUE TO [RESPONDENT ESTE DEL SOL]
Return of usurious interest in the form of:
Underwriting fee P 200,000.00
Supervision fee 200,000.00
Consultancy fee 1,330,000.00
Total amount due Este
The appellee is, therefore, obliged to return to the appellant Este del Sol the difference of
P971,000.00 or (P1,730,000.00 less P759,000.00).
Petitioner moved for reconsideration of the appellate court's adverse decision. However, this was denied in a
Resolution18 dated February 9, 2000 of the appellate court.
Hence, the instant petition anchored on the following assigned errors:19
THE APPELLATE COURT HAS DECIDED QUESTIONS OF SUBSTANCE IN A WAY NOT IN ACCORD WITH LAW AND
WITH APPLICABLE DECISIONS OF THIS HONORABLE COURT WHEN IT:
a] HELD THAT ALLEGEDLY THE UNDERWRITING AND CONSULTANCY AGREEMENTS SHOULD NOT BE
CONSIDERED SEPARATE AND DISTINCT FROM THE LOAN AGREEMENT, AND INSTEAD, THEY SHOULD
BE CONSIDERED AS A SINGLE CONTRACT.
b] HELD THAT THE UNDERWRITING AND CONSULTANCY AGREEMENTS ARE "MERE SUBTERFUGES
TO CAMOUFLAGE THE USURIOUS INTEREST CHARGED" BY THE PETITIONER.
c] REFUSED TO CONSIDER THE TESTIMONIES OF PETITIONER'S WITNESSES ON THE SERVICES
PERFORMED BY PETITIONER.
d] REFUSED TO CONSIDER THE FACT [i] THAT RESPONDENTS HAD WAIVED THEIR RIGHT TO SEEK
RECOVERY OF THE AMOUNTS THEY PAID TO PETITIONER, AND [ii] THAT RESPONDENTS HAD
ADMITTED THE VALIDITY OF THE UNDERWRITING AND CONSULTANCY AGREEMENTS.
e] MADE AN ERRONEOUS COMPUTATION ON SUPPOSEDLY "WHAT IS DUE TO EACH PARTY AFTER
THE FORECLOSURE SALE", AS SHOWN IN PP. 34-35 OF THE ASSAILED DECISION, EVEN GRANTING
JUST FOR THE SAKE OF ARGUMENT THAT THE APPELLATE COURT WAS CORRECT IN STIGMATIZING
[i] THE PROVISIONS OF THE LOAN AGREEMENT THAT REFER TO STIPULATED PENALTIES,
LIQUIDATED DAMAGES AND ATTORNEY'S FEES AS SUPPOSEDLY "EXCESSIVE, INIQUITOUS AND
UNCONSCIONABLE AND REVOLTING TO THE CONSCIENCE" AND [ii] THE UNDERWRITING,
SUPERVISION AND CONSULTANCY SERVICES AGREEMENT AS SUPPOSEDLY "MERE SUBTERFUGES TO
CAMOUFLAGE THE USURIOUS INTEREST CHARGED" UPON THE RESPONDENT ESTE BY PETITIONER.
f] REFUSED TO CONSIDER THE FACT THAT RESPONDENT ESTE, AND THUS THE INDIVIDUAL
RESPONDENTS, ARE STILL OBLIGATED TO THE PETITIONER.
Petitioner essentially assails the factual findings and conclusion of the appellate court that the Underwriting and
Consultancy Agreements were executed to conceal a usurious loan. Inquiry upon the veracity of the appellate
court's factual findings and conclusion is not the function of this Court for the Supreme Court is not a trier of
facts. Only when the factual findings of the trial court and the appellate court are opposed to each other does
this Court exercise its discretion to re-examine the factual findings of both courts and weigh which, after
P9,759,000.00
considering the record of the case, is more in accord with law and justice.
9,000,000.00
After a careful and thorough review of the record including the evidence adduced, we find no reason to depart
P759,000.00
from the findings of the appellate court.
First, there is no merit to petitioner FMIC's contention that Central Bank Circular No. 905 which took effect on
January 1, 1983 and removed the ceiling on interest rates for secured and unsecured loans, regardless of
maturity, should be applied retroactively to a contract executed on January 31, 1978, as in the case at bar, that
is, while the Usury Law was in full force and effect. It is an elementary rule of contracts that the laws, in force at
the time the contract was made and entered into, govern it.20 More significantly, Central Bank Circular No. 905
P1,730,000.00
did not repeal nor in any way amend the Usury Law but simply suspended the latter's effectivity.21 The illegality
of usury is wholly the creature of legislation. A Central Bank Circular cannot repeal a law. Only a law can repeal
another law.22 Thus, retroactive application of a Central Bank Circular cannot, and should not, be presumed.23
10
Second, when a contract between two (2) parties is evidenced by a written instrument, such document is an ostensibly unrelated contract providing for payment by the borrower for the lender's services which are of
ordinarily the best evidence of the terms of the contract. Courts only need to rely on the face of written little value or which are not in fact to be rendered, such as in the instant case.42 In this connection, Article 1957
contracts to determine the intention of the parties. However, this rule is not without exception.24 The form of of the New Civil Code clearly provides that:
the contract is not conclusive for the law will not permit a usurious loan to hide itself behind a legal form. Parol
evidence is admissible to show that a written document though legal in form was in fact a device to cover usury.
Art. 1957. Contracts and stipulations, under any cloak or device whatever, intended to circumvent
If from a construction of the whole transaction it becomes apparent that there exists a corrupt intention to
the laws against usury shall be void. The borrower may recover in accordance with the laws on
violate the Usury Law, the courts should and will permit no scheme, however ingenious, to becloud the crime of
usury.
usury.25

In usurious loans, the entire obligation does not become void because of an agreement for usurious interest; the
In the instant case, several facts and circumstances taken altogether show that the Underwriting and
unpaid principal debt still stands and remains valid but the stipulation as to the usurious interest is void,
Consultancy Agreements were simply cloaks or devices to cover an illegal scheme employed by petitioner FMIC
consequently, the debt is to be considered without stipulation as to the interest.43 The reason for this rule was
to conceal and collect excessively usurious interest, and these are:
adequately explained in the case of Angel Jose Warehousing Co., Inc. v. Chelda Enterprises44 where this Court
held:
a) The Underwriting and Consultancy Agreements are both dated January 31, 1978 which is the same date of
the Loan Agreement.26 Furthermore, under the Underwriting Agreement payment of the supervision and
In simple loan with stipulation of usurious interest, the prestation of the debtor to pay the principal
consultancy fees was set for a period of four (4) years27 to coincide ultimately with the term of the Loan
debt, which is the cause of the contract (Article 1350, Civil Code), is not illegal. The illegality lies only
Agreement.28 This fact means that all the said agreements which were executed simultaneously were set to
as to the prestation to pay the stipulated interest; hence, being separable, the latter only should be
mature or shall remain effective during the same period of time.
deemed void, since it is the only one that is illegal.

b) The Loan Agreement dated January 31, 1978 stipulated for the execution and delivery of an underwriting
Thus, the nullity of the stipulation on the usurious interest does not affect the lender's right to receive back the
agreement29 and specifically mentioned that such underwriting agreement is a condition precedent30 for
principal amount of the loan. With respect to the debtor, the amount paid as interest under a usurious
petitioner FMIC to extend the loan to respondent Este del Sol, indicating and as admitted by petitioner FMIC's
agreement is recoverable by him, since the payment is deemed to have been made under restraint, rather than
employees,31that such Underwriting Agreement is "part and parcel of the Loan Agreement."32
voluntarily.45

c) Respondent Este del Sol was billed by petitioner on February 28, 1978 One Million Three Hundred Thirty
This Court agrees with the factual findings and conclusion of the appellate court, to wit:
Thousand Pesos (P1,330,000.00)33 as consultancy fee despite the clear provision in the Consultancy Agreement
that the said agreement is for Three Hundred Thirty-Two Thousand Five Hundred Pesos (P332,500.00) per
annum for four (4) years and that only the first year consultancy fee shall be due upon signing of the said We find the stipulated penalties, liquidated damages and attorney's fees, excessive, iniquitous and
consultancy agreement.34 unconscionable and revolting to the conscience as they hardly allow the borrower any chance of
survival in case of default. And true enough, ESTE folded up when the appellee extrajudicially
foreclosed on its (ESTE's) development project and literally closed its offices as both the appellee
d) The Underwriting, Supervision and Consultancy fees in the amounts of Two Hundred Thousand Pesos
and ESTE were at the time holding office in the same building. Accordingly, we hold that 20%
(P200,000.00), and one Million Three Hundred Thirty Thousand Pesos (P1,330,000.00), respectively, were billed
penalty on the amount due and 10% of the proceeds of the foreclosure sale as attorney's fees
by petitioner to respondent Este del Sol on February 22, 1978,35 that is, on the same occasion of the first partial
would suffice to compensate the appellee, especially so because there is no clear showing that the
release of the loan in the amount of Two Million Three Hundred Eighty-Two Thousand Five Hundred Pesos
appellee hired the services of counsel to effect the foreclosure, it engaged counsel only when it was
(P2,382,500.00).36 It is from this first partial release of the loan that the said corresponding bills for
seeking the recovery of the alleged deficiency.
Underwriting, Supervision and Constantly fees were conducted and apparently paid, thus, reverting back to
petitioner FMIC the total amount of One Million Seven Hundred Thirty Thousand Pesos (P1,730,000.00) as part
of the amount loaned to respondent Este del Sol.37 Attorney's fees as provided in penal clauses are in the nature of liquidated damages. So long as such stipulation
does not contravene any law, morals, or public order, it is binding upon the parties. Nonetheless, courts are
empowered to reduce the amount of attorney's fees if the same is "iniquitous or unconscionable."46 Articles
e) Petitioner FMIC was in fact unable to organize an underwriting/selling syndicate to sell any share of stock of
1229 and 2227 of the New Civil Code provide that:
respondent Este del Sol and much less to supervise such a syndicate, thus failing to comply with its obligation
under the Underwriting Agreement.38 Besides, there was really no need for an Underwriting Agreement since
respondent Este del Sol had its own licensed marketing arm to sell its shares and all its shares have been sold Art. 1229. The judge shall equitably reduce the penalty when the principal obligation has been
through its marketing arm.39 partly or irregularly complied with by the debtor. Even if there has been no performance, the
penalty may also be reduced by the courts if it is iniquitous or unconscionable.
f) Petitioner FMIC failed to comply with its obligation under the Consultancy Agreement,40 aside from the fact
that there was no need for a Consultancy Agreement, since respondent Este del Sol's officers appeared to be Art. 2227. Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably
more competent to be consultants in the development of the projected sports/resort complex.41 reduced if they are iniquitous or unconscionable.

All the foregoing established facts and circumstances clearly belie the contention of petitioner FMIC that the
Loan, Underwriting and Consultancy Agreements are separate and independent transactions. The Underwriting
and Consultancy Agreements which were executed and delivered contemporaneously with the Loan Agreement
on January 31, 1978 were exacted by petitioner FMIC as essential conditions for the grant of the loan. An
apparently lawful loan is usurious when it is intended that additional compensation for the loan be disguised by
In the case at bar, the amount of Three Million One Hundred Eighty-Eight Thousand Six Hundred Thirty Pesos
and Seventy-Five Centavos (93,188,630.75) for the stipulated attorney's fees equivalent to twenty-five (25%)
percent of the alleged amount due, as of the date of the auction sale on June 23, 1980, is manifestly exorbitant
and unconscionable. Accordingly, we agree with the appellate court that a reduction of the attorney's fees to
ten (10%) percent is appropriate and reasonable under the facts and circumstances of this case.

