G.R. No. 173227 January 20, 2009 between them.

between them. According to her computation, the total amount she paid to petitioner
for the loan and interest accumulated to ₱1,200,000.00.7
SEBASTIAN SIGA-AN, Petitioner,
vs. Thereafter, respondent consulted a lawyer regarding the propriety of paying interest
ALICIA VILLANUEVA, Respondent. on the loan despite absence of agreement to that effect. Her lawyer told her that
petitioner could not validly collect interest on the loan because there was no
DECISION agreement between her and petitioner regarding payment of interest. Since she paid
petitioner a total amount of ₱1,200,000.00 for the ₱540,000.00 worth of loan, and
CHICO-NAZARIO, J.: upon being advised by her lawyer that she made overpayment to petitioner, she sent
a demand letter to petitioner asking for the return of the excess amount of
₱660,000.00. Petitioner, despite receipt of the demand letter, ignored her claim for
Before Us is a Petition1 for Review on Certiorari under Rule 45 of the Rules of Court
reimbursement.8
seeking to set aside the Decision,2 dated 16 December 2005, and Resolution,3 dated 19
June 2006 of the Court of Appeals in CA-G.R. CV No. 71814, which affirmed in toto the
Decision,4 dated 26 January 2001, of the Las Pinas City Regional Trial Court, Branch Respondent prayed that the RTC render judgment ordering petitioner to pay
255, in Civil Case No. LP-98-0068. respondent (1) ₱660,000.00 plus legal interest from the time of demand; (2)
₱300,000.00 as moral damages; (3) ₱50,000.00 as exemplary damages; and (4) an
amount equivalent to 25% of ₱660,000.00 as attorney’s fees.9
The facts gathered from the records are as follows:

