292 SUPREME COURT REPORTS

ANNOTATED
Rizal Commercial Banking Corporation vs.
Court of Appeals

G.R. Nos. 128833, 128834, *and 128866. April

20, 1998.

RIZAL COMMERCIAL BANKING

CORPORATION, UY CHUN BING AND ELI
D. LAO, petitioners, vs. COURT OF
APPEALS and GOYU & SONS, INC.,
respondents.

RIZAL COMMERCIAL BANKING

CORPORATION, petitioner, vs. COURT OF
APPEALS, ALFREDO C. SEBASTIAN,
GOYU & SONS, INC., GO SONG HIAP,
SPOUSES GO TENG KOK and BETTY
CHIU SUK YING alias BETTY GO,
respondents.

MALAYAN INSURANCE, INC., petitioner,

vs. GOYU & SONS, INC., respondent.
 Civil Law; Insurance Law; Mortgages; It is
settled that a mort-gagor and a mortgagee have
separate and distinct insurable interests in the
same mortgaged property, such that each one of
them may insure the same property for his own sole
benefit; The intentions of the parties as shown by
their contemporaneous acts, must be given due
consideration in order to better serve the interest of
justice and eq-

_______________

* SECOND DIVISION.

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Rizal Commercial Banking Corporation vs. Court

of Appeals

uity.—It is settled that a mortgagor and a

mortgagee have separate and distinct insurable
interests in the same mortgaged property, such
that each one of them may insure the same
property for his own sole benefit. There is no
question that GOYU could insure the mortgaged
property for its own exclusive benefit. In the
present case, although it appears that GOYU
obtained the subject insurance policies naming
itself as the sole payee, the intentions of the
parties as shown by their contemporaneous acts,
must be given due consideration in order to better
serve the interest of justice and equity.

Same; Same; Same; It is basic and

fundamental that the first mortgagee has superior
rights over junior mortgagees or attaching
creditors.—Anent the right of RCBC to intervene
in Civil Case No. 1073, before the Zamboanga
Regional Trial Court, since it has been determined
that RCBC has the right to the insurance proceeds,
the subject matter of intervention is rendered moot
and academic. Respondent Sebastian must,
however, yield to the preferential right of RCBC
over the MICO insurance policies. It is basic and
fundamental that the first mortgagee has superior
rights over junior mortgagees or attaching
creditors.

Same; Same; Section 53 of the Insurance Code

ordains that the insurance proceeds of the endorsed
policies shall be applied exclusively to the proper
interest of the person for whose benefit it was made.
—The proceeds of the 8 insurance policies
endorsed to RCBC aggregate to P89,974,488.36.
Being exclusively payable to RCBC by reason of
the endorsement by Alchester to RCBC, which we
already ruled to have the force and effect of an
endorsement by GOYU itself, these 8 policies can
not be attached by GOYU’s other creditors up to
the extent of the GOYU’s outstanding obligation in
RCBC’s favor. Section 53 of the Insurance Code
ordains that the insurance proceeds of the
endorsed policies shall be applied exclusively to the
proper interest of the person for whose benefit it
was made. In this case, to the extent of GOYU’s
obligation with RCBC, the interest of GOYU in the
subject policies had been transferred to RCBC
effective as of the time of the endorsement.

Same; Same; For an insurance company to be

held liable for unreasonably delaying and
withholding payment of insurance proceeds, the
delay must be wanton, oppressive, or malevolent.—
For an insurance company to be held liable for
unreasonably delaying and withholding payment
of insurance proceeds, the delay must be wan-

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294 SUPREME COURT REPORTS

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Rizal Commercial Banking Corporation vs. Court

of Appeals

ton, oppressive, or malevolent (Zenith Insurance

Corporation vs. CA, 185 SCRA 403 [1990]). It is
generally agreed, however, that an insurer may in
good faith and honesty entertain a difference of
opinion as to its liability. Accordingly, the
statutory penalty for vexatious refusal of an
insurer to pay a claim should not be inflicted
unless the evidence and circumstances show that
such refusal was willful and without reasonable
cause as the facts appear to a reasonable and
prudent man (Buffalo Ins. Co. vs. Bommarito [CCA
8th] 42 F [2d] 53, 70 ALR 1211; Phoenix Ins. Co.
vs. Clay, 101 Ga. 331, 28 SE 853, 65 Am St Rep
307; Kusnetsky vs. Security Ins. Co., 313 Mo. 143,
281 SW 47, 45 ALR 189). The case at bar does not
show that MICO wantonly and in bad faith
delayed the release of the proceeds.

Same; Same; Interests; The essence or rationale

for the payment of interest or cost of money is
separate and distinct from that of surcharges and
penalties; Court fails to find justification for the
Court of Appeals’ outright deletion of the payment
of interest as agreed upon in the respective
promissory notes.—The essence or rationale for the
payment of interest or cost of money is separate
and distinct from that of surcharges and penalties.
What may justify a court in not allowing the
creditor to charge surcharges and penalties despite
express stipulation therefor in a valid agreement,
may not equally justify non-payment of interest.
The charging of interest for loans forms a very
essential and fundamental element of the banking
business, which may truly be considered to be at
the very core of its existence or being. It is
inconceivable for a bank to grant loans for which it
will not charge any interest at all. We fail to find
justification for the Court of Appeals’ outright
deletion of the payment of interest as agreed upon
in the respective promissory notes. This
constitutes gross error.

PETITIONS for review on certiorari of a

decision of the Court of Appeals.

The facts are stated in the opinion of the

Court.
     Siguion Reyna, Montecillo & Ongsiako
for petitioner RCBC.
          Rodolfo P. del Prado for private
respondent Goyu & Sons, Inc.
           Manuel Melotindos for private
respondent Go Song Hiap, Spouses Go Teng
Kok and Betty Chiu alias Betty Go, Jr.