11
Lastly, there is no merit to petitioner FMIC's contention that the appellate court erred in awarding an amount
allegedly not asked nor prayed for by respondents. Whether the exact amount of the relief was not expressly
prayed for is of no moment for the reason that the relief was plainly warranted by the allegations of the
respondents as well as by the facts as found by the appellate court. A party is entitled to as much relief as the
facts may warrant 47
In view of all the foregoing, the Court is convinced that the appellate court committed no reversible error in its
challenged Decision.
WHEREFORE, the instant petition is hereby DENIED, and the assailed Decision of the Court of Appeals is
AFFIRMED. Costs against petitioner.
SO ORDERED.
Bellosillo, Mendoza, Quisumbing, and Buena, JJ., concur.
[G.R. No. 131622. November 27, 1998]
LETICIA Y. MEDEL DR. RAFAEL MEDEL and SERVANDO FRANCO, petitioners, vs. COURT OF APPEALS, SPOUSES
VERONICA R. GONZALES and DANILO G. GONZALES, JR., doing lending business under the trade
name and style "GONZALES CREDIT ENTERPRISES", respondents.
DECISION
PARDO, J.:
The case before the Court is a petition for review on certiorari, under Rule 45 of the Revised Rules of
Court, seeking to set aside the decision of the Court of Appeals,[1] and its resolution denying
reconsideration,[2] the dispositive portion of which decision reads as follows:
"WHEREFORE, the appealed judgment is hereby MODIFIED such that
defendants are hereby ordered to pay the plaintiff: the sum of P500,000.00, plus 5.5%
per month interest and 2% service charge per annum effective July 23, 1986, plus 1%
per month of the total amount due and demandable as penalty charges effective
August 23, 1986, until the entire amount is fully paid.
"The award to the plaintiff of P50,000.00 as attorney's fees is
affirmed. And so is the imposition of costs against the defendants.
SO ORDERED."[3]
The Court required the respondents to comment on the petition,[4] which was filed on April 3,
1998,[5] and the petitioners to reply thereto, which was filed on May 29, 1998. [6] We now resolve to give due
course to the petition and decide the case.
The facts of the case, as found by the Court of Appeals in its decision, which are considered binding and
conclusive on the parties herein, as the appeal is limited to questions of law, are as follows:
On November 7, 1985, Servando Franco and Leticia Medel (hereafter Servando and Leticia) obtained a
loan from Veronica R. Gonzales (hereafter Veronica), who was engaged in the money lending business under
the name "Gonzales Credit Enterprises", in the amount of P50,000.00, payable in two months. Veronica gave
only the amount of P47,000.00, to the borrowers, as she retained P3,000.00, as advance interest for one month
at 6% per month. Servado and Leticia executed a promissory note for P50,000.00, to evidence the loan, payable
on January 7, 1986.
On November 19, 1985, Servando and Leticia obtained from Veronica another loan in the amount
of P90,000.00, payable in two months, at 6% interest per month. They executed a promissory note to evidence
the loan, maturing on January 19, 1986. They received only P84,000.00, out of the proceeds of the loan.
On maturity of the two promissory notes, the borrowers failed to pay the indebtedness.
On June 11, 1986, Servando and Leticia secured from Veronica still another loan in the amount
of P300,000.00, maturing in one month, secured by a real estate mortgage over a property belonging to Leticia
Makalintal Yaptinchay, who issued a special power of attorney in favor of Leticia Medel, authorizing her to
execute the mortgage. Servando and Leticia executed a promissory note in favor of Veronica to pay the sum
of P300,000.00, after a month, or on July 11, 1986. However, only the sum of P275,000.00, was given to them
out of the proceeds of the loan.
Like the previous loans, Servando and Medel failed to pay the third loan on maturity.
On July 23, 1986, Servando and Leticia with the latter's husband, Dr. Rafael Medel, consolidated all their
previous unpaid loans totaling P440,000.00, and sought from Veronica another loan in the amount
of P60,000.00, bringing their indebtedness to a total of P500,000.00, payable on August 23, 1986. The executed
a promissory note, reading as follows:
"Baliwag, Bulacan July 23, 1986
"Maturity Date August 23, 1986
"P500,000.00
"FOR VALUE RECEIVED, I/WE jointly and severally promise to pay to the order of VERONICA R.
GONZALES doing business in the business style of GONZALES CREDIT ENTERPRISES, Filipino, of
legal age, married to Danilo G. Gonzales, Jr., of Baliwag Bulacan, the sum of PESOS ........ FIVE
HUNDRED THOUSAND ..... (P500,000.00) Philippine
Currency with interest thereonat the rate of 5.5 PER CENT per month plus 2% service charge per a
nnum from date hereof until fully paid according to the amortization schedule contained
herein. (Underscoring supplied)
"Payment will be made in full at the maturity date.
"Should I/WE fail to pay any amortization or portion hereof when due, all the other installments
together with all interest accrued shall immediately be due and payable and I/WE hereby agree to
pay
an additional amount equivalent to one per cent (1%) per month of the amount due and demand
able as penalty charges in the form of liquidated damages until fully paid; and the
further sum ofTWENTY FIVE PER CENT (25%) thereon in full, without
deductions as Attorney's Fee whether actually incurred or not, of the total amount due and
demandable, exclusive of costs and judicial or extra judicial expenses. (Underscoring supplied)
"I, WE further agree that in the event the present rate of interest on loan is increased by law or
the Central Bank of the Philippines, the holder shall have the option to apply and collect the
increased interest charges without notice although the original interest have already been
collected wholly or partially unless the contrary is required by law.
"It is also a special condition of this contract that the parties herein agree that the amount of
peso-obligation under this agreement is based on the present value of peso, and if there be any
change in the value thereof, due to extraordinary inflation or deflation, or any other cause or
12
 reason, then the peso-obligation herein contracted shall be adjusted in accordance with the value
of the peso then prevailing at the time of the complete fulfillment of obligation.
"Demand and notice of dishonor waived. Holder may accept partial payments and grant renewals
of this note or extension of payments, reserving rights against each and all indorsers and all
parties to this note.
"IN CASE OF JUDICIAL Execution of this obligation, or any part of it, the debtors waive all his/their
rights under the provisions of Section 12, Rule 39, of the Revised Rules of Court."
On maturity of the loan, the borrowers failed to pay the indebtedness of P500,000.00, plus interests and
penalties, evidenced by the above-quoted promissory note.
On February 20, 1990, Veronica R. Gonzales, joined by her husband Danilo G. Gonzales, filed with the
Regional Trial Court of Bulacan, Branch 16, at Malolos, Bulacan, a complaint for collection of the full amount of
the loan including interests and other charges.
In his answer to the complaint filed with the trial court on April 5, 1990, defendant Servando alleged that
he did not obtain any loan from the plaintiffs; that it was defendants Leticia and Dr. Rafael Medel who
borrowed from the plaintiffs the sum of P500,000.00, and actually received the amount and benefited
therefrom; that the loan was secured by a real estate mortgage executed in favor of the plaintiffs, and that he
(Servando Franco) signed the promissory note only as a witness.
In their separate answer filed on April 10,1990, defendants Leticia and Rafael Medel alleged that the
loan was the transaction of Leticia Yaptinchay, who executed a mortgage in favor of the plaintiffs over a parcel
of real estate situated in San Juan, Batangas; that the interest rate is excessive at 5.5% per month with
additional service charge of 2% per annum, and penalty charge of 1% per month; that the stipulation for
attorney's fees of 25% ofthe amount due is unconscionable, illegal and excessive, and that substantial payments
made were applied to interest, penalties and other charges.
After due trial, the lower court declared that the due execution and genuineness of the four promissory
notes had been duly proved, and ruled that although the Usury Law had been repealed, the interest charged by
the plaintiffs on the loans was unconscionable and "revolting to the conscience". Hence, the trial court applied
"the provision of the New [Civil] Code" that the "legal rate of interest for loan or forbearance of money, goods
or credit is 12% per annum."[7]
Accordingly, on December 9, 1991, the trial court rendered judgment, the dispositive portion of which
reads as follows:
"WHEREFORE, premises considered, judgment is hereby rendered, as follows:
"1. Ordering the defendants Servando Franco and Leticia Medel, jointly and severally, to pay plaintiffs the
amount of P47,000.00 plus 12% interest per annum from November 7, 1985 and 1% per month as penalty, until
the entire amount is paid in full.
"2. Ordering the defendants Servando Franco and Leticia Y. Medel to plaintiffs, jointly and severally the amount
of P84,000.00 with 12% interest per annum and 1% per cent per month as penalty from November 19,1985
until the whole amount is fully paid;
"3. Ordering the defendants to pay the plaintiffs, jointly and severally, the amount of P285,000.00 plus 12%
interest per annum and 1% per month as penalty from July 11, 1986, until the whole amount is fully paid;
"4. Ordering the defendants to pay plaintiffs, jointly and severally, the amount of P50,000.00 as attorney's fees;
"5. All counterclaims are hereby dismissed.
"With costs against the defendants."[8]
In due time, both plaintiffs and defendants appealed to the Court of Appeals.
In their appeal, plaintiffs-appellants argued that the promissory note, which consolidated all the unpaid
loans of the defendants, is the law that governs the parties. They further argued that Circular No. 416 of the
Central Bank prescribing the rate of interest for loans or forbearance of money, goods or credit at 12% per
annum, applies only in the absence of a stipulation on interest rate, but not when the parties agreed thereon.
The Court of Appeals sustained the plaintiffs-appellants' contention. It ruled that "the Usury Law having
become 'legally inexistent' with the promulgation by the Central Bank in 1982 of Circular No. 905, the lender
and borrower could agree on any interest that may be charged on the loan".[9] The Court of Appeals further
held that "the imposition of 'an additional amount equivalent to 1% per month of the amount due and
demandable as penalty charges in the form of liquidated damages until fully paid' was allowed by law".[10]
Accordingly, on March 21, 1997, the Court of Appeals promulgated it decision reversing that of the
Regional Trial Court, disposing as follows:
"WHEREFORE, the appealed judgment is hereby MODIFIED such that
defendants are hereby ordered to pay the plaintiffs the sum of P500,000.00, plus
5.5% per month interest and 2% service charge per annum effective July 23, 1986,
plus 1% per month of the total amount due and demandable as penalty charges
effective August 24, 1986, until the entire amount is fully paid.
"The award to the plaintiffs of P50,000.00 as attorney's fees is affirmed. And
so is the imposition of costs against the defendants.
"SO OREDERED."[11]
On April 15, 1997, defendants-appellants filed a motion for reconsideration of the said decision. By
resolution dated November 25, 1997, the Court of Appeals denied the motion.[12]
Hence, defendants interposed the present recourse via petition for review on certiorari.[13]
We find the petition meritorious.
Basically, the issue revolves on the validity of the interest rate stipulated upon. Thus, the question
presented is whether or not the stipulated rate of interest at 5.5% per month on the loan in the sum
of P500,000.00, that plaintiffs extended to the defendants is usurious. In other words, is the Usury Law still
effective, or has it been repealed by Central Bank Circular No. 905, adopted on December 22, 1982, pursuant to
its powers under P.D. No. 116, as amended by P.D. No. 1684?
We agree with petitioners that the stipulated rate of interest at 5.5% per month on the P500,000.00 loan
is excessive, iniquitous, unconscionable and exorbitant.13 However, we can not consider the rate "usurious"
because this Court has consistently held that Circulr No. 905 of the Central Bank, adopted on December 22,
1982, has expressly removed the interest ceilings prescribed by the Usury Law[14] and that the Usury Law is now
"legally inexistent".[15]
In Security Bank and Trust Company vs. Regional Trial Court of Makati, Branch 61[16] the Court held that
CB Circular No. 905 "did not repeal nor in anyway amend the Usury Law but simply suspended the latter's
effectivity." Indeed, we have held that "a Central Bank Circular can not repeal a law. Only a law can repeal
another law."[17] In the recent case of Florendo vs. Court of Appeals[18], the Court reiterated the ruling that "by
virtue of CB Circular 905, the Usury Law has been rendered ineffective". "Usury has been legally non-existent in
our jurisdiction. Interest can now be charged as lender and borrower may agree upon."[19]
Nevertheless, we find the interest at 5.5% per month, or 66% per annum, stipulated upon by the parties
in the promissory note iniquitous or unconscionable, and, hence, contrary to morals ("contra bonos mores"), if
not against the law.[20] The stipulation is void.[21] The courts shall reduce equitably liquidated damages, whether
intended as an indemnity or a penalty if they are iniquitous or unconscionable.[22]
13
 Consequently, the Court of Appeals erred in upholding the stipulation of the parties. Rather, we agree
with the trial court that, under the circumstances, interest at 12% per annum, and an additional 1% a month
penalty charge as liquidated damages may be more reasonable.
WHEREFORE, the Court hereby REVERSES and SETS ASIDE the decision of the Court of Appeals
promulgated on March 21, 1997, and its resolution dated November 25, 1997. Instead, we render judgment
REVIVING and AFFIRMING the decision dated December 9, 1991, of the Regional Trial Court of Bulacan, Branch
16, Malolos, Bulacan, in Civil Case No. 134-M-90, involving the same parties.
No pronouncement as to costs in this instance
SO ORDERED.
Narvasa, C.J. (Chairman), Romero, Kapunan, and Purisima, JJ., concur.
G.R. No. L-23559 October 4, 1971
AURELIO G. BRIONES, plaintiff-appellee,
vs.
PRIMITIVO P. CAMMAYO, ET AL., defendants-appellants.
Carlos J. Antiporda for plaintiff-appellee.
Manuel A. Cammayo for defendants-appellants.
DIZON, J.:
On February 22, 1962, Aurelio G. Briones filed an action in the Municipal Court of Manila against Primitivo,
Nicasio, Pedro, Hilario and Artemio, all surnamed Cammayo, to recover from them, jointly and severally, the
amount of P1,500.00, plus damages, attorney's fees and costs of suit. The defendants answered the complaint
with specific denials and the following special defenses and compulsory counterclaim:
...;
By way of —
SPECIAL DEFENSES
Defendants allege:
4. Defendants executed the real estate mortgage, Annex "A" of the complaint, as
security for the loan of P1,200.00 given to defendant Primitivo P. Cammayo upon the
usurious agreement that defendant pays to the plaintiff and that the plaintiff reserve
and secure, as in fact plaintiff reserved and secured himself, out of the alleged loan of
P1,500.00 as interest the sum of P300.00 for one year;
5. That although the mortgage contract, Annex "A" was executed for securing the
payment of P1,500.00 for a period of one year, without interest, the truth and the real
fact is that plaintiff delivered to the defendant Primitivo P. Cammayo only the sum of
P1,200.00 and withheld the sum of P300.00 which was intended as advance interest for
one year;
6. That on account of said loan of P1,200.00, defendant Primitivo P. Cammayo paid to
the plaintiff during the period from October 1955 to July 1956 the total sum of P330.00
which plaintiff, illegally and unlawfully refuse to acknowledge as part payment of the
account but as in interest of the said loan for an extension of another term of one year;
7. That said contract of loan entered into between plaintiff and defendant Primitivo P.
Cammayo is a usurious contract and is contrary to law, morals, good customs, public
order or public policy and is, therefore, in existent and void from the beginning (Art.
1407 Civil Code);
And as —
COMPULSORY COUNTERCLAIM
Defendants replead all their allegations in the preceding paragraphs;
8. That plaintiff, by taking and receiving interest in excess of that allowed by law, with
full intention to violate the law, at the expense of the defendants, committed a flagrant
violation of Act 2655, otherwise known as the Usury Law, causing the defendants
damages and attorney's fees, the amount of which will be proven at the trial;
9. That this is the second time this same case is filed before this court, the first having
been previously filed and docketed in this court as Civil Case No. 75845 (Branch VII) and
the same was dismissed by the Court of First Instance of Manila on July 13, 1961 in Civil
Case No. 43121 (Branch XVII) and for repeatedly bringing this case to the court,
harassing and persecuting defendants in that manner, defendants have suffered mental
anguish and anxiety for which they should be compensated for moral damages.
On September 7, 1962, Briones filed an unverified reply in which he merely denied the allegations of the
counterclaim. Thereupon the defendants moved for the rendition of a summary judgment on the ground that,
upon the record, there was no genuine issue of fact between the parties. The Municipal Court granted the
motion and rendered judgment sentencing the defendants to pay the plaintiff the sum of P1,500.00, with
interests thereon at the legal rate from February 22, 1962, plus the sum of P150.00 as attorney's fees. From this
judgment, the defendants appealed to the Court of First Instance of Manila where, according to the appealed
decision, "defendant has asked for summary judgment and plaintiff has agreed to the same." (Record on Appeal
p. 21). Having found the motion for summary judgment to be in order, the court then, proceeded to render
judgment as follows:
Judgment is, therefore, rendered, ordering Defendant to pay plaintiff the sum of
P1,180.00 with interest thereon at the legal rate from October 16, 1962 until fully paid.
This judgment represents Defendant's debt of P1,500.00 less usurious interest of
P120.00 and the additional sum of P200.00 as attorney's fees or a total deduction of
P320.00. Plaintiff shall pay the costs.
In the present appeal defendants claim that the trial court erred in sentencing them to pay the principal of the
loan notwithstanding its finding that the same was tainted with usury, and erred likewise in not dismissing the
case.
It is not now disputed that the contract of loan in question was tainted with usury. The only questions to be
resolved, therefore, are firstly, whether the creditor is entitled to collect from the debtor the amount
14
representing the principal obligation; secondly, in the affirmative, if he is entitled to collect interests thereon,
and if so, at what rate.
The Usury Law penalizes any person or corporation who, for any loan or renewal thereof or forbearance, shall
collect or receive a higher rate or greater sum or value than is allowed by law, and provides further that, in such
case, the debtor may recover the whole interest, commissions, premiums, penalties and surcharges paid or
delivered, with costs and attorney's fees, in an appropriate action against his creditor, within two (2) years after
such payment or delivery (Section 6, Act 2655, as amended by Acts 3291 and 3998).
Construing the above provision, We held in Go Chioco vs. Martinez, 45 Phil. 256 that even if the contract of loan
is declared usurious the creditor is entitled to collect the money actually loaned and the legal interest due
thereon.
In Gui Jong & Co. vs. Rivera, et al., 45 Phil. 778, this Court likewise declared that, in any event, the debtor in a
usurious contract of loan should pay the creditor the amount which he justly owes him citing in support of this
ruling its previous decisions in Go Chioco Supra, Aguilar vs. Rubiato, et al., 40 Phil. 570, and Delgado vs. Duque
Valgona, 44 Phil. 739.
In all the above cited cases it was recognized and held that under Act 2655 a usurious contract is void; that the
creditor had no right of action to recover the interest in excess of the lawful rate; but that this did not mean
that the debtor may keep the principal received by him as loan — thus unjustly enriching himself to the damage
of the creditor.
Then in Lopez and Javelona vs. El Hogar Filipino, 47 249, We also held that the standing jurisprudence of this
Court on the question under consideration was clearly to the effect that the Usury Law, by its letter and spirit,
did not deprive the lender of his right to recover from the borrower the money actually loaned to and enjoyed
by the latter. This Court went further to say that the Usury Law did not provide for the forfeiture of the capital
in favor of the debtor in usurious contracts, and that while the forfeiture might appear to be convenient as a
drastic measure to eradicate the evil of usury, the legal question involved should not be resolved on the basis of
convenience.
Other cases upholding the same principle are Palileo vs. Cosio, 97 Phil. 919 and Pascua vs. Perez, L-19554,
January 31, 1964, 10 SCRA 199, 200-202. In the latter We expressly held that when a contract is found to be
tainted with usury "the only right of the respondent (creditor) ... was merely to collect the amount of the loan,
plus interest due thereon."
The view has been expressed, however, that the ruling thus consistently adhered to should now be abandoned
because Article 1957 of the new Civil Code — a subsequent law — provides that contracts and stipulations,
under any cloak or device whatever, intended to circumvent the laws against usury, shall be void, and that in
such cases "the power may recover in accordance with the laws on usury." From this the conclusion is drawn
that the whole contract is void and that, therefore, the creditor has no right to recover — not even his capital.
The meaning and scope of our ruling in the cases mentioned heretofore is clearly stated, and the view referred
to in the preceding paragraph is adequately answered, in Angel Jose, etc. vs. Chelda Enterprises, et al. (L-25704,
April 24, 1968). On the question of whether a creditor in a usurious contract may or may not recover the
principal of the loan, and, in the affirmative, whether or not he may also recover interest thereon at the legal
rate, We said the following:
... .
The court found that there remained due from defendants an unpaid principal amount
of P20,287.50; that plaintiff charged usurious interests, of which P1,048.15 had actually
been deducted in advance by plaintiff from the loan; that said amount of P1,048.15
should therefore be deducted from the unpaid principal of P20,287.50, leaving a
balance of P19,247.35 still payable to the plaintiff. Said court held that notwithstanding
the usurious interests charged, plaintiff is not barred from collecting the principal of the
loan or its balance of P19,247.35. Accordingly, it stated in the dispositive portion of the
decision, thus:
WHEREFORE, judgment is hereby rendered, ordering the defendant partnership to pay
to the plaintiff the amount of P19,247.35, with legal interest thereon from May 29, 1964
until paid, plus an additional sum of P2,000.00 as damages for attorney's fee; and, in
case the assets of defendant partnership be insufficient to satisfy this judgment in full,
ordering the defendant David Syjueco to pay to the plaintiff one-half (½) of the
unsatisfied portion of this judgment.
With costs against the defendants.
Appealing directly to Us, defendants raise two questions of law: (1) In a loan with
usurious interest, may the creditor recover the principal of the loan? (2) Should
attorney's fees be awarded in plaintiff's favor?
Great reliance is made by appellants on Art. 1411 of the New Civil Code which states:
ART. 1411. When the nullity proceeds from the illegality of the cause or object of the
contract, and the act constitutes a criminal offense, both parties being in pari delicto,
they shall have no action against each other, and both shall be prosecuted. Moreover,
the provisions of the Penal Code relative to the disposal of effects or instruments of a
crime shall be applicable to the things or the price of the contract.
This rule shall be applicable when only one of the parties is guilty; but the innocent one
may claim what he has given, and shall not be bound to comply with his promise.
Since, according to the appellants, a usurious loan is void due to illegality of cause or
object, the rule of pari delicto expressed in Article 1411, supra, applies, so that neither
party can bring action against each other. Said rule, however, appellants add, is
modified as to the borrower, by express provision of the law (Art. 1413, New Civil Code),
allowing the borrower to recover interest paid in excess of the interest allowed by the
Usury Law. As to the lender, no exception is made to the rule; hence, he cannot recover
on the contract. So — they continue — the New Civil Code provisions must be upheld as
against the Usury Law, under which a loan with usurious interest is not totally void,
because of Article 1961 of the New Civil Code, that: "Usurious contracts shall be
governed by the Usury Law and other special laws, so far as they are not inconsistent
with this Code. (Emphasis ours.) .
We do not agree with such reasoning, Article 1411 of the New Civil Code is not new; it is
the same as Article 1305 of the Old Civil Code. Therefore, said provision is no warrant
for departing from previous interpretation that, as provided in the Usury Law (Act No.
2655, as amended), a loan with usurious interest is not totally void only as to the
interest.
True, as stated in Article 1411 of the New Civil Code, the rule of pari delicto applies
where a contract's nullity proceeds from illegality of the cause or object of said contract.
15
 However, appellants fail to consider that a contract of loan with usurious interest
consists of principal and accessory stipulations; the principal one is to pay the debt; the
accessory stipulation is to pay interest thereon.
And said two stipulations are divisible in the sense that the former can still stand
without the latter. Article 1273, Civil Code, attests to this: "The renunciation of the
principal debt shall extinguish the accessory obligations; but the waiver of the latter
shall leave the former in force."
The question therefore to resolve is whether the illegal terms as to payment of interest
likewise renders a nullity the legal terms as to payments of the principal debt. Article
1420 of the New Civil Code provides in this regard: "In case of a divisible contract, if the
illegal terms can be separated from the legal ones, the latter may be enforced."
In simple loan with stipulation of usurious interest, the prestation of the debtor to pay
the principal debt, which is the cause of the contract (Article 1350, Civil Code), is not
illegal. The illegality lies only as to the prestation to pay the stipulated interest; hence,
being separable, the latter only should be deemed void, since it is the only one that is
illegal.
Neither is there a conflict between the New Civil Code and the Usury Law. Under the
latter, in Sec. 6, any person who for a loan shall have paid a higher rate or greater sum
or value than is allowed in said law, may recover the whole interest paid. The New Civil
Code, in Article 1413 states: "Interest paid in excess of the interest allowed by the usury
laws may be recovered by the debtor, with interest thereon from the date of payment."
Article 1413, in speaking of "interest paid in excess of the interest allowed by the usury
laws" means the whole usurious interest; that is, in a loan of P1,000, with interest of
20% per annum or P200 for one year, if the borrower pays said P200, the whole P200 is
the usurious interest, not just that part thereof in excess of the interest allowed by law.
It is in this case that the law does not allow division. The whole stipulation as to interest
is void, since payment of said interest is illegal. The only change effected, therefore, by
Article 1413, New Civil Code, is not to provide for the recovery of the interest paid in
excess of that allowed by law, which the Usury Law already provided for, but to add that
the same can be recovered "with interest thereon from the date of payment."
The foregoing interpretation is reached with the philosophy of usury legislation in mind;
to discourage stipulations on usurious interest, said stipulations are treated as wholly
void, so that the loan becomes one without stipulation as to payment of interest. It
should not, however, be interpreted to mean forfeiture even of the principal, for this
would unjustly enrich the borrower at the expense of the lender. Furthermore, penal
sanctions are available against a usurious lender, as a further deterrence to usury.
The principal debt remaining without stipulation for payment of interest can thus be
recovered by judicial action. And in case of such demand, and the debtor incurs in delay,
the debt earns interest from the date of the demand (in this case from the filing of the
complaint). Such interest is not due to stipulation, for there was none, the same being
void. Rather, it is due to the general provision of law that in obligations to pay money,
where the debtor incurs in delay, he has to pay interest by way of damages (Art. 2209,
Civil Code). The court a quo therefore, did not err in ordering defendants to pay the
principal debt with interest thereon at the legal rate, from the date of filing of the
complaint.
In answer to the contention that the forfeiture of the principal of the usurious loan is necessary to punish the
usurer, We say this: Under the Usury Law there is already provision for adequate punishment for the usurer
namely, criminal prosecution where, if convicted, he may be sentence to pay a fine of not less than P50 nor
more than P500, or imprisonment of not less than 30 days nor more than one year, or both, in the discretion of
the court. He may further be sentenced to return the entire sum received as interest, with subsidiary
imprisonment in case of non-payment thereof. lt is, of course, to be assumed that this last penalty may be
imposed only if the return of the entire sum received as interest had not yet been the subject of judgment in a
civil action involving the usurious contract of load.
In arriving at the above conclusion We also considered our decision in Mulet vs. The People of the
Philippines (73 Phil. p. 60), but found that the same does not apply to the present case. The facts therein
involved were as follows:
On July 25, 1929, Alejandra Rubillos and Espectacion Rubillos secured from petitioner
Miguel Mulet a loan of P550, payable within 5 years at 30 per cent interest per annum.
In the deed of mortgage executed by the Rubillos as a security; the sum of P1,375 was
made to appear as the capital of the loan. This amount obviously represented the actual
loan of P550 and the total interest of P825 computed at 30 per cent per annum for 5
years. Within four years of following the execution of the mortgage, the debtors made
partial payments aggregating P278.27, on account of interest. Thereafter, the debtors
paid the whole capital of P550, due to petitioner's promise to condone the unpaid
interest upon payment of such capital. But to their surprise, petitioner informed them
that they were still indebted in the sum of P546.73 which represented the balance of
the usurious interest. And in consideration of this amount, petitioner pressed upon the
debtors to execute in October, 1933, in his favor, a deed of sale with pacto de retro of a
parcel of land, in substitution of the original mortgage which was cancelled. From the
date of the execution of the new deed up to 1936, petitioner received, as his share of
the products of the land, the total sum of P480. Prosecuted on November 18, 1936, for
the violation of the Usury Law, petitioner was convicted by the trial court, and on
appeal, the judgment was affirmed by the Court of Appeals. The instant petition for
certiorari is directed at that portion of the decision of the appellate court ordering
petitioner to return to the offended parties the sum of P373.27, representing interests
received by him in excess of that allowed by law.
It was Mulet's claim that, as the amount of P373.27 had been paid more than two years prior to the filing of the
complaint for usury against him, its return could no longer be ordered in accordance with the prescriptive
period provided therefor in Section 6 of the Usury Law. Said amount was made up of the usurious interest
amounting to P278.27 paid to Mulet, in cash, and the sum of P480.00 paid to him in kind, from the total of
which two amounts 14% interest allowed by law — amounting to P385.85 — was deducted. Our decision was
that Mulet should return the amount of P480.00 which represented the value of the produce of the land sold to
him under pacto de retrowhich, with the unpaid balance of the usurious interest, was the consideration of the
transaction — meaning thepacto de retro sale. This Court then said:
... . This last amount is not usurious interest on the capital of the loan but the value of
the produce of the land sold to petitioner under pacto de retro with the unpaid balance
of the usurious interest (P546.73) as the consideration of the transaction. This
consideration, because contrary to law, is illicit, and the contract which results
therefrom, null and void. (Art. 1275, Civil Code). And, under the provisions of article
1305, in connection with article 1303, of the Civil Code, when the nullity of a contract
arises from the illegality of the consideration which in itself constitutes a felony, the
guilty party shall be subject to criminal proceeding while the innocent party may recover
whatever he has given, including the fruits thereof. (emphasis supplied).
It is clear, therefore, that in the Mulet case, the principal of the obligation had been fully paid by the debtor to
the creditor; that the latter was not sentenced to pay it back to the former, and that what this Court declared
recoverable by the debtor were only the usurious interest paid as well as the fruits of the property sold
under pacto de retro.
16
IN VIEW OF THE FOREGOING, the decision, appealed from is modified in the sense that appellee may recover
from appellant the principal of the loan (P1,180.00) only, with interest thereon at the legal rate of 6% per
annum from the date of the filing of the complaint. With costs.
Makalintal, Zaldivar, Teehankee, Villamor and Makasiar, JJ., concur.
Republic of the Philippines
Supreme Court
Manila
SECOND DIVISION
ELEANOR DE LEON LLENADO,
Petitioner,
- versus -
PEOPLE OF THE PHILIPPINES and EDITHA VILLAFLORES,
Respondents.
March 14, 2012
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION
SERENO, J.:
Petitioner was convicted by the Metropolitan Trial Court (MeTC) of Valenzuela City, Branch 82 in
Criminal Case No. 54905 for violating Batasang Pambansa Blg. 22 (B.P. 22) or the Bouncing Checks Law.
It appears that petitioner issued checks to secure the loans obtained from private respondent. Upon
presentment, the checks were dishonored, leading to the filing with the MeTC of criminal cases docketed as
Criminal Case Nos. 54905, 54906, 54907, and 54908 for four (4) counts of violation of B.P. 22.
Subsequently, petitioner settled the loans subject of Criminal Case Nos. 54906, 54907 and 54908
using the funds of the Children of Mary Immaculate College, of which she was president. Private respondent
executed an Affidavit of Desistance for the three cases;[1] thus, only Criminal Case No. 54905 covering a check
worth, ₱1,500,000, proceeded to trial.
The MeTC found that all the following elements of a violation of B.P. 22 were present in the last
check subject of the criminal proceedings: (1) the making, drawing, and issuance of any check to apply for
account or for value; (2) the knowledge of the maker, drawer, or issuer that at the time of issue he or she does
not have sufficient funds in or credit with the drawee bank for the payment of the check in full upon its
presentment; and (3) the drawee banks subsequent dishonor of the check for insufficiency of funds or credit, or
dishonor of the check for the same reason had not the drawer, without any valid cause, ordered the bank to
stop payment.[2] In ruling against petitioner, the MeTC took note that petitioner admitted knowledge of the
checks dishonor, and that the demand letter with Notice of Dishonor mailed to petitioners residence on 10 May
1999 was received by one Alfredo Abierra on 14 May 1999. Thus, petitioner was sentenced to pay ₱1,500,000,
the amount of the dishonored check, and a fine of ₱200,000 with subsidiary imprisonment in case of insolvency.
The MeTC also held the Children of Mary Immaculate College liable for the value of the check for
being the drawer thereof. Finally, the court ordered the payment of attorneys fees and litigation expenses.
G.R. No. 193279
On appeal with the Regional Trial Court (RTC), petitioner alleged that the receipt of the Notice of
Present: Dishonor was not sufficiently proven, and that the notice received by Abierra should not be held to be binding
on her. However, on 26 November 2006, the RTC affirmed the Decision of the MeTC.
CARPIO, J., Chairperson,
BRION,
PEREZ,
Petitioner subsequently filed a Petition for Review with the Court of Appeals (CA) under Rule 42 of
SERENO, and
the Rules of Court. In her Petition, she alleged that the trial court erred in ruling that she had received a notice
REYES, JJ.
of dishonor and in holding the school also liable for the value of the check.
Promulgated:
The CA ruled that the elements of a violation of B.P. 22 were established.[3] However, it held that
the trial court erred in holding Children of Mary Immaculate College civilly liable.
Applying Lunaria v. People,[4] the CA modified the appealed judgment by imposing legal interest of
12% on the amount of the dishonored check. The dispositive portion of the CA Decision states:
WHEREFORE, the appeal is GRANTED in part. The Decision dated November
26, 2006 of the Regional Trial Court, Branch 75 of Valenzuela City, is MODIFIED in that
petitioner is SENTENCED to pay a fine of ₱200,000.00 with subsidiary imprisonment in
case of insolvency. Petitioner is ORDERED to indemnify private complainant in the
amount of ₱1,500,000.00, the amount of the dishonored check, with 12% interest per
annum from the date of judicial demand until the finality of this Decision plus attorneys
fees of ₱20,000.00 and litigation expenses of ₱16,860.00. The civil liability adjudged
against Children of Mary Immaculate College is REVERSED and SET ASIDE.
SO ORDERED.[5]
Petitioner thereafter filed a Motion for Reconsideration.[6] Finding no merit in the motion, it was
denied by the CA through its assailed Resolution[7] promulgated on 10 August 2010.
Hence, this Rule 45 Petition.
17
 Petitioner now alleges that respondent failed to prove that there was actual receipt of the notice of
SPOUSES NELSON R. VILLANUEVA and MYRA P. VILLANUEVA,
dishonor. She also alleges, without expounding, that the ruling of the CA was not in accordance with laws and G.R. No. 163433
jurisprudence. Petitioners,
Present:

It is an established rule that the remedy of appeal through a Petition for Review on Certiorari under VELASCO, JR., J., Chairperson,
- versus -
Rule 45 of the Rules of Court contemplates only questions of law and not questions of fact.[8] The issue in the
case at bar is clearly a question of fact that rightfully belonged to the proper determination of the MeTC, the LEONARDO-DE CASTRO*
RTC and the CA. All these lower courts found the elements of a violation of B.P. 22 present. Petitioner failed to PERALTA,
provide any cogent reason for us to overturn these findings, or to consider this case as an exception to this
general rule. ABAD, and
THE COURT OF APPEALS, PROVIDENT RURAL BANK OF SANTA CRUZ
(LAGUNA), INC., and THE CLERK OF COURT OF THE REGIONAL TRIAL MENDOZA, JJ.
COURT OF LAGUNA AS EX-OFFICIOPROVINCIAL SHERIFF,
However, conforming to prevailing jurisprudence, we find the need to modify the ruling of the CA
with regard to the imposition of interest on the judgment. It has been established that in the absence of Promulgated:
Respondents.
stipulation, the rate of interest shall be 12% per annum to be computed from default, that is, from judicial or
extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.[9] In Ongson v.
People,[10] we held that interest began to run from the time of the extrajudicial demand, as duly proved by the
creditor. Thus, petitioner should also be held liable for the amount of the dishonored check, which is
₱1,500,000, plus 12% legal interest covering the period from the date of the receipt of the demand letter on 14
May 1999 to the finality of this Decision. The total amount due in the dispositive portion of the CAs Decision, August 22, 2011
inclusive of interest, shall further earn 12% interest per annum from the finality of this Decision until fully paid.