In his answer10 to the complaint, petitioner denied that he offered a loan to

On 30 March 1998, respondent Alicia Villanueva filed a complaint5 for sum of money
respondent. He averred that in 1992, respondent approached and asked him if he
against petitioner Sebastian Siga-an before the Las Pinas City Regional Trial Court
could grant her a loan, as she needed money to finance her business venture with the
(RTC), Branch 255, docketed as Civil Case No. LP-98-0068. Respondent alleged that she
PNO. At first, he was reluctant to deal with respondent, because the latter had a
was a businesswoman engaged in supplying office materials and equipments to the
spotty record as a supplier of the PNO. However, since respondent was an
Philippine Navy Office (PNO) located at Fort Bonifacio, Taguig City, while petitioner
acquaintance of his officemate, he agreed to grant her a loan. Respondent paid the
was a military officer and comptroller of the PNO from 1991 to 1996.
loan in full.11
Respondent claimed that sometime in 1992, petitioner approached her inside the PNO
Subsequently, respondent again asked him to give her a loan. As respondent had been
and offered to loan her the amount of ₱540,000.00. Since she needed capital for her
able to pay the previous loan in full, he agreed to grant her another loan. Later,
business transactions with the PNO, she accepted petitioner’s proposal. The loan
respondent requested him to restructure the payment of the loan because she could
agreement was not reduced in writing. Also, there was no stipulation as to the
not give full payment on the due date. He acceded to her request. Thereafter,
payment of interest for the loan.6
respondent pleaded for another restructuring of the payment of the loan. This time he
rejected her plea. Thus, respondent proposed to execute a promissory note wherein
On 31 August 1993, respondent issued a check worth ₱500,000.00 to petitioner as
she would acknowledge her obligation to him, inclusive of interest, and that she would
partial payment of the loan. On 31 October 1993, she issued another check in the
issue several postdated checks to guarantee the payment of her obligation. Upon his
amount of ₱200,000.00 to petitioner as payment of the remaining balance of the loan.
approval of respondent’s request for restructuring of the loan, respondent executed a
Petitioner told her that since she paid a total amount of ₱700,000.00 for the
promissory note dated 12 September 1994 wherein she admitted having borrowed an
₱540,000.00 worth of loan, the excess amount of ₱160,000.00 would be applied as
amount of ₱1,240,000.00, inclusive of interest, from petitioner and that she would pay
interest for the loan. Not satisfied with the amount applied as interest, petitioner
said amount in March 1995. Respondent also issued to him six postdated checks
pestered her to pay additional interest. Petitioner threatened to block or disapprove
amounting to ₱1,240,000.00 as guarantee of compliance with her obligation.
her transactions with the PNO if she would not comply with his demand. As all her
Subsequently, he presented the six checks for encashment but only one check was
transactions with the PNO were subject to the approval of petitioner as comptroller of
honored. He demanded that respondent settle her obligation, but the latter failed to
the PNO, and fearing that petitioner might block or unduly influence the payment of
do so. Hence, he filed criminal cases for Violation of the Bouncing Checks Law (Batas
her vouchers in the PNO, she conceded. Thus, she paid additional amounts in cash and
Pambansa Blg. 22) against respondent. The cases were assigned to the Metropolitan
checks as interests for the loan. She asked petitioner for receipt for the payments but
Trial Court of Makati City, Branch 65 (MeTC). 12
petitioner told her that it was not necessary as there was mutual trust and confidence
Petitioner insisted that there was no overpayment because respondent admitted in Petitioner appealed to the Court of Appeals. On 16 December 2005, the appellate
the latter’s promissory note that her monetary obligation as of 12 September 1994 court promulgated its Decision affirming in toto the RTC Decision, thus:
amounted to ₱1,240,000.00 inclusive of interests. He argued that respondent was
already estopped from complaining that she should not have paid any interest, WHEREFORE, the foregoing considered, the instant appeal is hereby DENIED and the
because she was given several times to settle her obligation but failed to do so. He assailed decision [is] AFFIRMED in toto.15
maintained that to rule in favor of respondent is tantamount to concluding that the
loan was given interest-free. Based on the foregoing averments, he asked the RTC to Petitioner filed a motion for reconsideration of the appellate court’s decision but this
dismiss respondent’s complaint. was denied.16 Hence, petitioner lodged the instant petition before us assigning the
following errors:
After trial, the RTC rendered a Decision on 26 January 2001 holding that respondent
made an overpayment of her loan obligation to petitioner and that the latter should I.
refund the excess amount to the former. It ratiocinated that respondent’s obligation
was only to pay the loaned amount of ₱540,000.00, and that the alleged interests due
THE RTC AND THE COURT OF APPEALS ERRED IN RULING THAT NO INTEREST WAS DUE
should not be included in the computation of respondent’s total monetary debt
TO PETITIONER;
because there was no agreement between them regarding payment of interest. It
concluded that since respondent made an excess payment to petitioner in the amount
II.
of ₱660,000.00 through mistake, petitioner should return the said amount to
respondent pursuant to the principle of solutio indebiti.13
THE RTC AND THE COURT OF APPEALS ERRED IN APPLYING THE PRINCIPLE OF SOLUTIO
INDEBITI.17
The RTC also ruled that petitioner should pay moral damages for the sleepless nights
and wounded feelings experienced by respondent. Further, petitioner should pay
exemplary damages by way of example or correction for the public good, plus Interest is a compensation fixed by the parties for the use or forbearance of money.
attorney’s fees and costs of suit. This is referred to as monetary interest. Interest may also be imposed by law or by
courts as penalty or indemnity for damages. This is called compensatory interest. 18 The
right to interest arises only by virtue of a contract or by virtue of damages for delay or
The dispositive portion of the RTC Decision reads:
failure to pay the principal loan on which interest is demanded.19
WHEREFORE, in view of the foregoing evidence and in the light of the provisions of law
Article 1956 of the Civil Code, which refers to monetary interest,20 specifically
and jurisprudence on the matter, judgment is hereby rendered in favor of the plaintiff
mandates that no interest shall be due unless it has been expressly stipulated in
and against the defendant as follows:
writing. As can be gleaned from the foregoing provision, payment of monetary interest
is allowed only if: (1) there was an express stipulation for the payment of interest; and
(1) Ordering defendant to pay plaintiff the amount of ₱660,000.00 plus legal
(2) the agreement for the payment of interest was reduced in writing. The
interest of 12% per annum computed from 3 March 1998 until the amount is
concurrence of the two conditions is required for the payment of monetary interest.
paid in full;
Thus, we have held that collection of interest without any stipulation therefor in
writing is prohibited by law.21
(2) Ordering defendant to pay plaintiff the amount of ₱300,000.00 as moral
damages;
It appears that petitioner and respondent did not agree on the payment of interest for
the loan. Neither was there convincing proof of written agreement between the two
(3) Ordering defendant to pay plaintiff the amount of ₱50,000.00 as regarding the payment of interest. Respondent testified that although she accepted
exemplary damages; petitioner’s offer of loan amounting to ₱540,000.00, there was, nonetheless, no verbal
or written agreement for her to pay interest on the loan. 22
(4) Ordering defendant to pay plaintiff the amount equivalent to 25% of
₱660,000.00 as attorney’s fees; and Petitioner presented a handwritten promissory note dated 12 September
199423 wherein respondent purportedly admitted owing petitioner "capital and
(5) Ordering defendant to pay the costs of suit.14 interest." Respondent, however, explained that it was petitioner who made a
promissory note and she was told to copy it in her own handwriting; that all her
transactions with the PNO were subject to the approval of petitioner as comptroller of earlier discussed, monetary interest is due only if there was an expressstipulation in
the PNO; that petitioner threatened to disapprove her transactions with the PNO if writing for the payment of interest.
she would not pay interest; that being unaware of the law on interest and fearing that
petitioner would make good of his threats if she would not obey his instruction to There are instances in which an interest may be imposed even in the absence of
copy the promissory note, she copied the promissory note in her own handwriting; express stipulation, verbal or written, regarding payment of interest. Article 2209 of
and that such was the same promissory note presented by petitioner as alleged proof the Civil Code states that if the obligation consists in the payment of a sum of money,
of their written agreement on interest. 24 Petitioner did not rebut the foregoing and the debtor incurs delay, a legal interest of 12% per annum may be imposed as
testimony. It is evident that respondent did not really consent to the payment of indemnity for damages if no stipulation on the payment of interest was agreed upon.
interest for the loan and that she was merely tricked and coerced by petitioner to pay Likewise, Article 2212 of the Civil Code provides that interest due shall earn legal
interest. Hence, it cannot be gainfully said that such promissory note pertains to an interest from the time it is judicially demanded, although the obligation may be silent
express stipulation of interest or written agreement of interest on the loan between on this point.
petitioner and respondent.
All the same, the interest under these two instances may be imposed only as a penalty
Petitioner, nevertheless, claims that both the RTC and the Court of Appeals found that or damages for breach of contractual obligations. It cannot be charged as a
he and respondent agreed on the payment of 7% rate of interest on the loan; that the compensation for the use or forbearance of money. In other words, the two instances
agreed 7% rate of interest was duly admitted by respondent in her testimony in the apply only to compensatory interest and not to monetary interest. 29 The case at bar
Batas Pambansa Blg. 22 cases he filed against respondent; that despite such judicial involves petitioner’s claim for monetary interest.
admission by respondent, the RTC and the Court of Appeals, citing Article 1956 of the
Civil Code, still held that no interest was due him since the agreement on interest was Further, said compensatory interest is not chargeable in the instant case because it
not reduced in writing; that the application of Article 1956 of the Civil Code should not was not duly proven that respondent defaulted in paying the loan. Also, as earlier
be absolute, and an exception to the application of such provision should be made found, no interest was due on the loan because there was no written agreement as