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Rizal Commercial Banking Corporation vs.
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          Linda Eustaquio-Lim for private

respondent Alfredo C. Sebastian.

MELO, J.:

The issues relevant to the herein three

consolidated petitions revolve around the fire
loss claims of respondent Goyu & Sons, Inc.
(GOYU) with petitioner Malayan Insurance
Company, Inc. (MICO) in connection with the
mortgage contracts entered into by and
between Rizal Commercial Banking
Corporation (RCBC) and GOYU.
The Court of Appeals ordered MICO to pay
GOYU its claims in the total amount of
P74,040,518.58, plus 37% interest per annum
commencing July 27, 1992. RCBC was
ordered to pay actual and compensatory
damages in the amount of P5,000,000.00.
MICO and RCBC were held solidarily liable
to pay GOYU P1,500,000.00 as exemplary
damages and P1,500,000.00 for attorney’s
fees. GOYU’s obligation to RCBC was fixed at
P68,785,069.04 as of April 1992, without any
interest, surcharges, and penalties. RCBC
and MICO appealed separately but, in view of
the common facts and issues involved, their
individual petitions were consolidated.
The undisputed facts may be summarized
as follows:
GOYU applied for credit facilities and
accommodations with RCBC at its Binondo
Branch. After due evaluation, RCBC Binondo
Branch, through its key officers, petitioners
Uy Chun Bing and Eli D. Lao, recommended
GOYU’s application for approval by RCBC’s
executive committee. A credit facility in the
amount of P30 million was initially granted.
Upon GOYU’s application and Uy’s and Lao’s
recommendation, RCBC’s executive
committee increased GOYU’s credit facility to
P50 million, then to P90 million, and finally
to P117 million.
As security for its credit facilities with
RCBC, GOYU executed two real estate
mortgages and two chattel mortgages in favor
of RCBC, which were registered with the
Registry of Deeds at Valenzuela, Metro
Manila. Under each of these four mortgage
contracts, GOYU committed itself to insure
the

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296 SUPREME COURT REPORTS

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Rizal Commercial Banking Corporation vs.
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mortgaged property with an insurance
company approved by RCBC, and
subsequently, to endorse and deliver the
insurance policies to RCBC.
GOYU obtained in its name a total of ten
insurance policies from MICO. In February
1992, Alchester Insurance Agency, Inc., the
insurance agent where GOYU obtained the
Malayan insurance policies, issued nine
endorsements in favor of RCBC seemingly
upon instructions of GOYU (Exhibits “1-
Malayan” to “9-Malayan”).
On April 27, 1992, one of GOYU’s factory
buildings in Valenzuela was gutted by fire.
Consequently, GOYU submitted its claim for
indemnity on account of the loss insured
against. MICO denied the claim on the
ground that the insurance policies were either
attached pursuant to writs of
attachments/garnishments issued by various
courts or that the insurance proceeds were
also claimed by other creditors of GOYU
alleging better rights to the proceeds than the
insured. GOYU filed a complaint for specific
performance and damages which was
docketed at the Regional Trial Court of the
National Capital Judicial Region (Manila,
Branch 3) as Civil Case No. 93-65442, now
subject of the present G.R. Nos. 128833 and
128866.
RCBC, one of GOYU’s creditors, also filed
with MICO its formal claim over the proceeds
of the insurance policies, but said claims were
also denied for the same reasons that MICO
denied GOYU’s claims.
 In an interlocutory order dated October 12,
1993 (Record, pp. 311-312), the Regional Trial
Court of Manila (Branch 3), confirmed that
GOYU’s other creditors, namely, Urban Bank,
Alfredo Sebastian, and Philippine Trust
Company obtained their respective writs of
attachments from various courts, covering an
aggregate amount of P14,938,080.23, and
ordered that the proceeds of the ten insurance
policies be deposited with the said court
minus the aforementioned P14,938,080.23.
Accordingly, on January 7, 1994, MICO
deposited the amount of P50,505,594.60 with
Branch 3 of the Manila RTC.

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In the meantime, another notice of

garnishment was handed down by another
Manila RTC sala (Branch 28) for the amount
of P8,696,838.75 (Exhibit “22-Malayan”).
After trial, Branch 3 of the Manila RTC
rendered judgment in favor of GOYU,
disposing:

WHEREFORE, judgment is hereby rendered in

favor of the plaintiff and against the defendant,
Malayan Insurance Company, Inc. and Rizal
Commercial Banking Corporation, ordering the
latter as follows:

1. For defendant Malayan Insurance Co., Inc.:

a. To pay the plaintiff its fire loss claims in
the total amount of P74,040,518.58 less the
amount of P50,000,000.00 which is
deposited with this Court;
b. To pay the plaintiff damages by way of
interest for the duration of the delay since
July 27, 1992 (ninety days after defendant
insurer’s receipt of the required proof of
loss and notice of loss) at the rate of twice
the ceiling prescribed by the Monetary
Board, on the following amounts:

1) P50,000,000.00—from July 27, 1992 up to

the time said amount was deposited with
this Court on January 7, 1994;
2) P24,040,518.58—from July 27, 1992 up to
the time when the writs of attachments
were received by defendant Malayan;

2. For defendant Rizal Commercial Banking

Corporation:

a. To pay the plaintiff actual and

compensatory damages in the amount of
P2,000,000.00;

3. For both defendants Malayan and RCBC:

a. To pay the plaintiff, jointly and severally,

the following amounts:

1) P1,000,000.00 as exemplary damages;

2) P1,000,000.00 as, and for, attorney’s fees;
3) Costs of suit.
and on the Counterclaim of defendant RCBC, ordering
the plaintiff to pay its loan obligations with defendant
RCBC in the amount of P68,785,069.04, as of April 27,
1992, with inter

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est thereon at the rate stipulated in the respective

promissory notes (without surcharges and penalties) per
computation, pp. 14-A, 14-B & 14-C.