x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
WHEREFORE, in view of the foregoing, the Decision dated 27 April 2010 of the Court of Appeals in
CA-G.R. CR No. 31349 is hereby AFFIRMED with MODIFICATIONS. Petitioner is ordered to indemnify private
respondent the amount of the dishonored check, which is ₱1,500,000, with 12% interest per annum from the date
of receipt of the extrajudicial demand on 14 May 1999 to the finality of this Decision. This total amount
inclusive of interest shall further earn 12% interest per annum from the finality of the Decision until it is fully
paid.

DECISION
Petitioner is sentenced to pay a fine of ₱200,000 with subsidiary imprisonment in case of
insolvency, plus attorneys fees of ₱20,000 and litigation expenses of ₱16,860.

SO ORDERED.
PERALTA, J.:
Republic of the Philippines

Supreme Court
Assailed in the present petition for review on certiorari under Rule 45 of the Rules of Court are the
Manila Decision1 and Resolution2 of the Court of Appeals (CA) dated June 16, 2003 and April 28, 2004, respectively, in
CA-G.R. CV No. 73256. The CA Decision affirmed the July 31, 2001 Order3 of the Regional Trial Court (RTC) of
Santa Cruz, Laguna, Branch 91, which dismissed herein petitioners' petition for declaratory relief, while the CA
Resolution denied petitioners' Motion for Reconsideration.

THIRD DIVISION

The pertinent facts of the case are as follows:

18
Sometime in 1994, herein petitioners applied for separate loans amounting to P100,000.00 and P125,000.00, of lack of cause of action and suspension of the usury law; that respondent Bank's Motion to Dismiss was
which were granted by herein respondent Provident Rural Bank of Sta. Cruz, Laguna, Inc. (respondent Bank). denied by the RTC but upon appeal, the CA, in CA-G.R. SP No. 49065, annulled the RTC Order and granted the
said Motion.

As security for the loans, petitioners executed two separate promissory notes the due dates of which both fall
on August 20, 1995.4 Petitioners also executed two separate real estate mortgages over the same parcel of Petitioners filed their Opposition to respondent Bank's Motion to Dismiss.11
agricultural land located in Sta. Cruz, Laguna.5

Petitioners failed to pay their loans when they became due.
Subsequently, on July 31, 2001, the RTC issued an Order dismissing petitioners' Petition for Declaratory Relief
holding that the said Petition is barred by prior judgment, considering that the decision of the CA in CA-G.R. SP
No. 49065 already settled the issues of usury and the right of petitioners to claim the abolition or reduction of
the subject interest rates, which are the same issues raised by petitioners in their Petition for Declaratory
Relief.12

As a consequence, on June 14, 1996, respondent Bank filed a petition for extrajudicial foreclosure of the
abovementioned mortgages with the Office of the Provincial Sheriff of Laguna. As of June 10, 1996, petitioners'
obligations amounted to P287,187.50, plus interests, charges and expenses. On June 25, 1996 the Provincial
Sheriff issued a Notice of Sale of the subject mortgaged property.6 It would appear, however, that the auction Petitioners then filed an appeal with the CA assailing the abovementioned Order of the RTC.
sale did not push through because on June 9, 2000, respondent Bank re-applied for extrajudicial foreclosure of
the same mortgage. On July 25, 2000, the Provincial Sheriff issued a Notice of Sale Re-Application of Foreclosure
Case and set the public auction of the subject property on August 25, 2000.7 As of June 15, 2000, petitioners'
mortgage debt was P713,465.35, plus interests, charges and expenses.
On June 16, 2003, the CA promulgated the presently assailed Decision affirming the Order of the RTC and ruling
that all the elements of res judicata are present.

Petitioners then wrote a letter-request addressed to the Officer-in-Charge of the Office of the Clerk of Court of
the RTC, Santa Cruz, Laguna questioning the amount of its outstanding obligations to respondent Bank and
requesting that the public auction scheduled on August 25, 2000 be suspended until after its objection to the Petitioners' Motion for Reconsideration was denied by the CA via its April 28, 2004 Resolution.
amount being sought by respondent Bank is resolved by the court.8

Hence, the present petition for review on certiorari.

However, petitioners letter-request was denied.

Petitioners contend that the principle of res judicata does not apply in the present case on the ground that
Aggrieved, petitioners filed, on August 2, 2000, a Petition for Declaratory Relief, Accounting and Damages there is no identity of subject matter and cause of action in Civil Case Nos. 3422 and 4032.
praying that the stipulated interests, charges and expenses on its loans be declared null and void for being
contrary to law, morals, good customs, public order or public policy as they are exorbitant, usurious, iniquitous
and unconscionable. The Petition was docketed as Civil Case No. SC-4032.9

Petitioners further argue that even if all the elements of res judicata are present in the instant case, equity
dictates that this principle should not be applied; otherwise, the court would be sanctioning respondent Bank's
enrichment at the expense of petitioners through the imposition of exorbitant, unconscionable and usurious
On September 5, 2000, respondent Bank filed a Motion to Dismiss contending that the petition is barred interest rates, penalties and other charges; in such a case, petitioners claim that justice would be sacrificed in
by res judicata and that petitioners are guilty of forum shopping.10 Respondent Bank argued that: on August 23, favor of technicality.
1996, petitioners filed a complaint (docketed as Civil Case No. SC-3422) against it (respondent Bank) before the
RTC of Sta. Cruz, Laguna, Branch 86, seeking to declare as usurious the interests, penalties and other charges
which petitioners and respondent Bank had agreed upon in the subject real estate mortgages and promissory
notes; that these same stipulated interest, penalties and other charges are the subject matter of the petition for
declaratory relief; that respondent Bank also filed a Motion to Dismiss in Civil Case No. SC-3422 on the ground