when the borrower admits that a specific rate of interest was agreed upon as in the regards payment of interest.
present case; and that it would be unfair to allow respondent to pay only the loan
when the latter very well knew and even admitted in the Batas Pambansa Blg. 22 cases
Apropos the second assigned error, petitioner argues that the principle of solutio
that there was an agreed 7% rate of interest on the loan.25
indebiti does not apply to the instant case. Thus, he cannot be compelled to return the
alleged excess amount paid by respondent as interest.30
We have carefully examined the RTC Decision and found that the RTC did not make a
ruling therein that petitioner and respondent agreed on the payment of interest at the
Under Article 1960 of the Civil Code, if the borrower of loan pays interest when there
rate of 7% for the loan. The RTC clearly stated that although petitioner and respondent
has been no stipulation therefor, the provisions of the Civil Code
entered into a valid oral contract of loan amounting to ₱540,000.00, they,
concerning solutio indebiti shall be applied. Article 2154 of the Civil Code explains the
nonetheless, never intended the payment of interest thereon. 26 While the Court of
principle of solutio indebiti. Said provision provides that if something is received when
Appeals mentioned in its Decision that it concurred in the RTC’s ruling that petitioner
there is no right to demand it, and it was unduly delivered through mistake, the
and respondent agreed on a certain rate of interest as regards the loan, we consider
obligation to return it arises. In such a case, a creditor-debtor relationship is created
this as merely an inadvertence because, as earlier elucidated, both the RTC and the
under a quasi-contract whereby the payor becomes the creditor who then has the
Court of Appeals ruled that petitioner is not entitled to the payment of interest on the
right to demand the return of payment made by mistake, and the person who has no
loan. The rule is that factual findings of the trial court deserve great weight and
right to receive such payment becomes obligated to return the same. The quasi-
respect especially when affirmed by the appellate court.27 We found no compelling
contract of solutio indebiti harks back to the ancient principle that no one shall enrich
reason to disturb the ruling of both courts.
himself unjustly at the expense of another.31 The principle of solutio indebitiapplies
where (1) a payment is made when there exists no binding relation between the
Petitioner’s reliance on respondent’s alleged admission in the Batas Pambansa Blg. 22 payor, who has no duty to pay, and the person who received the payment; and (2) the
cases that they had agreed on the payment of interest at the rate of 7% deserves scant payment is made through mistake, and not through liberality or some other
consideration. In the said case, respondent merely testified that after paying the total cause.32 We have held that the principle of solutio indebiti applies in case of erroneous
amount of loan, petitioner ordered her to pay interest.28 Respondent did not payment of undue interest.33
categorically declare in the same case that she and respondent made
an express stipulation in writing as regards payment of interest at the rate of 7%. As
It was duly established that respondent paid interest to petitioner. Respondent was corresponding amount of ₱300,000.00, as fixed by the RTC and the Court of Appeals, is
under no duty to make such payment because there was no express stipulation in exorbitant and should be equitably reduced. Article 2216 of the Civil Code instructs
writing to that effect. There was no binding relation between petitioner and that assessment of damages is left to the discretion of the court according to the
respondent as regards the payment of interest. The payment was clearly a mistake. circumstances of each case. This discretion is limited by the principle that the amount
Since petitioner received something when there was no right to demand it, he has an awarded should not be palpably excessive as to indicate that it was the result of
obligation to return it. prejudice or corruption on the part of the trial court. 40 To our mind, the amount of
₱150,000.00 as moral damages is fair, reasonable, and proportionate to the injury
We shall now determine the propriety of the monetary award and damages imposed suffered by respondent.
by the RTC and the Court of Appeals.
Article 2232 of the Civil Code states that in a quasi-contract, such as solutio indebiti,
Records show that respondent received a loan amounting to ₱540,000.00 from exemplary damages may be imposed if the defendant acted in an oppressive manner.
petitioner.34 Respondent issued two checks with a total worth of ₱700,000.00 in favor Petitioner acted oppressively when he pestered respondent to pay interest and
of petitioner as payment of the loan.35 These checks were subsequently encashed by threatened to block her transactions with the PNO if she would not pay interest. This
petitioner.36 Obviously, there was an excess of ₱160,000.00 in the payment for the forced respondent to pay interest despite lack of agreement thereto. Thus, the award
loan. Petitioner claims that the excess of ₱160,000.00 serves as interest on the loan to of exemplary damages is appropriate. The amount of ₱50,000.00 imposed as
which he was entitled. Aside from issuing the said two checks, respondent also paid exemplary damages by the RTC and the Court is fitting so as to deter petitioner and
cash in the total amount of ₱175,000.00 to petitioner as interest. 37 Although no other lenders from committing similar and other serious wrongdoings.41
receipts reflecting the same were presented because petitioner refused to issue such
to respondent, petitioner, nonetheless, admitted in his Reply-Affidavit38 in the Batas Jurisprudence instructs that in awarding attorney’s fees, the trial court must state the
Pambansa Blg. 22 cases that respondent paid him a total amount of ₱175,000.00 cash factual, legal or equitable justification for awarding the same.42 In the case under
in addition to the two checks. Section 26 Rule 130 of the Rules of Evidence provides consideration, the RTC stated in its Decision that the award of attorney’s fees
that the declaration of a party as to a relevant fact may be given in evidence against equivalent to 25% of the amount paid as interest by respondent to petitioner is
him. Aside from the amounts of ₱160,000.00 and ₱175,000.00 paid as interest, no reasonable and moderate considering the extent of work rendered by respondent’s
other proof of additional payment as interest was presented by respondent. Since we lawyer in the instant case and the fact that it dragged on for several years. 43 Further,
have previously found that petitioner is not entitled to payment of interest and that respondent testified that she agreed to compensate her lawyer handling the instant
the principle of solutio indebiti applies to the instant case, petitioner should return to case such amount.44 The award, therefore, of attorney’s fees and its amount
respondent the excess amount of ₱160,000.00 and ₱175,000.00 or the total amount equivalent to 25% of the amount paid as interest by respondent to petitioner is
of ₱335,000.00. Accordingly, the reimbursable amount to respondent fixed by the RTC proper.
and the Court of Appeals should be reduced from ₱660,000.00 to ₱335,000.00.
Finally, the RTC and the Court of Appeals imposed a 12% rate of legal interest on the
As earlier stated, petitioner filed five (5) criminal cases for violation of Batas Pambansa amount refundable to respondent computed from 3 March 1998 until its full payment.
Blg. 22 against respondent. In the said cases, the MeTC found respondent guilty of This is erroneous.
violating Batas Pambansa Blg. 22 for issuing five dishonored checks to petitioner.
Nonetheless, respondent’s conviction therein does not affect our ruling in the instant We held in Eastern Shipping Lines, Inc. v. Court of Appeals, 45 that when an obligation,
case. The two checks, subject matter of this case, totaling ₱700,000.00 which not constituting a loan or forbearance of money is breached, an interest on the
respondent claimed as payment of the ₱540,000.00 worth of loan, were not among amount of damages awarded may be imposed at the rate of 6% per annum. We
the five checks found to be dishonored or bounced in the five criminal cases. Further, further declared that when the judgment of the court awarding a sum of money
the MeTC found that respondent made an overpayment of the loan by reason of the becomes final and executory, the rate of legal interest, whether it is a
interest which the latter paid to petitioner.39 loan/forbearance of money or not, shall be 12% per annum from such finality until its
satisfaction, this interim period being deemed equivalent to a forbearance of credit.
Article 2217 of the Civil Code provides that moral damages may be recovered if the
party underwent physical suffering, mental anguish, fright, serious anxiety, In the present case, petitioner’s obligation arose from a quasi-contract of solutio
besmirched reputation, wounded feelings, moral shock, social humiliation and similar indebiti and not from a loan or forbearance of money. Thus, an interest of 6% per
injury. Respondent testified that she experienced sleepless nights and wounded annum should be imposed on the amount to be refunded as well as on the damages
feelings when petitioner refused to return the amount paid as interest despite her awarded and on the attorney’s fees, to be computed from the time of the extra-
repeated demands. Hence, the award of moral damages is justified. However, its judicial demand on 3 March 1998,46 up to the finality of this Decision. In addition, the
interest shall become 12% per annum from the finality of this Decision up to its G.R. No. L-52478 October 30, 1986
satisfaction.
THE GOVERNMENT SERVICE INSURANCE SYSTEM, petitioner-appellant,
WHEREFORE, the Decision of the Court of Appeals in CA-G.R. CV No. 71814, dated 16 vs.
December 2005, is hereby AFFIRMED with the following MODIFICATIONS: (1) the HONORABLE COURT OF APPEALS, NEMENCIO R. MEDINA and JOSEFINA G.
amount of ₱660,000.00 as refundable amount of interest is reduced to THREE MEDINA, respondents-appellants.
HUNDRED THIRTY FIVE THOUSAND PESOS (₱335,000.00); (2) the amount of
₱300,000.00 imposed as moral damages is reduced to ONE HUNDRED FIFTY Coronel Law Office for private respondents.
THOUSAND PESOS (₱150,000.00); (3) an interest of 6% per annum is imposed on the
₱335,000.00, on the damages awarded and on the attorney’s fees to be computed Alberto C. Lerma collaborating counsel for private respondents
from the time of the extra-judicial demand on 3 March 1998 up to the finality of this
Decision; and (4) an interest of 12% per annum is also imposed from the finality of this
Decision up to its satisfaction. Costs against petitioner.
PARAS, J.:
SO ORDERED.
This is a petition for review on certiorari of the decision of the Court of Appeals in CA-
G.R. No. 62541-R (Nemencio R. Medina and Josefina G. Medina, Plaintiffs-Appellants
vs. The Government Service Insurance System, Defendant-Appellant) affirming the
January 21, 1977 Decision of the trial court, and at the same time ordering the GSIS to
reimburse the amount of P9,580.00 as over-payment and to pay the spouses
Nemencio R. Medina and Josefina G. Medina P3,000.00 and P1,000.00 as attorney's
fees and litigation expenses.