FURTHER, the Clerk of Court of the Regional

Trial Court of Manila is hereby ordered to release
immediately to the plaintiff the amount of
P50,000,000.00 deposited with the Court by
defendant Malayan, together with all the interests
earned thereon.
(Record, pp. 478-479.)

From this judgment, all parties interposed

their respective appeals. GOYU was
unsatisfied with the amounts awarded in its
favor. MICO and RCBC disputed the trial
court’s findings of liability on their part. The
Court of Appeals partly granted GOYU’s
appeal, but sustained the findings of the trial
court with respect to MICO and RCBC’s
liabilities, thusly:

WHEREFORE, the decision of the lower court

dated June 29, 1994 is hereby modified as follows:
1. FOR DEFENDANT MALAYAN
INSURANCE CO., INC.:

a) To pay the plaintiff its fire loss claim in the

total amount of P74,040,518.58 less the
amount of P50,505,594.60 (per O.R. No.
3649285) plus deposited in court and
damages by way of interest commencing
July 27, 1992 until the time Goyu receives
the said amount at the rate of thirty-seven
(37%) percent per annum which is twice
the ceiling prescribed by the Monetary
Board.

2. FOR DEFENDANT RIZAL COMMERCIAL

BANKING CORPORATION:

a) To pay the plaintiff actual and

compensatory damages in the amount of
P5,000,000.00.

3. FOR DEFENDANTS MALAYAN

INSURANCE CO., INC., RIZAL
COMMERCIAL BANKING
CORPORATION, UY CHUN BING AND
ELI D. LAO:

a) To pay the plaintiff jointly and severally

the following amounts:

1. P1,500,000.00 as exemplary damages;

2. P1,500,000.00 as, and for, attorney’s fees.

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4. And on RCBC’s Counterclaim, ordering the

plaintiff Goyu & Sons, Inc. to pay its loan
obligation with RCBC in the amount of
P68,785,069.04 as of April 27, 1992 without
any interest, surcharges and penalties.

The Clerk of Court of the Regional Trial Court of

Manila is hereby ordered to immediately release to
Goyu & Sons, Inc. the amount of P50,505,594.60
(per O.R. No. 3649285) deposited with it by
Malayan Insurance Co., Inc., together with all the
interests thereon.
(Rollo, p. 200.)

RCBC and MICO are now before us in G.R.

Nos. 128833 and 128866, respectively,
seeking review and consequent reversal of the
above dispositions of the Court of Appeals.
In G.R. No. 128834, RCBC likewise
appeals from the decision in C.A. G.R. No.
CV-48376, which case, by virtue of the Court
of Appeals’ resolution dated August 7, 1996,
was consolidated with C.A. G.R. No. CV-
46162 (subject of herein G.R. No. 128833). At
issue in said petition is RCBC’s right to
intervene in the action between Alfredo C.
Sebastian (the creditor) and GOYU (the
debtor), where the subject insurance policies
were attached in favor of Sebastian.
After a careful review of the material facts
as found by the two courts below in relation to
the pertinent and applicable laws, we find
merit in the submissions of RCBC and MICO.
 The several causes of action pursued below
by GOYU gave rise to several related issues
which are now submitted in the petitions
before us. This Court, however, discerns one
primary and central issue, and this is,
whether or not RCBC, as mortgagee, has any
right over the insurance policies taken by
GOYU, the mortgagor, in case of the
occurrence of loss.
As earlier mentioned, accordant with the
credit facilities extended by RCBC to GOYU,
the latter executed several mortgage
contracts in favor of RCBC. It was expressly
stipulated in these mortgage contracts that
GOYU shall insure the mortgaged property
with any of the insurance companies
acceptable to RCBC. GOYU indeed insured
the mortgaged property with MICO, an
insurance company acceptable to
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RCBC. Based on their stipulations in the

mortgage contracts, GOYU was supposed to
endorse these insurance policies in favor of,
and deliver them, to RCBC. Alchester
Insurance Agency, Inc., MICO’s underwriter
from whom GOYU obtained the subject
insurance policies, prepared the nine
endorsements (see Exh. “1-Malayan” to “9-
Malayan”; also Exh. “51-RCBC” to “59-
RCBC”), copies of which were delivered to
GOYU, RCBC, and MICO. However, because
these endorsements do not bear the signature
of any officer of GOYU, the trial court, as well
as the Court of Appeals, concluded that the
endorsements are defective.
We do not quite agree.
It is settled that a mortgagor and a
mortgagee have separate and distinct
insurable interests in the same mortgaged
property, such that each one of them may
insure the same property for his own sole
benefit. There is no question that GOYU
could insure the mortgaged property for its
own exclusive benefit. In the present case,
although it appears that GOYU obtained the
subject insurance policies naming itself as the
sole payee, the intentions of the parties as
shown by their contemporaneous acts, must
be given due consideration in order to better
serve the interest of justice and equity.
It is to be noted that nine endorsement
documents were prepared by Alchester in
favor of RCBC. The Court is in a quandary
how Alchester could arrive at the idea of
endorsing any specific insurance policy in
favor of any particular beneficiary or payee
other than the insured had not such named
payee or beneficiary been specifically
disclosed by the insured itself. It is also
significant that GOYU voluntarily and
purposely took the insurance policies from
MICO, a sister company of RCBC, and not
just from any other insurance company.
Alchester would not have found out that the
subject pieces of property were mortgaged to
RCBC had not such information been
voluntarily disclosed by GOYU itself. Had it
not been for GOYU, Alchester would not have
known of GOYU’s intention of obtaining
insurance coverage in compliance with its
undertaking in the mortgage contracts with

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RCBC, and verily, Alchester would not have

endorsed the policies to RCBC had it not been
so directed by GOYU.
On equitable principles, particularly on the
ground of estoppel, the Court is constrained
to rule in favor of mortgagee RCBC. The basis
and purpose of the doctrine was explained in
Philippine National Bank vs. Court of
Appeals (94 SCRA 357 [1979]), to wit:

The doctrine of estoppel is based upon the grounds

of public policy, fair dealing, good faith and justice,
and its purpose is to forbid one to speak against his
own act, representations, or commitments to the
injury of one to whom they were directed and who
reasonably relied thereon. The doctrine of estoppel
springs from equitable principles and the equities
in the case. It is designed to aid the law in the
administration of justice where without its aid
injustice might result. It has been applied by this
Court wherever and whenever special
circumstances of a case so demand.
(p. 368.)