19
Lastly, petitioners aver that they did not violate the rule on forum shopping because Civil Case No. SC-3422, the
case being cited by respondent Bank in its Motion to Dismiss, was already decided by the CA in 1999, before
petitioners filed their Petition for Declaratory Relief on August 2, 2000, and that there is no other pending case
involving the same parties, subject matter and cause of action.
The petition lacks merit.
Anent petitioners' first contention, res judicata literally means a matter adjudged; a thing judicially acted upon
or decided; a thing or matter settled by judgment.13 It lays the rule that an existing final judgment or decree
rendered on the merits, without fraud or collusion, by a court of competent jurisdiction, upon any matter within
its jurisdiction, is conclusive of the rights of the parties or their privies, in all other actions or suits in the same or
any other judicial tribunal of concurrent jurisdiction on the points and matters in issue in the first suit.14
The elements of res judicata are: (1) the judgment sought to bar the new action must be final; (2) the decision
must have been rendered by a court having jurisdiction over the subject matter and the parties; (3) the
disposition of the case must be a judgment on the merits; and (4) there must be as between the first and
second action, identity of parties, subject matter, and causes of action.15 The Court finds that the CA and the
RTC did not err in finding that all of the abovementioned elements are present in the instant case.
There is no dispute that the first three elements, as enumerated above, are present. As correctly held by the CA,
the issues raised in Civil Case No. SC-3422 were already decided with finality by this Court when it denied
petitioners' petition for review on certiorari in its Resolution dated August 23, 1999 in G.R. No. 139385. The said
Resolution became final and executory on December 20, 1999.
With respect to the fourth element, there is also no dispute that there is identity of parties. However, the Court
is not persuaded by petitioners' argument that there is no identity of subject matter and cause of action.
On the issue of identity of subject matter, this Court has held that the subject of an action is defined as the
matter or thing with respect to which the controversy has arisen, concerning which a wrong has been done.16
The subject matters in Civil Case No. SC-3422 are the interest rates as well as penalties and other charges
stipulated in the promissory notes and real estate mortgages executed by petitioners. These are the same
subject matters in Civil Case No. SC-4032.
As to the cause of action, Rule 2, Section 2 of the Rules of Court defines cause of action as the act or omission
by which a party violates a right of another. With respect to the identity of causes of action, this Court has laid
down the test in determining whether or not the causes of action in the first and second cases are identical, to
wit: would the same evidence support and establish both the present and former cause of action? If so, the
former recovery is a bar; if otherwise, it does not stand in the way of the former action.17
In the instant case, the cause of action in both Civil Case Nos. SC-3422 and 4032 is the act of respondent Bank in
imposing what petitioners alleged as exorbitant, unconscionable and usurious interest rates, penalties and
other charges. There is, thus, no doubt that the same evidence is required to establish the cause of action in
both of these cases.
In fact, the issues (whether or not the interest rates, penalties and charges imposed by respondent Bank are
usurious and unconscionable) and the reliefs sought (reduction of the said interest rates, penalties and
surcharges to an amount not exceeding 12% per annum) in both cases are essentially the same.
Neither is the Court persuaded by petitioners' contention that, in any case, the Court should not apply the
principle of res judicata because to do so would be tantamount to allowing respondent Bank to unjustifiably
and illegally enrich itself at the expense of petitioners by imposing interests, penalties and other charges
beyond what the law and equity allows.
It is true that res judicata is to be disregarded if its rigid application would involve the sacrifice of justice to
technicality.18 However, the present case does not fall under this exception.
Petitioners contend that the interest rate of 24% per annum stipulated in the mortgage contract, which they
executed in favor of respondent Bank, is usurious. This Court has consistently held that for sometime now,
usury has been legally non-existent and that interest can now be charged as lender and borrower may agree
upon.19 In fact, Section 1 of Central Bank Circular No. 905, Series of 1982, which took effect on January 1, 1983,
expressly provides that [t]he rate of interest, including commissions, premiums, fees and other charges, on a
loan or forbearance of any money, goods, or credits, regardless of maturity and whether secured or unsecured,
that may be charged or collected by any person, whether natural or juridical, shall not be subject to any ceiling
prescribed under or pursuant to the Usury Law, as amended. Nonetheless, this Court has also held in a number
of cases, that nothing in the circular grants lenders carte blanche authority to raise interest rates to levels which
will either enslave their borrowers or lead to a hemorrhaging of their assets.20 Thus, the stipulated interest
rates are illegal if they are unconscionable.
The question now is whether the 24% per annum interest rate is unreasonable under the circumstances
obtaining in the present case.
20
The Court rules in the negative.
In Spouses Zacarias Bacolor and Catherine Bacolor v. Banco Filipino Savings and Mortgage Bank, Dagupan City
Branch,21 this Court held that the interest rate of 24% per annum on a loan of P244,000.00, 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.22
Also, in Garcia v. Court of Appeals,23 this Court sustained the agreement of the parties to a 24% per
annum interest on an P8,649,250.00 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 P225,000.00, 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.
The Court also upholds the validity of the 6% per annum penalty charge. In Development Bank of the Philippines
v. Family Foods Manufacturing Co., Ltd.,24 this Court, sustaining the validity of an 8% per annum penalty charge
on separate loans of P500,000.00 and P440,000.00, held that:
This Court has recognized a penalty clause as an accessory
obligation which the parties attach to a principal obligation for
the purpose of insuring the performance thereof by imposing on
the debtor a special prestation (generally consisting in the
payment of a sum of money) in case the obligation is not
fulfilled or is irregularly or inadequately fulfilled. 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.
In this case, respondents failed to discharge the burden. Thus, they cannot avoid the
payment of the agreed penalty charge.25
In a similar manner, herein petitioners bound themselves to pay the stipulated penalty charge of 6% per annum
of the principal amount of loan as penalty for inexcusable neglect to pay any amount of t[he] loan when
due.26 Since petitioners failed to present evidence that their failure to perform their obligation was due to
either force majeure or the acts of respondent Bank or to any justifiable or excusable cause, they are obliged to
pay the penalty charge as agreed upon.
Lastly, it is wrong for petitioners to argue that they are not guilty of forum shopping on the ground that there is
no other pending case involving the same parties, subject matter and cause of action as their petition for
declaratory relief.
Settled is the rule that forum shopping is the act of a litigant who repetitively availed of several judicial
remedies in different courts, simultaneously or successively, all substantially founded on the same transactions
and the same essential facts and circumstances, and all raising substantially the same issues, either pending in
or already resolved adversely by some other court, to increase his chances of obtaining a favorable decision if
not in one court, then in another.27
Forum shopping can be committed in three ways: (1) by filing multiple cases based on the same cause of action
and with the same prayer, the previous case not having been resolved yet (where the ground for dismissal
is litis pendentia); (2) by filing multiple cases based on the same cause of action and with the same prayer, the
previous case having been finally resolved (where the ground for dismissal is res judicata); and (3) by filing
multiple cases based on the same cause of action but with different prayers (splitting of causes of action, where
the ground for dismissal is also either litis pendentia or res judicata).28
More particularly, the elements of forum-shopping are: (a) identity of parties or at least such parties that
represent the same interests in both actions; (b) identity of rights asserted and reliefs prayed for, the relief
being founded on the same facts; (c) identity of the two preceding particulars, such that any judgment rendered
in the other action will, regardless of which party is successful, amount to res judicata in the action under
consideration.29
All the abovementioned elements are present in the instant case. As discussed earlier, petitioners
petition for declaratory relief involves the same parties, cause of action and reliefs prayed for as Civil Case No.
SC-3422 which case was decided with finality by this Court as shown by the entry of judgment dated December
20, 1999 in G.R. No. 139385. In addition, it has been held above that the judgment in Civil Case No. SC-3422
(G.R. No. 139385) amounts to res judicata in the present case.
Contrary to petitioners' asseveration, Civil Case No. SC-3422 need not be pending in order that the rule on
forum shopping may apply, because as mentioned above, forum shopping may still be committed if one files
multiple cases involving the same parties causes of action and prayer and the previous case has already been
finally resolved.
21
 On 11 November 1993, the owners of the Hernandez property executed a letter indicating: (1) Cecilio as the
representative of the owners of the land; and (2) the compensation he gets in doing such job. The letter reads:
Hence, there is no other conclusion than that petitioners are guilty of forum shopping.
November 11, 1993

Mr. Cecilio F. Hernandez

Tanauan, Batangas
WHEREFORE, the petition is DENIED. The Decision and Resolution of the Court of Appeals dated June 16, 2003
and April 28, 2004, respectively, are AFFIRMED.
Dear Cecilio:

This would confirm to give you twenty (20%) percent of any amount in excess of Seventy (P70.00) Pesos per
square meter of our respective shares as success fee for your effort in representing us in Civil Case No. T-859
SO ORDERED.
entitled, "Republic of the Philippines, represented by the Public Works and Highways v. Sto. Tomas Agri-Farms,
Inc. and the Appellate Courts."
G.R. No. 158576 March 9, 2011
Whatever excess beyond Three Hundred (₱300.00) Pesos per square meter of the area shall likewise be given to
CORNELIA M. HERNANDEZ, Petitioner, you as additional incentive.
vs.
CECILIO F. HERNANDEZ, Respondent.
We will give you One Thousand Five Hundred (₱8,500.00) (sic) Pesos each for the preparation of the pleading
before the Regional Trial Court and such other reasonable expenses of litigation pro-indiviso.
DECISION
Very Truly Yours,
PEREZ, J.:
(Sgd.) PACENCIA F. HERNANDEZ
Before Us is a Petition for Review1 of the Decision of the Court of Appeals in CA-G.R. CV No. 701842 dated 29
May 2003. The appellate court reversed the Decision of the Regional Trial Court of Makati, Branch 150 (RTC
(Sgd.) CORNELIA M. HERNANDEZ
Branch 150), in Civil Case No. 00-11483 dated 12 February 2001, declaring that the quitclaim signed by the
petitioner is valid and incontrovertible.
Conforme:
The controversy between the parties began when the Republic of the Philippines, through the Department of
Public Works and Highways (DPWH), offered to purchase a portion of a parcel of land with an area of 80,133 (Sgd.) PACITA M. HERNANDEZ
square meters, covered by TCT No. T-367514 of the Registry of Deeds for Tanauan, Batangas, located at San
Rafael, Sto. Tomas, Batangas, for use in the expansion of the South Luzon Expressway. The land is pro-indiviso
(Sgd.)CECILIO F. HERNANDEZ
owned by Cornelia M. Hernandez (Cornelia), petitioner herein, Atty. Jose M. Hernandez, deceased father of
respondent Cecilio F. Hernandez (Cecilio),5 represented by Paciencia Hernandez (Paciencia) and Mena
Hernandez (Mena), also deceased and represented by her heirs.6 HEIRS OF MENA M. HERNANDEZ

The initial purchase price that was offered by the government was allegedly at Thirty-Five pesos (₱35.00) per By: (Sgd.) MA. ANTONIA H. LLAMZON
square meter for 14,643 square meters of the aforementioned land.7 The Hernandez family rejected the offer.
After a series of negotiations with the DPWH, the last offer stood at Seventy Pesos (₱70.00) per square
AND
meter.8 They still did not accept the offer and the government was forced to file an expropriation case.

(Sgd.) PERSEVERANDO M. HERNANDEZ11

On 9 August 1993, an expropriation case was filed by the Republic of the Philippines, through the DPWH, before
the Regional Trial Court, Branch 83 (RTC Branch 83), Tanauan, Batangas.9 The case was first docketed as Civil
Case No. T-859, then Civil Case No. C-023. Branch Clerk of Court Francisco Q. Balderama, Jr., issued a
Certification dated 10 January 2001 certifying that the docket numbers stated refers to one and the same
case.10
In Civil Case No. C-023, different parcels of land in Barangay Tripache, Tanauan Batangas, which belongs to
thirty-four (34) families including the Hernandezes are affected by the expansion project of the DPWH. A similar
case, Civil Case No. C-022, was consolidated with the former as it affects the same DPWH endeavor. Land in San
Rafael, Sto. Tomas, Batangas, which belong to twenty-three (23) families, was also the subject of expropriation.
During the course of the expropriation proceedings, an Order dated 13 September 1996 was issued by the RTC
Branch 83, informing the parties of the appointment of commissioners to help determine the just
compensation. Cecilio was appointed as one of the commissioners to represent the defendants in Civil Case No.
C-022. The Order reads:
In order to determine the fair market value of the lands subject of expropriation, the following are appointed as
commissioners: Engr. Melchor Dimaano, as representative of the Department of Public Works and Highways