In 1961, herein private respondents spouses Nemencio R. Medina and Josefina G.

Medina (Medinas for short) applied with the herein petitioner Government Service
Insurance System (GSIS for short) for a loan of P600,000.00. The GSIS Board of
Trustees, in its Resolution of December 20, 1961, approved under Resolution No. 5041
only the amount of P350,000.00, subject to the following conditions: that the rate of
interest shall be 9% per annum compounded monthly; repayable in ten (10) years at a
monthly amortization of P4,433.65 including principal and interest, and that any
installment or amortization that remains due and unpaid shall bear interest at the rate
of 9%/12% per month. The Office of the Economic Coordinator, in a 2nd Indorsement
dated March 26, 1962, further reduced the approved amount to P295,000.00. On April
4, 1962, the Medinas accepting the reduced amount, executed a promissory note and
a real estate mortgage in favor of GSIS. On May 29, 1962, the GSIS, and on June 6,
1962, the Office of the Economic Coordinator, upon request of the Medinas, both
approved the restoration of the amount of P350,000.00 (P295,000.00 + P55,000.00)
originally approved by the GSIS. This P350,000.00 loan was denominated by the GSIS
as Account No. 31055.

On July 6, 1962, the Medinas executed in favor of the GSIS an Amendment of Real
Estate Mortgage, the pertinent portion of which reads:

WHEREAS, on the 4th day of April, 1962, the Mortgagor executed

signed and delivered a real estate mortgage to and in favor of the
 Mortgagee on real estate properties located in the City of Manila, ... On May 3, 1974, the GSIS notified the Medinas that they had arrearages in the
to secure payment to the mortgages of a loan of Two Hundred aggregate amount of P575,652.42 as of April 18, 1974 (Exhibit 9, p. 149, Joint Record
Ninety Five Thousand Pesos (P295,000.00) Philippine Currency, on Appeal, Rollo, p. 79), and demanded payment within seven (7) days from notice
granted by the mortgagee to the Mortgagors, ...; thereof, otherwise, it would foreclose the mortgage.