Evelyn Lozada of Alchester testified that

upon instructions of Mr. Go, through a certain
Mr. Yam, she prepared in quadruplicate on
February 11, 1992 the nine endorsement
documents for GOYU’s nine insurance
policies in favor of RCBC. The original copies
of each of these nine endorsement documents
were sent to GOYU, and the others were sent
to RCBC and MICO, while the fourth copies
were retained for Alchester’s file (tsn,
February 23, pp. 7-8). GOYU has not denied
having received from Alchester the originals
of these endorsements.
RCBC, in good faith, relied upon the
endorsement documents sent to it as this was
only pursuant to the stipulation in the
mortgage contracts. We find such reliance to
be justified under the circumstances of the
case. GOYU failed to seasonably repudiate
the authority of the person or persons who
prepared such endorsements. Over and above
this, GOYU continued, in the meantime, to
enjoy the benefits of the credit facilities
extended to it by RCBC. After the occurrence
of the loss insured against, it was too late for
GOYU to disown the endorsements for any
imagined or contrived lack of authority
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of Alchester to prepare and issue said

endorsements. If there had not been actually
an implied ratification of said endorsements
by virtue of GOYU’s inaction in this case,
GOYU is at the very least estopped from
assailing their operative effects. To permit
GOYU to capitalize on its non-confirmation of
these endorsements while it continued to
enjoy the benefits of the credit facilities of
RCBC which believed in good faith that there
was due endorsement pursuant to their
mortgage contracts, is to countenance grave
contravention of public policy, fair dealing,
good faith, and justice. Such an unjust
situation, the Court cannot sanction. Under
the peculiar circumstances obtaining in this
case, the Court is bound to recognize RCBC’s
right to the proceeds of the insurance policies
if not for the actual endorsement of the
policies, at least on the basis of the equitable
principle of estoppel.
GOYU cannot seek relief under Section 53
of the Insurance Code which provides that the
proceeds of insurance shall exclusively apply
to the interest of the person in whose name or
for whose benefit it is made. The peculiarity
of the circumstances obtaining in the instant
case presents a justification to take exception
to the strict application of said provision, it
having been sufficiently established that it
was the intention of the parties to designate
RCBC as the party for whose benefit the
insurance policies were taken out. Consider
thus the following:

1. It is undisputed that the insured

pieces of property were the subject of
mortgage contracts entered into
between RCBC and GOYU in
consideration of and for securing
GOYU’s credit facilities from RCBC.
The mortgage contracts contained
common provisions whereby GOYU,
as mortgagor, undertook to have the
mortgaged property properly covered
against any loss by an insurance
company acceptable to RCBC.
2. GOYU voluntarily procured insurance
policies to cover the mortgaged
property from MICO, no less than a
sister company of RCBC and
definitely an acceptable insurance
company to RCBC.

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3. Endorsement documents were

prepared by MICO’s underwriter,
Alchester Insurance Agency, Inc., and
copies thereof were sent to GOYU,
MICO, and RCBC. GOYU did not
assail, until of late, the validity of said
endorsements.
 4. GOYU continued until the occurrence
of the fire, to enjoy the benefits of the
credit facilities extended by RCBC
which was conditioned upon the
endorsement of the insurance policies
to be taken by GOYU to cover the
mortgaged properties.

This Court can not over stress the fact that

upon receiving its copies of the endorsement
documents prepared by Alchester, GOYU,
despite the absence of its written conformity
thereto, obviously considered said
endorsement to be sufficient compliance with
its obligation under the mortgage contracts
since RCBC accordingly continued to extend
the benefits of its credit facilities and GOYU
continued to benefit therefrom. Just as plain
too is the intention of the parties to constitute
RCBC as the beneficiary of the various
insurance policies obtained by GOYU. The
intention of the parties will have to be given
full force and effect in this particular case.
The insurance proceeds may, therefore, be
exclusively applied to RCBC, which under the
factual circumstances of the case, is truly the
person or entity for whose benefit the policies
were clearly intended.
Moreover, the law’s evident intention to
protect the interests of the mortgagee upon
the mortgaged property is expressed in
Article 2127 of the Civil Code which states:

ART. 2127. The mortgage extends to the natural

accessions, to the improvements, growing fruits,
and the rents or income not yet received when the
obligation becomes due, and to the amount of the
indemnity granted or owing to the proprietor from
the insurers of the property mortgaged, or in virtue
of expropriation for public use, with the
declarations, amplifications and limitations
established by law, whether the estate remains in
the possession of the mortgagor, or it passes into
the hands of a third person.