22
(DPWH), Messrs. Magno Aguilar and Cecilio Hernandez, as representatives of the landowners, and Mr. Eric
Faustino Esperanza as representative of the Court.12 (Emphasis ours)
On 18 October 1996, Cornelia, and her other co-owners who were also signatories of the 11 November 1993
letter, executed an irrevocable Special Power of Attorney (SPA) appointing Cecilio Hernandez as their "true and
lawful attorney" with respect to the expropriation of the subject property.13 The SPA stated that the authority
shall be irrevocable and continue to be binding all throughout the negotiation. It further stated that the
authority shall bind all successors and assigns in regard to any negotiation with the government until its
consummation and binding transfer of a portion to be sold to that entity with Cecilio as the sole signatory in
regard to the rights and interests of the signatories therein. There was no mention of the compensation scheme
for Cecilio, the attorney-in-fact.
The just compensation for the condemned properties was fixed in the Decision14 dated 7 January 1998, penned
by Judge Voltaire Y. Rosales (Judge Rosales) of RTC Branch 83, Tanauan, Batangas. The value of the land located
at Barangay Tripache, Tanauan, Batangas, was pegged at One Thousand Five Hundred Pesos (₱1,500.00) per
square meter. The total area that was condemned for the Hernandez family was Fourteen Thousand Six
Hundred Forty-Three (14,643) square meters. Thus, multiplying the values given, the Hernandez family will get a
total of Twenty One Million, Nine Hundred Sixty-Four Thousand Five Hundred Pesos (₱21,964,500.00) as just
compensation.15
Included in the decision is the directive of the court to pay the amount of ₱4,000.00 to Cecilio, as
Commissioner’s fees.16
On 6 October 1999, petitioner executed a Revocation of the SPA17 withdrawing the authority earlier granted to
Cecilio in the SPA dated 18 October 1996. After the revocation, on 28 December 1999, without the termination
of counsel on record, Cornelia, with a new lawyer, moved for the withdrawal of her one-third (1/3) share of the
just compensation, which is equivalent to Seven Million Three Hundred Twenty-One Thousand Five Hundred
Pesos (₱7,321,500.00) – the amount a pro-indiviso owner is to receive.
In the Order18 dated 24 January 2000, Judge Rosales, even with the irregularity that the motion to withdraw
was not filed by the counsel of record, granted the motion of petitioner, with the condition that the money shall
be released only to the attorney-in-fact, Mr. Cecilio F. Hernandez. The trial court took cognizance of the
irrevocable nature of the SPA dated 18 October 1996.19 Cecilio, therefore, was able to get not just one-third
(1/3) of, but the entire sum of Twenty One Million, Nine Hundred Sixty-Four Thousand Five Hundred Pesos
(₱21,964,500.00).
On 7 February 2000, Cornelia received from Cecilio a Bank of the Philippine Islands Check amounting to One
Million One Hundred Twenty-Three Thousand Pesos (₱1,123,000.00).20 The check was however accompanied by
a Receipt and Quitclaim21 document in favor of Cecilio. In essence it states that: (1) the amount received will be
the share of Cornelia in the just compensation paid by the government in the expropriated property; (2) in
consideration of the payment, it will release and forever discharge Cecilio from any action, damages, claims or
demands; and (3) Cornelia will not institute any action and will not pursue her complaint or opposition to the
release to Cecilio or his heirs or assigns, of the entire amount deposited in the Land Bank of the Philippines,
Tanauan, Batangas, or in any other account with any bank, deposited or will be deposited therein, in connection
with Civil Case No C-023, representing the total just compensation of expropriated properties under the
aforementioned case.
The check was received by Cornelia with a heavy heart. She averred in her ex-parte testimony that she was
forced to receive such amount because she needs the money immediately for medical expenses due to her frail
condition.22
Moreover, Cornelia averred that after a few days from her receipt of the check, she sought the help of her
niece, Daisy Castillo, to get the decision in Civil Case No. C-022.23 It was only then, when her niece got hold of
the decision and explained its contents, that she learned that she was entitled to receive Seven Million Three
Hundred Twenty-One Thousand Five Hundred Pesos (₱7,321,500.00).24 In a Letter25 dated 22 June 2000,
Cornelia demanded the accounting of the proceeds. The letter was left unanswered. She then decided to have
the courts settle the issue. A Complaint for the Annulment of Quitclaim and Recovery of Sum of Money and
Damages26 was filed before the RTC Branch 150 of Makati on 18 September 2000. The case was docketed as
Civil Case No. 00-1184.
Cecilio, despite the service of summons and copy of the complaint failed to file an answer. The trial court
explained further that Cecilio was present in the address supplied by the petitioner but refused to receive the
copy. The trial court even gave Cecilio ten (10) more days, from his refusal to accept the summons, to file his
answer. Upon the motion of the petitioner, respondent Cecilio was declared in default. The court allowed
petitioner to adduce evidence ex parte.27
Cecilio tried to file a Motion for Reconsideration to lift the order of default. However, the trial court found that
the leeway they have given Cecilio to file an answer was more than enough.
In the Decision dated 12 February 2001, the RTC Branch 150 of Makati, through Judge Zeus C. Abrogar denied
the motion and nullified the quitclaim in favor of Cecilio. The fallo of the case reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant, declaring the
receipt and quitclaim signed by the plaintiff dated February 7, 2000 as null and void and ordering the defendant
to pay the plaintiff the amount of;
1. ₱6,198,417.60, including the accrued interest thereon with 12% per annum, computed from the
date of the filing hereof until the said amount is fully paid;
2. payment of ₱200,000.00 to the plaintiff by the defendant by way of moral damages;
3. attorney’s fees in the sum of ₱100,000.00 and;
4. cost of suit.28
Aggrieved, Cecilio appealed the Decision of the trial court. The Court of Appeals did not discuss whether the
default order was proper. However, the appellate court, in its Decision dated 29 May 2003 reversed and set
aside the ruling of the trial court. The dispositive portion reads:
WHEREFORE, premises considered, the Decision dated February 12, 2001, of the Regional Trial Court of Makati,
National Capital Judicial Region, Branch 150, in Civil Case No. 00-1148, is hereby REVERSED and SET ASIDE and a
new one is entered ordering the dismissal of the complaint filed on September 13, 2000 by the appellee against
the appellant. No pronouncement as to costs.29
Petitioner Cornelia now submits that the Court of Appeals erred in holding the validity of the receipt and
quitclaim document contrary to law and jurisprudence.30 She holds that the distribution of award that
transpired is unjust and prays that the decision of the RTC Branch 150 of Makati be reinstated.
We agree.
The trial court awarded the Hernandez family, among others, a total amount of ₱21,964,500.00 for the
expropriation of 14,643 square meters of land to be used as extension of the South Luzon Expressway. The
three co-owners of the said land, Cornelia, Mena and Paciencia were listed as item number twenty (20) in the
decision dated 7 January 1998, as one of the recipients of the just compensation to be given by the
government.31 As pro-indiviso landowners of the property taken, each one of them ought to receive an equal
share or one third (1/3) of the total amount which is equivalent to ₱7,321,500.00.
23
The equal division of proceeds, however, was contested by Cecilio. He avers that he is the agent of the owners
*The total expropriated property is at 14,643 m2, thus, Cecilio will get a total of
of the property.32 He bound himself to render service on behalf of her cousins, aunt and mother, by virtue of
the request of the latter.33 As an agent, Cecilio insists that he be given the compensation he deserves based on
= ₱1,246.00 * 14,643
the agreement made in the letter dated 11 November 1993, also called as the service contract,34 which was
= ₱18,245,178.00 total compensatinon
signed by all the parties. This is the contract to which Cecilio anchors his claim of validity of the receipt and
quitclaim that was signed in his favor.
*One Third of the above value shows that Cecilio will get, from Cornelia

I. = ₱6,081,726.00

A contract where consent is given through mistake, violence, intimidation, undue influence, or fraud is
It must be noted that:
voidable.35 In determining whether consent is vitiated by any of the circumstances mentioned, courts are given
a wide latitude in weighing the facts or circumstances in a given case and in deciding in their favor what they
believe to have actually occurred, considering the age, physical infirmity, intelligence, relationship, and the *The Hernandez’ family gets ₱21,964,500 for 14,643 m2, at ₱1,500.00 per m2
conduct of the parties at the time of the making of the contract and subsequent thereto, irrespective of
whether the contract is in public or private writing.36 And, in order that mistake may invalidate consent, it
*One-third (1/3) of that is ₱7,321,500 representing the share of a co-owner like Cornelia
should refer to the substance of the thing which is the object of the contract, or those conditions which have
principally moved one or both parties to enter the contract.37
*What will be left of Cornelia’s share if she pays Cecilio will be:
The compensation scheme of 20% of any amount over ₱70.00 per square meter and everything above ₱300.00
per square meter was granted in favor of Cecilio by the Hernandezes on 11 November 1993. At that time, the ₱1,239,774 less: 124,953.60 (Nominal Cost of Litigation as averred by Cecilio)
Hernandezes had just rejected the government’s offer of ₱35.00 per square meter, which offer last stood at
₱70.00 per square meter. It was the rejection likewise of the last offer that led to the filing of the expropriation
1,500.00 (Nominal payment for preparation of pleadings)
case on 9 August 1993. It was in this case, and for Cecilio’s representation in it of the Hernandezes, that he was
granted the compensation scheme. Clear as day, the conditions that moved the parties to the contract were the
base price at ₱70.00 per square meter, the increase of which would be compensated by 20% of whatever may OVERALL TOTAL AMOUNT CORNELIA WILL RECEIVE:
be added to the base price; and the ceiling price of ₱300.00 per square meter, which was considerably high
reckoned from the base at ₱70.00, which would therefore, allow Cecilio to get all that which would be in excess
of the elevated ceiling. The ceiling was, from the base, extraordinarily high, justifying the extraordinary grant to ₱ 1,113,320.4
Cornelio of all that would exceed the ceiling.
As opposed to:
It was on these base and ceiling prices, conditions which principally moved both parties to enter into the
agreement on the scheme of compensation, that an obvious mistake was made. The trial court, deviating from OVERALL TOTAL AMOUNT CECILIO WILL RECEIVE: ₱6,081,726.00
the principle that just compensation is determined by the value of the land at the time either of the taking or
filing,38 which was in 1993, determined the compensation as the 1998 value of ₱1,500.00 per square meter. The
trial court ratiocinated that the 1998 value was considered for the reason, among others that: Cecilio’s position would give him 83.07% of the just compensation due Cornelia as a co-owner of the land. No
evidence on record would show that Cornelia agreed, by way of the 11 November 1993 letter, to give Cecilio
83.07% of the proceeds of the sale of her land.
3. It is common knowledge that prices of real estate in Batangas, including and/or particularly in Sto.Tomas and
Tanauan have skyrocketed in the past two years;39 (Emphasis ours).
What is on record is that Cornelia asked for an accounting of the just compensation from Cecilio several times,
but the request remained unheeded. Right at that point, it can be already said that Cecilio violated the fiduciary
This 1998 "skyrocketed" price of ₱1,500.00 per square meter was pounced upon by Cecilio as the amount relationship of an agent and a principal. The relation of an agent to his principal is fiduciary and it is elementary
against which the 1993 ceiling of ₱300.00 per square meter should be compared, thereby giving him the that in regard to property subject matter of the agency, an agent is estopped from acquiring or asserting a title
amount computed40 as follows: adverse to that of the principal. His position is analogous to that of a trustee and he cannot, consistently with
the principles of good faith, be allowed to create in himself an interest in opposition to that of his principal
or cestui que trust.41
CECILIO’S FEES = (20% of anything over ₱70.00) + (everything in excess of ₱300)

*If the land value is at ₱1,500.00 per square meter, then, Instead of an accounting, what Cornelia received was a receipt and quitclaim document that was ready for
signing. As testified to by Cornelia, due to her frail condition and urgent need of money in order to buy
= (20% of ₱230.00) + (₱1,500.00 – ₱300.00) medicines, she nevertheless signed the quitclaim in Cornelio’s favor. Quitclaims are also contracts and can be
= ₱46.00 + ₱1,200.00 voided if there was fraud or intimidation that leads to lack of consent. The facts show that a simple accounting
= ₱1,246.00 per square meter of the proceeds of the just compensation will be enough to satisfy the curiosity of Cornelia. However, Cecilio did
not disclose the truth and instead of coming up with the request of his aunt, he made a contract intended to bar
= (land value at 1,500 less Cecilio’s fees) Cornelia from recovering any further sum of money from the sale of her property.
CORNELIA’S SHARE
= ₱254.00 per square meter

24
The preparation by Cecilio of the receipt and quitclaim document which he asked Cornelia to sign, indicate that Cecilio acted for the expropriation court. He cannot be allowed to consider such action as an act for or in behalf
even Cecilio doubted that he could validly claim 83.07% of the price of Cornelia’s land on the basis of the 11 of the defendant in the same case. Cecilio could not have been a hearing officer and a defendant at the same
November 1993 agreement. Based on the attending circumstances, the receipt and quitclaim document is an time. Indeed, Cecilio foisted fraud on both the Court and the Hernandezes when, after his appointment as
act of fraud perpetuated by Cecilio. Very clearly, both the service contract of 11 November 1993 letter- commissioner, he accepted the appointment by the Hernandezes to "represent" and "sue for" them.
agreement, and the later receipt and quitclaim document, the first vitiated by mistake and the second being
fraudulent, are void.
It should be noted, finally, that, as completion of his appointment as commissioner, compensation for the work
he has done for the court was awarded, as stated in the decision rendered in the case, thus:
II.
Finally, plaintiff is directed to pay the corresponding Commissioner’s fees of the following, to wit:
Cecilio’s last source of authority to collect payment from the proceeds of the expropriation is the SPA executed
on 18 October 1996 by the Hernandezes in favor of Cecilio as their "true and lawful" attorney with respect to
1. Eric Faustino J. Esperanza – Chairman ₱5,000.00
the expropriation of the Hernandez property. At the outset, it must be underscored that the SPA did not specify
the compensation of Cecilio as attorney-in-fact of the Hernandezes.
2. Cecilio F. Hernandez – Member 4,000.00
The SPA, however, must be appreciated in the light of the fact that Cecilio was appointed and acted as appraisal
commissioner in the expropriation case under the provisions of Section 5, Rule 67 of the Rules of Court, which 3. Magno Aguilar – Member 4,000.00
provides:
4. Melchor Dimaano – Member 4,000.0044
SEC. 5. Ascertainment of compensation. — Upon the rendition of the order of expropriation, the court shall
appoint not more than three (3) competent and disinterested persons as commissioners to ascertain and report
III.
to the court the just compensation for the property sought to be taken. The order of appointment shall
designate the time and place of the first session of the hearing to be held by the commissioners and specify the
time within which their report shall be submitted to the court. (Emphasis ours). Cecilio breached an obligation that is neither a loan nor forbearance of money. The decision of the lower court
ordering Cecilio to pay the amount of ₱6,189,417.60 to Cornelia at 12% per annum until fully paid should be
modified to 6% per annum from the time of the filing of the complaint up to the date of the decision, and at
The commissioner to be appointed is specifically required to be disinterested. As defined, such person must be
free from bias, prejudice or partiality.42 The record of performance by Cecilio of his duties as commissioner 12% per annum from finality until fully paid, in order to conform to the doctrine enunciated by Eastern Shipping
Lines, Inc. v. Court of Appeals,45 to wit:
shows: (1) Order dated 13 September 1996 appointing Cecilio and three others as court commissioners; (2)
Agreement on the course of action of the commissioners appointed 13 September 1996 whereby respondent
Cecilio signed as a court commissioner; (3) Appraisal Commission Report dated 10 January 1997 signed by 2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on
respondent and his fellow court commissioners; (4) Dissenting Opinion on the Lone Minority Report dated 14 the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per
February 1997 signed by respondent and two other court commissioners; and (5) Decision dated 7 February annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or
1997 which sets the fees of the court commissioners.43 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
When Cecilio accepted the position as commissioner and proceeded to perform the duties of such
commissioner until the completion of his mandate as such, he created a barrier that prevented his performance reasonably established at the time the demand is made, the interest shall begin to run only from the
date of the judgment of the court is made (at which time the quantification of damages may be
of his duties under the SPA. Due to the nature of his duties and functions as commissioner, Cecilio became an
deemed to have been reasonably ascertained). The actual base for the computation of legal interest
officer of the court. As stated in Section 5, Rule 67 of the Rules of Court, the commissioner’s duty is to
shall, in any case, be on the amount of finally adjudged.
"ascertain and report to the court the just compensation for the property to be taken." The undertaking of a
commissioner is further stated under the rules, to wit:
3. When the judgment of the court awarding a sum of money becomes final and executory, the rate
SEC. 6. Proceedings by commissioners.—Before entering upon the performance of their duties, the 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
commissioners shall take and subscribe an oath that they will faithfully perform their duties as commissioners,
equivalent to a forbearance of credit.
which oath shall be filed in court with the other proceedings in the case. Evidence may be introduced by either
party before the commissioners who are authorized to administer oaths on hearings before them, and the
commissioners shall, unless the parties consent to the contrary, after due notice to the parties to attend, view WHEREFORE, premises considered, the Decision of the Court of Appeals is hereby REVERSED and SET ASIDE. The
and examine the property sought to be expropriated and its surroundings, and may measure the same, after Decision of the RTC of Makati, Branch 150 is REINSTATED with the following MODIFICATIONS that the interest
which either party may, by himself or counsel, argue the case. The commissioners shall assess the consequential on the monetary awards should be at 6% per annum from the time of the filing of the complaint up to the date
damages to the property not taken and deduct from such consequential damages the consequential benefits to of the decision, and at 12% per annum from finality until fully paid.
be derived by the owner from the public use or 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 SO ORDERED.
deprived of the actual value of his property so taken.
G.R. No. 179334 April 21, 2015