WHEREAS, the parties herein have agreed as they hereby agree to On April 21, 1975, the GSIS filed an Application for Foreclosure of Mortgage with the
increase the aforementioned loan from Two Hundred Ninety Five Sheriff of the City of Manila (Exhibit "22," pp. 63 and 149; Rollo, p. 79). On June 30,
Thousand Pesos (P295,000.00) to Three Hundred Fifty Thousand 1975, the Medinas filed with the Court of First Instance of Manila a complaint, praying,
Pesos (P350,000.00), Philippine Currency; among other things, that a restraining order or writ of preliminary injunction be issued
to prevent the GSIS and the Sheriff of the City of Manila from proceeding with the
NOW, THEREFORE, for and in consideration of the foregoing extra-judicial foreclosure of their mortgaged properties (CFI Decision, p. 121; Rollo, p.
premises, the aforementioned parties have amended and by these 79). However, in view of Section 2 of Presidential Decree No. 385, no restraining order
presents do hereby amend the said mortgage dated April 4, 1962, or writ of preliminary injunction was issued by the trial court (CFI Decision, p. 212;
mentioned in the second paragraph hereof by increasing the loan Rollo, p. 79). On April 25, 1975, the Medinas made a last partial payment in the
from Two Hundred Ninety Five Thousand Pesos (P295,000.00) to amount of P209,662.80.
Three Hundred Fifty Thousand Pesos (P350,000.00) subject to this
additional condition. Under a Notice of Sale on Extra-Judicial Foreclosure dated June 18, 1975, the real
properties of the Medinas covered by Transfer Certificates of Title Nos. 32231, 43527,
(1) That the mortgagor shall pay to the system P4,433.65 monthly 51394, 58626, 60534, 63304, 67550, 67551 and 67552 of the Registry of Property of
including principal and interest. the City of Manila were sold at public auction to the GSIS as the highest bidder for the
total amount of P440,080.00 on January 12, 1976, and the corresponding Certificate of
It is hereby expressly understood that with the foregoing Sale was executed by the Sheriff of Manila on January 27, 1976 (CFI Decision, pp. 212-
amendment, all other terms and conditions of the said real estate 213; Rollo, p. 79).
mortgage dated April 4, 1962 insofar as they are not inconsistent
herewith, are hereby confirmed, ratified and continued in full force On January 30, 1976, the Medinas filed an Amended Complaint with the trial court,
and effect and that the parties thereto agree that this amendment praying for (a) the declaration of nullity of their two real estate mortgage contracts
be an integral part of said real estate mortgage. (Rollo, p. 153-154). with the GSIS as well as of the extra-judicial foreclosure proceedings; and (b) the
refund of excess payments, plus damages and attorney's fees (CFI Decision, p. 213;
Upon application by the Medinas, the GSIS Board of Trustees adopted Resolution No. Rollo, p. 79).
121 on January 18, 1963, as amended by Resolution No. 348 dated February 25, 1963,
approving an additional loan of P230,000.00 in favor of the Medinas on the security of On March 19, 1976, the GSIS filed its Amended Answer (Joint Record on Appeal, pp.
the same mortgaged properties and the additional properties covered by TCT Nos. 99-105; Rollo, p. 79). After trial, the trial court rendered a Decision dated January 21,
49234, 49235 and 49236, to bear interest at 9% per annum compounded monthly and 1977 (Joint Record on Appeal, pp. 210-232), the pertinent dispositive portion of which
repayable in ten years. This additional loan of P230,000.00 was denominated by the reads:
GSIS as Account No. 31442.
WHEREFORE, judgment is hereby rendered declaring the extra-
On March 18, 1963, the Economic Coordinator thru the Auditor General interposed no judicial foreclosure conducted by the Sheriff of Manila of real estate
objection thereto, subject to the conditions of Resolution No. 121 as amended by mortgage contracts executed by plaintiffs on April 4, 1962, as
Resolution No. 348 of the GSIS. amended on July 6, 1962, and February 17, 1963, null and void and
the Sheriff's Certificate of Sale dated January 27, 1976, in favor of
Beginning 1965, the Medinas having defaulted in the payment of the monthly the GSIS of no legal force and effect; and directing plaintiffs to pay
amortization on their loan, the GSIS imposed 9%/12% interest on an installments due the GSIS the sum of P1,611.12 in full payment of their obligation to
and unpaid. In 1967, the Medinas began defaulting in the payment of fire insurance the latter with interest of 9% per annum from December 11, 1975,
premiums. until fully paid.
Dissatisfied with the said judgment, both parties appealed with the Court of Appeals. 4. WHETHER OR NOT THE COURT OF APPEALS ERRED IN AFFIRMING
THE ANNULMENT OF THE SUBJECT EXTRAJUDICIAL FORECLOSURE
The Court of Appeals, in a Decision promulgated on January 18, 1980 (Record, pp. 72- AND SHERIFF'S CERTIFICATE OF SALE; AND
77), ruled in favor of the Medinas —
5. WHETHER OR NOT THE COURT OF APPEALS ERRED IN HOLDING
WHEREFORE, the defendant GSIS is ordered to reimburse the THE GSIS LIABLE FOR ATTORNEY'S FEES, EXPENSES OF LITIGATION
amount of P9,580.00 as overpayment and to pay plaintiffs P3,000.00 AND COSTS.
and Pl,000.00 as attorney's fees and litigation expenses, respectively.
With these modifications, the judgment appealed from is AFFIRMED The petition is impressed with merit.
in all other respects, with costs against defendant GSIS."
There is no dispute as to the facts of the case. By agreement of the parties the issues
Hence this petition. in this case are limited to the loan of P350,000.00 denominated as Account No. 31055
(Rollo, p. 79; Joint Record on Appeal, p. 129) subject of the Amendment of Real
The Second Division of this Court, in a Resolution dated April 25, 1980 (Rollo, p.. 88), Mortgage dated July 6, 1962, the interpretation of which is the major issue in this
resolved to deny the petition for lack of merit. case.