Significantly, the Court notes that out of the

10 insurance policies subject of this case, only
8 of them appear to have
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been subject of the endorsements prepared

and delivered by Alchester for and upon
instructions of GOYU as shown below:

INSURANCE PARTICULARS ENDORSEMENT

POLICY
a. Policy : F-114-07795 None
Number
     Issue Date : March 18,  
1992
     Expiry : April 5, 1993  
Date
     Amount : P9,646,224.92  
INSURANCE PARTICULARS ENDORSEMENT
POLICY
b. Policy : ACIA/F-174- Exhibit “1-
Number 07660 Malayan”
     Issue Date : January 18,  
1992
     Expiry : February 9,  
Date 1993
     Amount : P4,307,217.54  
c. Policy : ACIA/F-114- Exhibit “2-
Number 07661 Malayan”
     Issue Date : January 18,  
1992
     Expiry : February 15,  
Date 1993
     Amount : P6,603,586.43  
d. Policy : ACIA/F-114- Exhibit “3-
Number 07662 Malayan”
     Issue Date : January 18,  
1992
     Expiry : (not legible)  
Date
     Amount : P6,603,586.43  
e. Policy : ACIA/F-114- Exhibit “4-
Number 07663 Malayan”
     Issue Date : January 18,  
1992
     Expiry : February 9,  
Date 1993
     Amount : P9,457,972.76  
INSURANCE PARTICULARS ENDORSEMENT
POLICY
f. Policy : ACIA/F-114- Exhibit “7-
Number 07623 Malayan”
     Issue Date : January 13,  
1992
     Expiry : January 13,  
Date 1993
     Amount :  
P24,750,000.00
g. Policy : ACIA/F-174- Exhibit “6-
Number 07223 Malayan”
     Issue Date : May 29, 1991  
     Expiry : June 27, 1992  
Date
     Amount : P6,000,000.00  

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h. Policy : CI/F-128-03341 None

Number
     Issue Date : May 3, 1991  
     Expiry : May 3, 1992  
Date
     Amount : P10,000,000.00  
i. Policy : F-114-07402 Exhibit “8-
Number Malayan”
     Issue Date : September 16,  
1991
     Expiry October 19, 1992  
Date
     Amount : P32,252,125.20  
j. Policy : F-114-07525      Exhibit
Number “9-
Malayan”
     Issue Date : November 20,  
1991
     Expiry : December 5,  
Date 1992
     Amount : P6,603,586.43  
(pp. 456-457, Record; Folder of Exhibits for
MICO.)

Policy Number F-114-07795 [(a) above] has

not been endorsed. This fact was admitted by
MICO’s witness, Atty. Farolan (tsn, February
16, 1994, p. 25). Likewise, the record shows
no endorsement for Policy Number CI/F-128-
03341 [(h) above]. Also, one of the
endorsement documents, Exhibit “5-
Malayan,” refers to a certain insurance policy
number ACIAF-07066, which is not among
the insurance policies involved in the
complaint.
The proceeds of the 8 insurance policies
endorsed to RCBC aggregate to
P89,974,488.36. Being exclusively payable to
RCBC by reason of the endorsement by
Alchester to RCBC, which we already ruled to
have the force and effect of an endorsement
by GOYU itself, these 8 policies can not be
attached by GOYU’s other creditors up to the
extent of the GOYU’s outstanding obligation
in RCBC’s favor. Section 53 of the Insurance
Code ordains that the insurance proceeds of
the endorsed policies shall be applied
exclusively to the proper interest of the
person for whose benefit it was made. In this
case, to the extent of GOYU’s obligation with
RCBC, the interest of GOYU in the subject
policies had been transferred to RCBC
effective as of the time of the endorsement.
These policies may no longer be attached by
the other creditors of

306

306 SUPREME COURT REPORTS

ANNOTATED
Rizal Commercial Banking Corporation vs.
Court of Appeals

GOYU, like Alfredo Sebastian in the present

G.R. No. 128834, which may nonetheless
forthwith be dismissed for being moot and
academic in view of the results reached
herein. Only the two other policies amounting
to P19,646,224.92 may be validly attached,
garnished, and levied upon by GOYU’s other
creditors. To the extent of GOYU’s
outstanding obligation with RCBC, all the
rest of the other insurance policies above-
listed which were endorsed to RCBC, are,
therefore, to be released from attachment,
garnishment, and levy by the other creditors
of GOYU.
This brings us to the next relevant issue to
be resolved, which is, the extent of GOYU’s
outstanding obligation with RCBC which the
proceeds of the 8 insurance policies will
discharge and liquidate, or put differently,
the actual amount of GOYU’s liability to
RCBC.
The Court of Appeals simply echoed the
declaration of the trial court finding that
GOYU’s total obligation to RCBC was only
P68,785,060.04 as of April 27, 1992, thus
sanctioning the trial court’s exclusion of
Promissory Note No. 421-92 (renewal of
Promissory Note No. 908-91) and Promissory
Note No. 420-92 (renewal of Promissory Note
No. 952-91) on the ground that their
execution is highly questionable for not only
are these dated after the fire, but also
because the signatures of either GOYU or any
of its representative are conspicuously absent.
Accordingly, the Court of Appeals speculated
thusly:

. . . Hence, this Court is inclined to conclude that

said promissory notes were pre-signed by plaintiff
in blank terms, as averred by plaintiff, in
contemplation of the speedy grant of future loans,
for the same practice of procedure has always been
adopted in its previous dealings with the bank.
(Rollo, pp. 181-182.)

The fact that the promissory notes bear dates

posterior to the fire does not necessarily mean
that the documents are spurious, for it is
presumed that the ordinary course of
business had been followed (Metropolitan
Bank and Trust Company vs. Quilts and All,
Inc., 222 SCRA 486 [1993]). The obli-

307

VOL. 289, APRIL 20, 1998 307

Rizal Commercial Banking Corporation vs.
Court of Appeals

gor and not the holder of the negotiable

instrument has the burden of proof of
showing that he no longer owes the obligee
any amount (Travel-On, Inc. vs. Court of
Appeals, 210 SCRA 351 [1992]).
Even casting aside the presumption of
regularity of private transactions, receipt of
the loan amounting to P121,966,058.67
(Exhibits 1-29, RCBC) was admitted by
GOYU as indicated in the testimony of Go
Song Hiap when he answered the queries of
the trial court:

ATTY. NATIVIDAD
Q: But insofar as the amount stated in
Exhibits 1 to 29- RCBC, you received all
the amounts stated therein?
A: Yes, sir, I received the amount.
COURT
  He is asking if he received all the
amounts stated in Exhibits 1 to 29-RCBC?
WITNESS
  Yes, Your Honor, I received all the
amounts.
COURT
  Indicated in the Promissory Notes?
WITNESS
A: The promissory Notes they did not give to
me but the amount I asked which is
correct, Your Honor.
COURT
Q: You mean to say the amounts indicated in
Exhibits 1 to 29-RCBC is correct?
A: Yes, Your Honor.
  (tsn, Jan. 14, 1994, p. 26.)