25
SECRETARY OF THE DEPARTMENT OF PUBLIC WORKS AND HIGHWAYS and DISTRICT ENGINEER CELESTINO R.
CONTRERAS, Petitioners,
vs.
SPOUSES HERACLEO and RAMONA TECSON, Respondents.
RESOLUTION
PERALTA, J.:
For resolution is the Motion for Reconsideration1 filed by respondents-movants spouses Heracleo and Ramona
Tecson imploring the Court to take a second look at its July 1, 2013 Decision, the dispositive portion of which
reads:
WHEREFORE, premises considered, the petition is PARTIALLY GRANTED. The Court of Appeals Decision dated
July 31, 2007 in CAG.R. CV No. 77997 is MODIFIED, in that the valuation of the subject property owned by
respondents shall be P0.70 instead of ₱1,500.00 per square meter, with interest at six percent (6%) per annum
from the date of taking in 1940 instead of March 17, 1995, until full payment.2
In view of the contrasting opinions of the members of the Third Division on the instant motion, and the
transcendental importance of the issue raised herein, the members of the Third Division opted to refer the
issue to the En Banc for resolution.
For a proper perspective, we briefly state the factual background of the case.
In 1940, the Department of Public Works and Highways (DPWH) took respondents-movants' subject property
without the benefit of expropriation proceedings for the construction of the MacArthur Highway. In a letter
dated December 15, 1994,respondents-movants demanded the payment of the fair market value of the subject
parcel of land. Celestino R. Contreras (Contreras), then District Engineer of the First Bulacan Engineering District
of the DPWH, offered to pay for the subject land at the rate of Seventy Centavos (P0.70) per square meter, per
Resolution of the Provincial Appraisal Committee (PAC) of Bulacan. Unsatisfied with the offer, respondents-
movants demanded the return of their property, or the payment of compensation at the current fair market
value.3 Hence, the complaint for recovery of possession with damages filed by respondents-movants.
Respondents-movants were able to obtain favorable decisions in the Regional Trial Court (RTC) and the Court of
Appeals (CA), with the subject property valued at One Thousand Five Hundred Pesos (₱1,500.00) per square
meter, with interest at six percent (6%) per annum.
Petitioners thus elevated the matter to this Court in a petition for review on certiorari. The only issue resolved
by the Court in the assailed decision is the amount of just compensation which respondents-movants are
entitled to receive from the government for the taking of their property. Both the RTC and the CA valued the
property at One Thousand Five Hundred Pesos (₱1,500.00) per square meter, plus six percent (6%) interest
from the time of the filing of the complaint until full payment. We, however, did not agree with both courts and
ruled instead that just compensation should be based on the value of the property at the time of taking in 1940,
which is Seventy Centavos (P0.70) per square meter.4 In addition, and by way of compensation, we likewise
awarded an interest of six percent (6%) per annum from 1940 until full payment.5
Aggrieved, respondents-movants hereby move for the reconsideration of said decision on the following
grounds:
A. THE HONORABLE COURT MAY LOOK INTO THE "JUSTNESS" OF THE MISERABLE AMOUNT OF
COMPENSATION BEING AWARDED TO THE HEREIN RESPONDENTS; and
B. THE HONORABLE COURT MAY SETTLE FOR A HAPPY MIDDLE GROUND IN THE NAME OF
DOCTRINAL PRECISION AND SUBSTANTIAL JUSTICE.6
Citing the views of Justices Presbitero J. Velasco, Jr. and Marvic Mario Victor F. Leonen in their Dissenting and
Concurring Opinion and Separate Opinion, respectively, respondents-movants insist that gross injustice will
result if the amount that will be awarded today will be based simply on the value of the property at the time of
the actual taking. Hence, as proposed by Justice Leonen, they suggest that a happy middle ground be achieved
by meeting the need for doctrinal precision and the thirst for substantial justice.7
We maintain our conclusions in the assailed July 1, 2013 Decision with modification on the amount of interest
awarded, as well as the additional grant of exemplary damages and attorney's fees.
At the outset, it should be stressed that the matter of the validity of the State's exercise of the power of
eminent domain has long been settled. In fact, in our assailed decision, We have affirmed the ruling of the CA
that the pre-trial order issued on May 17, 2001 has limited the issues as follows: (1) whether or not the
respondents-movants are entitled to just compensation; (2) whether or not the valuation would be based on
the corresponding value at the time of the taking or at the time of the filing of the action; and (3) whether or
not the respondents-movants are entitled to damages.8 Moreover, it was held that for failure of respondents-
movants to question the lack of expropriation proceedings for a long period of time, they are deemed to have
waived and are estopped from assailing the power of the government to expropriate or the public use for which
the power was exercised.9 What is, therefore, left for determination in the instant Motion for Reconsideration,
in accordance with our Decision dated July 1, 2013, is the propriety of the amount awarded to respondents as
just compensation.
At this juncture, We hold that the reckoning date for property valuation in determining the amount of just
compensation had already been addressed and squarely answered in the assailed decision. To be sure, the
justness of the award had been taken into consideration in arriving at our earlier conclusion.
We have in the past been confronted with the same issues under similar factual and procedural circumstances.
We find no reason to depart from the doctrines laid down in the earlier cases as we adopted in the assailed
decision. In this regard, we reiterate the doctrines laid down in the cases of Forfom Development Corporation
(Forfom) v. Philippine National Railways (PNR),10 Eusebio v. Luis,11 Manila International Airport Authority v.
Rodriguez,12 and Republic v. Sarabia.13
In Forfom, PNR entered the property of Forfom in January 1973 for railroad tracks, facilities and appurtenances
for use of the Carmona Commuter Service without initiating expropriation proceedings. In 1990, Forfom filed a
complaint for recovery of possession of real property and/or damages against PNR. In Eusebio, respondent's
parcel of land was taken in 1980 by the City of Pasig and used as a municipal road without the appropriate
expropriation proceedings. In1996, respondent filed a complaint for reconveyance and/or damages against the
city government and the mayor. In MIAA, in the early 1970s, petitioner implemented expansion programs for its
runway, necessitating the acquisition and occupation of some of the properties surrounding its premises. As to
respondent's property, no expropriation proceedings were initiated. In 1997, respondent initiated a case
for accion reivindicatoriawith damages against petitioner. In Republic, sometime in 1956, the Air Transportation
Office (ATO) took possession and control of a portion of a lot situated in Aklan, registered in the name of
respondent, without initiating expropriation proceedings. Several structures were erected thereon, including
the control tower, the Kalibo crash fire rescue station, the Kalibo airport terminal, and the Headquarters of the
PNP Aviation Security Group. In 1995,several stores and restaurants were constructed on the remaining portion
of the lot. In 1997, respondent filed a complaint for recovery of possession with damages against the
storeowners wherein ATO intervened claiming that the storeowners were its lessees.
These cases stemmed from similar background, that is, government took control and possession of the subject
properties for public use without initiating expropriation proceedings and without payment of just
compensation; while the landowners failed for a long period of time to question such government act and later
instituted actions for recovery of possession with damages. In these cases, the Court has uniformly ruled that
the fair market value of the property at the time of taking is controlling for purposes of computing just
compensation.
26
In Forfom, the payment of just compensation was reckoned from the time of taking in 1973; in Eusebio, the
Court fixed the just compensation by determining the value of the property at the time of taking in 1980;
in MIAA, the value of the lot at the time of taking in 1972 served as basis for the award of compensation to the
owner; and, in Republic,the Court was convinced that the taking occurred in 1956 and was thus the basis in
fixing just compensation.
As in the aforementioned cases, just compensation due respondents-movants in this case should, therefore, be
fixed not as of the time of payment but at the time of taking in 1940 which is Seventy Centavos (P0.70) per
square meter, and not One Thousand Five Hundred Pesos (₱1,500.00) per square meter, as valued by the RTC
and CA.
While disparity in the above amounts is obvious and may appear inequitable to respondents-movants as they
would be receiving such outdated valuation after a very long period, it should be noted that the purpose of just
compensation is not to reward the owner for the property taken but to compensate him for the loss thereof. As
such, the true measure of the property, as upheld by a plethora of cases, is the market value at the time of the
taking, when the loss resulted. This principle was plainly laid down in Apo Fruits Corporation and Hijo
Plantation, Inc. v. Land Bank of the Philippines,14 to wit:
x x x In Land Bank of the Philippines v. Orilla, a valuation case under our agrarian reform law, this Court had
occasion to state:
Constitutionally, "just compensation" is the sum equivalent to the market value of the property, broadly
described as the price fixed by the seller in open market in the usual and ordinary course of legal action and
competition, or the fair value of the property as between the one who receives and the one who desires to
sell, it being fixed at the time of the actual taking by the government. Just compensation is defined as the full
and fair equivalent of the property taken from its owner by the expropriator. It has been repeatedly stressed
by this Court that the true measure is not the taker's gain but the owner's loss. The word "just" is used to
modify the meaning of the word "compensation" to convey the idea that the equivalent to be given for the
property to be taken shall be real, substantial, full and ample. [Emphasis supplied.]15
Indeed, the State is not obliged to pay premium to the property owner for appropriating the latter's property; it
is only bound to make good the loss sustained by the landowner, with due consideration of the circumstances
availing at the time the property was taken. More, the concept of just compensation does not imply fairness to
the property owner alone. Compensation must also be just to the public, which ultimately bears the cost of
expropriation.16
Notwithstanding the foregoing, we recognize that the owner's loss is not only his property but also its income-
generating potential.17 Thus, when property is taken, full compensation of its value must immediately be paid to
achieve a fair exchange for the property and the potential income lost.18 Accordingly, in Apo, we held that the
rationale for imposing the interest is to compensate the petitioners for the income they would have made had
they been properly compensated for their properties at the time of the taking.19 Thus:
We recognized in Republic v. Court of Appeals the need for prompt payment and the necessity of the payment
of interest to compensate for any delay in the payment of compensation for property already taken. We ruled
in this case that:
The constitutional limitation of "just compensation" is considered to be the sum equivalent to the market value
of the property, broadly described to be the price fixed by the seller in open market in the usual and ordinary
course of legal action and competition or the fair value of the property as between one who receives, and one
who desires to sell, i[f] fixed at the time of the actual taking by the government. Thus, if property is taken for
public use before compensation is deposited with the court having jurisdiction over the case, the final
compensation must include interest[s] on its just value to be computed from the time the property is taken to
the time when compensation is actually paid or deposited with the court. In fine, between the taking of the
property and the actual payment, legal interest[s] accrue in order to place the owner in a position as good as
(but not better than) the position he was in before the taking occurred.[Emphasis supplied]20
In other words, the just compensation due to the landowners amounts to an effective forbearance on the part
of the State-a proper subject of interest computed from the time the property was taken until the full amount
of just compensation is paid-in order to eradicate the issue of the constant variability of the value of the
currency over time.21 In the Court's own words:
The Bulacan trial court, in its 1979 decision, was correct in imposing interests 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 x x x.22
On this score, a review of the history of the pertinent laws, rules and regulations, as well as the issuances of the
Central Bank (CB)or Bangko Sentral ng Pilipinas (BSP)is imperative in arriving at the proper amount of interest to
be awarded herein.
On May 1, 1916, Act No. 265523 took effect prescribing an interest rate of six percent (6%) or such rate as may
be prescribed by the Central Bank Monetary Board (CB-MB)for loans or forbearance of money, in the absence
of express stipulation as to such rate of interest, to wit:
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 express contract as to such rate of interest, shall be six per centum per annum
or such rate as may be prescribed by the Monetary Board of the Central Bank of the Philippines for that
purpose in accordance with the authority hereby granted.
Sec. 1-a. The Monetary Board is hereby authorized to prescribe the maximum rate or rates of interest for the
loan or renewal thereof or the forbearance of any money, goods or credits, and to change such rate or rates
whenever warranted by prevailing economic and social conditions.
In the exercise of the authority herein granted, the Monetary Board may prescribe higher maximum rates for
loans of low priority, such as consumer loans or renewals thereof as well as such loans made by pawnshops
finance companies and other similar credit institutions although the rates prescribed for these institutions need
not necessarily be uniform. The Monetary Board is also authorized to prescribe different maximum rate or rates
for different types of borrowings, including deposits and deposit substitutes, or loans of financial
intermediaries.24
Under the aforesaid law, any amount of interest paid or stipulated to be paid in excess of that fixed by law is
considered usurious, therefore unlawful.25
On July 29, 1974, the CB-MB, pursuant to the authority granted to it under the aforequoted provision, issued
Resolution No. 1622.1âwphi1 On even date, Circular No. 416 was issued, implementing MB Resolution No.
1622, increasing the rate of interest for loans and forbearance of money to twelve percent (12%) per annum,
thus:
By virtue of the authority granted to it under Section 1 of Act No. 2655, as amended, otherwise known as the
"Usury Law," the 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 per cent (12%) per annum.26
The foregoing rate was sustained in CB Circular No. 90527 which took effect on December 22, 1982, particularly
Section 2 thereof, which states:
27
 Sec. 2. The rate of interest for the loan or forbearance of any money, goods or credits and the rate allowed in Applying the foregoing law and jurisprudence, respondents-movants are entitled to interest in the amount
judgments, in the absence of express contract as to such rate of interest, shall continue to be twelve per cent of One Million Seven Hundred Eighteen Thousand Eight Hundred Forty-Eight Pesos and Thirty-Two Centavos
(12%) per annum.28 (₱1,718,848.32) as of September 30, 2014,34 computed as follows:

Recently, the BSP Monetary Board (BSP-MB),in its Resolution No. 796 dated May 16, 2013, approved the
January 1, 194035 to July 28, 1974 P 10,553.4937
amendment of Section 2 of Circular No. 905, Series of 1982, and accordingly, issued Circular No. 799, Series of
2013, effective July 1, 2013, the pertinent portion of which reads:
July 29, 1974 to March 16, 1995 26,126.3138

The Monetary Board, in its Resolution No. 796 dated 16 May 2013, approved the following revisions governing March 17, 199536to June 30, 2013 232,070.3339
the rate of interest in the absence of stipulation in loan contracts, thereby amending Section 2 of Circular No.
905, Series of 1982: July 1, 2013 to September 30, 2014 250,098.1940

Section 1. The rate of interest for the loan or forbearance of any money, goods or credits and the rate allowed
Market Value of the Property at the time of
in judgments, in the absence of an express contract as to such rate of interest, shall be six percent (6%) per
taking including interest P 518,848.32
annum.