Petitioner filed on June 26, 1980 a Motion for Reconsideration dated June 17, 1980 GSIS claims that the amendment of the real estate mortgage did not supersede the
(Rollo, pp. 95-103), of the above-stated Resolution and respondents in a Resolution original mortgage contract dated April 4, 1962 which was being amended only with
dated July 9, 1980 (Rollo, p. 105), were required to comment thereon which comment respect to the amount secured thereby, and the amount of monthly amortizations. All
they filed on August 6, 1980. (Rollo, pp. 106-116). other provisions of aforesaid mortgage contract including that on compounding of
interest were deemed rewritten and thus binding on and enforceable against the
The petition was given due course in the Resolution dated July 6, 1981 (Rollo, p. 128). respondent spouses. (Rollo, pp. 162-166).
Petitioner filed its brief on November 26, 1981 (Rollo, pp. 147-177); while private
respondents filed their brief on January 27, 1982 (Rollo, pp. 181-224), and the case Accordingly, payments made by the Medinas in the total amount of P991,845.53 was
was considered submitted for decision in the Resolution of July 19, 1982 (Rollo, p. applied as follows: the amount of P600,495.51 to Account No. 31055, P466,965.31 of
229). which to interest and P133,530.20 to principal and P390,845.66 to Account No. 31442,
P230,774.29 to interest and P159,971.37 to principal. (Joint Record on Appeal, p. 216;
The issues in this case are: Rollo, p. 79).

1. WHETHER OR NOT THE COURT OF APPEALS ERRED IN HOLDING On the other hand the Medinas maintain that there is no express stipulation on
THAT THE AMENDMENT OF REAL ESTATE MORTGAGE DATED JULY 6, compounded interest in the amendment of mortgage contract of July 6, 1962 so that
1962 SUPERSEDED THE MORTGAGE CONTRACT DATED APRIL 4, the compounded interest stipulation in the original mortgage contract of April 4, 1962
1962, PARTICULARLY WITH RESPECT TO COMPOUNDING OF which has been superseded cannot be enforced in the later mortgage. (Rollo, p. 185).
INTEREST;
Hence the Medinas claim an overpayment in Account No. 31055. The application of
2. WHETHER OR NOT THE COURT OF APPEALS ERRED IN SUSTAINING their total payment in the amount of P991,845.53 as computed by the trial court and
THE RESPONDENT-APPELLEE SPOUSES MEDINA'S CLAIM OR by the Court of Appeals is as follows:
OVERPAYMENT, BY CREDITING THE FIRE INSURANCE PROCEEDS IN
THE SUM OF P11,152.02 TO THE TOTAL PAYMENT MADE BY SAID ... It appearing and so the parties admit in their own exhibits that as
SPOUSES AS OF DECEMBER 11, 1975; of December 11, 1975, plaintiffs had paid a total of P991,241.17
excluding fire insurance, P532,038.00 of said amount should have
3. WHETHER OR NOT THE COURT OF APPEALS ERRED IN HOLDING been applied to the full payment of Acct. No. 31055 and the balance
THAT THE INTEREST RATES ON THE LOAN ACCOUNTS OF of P459,203.17 applied to the payment of Acct. No. 31442.
RESPONDENT-APPELLEE SPOUSES ARE USURIOUS;
 According to the computation of the GSIS (Exhibit C, also Exhibit 38) last provision of the Amendment of Real Estate Mortgage dated July 6, 1962 which
the total amounts, collected on Acct. No. 31442 as of December 11, reads:
1975 total P390,745.66 thus leaving an unpaid balance of
P70,028.63. The total amount plaintiffs should pay on said account It is hereby expressly understood that with the foregoing
should therefore be P460,774.29. Deduct this amount from amendment, all other terms and conditions of the said real estate
P459,163.17 which has been shown to be the difference between mortgage dated April 4, 1962, insofar as they are not inconsistent
the total payments made by plaintiffs to the G.S.I.S. as of December herewith, are hereby confirmed, ratified and continued to be in full
11, 1975 and the amount said plaintiffs should pay under their Acct. force and effect, and that the parties hereto agree that the
No. 31055, there remains an outstanding balance of P1,611.12. This amendment be an integral part of said real estate
amount represents the balance of the obligation of the plaintiffs to mortgage. (Emphasis supplied).
the G.S.I.S. on Acct. No. 31442 as of December 11, 1975." (Decision,
Civil Case No. 98390; Joint Record on Appeal, pp. 227-228; Rollo, p. A review of prior, contemporaneous, and subsequent acts supports the conclusion
79). that both contracts are fully subsisting insofar as the latter is not inconsistent with the
former. The fact is the GSIS, as a matter of policy, imposes uniform terms and
To recapitulate, the difference in the computation lies in the inclusion of the conditions for all its real estate loans, particularly with respect to compounding of
compounded interest as demanded by the GSIS on the one hand and the exclusion interest. As shown in the case at bar, the original mortgage contract embodies the
thereof, as insisted by the Medinas on the other. same terms and conditions as in the additional loan denominated as Account No.
31442 while the amendment carries the provision that it shall be subject to the same
It is a basic and fundamental rule in the interpretation of contract that if the terms terms and conditions as the real estate mortgage of April 4, 1962 except as to amount
thereof are clear and leave no doubt as to the intention of the contracting parties, the and amortization.
literal meaning of the stipulations shall control but when the words appear contrary to
the evident intention of the parties, the latter shall prevail over, the former. In order Furthermore, it would be contrary to human experience and to ordinary practice for
to judge the intention of the parties, their contemporaneous and subsequent acts shall the mortgagee to impose less onerous conditions on an increased loan by the deletion
be principally considered. (Sy v. Court of Appeals, 131 SCRA 116; July 31, 1984). of compound interest exacted on a lesser loan.