Furthermore, aside from its judicial

admission of having received all the proceeds
of the 29 promissory notes as hereinabove
quoted, GOYU also offered and admitted to
RCBC that its obligation be fixed at
P116,301,992.60 as shown in its letter dated
March 9, 1993, which pertinently reads:

We wish to inform you, therefore that we are ready

and willing to pay the current past due account of
this company in the amount of

308

308 SUPREME COURT REPORTS

ANNOTATED
Rizal Commercial Banking Corporation vs. Court
of Appeals
P116,301,992.60 as of 21 January 1993, specified
in pars. 15, p. 10, and 18, p. 13 of your affidavits of
Third Party Claims in the Urban case at Makati,
Metro Manila and in the Zamboanga case at
Zamboanga City, respectively, less the total of
P8,851,519.71 paid from the Seaboard and
Equitable insurance companies and other
legitimate deductions. We accept and confirm this
amount of P116,301,992.60 as stated as true and
correct.
(Exhibit BB.)

The Court of Appeals erred in placing much

significance on the fact that the excluded
promissory notes are dated after the fire. It
failed to consider that said notes had for their
origin transactions consummated prior to the
fire. Thus, careful attention must be paid to
the fact that Promissory Notes Nos. 420-92
and 421-92 are mere renewals of Promissory
Notes Nos. 908-91 and 952-91, loans already
availed of by GOYU.
The two courts below erred in failing to see
that the promissory notes which they ruled
should be excluded for bearing dates which
are after that of the fire, are mere renewals of
previous ones. The proceeds of the loan
represented by these promissory notes were
admittedly received by GOYU. There is ample
factual and legal basis for giving GOYU’s
judicial admission of liability in the amount of
P116,301,992.60 full force and effect.
It should, however, be quickly added that
whatever amount RCBC may have recovered
from the other insurers of the mortgaged
property will, nonetheless, have to be applied
as payment against GOYU’s obligation. But,
contrary to the lower courts’ findings,
payments effected by GOYU prior to January
21, 1993 should no longer be deducted. Such
payments had obviously been duly considered
by GOYU, in its aforequoted letter dated
March 9, 1993, wherein it admitted that its
past due account totaled P116,301,992.60 as
of January 21, 1993.
The net obligation of GOYU, after
deductions, is thus reduced to
P107,246,887.90 as of January 21, 1993, to
wit:
309

VOL. 289, APRIL 20, 1998 309

Rizal Commercial Banking Corporation vs.
Court of Appeals

  Total Obligation as  
admitted by GOYU as of
January 21, 1993: P116,301,992.60

Broken down as follows: Principal1 Interest

Regular 80,535,946.32 FDU 27,548,025.17
____________ Total: 108,083,971.49
8,218,021.112 LESS: 1) Proceeds from
Seaboard Eastern Insurance Company:
6,095,145.81 2) Proceeds from Equitable
Insurance Company: 2,756,373.00 3) Payment
from foreign department negotiation:
203,584.89 9,055,104.703 NET AMOUNT as
of January 21, 1993: P107,246,887.90
 The need for the payment of interest due
upon the principal amount of the obligation,
which is the cost of money to RCBC, the
primary end and the ultimate reason for
RCBC’s existence and being, was duly
recognized by the trial court when it ruled
favorably on RCBC’s counterclaim, ordering
GOYU “to pay its loan obligation with RCBC
in the amount of

________________

1 See: Exhibit “70-RCBC.”

2 Computed by deducting P108,083,971.49 from the
admitted amount of P116,301,992.60.
3 To be deducted from interest payments due in
accordance with Article 1253 of the Civil Code which
provides: ART. 1253. If debt produces interest, payment
of the principal shall not be deemed to have been made
until the interests have been covered.

310

310 SUPREME COURT REPORTS

ANNOTATED
Rizal Commercial Banking Corporation vs.
Court of Appeals

P68,785,069.04, as of April 27, 1992, with

interest thereon at the rate stipulated in the
respective promissory notes (without
surcharges and penalties) per computation,
pp. 14-A, 14-B, 14-C” (Record, p. 479).
Inexplicably, the Court of Appeals, without
even laying down the factual or legal
justification for its ruling, modified the trial
court’s ruling and ordered GOYU “to pay the
principal amount of P68,785,069.04 without
any interest, surcharges and penalties” (Rollo,
p. 200).
It is to be noted in this regard that even
the trial court hedgingly and with much
uncertainty deleted the payment of additional
interest, penalties, and charges, in this
manner:

Regarding defendant RCBC’s commitment not to

charge additional interest, penalties and
surcharges, the same does not require that it be
embodied in a document or some form of writing to
be binding and enforceable. The principle is well
known that generally a verbal agreement or
contract is no less binding and effective than a
written one. And the existence of such a verbal
agreement has been amply established by the
evidence in this case. In any event, regardless of the
existence of such verbal agreement, it would still be
unjust and inequitable for defendant RCBC to
charge the plaintiff with surcharges and penalties
considering the latter’s pitiful situation. (Emphasis
supplied.)
(Record, p. 476)

The essence or rationale for the payment of

interest or cost of money is separate and
distinct from that of surcharges and
penalties. What may justify a court in not
allowing the creditor to charge surcharges
and penalties despite express stipulation
therefor in a valid agreement, may not
equally justify non-payment of interest. The
charging of interest for loans forms a very
essential and fundamental element of the
banking business, which may truly be
considered to be at the very core of its
existence or being. It is inconceivable for a
bank to grant loans for which it will not
charge any interest at all. We fail to find
justification for the Court of Appeals’ outright
deletion of the payment of interest as agreed
upon in the respective promissory notes. This
constitutes gross error.