Section 2. In view of the above, Subsection X305.1 of the Manual of Regulations for Banks and Sections Market value of the property at the time of
4305Q.1, 4305S.3 and 4303P.1 of the Manual of Regulations for Non-Bank Financial Institutions are hereby taking including interest P 518,848.32
amended accordingly.
Add: Exemplary damages 1,000.000.00
This Circular shall take effect on 01 July 2013.29
Attorney's fees 200,000.00

Accordingly, the prevailing interest rate for loans and forbearance of money is six percent (6%) per annum, in Total Amount of Interest due to Respondents-
the absence of an express contract as to such rate of interest. Movants as of September 30, 2014 ₱1,718,848.16

In summary, the interest rates applicable to loans and forbearance of money, in the absence of an express
contract as to such rate of interest, for the period of 1940 to present are as follows:
Considering that respondents-movants only resorted to judicial demand for the payment of the fair market
value of the land on March 17, 1995, it is only then that the interest earned shall itself earn interest.
Law, Rule and Regulations, Date of Effectivity Interest Rate
BSP Issuance
Lastly, from finality of the Court's Resolution on reconsideration until full payment, the total amount due to
No. 2655 May 1, 1916 respondents-movants
6% shall earn a straight six percent (6%) legal interest, pursuant to Circular No. 799 and the
case of Nacar. Such interest is imposed by reason of the Court's decision and takes the nature of a judicial debt.
ircular No. 416 July 29, 1974 12%

ircular No. 905 December 22, 1982 Clearly,

ircular No. 799 July 1, 2013
It is important to note, however, that interest shall be compounded at the time judicial demand is made
pursuant to Article 221230 of the Civil Code of the Philippines, and sustained in Eastern Shipping Lines v. Court of
Appeals,31then later on in Nacar v. Gallery Frames,32 save for the reduction of interest rate to 6% for loans or
forbearance of money, thus:
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 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.33
12% the award of interest on the value of the land at the time of taking in 1940 until full payment is
adequate compensation to respondents-movants for the deprivation of their property without the benefit of
expropriation
6% proceedings. Such interest, however meager or enormous it may be, cannot be inequitable and
unconscionable because it resulted directly from the application of law and jurisprudence-standards that have
taken into account fairness and equity insetting the interest rates due for the use or forbearance of
money.41 Thus, adding the interest computed to the market value of the property at the time of taking signifies
the real, substantial, full and ample value of the property. Verily, the same constitutes due compliance with the
constitutional mandate on eminent domain and serves as a basic measure of fairness. In addition to the
foregoing interest, additional compensation shall be awarded to respondents-movants by way of exemplary
damages and attorney's fees in view of the government's taking without the benefit of expropriation
proceedings. As held in Eusebio v. Luis,42 an irregularity in an expropriation proceeding cannot ensue without
consequence. Thus, the Court held that the government agency's illegal occupation of the owner's property for
a very long period of time surely resulted in pecuniary loss to the owner, to wit:
However, in taking respondents' property without the benefit of expropriation proceedings and without
payment of just compensation, the City of Pasig clearly acted in utter disregard of respondents' proprietary
rights. Such conduct cannot be countenanced by the Court. For said illegal taking, the City of Pasig should
definitely be held liable for damages to respondents. Again, in Manila International Airport Authority v.

28
Rodriguez, the Court held that the government agency's illegal occupation of the owner's property for a very
long period of time surely resulted in pecuniary loss to the owner. The Court held as follows:
Such pecuniary loss entitles him to adequate compensation in the form of actual or compensatory damages,
which in this case should be the legal interest (6%) on the value of the land at the time of taking, from said
point up to full payment by the MIAA. This is based on the principle that interest "runs as a matter of law and
follows from the right of the landowner to be placed in as good position as money can accomplish, as of the
date of the taking."
The award of interest renders unwarranted the grant of back rentals as extended by the courts below. In
Republic v. Lara, et al., the Court ruled that the indemnity for rentals is inconsistent with a property owner's
right to be paid legal interest on the value of the property, for if the condemn or is to pay the compensation due
to the owners from the time of the actual taking of their property, the payment of such compensation is
deemed to retro act to the actual taking of the property; and, hence, there is no basis for claiming rentals from
the time of actual taking. More explicitly, the Court held in Republic v. Garcellano that:
the laws. Worse, this is not the first time NIA has disregarded the rights of private property owners by refusing
to pay just compensation promptly. To dissuade NIA from continuing this practice and to set an example for
other agencies exercising eminent domain powers, NIA is directed to pay respondent exemplary damages of
₱250,000.45
Applying the aforequoted doctrines to the present case, considering that respondents-movants were deprived
of beneficial ownership over their property for more than seventy (70) years without the benefit of a timely
expropriation proceedings, and to serve as a deterrent to the State from failing to institute such proceedings
within the prescribed period under the law, a grant of exemplary damages in the amount of One Million Pesos
(₱1,000,000.00) is fair and reasonable. Moreover, an award for attorney's fees in the amount of Two Hundred
Thousand Pesos (₱200,000.00) in favor of respondents-movants is in order.
In sum, respondents-movants shall be entitled to an aggregate amount of One Million Seven Hundred Eighteen
Thousand Eight Hundred Forty-Eight Pesos and Thirty-Two Centavos (₱1,718,848.32) as just compensation as
of September 30, 2014, computed as follows:

The uniform rule of this Court, however, is that this compensation must be, not in the form of rentals, but by
Market value of the property at the time P 518,848.32
way of 'interest from the date that the company [or entity] exercising the right of eminent domain take
of taking in 1940 including interest
possession of the condemned lands, and the amounts granted by the court shall cease to earn interest only
from the moment they are paid to the owners or deposited in court x x x.
Add: Exemplary Damages 1,000,000.00

xxxx Attorney's fees 200,000.00

Total Amount due to Respondents-

For more than twenty (20) years, the MIAA occupied the subject lot without the benefit of expropriation
movants as of September 30, 2014 ₱1,718,848.32
proceedings and without the MIAA exerting efforts to ascertain ownership of the lot and negotiating with any of
the owners of the property. To our mind, these are wanton and irresponsible acts which should be suppressed
and corrected. Hence, the award of exemplary damages and attorneys fees is in order. However, while
This Court is not unaware that at present, stringent laws and rules are put in place to ensure that owners of real
Rodriguez is entitled to such exemplary damages and attorney's fees, the award granted by the courts below
property acquired for national government infrastructure projects are promptly paid just compensation.
should be equitably reduced. We hold that Rodriguez is entitled only to ₱200,000.00 as exemplary damages,
Specifically, Section 4 of Republic Act No. 8974 (R.A. 8974),46 which took effect on November 26, 2000, provides
and attorney's fees equivalent to one percent (1%) of the amount due.43
sufficient guidelines for implementing an expropriation proceeding, to wit:

Similarly, in Republic v. CA,44 We held that the failure of the government to initiate an expropriation proceeding
Section 4. Guidelines for Expropriation Proceedings. - Whenever it is necessary to acquire real property for the
to the prejudice of the landowner may be corrected with the awarding of exemplary damages, attorney's fees
right-of-way or location for any national government infrastructure project through expropriation, the
and costs of litigation. Thus:
appropriate implementing agency shall initiate the expropriation proceedings before the proper court under
the following guidelines:
The Court will not award attorney's fees in light of respondent's choice not to appeal the CA Decision striking
down the award. However, we find it proper to award temperate and exemplary damages in light of NIA's
(a) Upon the filing of the complaint, and after due notice to the defendant, the implementing
misuse of its power of eminent domain. Any arm of the State that exercises the delegated power of eminent
agency shall immediately pay the owner of the property the amount equivalent to the sum of (1)
domain must wield that power with circumspection and utmost regard for procedural requirements. A
one hundred percent (100%) of the value of the property based on the current relevant zonal
government instrumentality that fails to observe the constitutional guarantees of just compensation and due
valuation of the Bureau of Internal Revenue (BIR); and (2) the value of the improvements and/or
process abuses the authority delegated to it, and is liable to the property owner for damages.
structures as determined under Section 7 hereof;

Temperate or moderate damages may be recovered if pecuniary loss has been suffered but the amount cannot
(b) In provinces, cities, municipalities and other areas where there is no zonal valuation, the BIR is
be proved with certainty from the nature of the case.1âwphi1 Here, the trial and appellate courts found that
hereby mandated within the period of sixty (60) days from the date of the expropriation case, to
the owners were unable to plant palay on 96,655 square meters of the Property for an unspecified period
come up with a zonal valuation for said area; and
during and after NIA's construction of the canals in 1972. The passage of time, however, has made it impossible
to determine these losses with any certainty. NIA also deprived the owners of the Property of possession of a
substantial portion of their land since 1972. Considering the particular circumstances of this case, an award of (c) In case the completion of a government infrastructure project is of utmost urgency and
₱150,000 as temperate damages is reasonable. importance, and there is no existing valuation of the area concerned, the implementing agency shall
immediately pay the owner of the property its proffered value taking into consideration the
standards prescribed in Section 5 hereof.
NIA's irresponsible exercise of its eminent domain powers also deserves censure. For more than three decades,
NIA has been charging irrigation fees from respondent and other landowners for the use of the canals built on
the Property, without reimbursing respondent a single cent for the loss and damage. NIA exhibits a disturbingly Upon compliance with the guidelines abovementioned, the court shall immediately issue to the implementing
cavalier attitude towards respondent's property rights, rights to due process of law and to equal protection of agency an order to take possession of the property and start the implementation of the project.

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Before the court can issue a Writ of Possession, the implementing agency shall present to the court a certificate
of availability of funds from the proper official concerned.

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.

Failure to comply with the foregoing directives shall subject the government official or employee concerned to
administrative, civil and/or criminal sanctions, thus:

Section 11. Sanctions. - Violation of any provisions of this Act shall subject the government official or employee
concerned to appropriate administrative, civil and/or criminal sanctions, including suspension and/or dismissal
from the government service and forfeiture of benefits. While the foregoing provisions, being substantive in
nature or disturbs substantive rights, cannot be retroactively applied to the present case, We trust that this
established mechanism will surely deter hasty acquisition of private properties in the future without the benefit
of immediate payment of the value of the property in accordance with Section 4 of R.A. 8974. This effectively
addresses J. Velasco's concerns that sustaining our earlier rulings on the matter would be licensing the
government to dispense with constitutional requirements in taking private properties. Moreover, any gap on
the procedural aspect of the expropriation proceedings will be remedied by the aforequoted provisions.

In effect, R.A. 8974 enshrines a new approach towards eminent domain that reconciles the inherent unease
attending expropriation proceedings with a position of fundamental equity.47

Despite the foregoing developments, however, We emphasize that the government's failure, to initiate the
necessary expropriation proceedings prior to actual taking cannot simply invalidate the State's exercise of its
eminent domain power, given that the property subject of expropriation is indubitably devoted for public use,
and public policy imposes upon the public utility the obligation to continue its services to the public. To hastily
nullify said expropriation in the guise of lack of due process would certainly diminish or weaken one of the
State's inherent powers, the ultimate objective of which is to serve the greater good. Thus, the non-filing of the
case for expropriation will not necessarily lead to the return of the property to the landowner. What is left to
the landowner is the right of compensation.48

All told, We hold that putting to rest the issue on the validity of the exercise of eminent domain is neither
tantamount to condoning the acts of the DPWH in disregarding the property rights of respondents-movants nor
giving premium to the government's failure to institute an expropriation proceeding. This Court had steadfastly
adhered to the doctrine that its first and fundamental duty is the application of the law according to its express
terms, interpretation being called for only when such literal application is impossible.49 To entertain other
formula for computing just compensation, contrary to those established by law and jurisprudence, would open
varying interpretation of economic policies - a matter which this Court has no competence to take cognizance
of. Time and again, we have held that no process of interpretation or construction need be resorted to where a
provision of law peremptorily calls for application.50 Equity and equitable principles only come into full play
when a gap exists in the law and jurisprudence.51 As we have shown above, established rulings of this Court are
in place for full application to the case at bar, hence, should be upheld.

WHEREFORE, the motion for reconsideration is hereby DENIED for lack of merit.

SO ORDERED.

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