There appears no ambiguity whatsoever in the terms and conditions of the II

amendment of the mortgage contract herein quoted earlier. On the contrary, an
opposite conclusion cannot be otherwise but absurd. There is an obvious error in the ruling of the Court of Appeals in its Decision dated
January 18, 1980, which reads:
As correctly stated by the GSIS in its brief (Rollo, pp. 162166), a careful perusal of the
title, preamble and body of the Amendment of Real Estate Mortgage dated July 6, ... We agree that plaintiff should be credited with P11,152.02 of the
1962, taking into account the prior, contemporaneous, and subsequent acts of the fire insurance proceeds as the same is admitted in paragraph (4) of
parties, ineluctably shows that said Amendment was never intended to completely its Answer and should be added to their payments. (par. 13).
supersede the mortgage contract dated April 4, 1962.
Contrary thereto, paragraph 4 of the Answer of the GSIS states:
First, the title "Amendment of Real Estate Mortgage" recognizes the existence and
effectivity of the previous mortgage contract. Second, nowhere in the aforesaid
That they (GSIS) specifically deny the allegations in Paragraph 11, the
Amendment did the parties manifest their intention to supersede the original
truth being that plaintiffs are not entitled to a credit of P19,381.07 as
contract. On the contrary in the WHEREAS clauses, the existence of the previous
fire insurance proceeds since they were only entitled to, and were
mortgage contract was fully recognized and the fact that the same was just being
credited with, the amount of P11,152.02 as proceeds of their fire
amended as to amount and amortization is fully established as to obviate any doubt.
insurance policy. (par. 4, Amended Answer).
Third, the Amendment of Real Estate Mortgage dated July 6, 1962 does not embody
the act of conveyancing the subject properties by way of mortgage. In fact the
As can be gleaned from the foregoing, petitioner-appellant GSIS had already credited
intention of the parties to be bound by the unaffected provisions of the mortgage
the amount of P11,152.02. Thus, when the Court of Appeals made the aforequoted
contract of April 4, 1962 expressed in unmistakable language is clearly evident in the
ruling, it was actually doubly crediting the amount of P11,152.02 which had V.
been previously credited by petitioner-appellant GSIS (Rollo, pp. 170-171).
PREMISES CONSIDERED, the decision of the Court of Appeals, in CA-G.R. No. 62541-
III. R Medina, et al. v. Government Service Insurance System et al., is hereby REVERSED
and SET ASIDE, and a new one is hereby RENDERED, affirming the validity of the extra-
As to whether or not the interest rates on the loan accounts of the Medinas are judicial foreclosure of the real estate mortgages of the respondent-appellee spouses
usurious, it has already been settled that the Usury Law applies only to interest by way Medina dated April 4, 1962, as amended on July 6, 1962, and February 17, 1963.
of compensation for the use or forbearance of money (Lopez v. Hernaez, 32 Phil. 631;
Bachrach Motor Co. v. Espiritu, 52 Phil. 346; Equitable Banking Corporation v. Liwanag, SO ORDERED.
32 SCRA 293, March 30, 1970). Interest by way of damages is governed by Article 2209
of the Civil Code of the Philippines which provides:

Art. 2209. If the obligation consists in the payment of a sum of

money, and the debtor incurs in delay, the indemnity for damages,
there being no stipulation to the contrary, shall be the payment of
the interest agreed upon,...

In the Bachrach case (supra) the Supreme Court ruled that the Civil Code permits the
agreement upon a penalty apart from the interest. Should there be such an
agreement, the penalty does not include the interest, and as such the two are
different and distinct things which may be demanded separately. Reiterating the same
principle in the later case of Equitable Banking Corp. (supra), where this Court held
that the stipulation about payment of such additional rate partakes of the nature of a
penalty clause, which is sanctioned by law.

IV.

Based on the finding that the GSIS had the legal right to impose an interest 9% per
annum, compounded monthly, on the loans of the Medinas and an interest of 9%/12%
per annum on all due and unpaid amortizations or installments, there is no question
that the Medinas failed to settle their accounts with the GSIS which as computed by
the latter reached an outstanding balance of P630,130.55 as of April 12, 1975 and that
the GSIS had a perfect right to foreclose the mortgage.

In the same manner, there is obvious error in invalidating the extra-judicial foreclosure
on the basis of a typographical error in the Sheriff's Certificate of Sale which stated
that the mortgage was foreclosed on May 17, 1963 instead of February 17, 1963.

There is merit in GSIS' contention that the Sheriff's Certificate of Sale is merely
provisional in character and is not intended to operate as an absolute transfer of the
subject property, but merely to Identify the property, to show the price paid and the
date when the right of redemption expires (Section 27, Rule 39, Rules of Court,
Francisco, The Revised Rules of Court, 1972 Vol., IV-B, Part I, p. 681). Hence the date of
the foreclosed mortgage is not even a material content of the said Certificate. (Rollo,
p. 174).
G.R. No. 192986 January 15, 2013 Any modifications in the maximum interest rates permitted for the borrowing or
lending operations of the banks shall apply only to future operations and not to those
ADVOCATES FOR TRUTH IN LENDING, INC. and EDUARDO B. OLAGUER, Petitioners, made prior to the date on which the modification becomes effective.
vs.
BANGKO SENTRAL MONETARY BOARD, represented by its Chairman, GOVERNOR In order to avoid possible evasion of maximum interest rates set by the Monetary
ARMANDO M. TETANGCO, JR., and its incumbent members: JUANITA D. AMATONG, Board, the Board may also fix the maximum rates that banks may pay to or collect
ALFREDO C. ANTONIO, PETER FA VILA, NELLY F. VILLAFUERTE, IGNACIO R. BUNYE and from their customers in the form of commissions, discounts, charges, fees or
CESAR V. PURISIMA, Respondents. payments of any sort. (Underlining ours)