311

VOL. 289, APRIL 20, 1998 311

Rizal Commercial Banking Corporation vs.
Court of Appeals

For the computation of the interest due to be

paid to RCBC, the following rules of thumb
laid down by this Court in Eastern Shipping
Lines, Inc. vs. Court of Appeals (234 SCRA 78
[1994]), shall apply, to wit:

I. When an obligation, regardless of its

source, i.e., law, contracts, quasi-
contracts, delicts or quasi-delicts is
breached, the contravenor can be held
liable for damages. The provisions
under Title XVIII on “Damages” of the
Civil Code govern in determining the
measure of recoverable damages.
II. With regard particularly to an award
of interest in the concept of actual and
compensatory damages, the rate of
 interest, as well as the accrual
thereof, is imposed, as follows:

1. When the obligation is breached, and

it consists in the payment of a sum of
money, i.e., a loan or forbearance of
money, the interest due should be that
which may have been stipulated in
writing. Furthermore, the interest due
shall itself earn legal interest from the
time it is judicially demanded. In the
absence of stipulation, the rate of
interest shall be 12% per annum to be
computed from default, i.e., from
judicial or extrajudicial demand under
and subject to the provisions of Article
1169 of the Civil Code.
2. When an obligation, not constituting a
loan or forbearance of money, is
breached, an interest on the amount
of damages awarded may be imposed
at the discretion of the court at the
rate of 6% per annum. No interest,
however, shall be adjudged on
unliquidated claims or damages
except when or until the demand can
be established with reasonable
certainty. Accordingly, where the
demand is established with
reasonable certainty, the interest
shall begin to run from the time the
claim is made judicially or
extrajudicially (Art. 1169, Civil Code)
but when such certainty cannot be so
reasonably established at the time the
demand is made, the interest shall
 begin to run only from the date of the
judgment of the court is made (at
which time the quantification of
damages may be deemed to have been
reasonably ascertained). The actual
base for the computation of legal
interest shall, in any case, be on the
amount finally adjudged.
3. When the judgment of the court
awarding a sum of money becomes
final and executory, the rate of legal
interest, whether the case falls under
paragraph 1 or paragraph 2, above,
shall be 12% per annum from such
finality until its satisfaction, this
interim period being deemed to be by
then an equivalent to a forbearance of
credit.
(pp. 95-97.)

312

312 SUPREME COURT REPORTS

ANNOTATED
Rizal Commercial Banking Corporation vs.
Court of Appeals

There being written stipulations as to the

rate of interest owing on each specific
promissory note as summarized and
tabulated by the trial court in its decision (pp.
470 and 471, Record) such agreed interest
rates must be followed. This is very clear from
paragraph II, sub-paragraph 1 quoted above.
 On the issue of payment of surcharges and
penalties, we partly agree that GOYU’s pitiful
situation must be taken into account. We do
not agree, however, that payment of any
amount as surcharges and penalties should
altogether be deleted. Even assuming that
RCBC, through its responsible officers, herein
petitioners Eli Lao and Uy Chun Bing, may
have relayed its assurance for assistance to
GOYU immediately after the occurrence of
the fire, we cannot accept the lower courts’
finding that RCBC had thereby ipso facto
effectively waived collection of any additional
interests, surcharges, and penalties from
GOYU. Assurances of assistance are one
thing, but waiver of additional interests,
surcharges, and penalties is another.
Surcharges and penalties agreed to be paid
by the debtor in case of default partake of the
nature of liquidated damages, covered by
Section 4, Chapter 3, Title XVIII of the Civil
Code. Article 2227 thereof provides:

ART. 2227. Liquidated damages, whether intended

as an indemnity or penalty, shall be equitably
reduced if they are iniquitous and unconscionable.

In exercising this vested power to determine

what is iniquitous and unconscionable, the
Court must consider the circumstances of
each case. It should be stressed that the
Court will not make any sweeping ruling that
surcharges and penalties imposed by banks
for non-payment of the loans extended by
them are generally iniquitous and
unconscionable. What may be iniquitous and
unconscionable in one case, may be totally
just and equitable in another. This provision
of law will have to be applied to the
established facts of any given case. Given the
circumstances under which GOYU found
itself after the occurrence of the fire, the
Court rules the surcharges rates
313

VOL. 289, APRIL 20, 1998 313

Rizal Commercial Banking Corporation vs.
Court of Appeals

ranging anywhere from 9% to 27%, plus the

penalty charges of 36%, to be definitely
iniquitous and unconscionable. The Court
tempers these rates to 2% and 3%,
respectively. Furthermore, in the light of
GOYU’s offer to pay the amount of
P116,301,992.60 to RCBC as of March 1993
(See: Exhibit “BB”), which RCBC refused, we
find it more in keeping with justice and
equity for RCBC not to charge additional
interest, surcharges, and penalties from that
time onward.
Given the factual milieu spread hereover,
we rule that it was error to hold MICO liable
in damages for denying or withholding the
proceeds of the insurance claim to GOYU.
Firstly, by virtue of the mortgage contracts
as well as the endorsements of the insurance
policies, RCBC has the right to claim the
insurance proceeds, in substitution of the
property lost in the fire. Having assigned its
rights, GOYU lost its standing as the
beneficiary of the said insurance policies.
Secondly, for an insurance company to be
held liable for unreasonably delaying and
withholding payment of insurance proceeds,
the delay must be wanton, oppressive, or
malevolent (Zenith Insurance Corporation vs.
CA, 185 SCRA 403 [1990]). It is generally
agreed, however, that an insurer may in good
faith and honesty entertain a difference of
opinion as to its liability. Accordingly, the
statutory penalty for vexatious refusal of an
insurer to pay a claim should not be inflicted
unless the evidence and circumstances show
that such refusal was willful and without
reasonable cause as the facts appear to a
reasonable and prudent man (Buffalo Ins. Co.
vs. Bommarito [CCA 8th] 42 F [2d] 53, 70
ALR 1211; Phoenix Ins. Co. vs. Clay, 101 Ga.
331, 28 SE 853, 65 Am St Rep 307; Kusnetsky
vs. Security Ins. Co., 313 Mo. 143, 281 SW 47,
45 ALR 189). The case at bar does not show
that MICO wantonly and in bad faith delayed
the release of the proceeds. The problem in
the determination of who is the actual
beneficiary of the insurance policies,
aggravated by the claim of various creditors
who wanted to partake of the insurance
proceeds, not to mention the importance of
the endorsement to RCBC, to our mind, and
as now borne out by the outcome herein,
justified MICO in withholding payment to
GOYU.
314
314 SUPREME COURT REPORTS
ANNOTATED
Rizal Commercial Banking Corporation vs.
Court of Appeals

In adjudging RCBC liable in damages to

GOYU, the Court of Appeals said that RCBC
cannot avail itself of two simultaneous
remedies in enforcing the claim of an unpaid
creditor, one for specific performance and the
other for foreclosure. In doing so, said the
appellate court, the second action is deemed
barred, RCBC having split a single cause of
action (Rollo, pp. 195-199). The Court of
Appeals was too accommodating in giving due
consideration to this argument of GOYU, for
the foreclosure suit is still pending appeal
before the same Court of Appeals in CA G.R.
CV No. 46247, the case having been elevated
by RCBC.
In finding that the foreclosure suit cannot
prosper, the Fifteenth Division of the Court of
Appeals pre-empted the resolution of said
foreclosure case which is not before it. This is
plain reversible error if not grave abuse of
discretion.
As held in Peña vs. Court of Appeals (245
SCRA 691 [1995]):

It should have been enough, nonetheless, for the

appellate court to merely set aside the questioned
orders of the trial court for having been issued by
the latter with grave abuse of discretion. In
likewise enjoining permanently herein petitioner
“from entering in and interfering with the use or
occupation and enjoyment of petitioner’s (now
private respondent) residential house and
compound,” the appellate court in effect,
precipitately resolved with finality the case for
injunction that was yet to be heard on the merits
by the lower court. Elevated to the appellate court,
it might be stressed, were mere incidents of the
principal case still pending with the trial court. In
Municipality of Biñan, Laguna vs. Court of
Appeals, 219 SCRA 69, we ruled that the Court of
Appeals would have “no jurisdiction in a certiorari
proceeding involving an incident in a case to rule
on the merits of the main case itself which was not
on appeal before it.”
(pp. 701-702.)

Anent the right of RCBC to intervene in Civil

Case No. 1073, before the Zamboanga
Regional Trial Court, since it has been
determined that RCBC has the right to the
insurance proceeds, the subject matter of
intervention is rendered moot
315

VOL. 289, APRIL 20, 1998 315

Rizal Commercial Banking Corporation vs.
Court of Appeals

and academic. Respondent Sebastian must,

however, yield to the preferential right of
RCBC over the MICO insurance policies. It is
basic and fundamental that the first
mortgagee has superior rights over junior
mortgagees or attaching creditors (Alpha
Insurance & Surety Co. vs. Reyes, 106 SCRA
274 [1981]; Sun Life Assurance Co. of Canada
vs. Gonzales Diaz, 52 Phil. 271 [1928]).
WHEREFORE, the petitions are hereby
GRANTED and the decision and resolution of
December 16, 1996 and April 3, 1997 in CA-
G.R. CV No. 46162 are hereby REVERSED
and SET ASIDE, and a new one entered:

1. Dismissing the Complaint of private

respondent GOYU in Civil Case No.
93-65442 before Branch 3 of the
Manila Regional Trial Court for lack
of merit;
2. Ordering Malayan Insurance
Company, Inc. to deliver to Rizal
Commercial Banking Corporation the
proceeds of the insurance policies in
the amount of P51,862,390.94 (per
report of adjuster Toplis & Harding
[Far East], Inc., Exhibits “2” and “2-
1”), less the amount of P50,505,594.60
(per O.R. No. 3649285);
3. Ordering the Clerk of Court to release
the amount of P50,505,594.60
including the interests earned to Rizal
Commercial Banking Corporation;
4. Ordering Goyu & Sons, Inc. to pay its
loan obligation with Rizal Commercial
Banking Corporation in the principal
amount of P107,246,887.90, with
interest at the respective rates
stipulated in each promissory note
from January 21, 1993 until finality of
this judgment, and surcharges at 2%
and penalties at 3% from January 21,
 1993 to March 9, 1993, minus
payments made by Malayan
Insurance Company, Inc. and the
proceeds of the amount deposited with
the trial court and its earned interest.
The total amount due RCBC at the
time of the finality of this judgment
shall earn interest at the legal rate of
12% in lieu of all other stipulated
interests and charges until fully paid.

The petition of Rizal Commercial Banking

Corporation against the respondent Court in
CA-GR CV 48376 is DISMISSED for being
moot and academic in view of the results
316

316 SUPREME COURT REPORTS

ANNOTATED
People vs. Tulop

herein arrived at. Respondent Sebastian’s

right as attaching creditor must yield to the
preferential rights of Rizal Commercial
Banking Corporation over the Malayan
insurance policies as first mortgagee.
SO ORDERED.

     Regalado (Chairman), Puno, Mendoza

and Martinez, JJ., concur.

Petitions granted, decision and resolution

reversed and set aside.
 Note.—Where both parties offer a
conflicting interpretation of a contract then
judicial determination of the parties’
intention is inevitable. (China Banking
Corporation vs. Court of Appeals, 265 SCRA
327 [1996])

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