DECISION On March 17, 1980, the Usury Law was amended by Presidential Decree (P.D.) No.
1684, giving the CB-MB authority to prescribe different maximum rates of interest
REYES, J.: which may be imposed for a loan or renewal thereof or the forbearance of any money,
goods or credits, provided that the changes are effected gradually and announced in
Petitioners, claiming that they are raising issues of transcendental importance to the advance. Thus, Section 1-a of Act No. 2655 now reads:
public, filed directly with this Court this Petition for Certiorari under Rule 65 of the
1997 Rules of Court, seeking to declare that the Bangko Sentral ng Pilipinas Monetary Sec. 1-a. The Monetary Board is hereby authorized to prescribe the maximum rate or
Board (BSP-MB), replacing the Central Bank Monetary Board (CB-MB) by virtue of rates of interest for the loan or renewal thereof or the forbearance of any money,
Republic Act (R.A.) No. 7653, has no authority to continue enforcing Central Bank goods or credits, and to change such rate or rates whenever warranted by prevailing
Circular No. 905,1 issued by the CB-MB in 1982, which "suspended" Act No. 2655, or economic and social conditions: Provided, That changes in such rate or rates may be
the Usury Law of 1916. effected gradually on scheduled dates announced in advance.

Factual Antecedents 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
Petitioner "Advocates for Truth in Lending, Inc." (AFTIL) is a non-profit, non-stock thereof as well as such loans made by pawnshops, finance companies and other
corporation organized to engage in pro bono concerns and activities relating to money similar credit institutions although the rates prescribed for these institutions need not
lending issues. It was incorporated on July 9, 2010,2 and a month later, it filed this necessarily be uniform. The Monetary Board is also authorized to prescribe different
petition, joined by its founder and president, Eduardo B. Olaguer, suing as a taxpayer maximum rate or rates for different types of borrowings, including deposits and
and a citizen. deposit substitutes, or loans of financial intermediaries. (Underlining and emphasis
ours)
R.A. No. 265, which created the Central Bank (CB) of the Philippines on June 15, 1948,
empowered the CB-MB to, among others, set the maximum interest rates which banks In its Resolution No. 2224 dated December 3, 1982,3 the CB-MB issued CB Circular No.
may charge for all types of loans and other credit operations, within limits prescribed 905, Series of 1982, effective on January 1, 1983. Section 1 of the Circular, under its
by the Usury Law. Section 109 of R.A. No. 265 reads: General Provisions, removed the ceilings on interest rates on loans or forbearance of
any money, goods or credits, to wit:
Sec. 109. Interest Rates, Commissions and Charges. — The Monetary Board may fix the
maximum rates of interest which banks may pay on deposits and on other obligations. Sec. 1. The rate of interest, including commissions, premiums, fees and other charges,
on a loan or forbearance of any money, goods, or credits, regardless of maturity and
whether secured or unsecured, that may be charged or collected by any person,
The Monetary Board may, within the limits prescribed in the Usury Law fix the
whether natural or juridical, shall not be subject to any ceiling prescribed under or
maximum rates of interest which banks may charge for different types of loans and for
pursuant to the Usury Law, as amended. (Underscoring and emphasis ours)
any other credit operations, or may fix the maximum differences which may exist
between the interest or rediscount rates of the Central Bank and the rates which the
banks may charge their customers if the respective credit documents are not to lose The Circular then went on to amend Books I to IV of the CB’s "Manual of Regulations
their eligibility for rediscount or advances in the Central Bank. for Banks and Other Financial Intermediaries" (Manual of Regulations) by removing
the applicable ceilings on specific interest rates. Thus, Sections 5, 9 and 10 of CB
Circular No. 905 amended Book I, Subsections 1303, 1349, 1388.1 of the Manual of
Regulations, by removing the ceilings for interest and other charges, commissions, country; Senator Ernesto Maceda filed SB No. 1151 to prohibit the collection of more
premiums, and fees applicable to commercial banks; Sections 12 and 17 removed the than two months of advance interest on any loan of money; and Senator Raul Roco
interest ceilings for thrift banks (Book II, Subsections 2303, 2349); Sections 19 and 21 filed SR No. 114411seeking an investigation into an alleged cartel of commercial banks,
removed the ceilings applicable to rural banks (Book III, Subsection 3152.3-c); and, called "Club 1821", reportedly behind the regime of high interest rates. The petitioners
Sections 26, 28, 30 and 32 removed the ceilings for non-bank financial intermediaries also attached news clippings12 showing that in February 1998 the banks’ prime lending
(Book IV, Subsections 4303Q.1 to 4303Q.9, 4303N.1, 4303P).4 rates, or interests on loans to their best borrowers, ranged from 26% to 31%.

On June 14, 1993, President Fidel V. Ramos signed into law R.A. No. 7653 establishing Petitioners contend that under Section 1-a of Act No. 2655, as amended by P.D. No.
the Bangko Sentral ng Pilipinas (BSP) to replace the CB. The repealing clause thereof, 1684, the CB-MB was authorized only to prescribe or set the maximum rates of
Section 135, reads: interest for a loan or renewal thereof or for the forbearance of any money, goods or
credits, and to change such rates whenever warranted by prevailing economic and
Sec. 135. Repealing Clause. — Except as may be provided for in Sections 46 and 132 of social conditions, the changes to be effected gradually and on scheduled dates; that
this Act, Republic Act No. 265, as amended, the provisions of any other law, special nothing in P.D. No. 1684 authorized the CB-MB to lift or suspend the limits of interest
charters, rule or regulation issued pursuant to said Republic Act No. 265, as amended, on all credit transactions, when it issued CB Circular No. 905. They further insist that
or parts thereof, which may be inconsistent with the provisions of this Act are hereby under Section 109 of R.A. No. 265, the authority of the CB-MB was clearly only to fix
repealed. Presidential Decree No. 1792 is likewise repealed. the banks’ maximum rates of interest, but always within the limits prescribed by the
Usury Law.
Petition for Certiorari
Thus, according to petitioners, CB Circular No. 905, which was promulgated without
To justify their skipping the hierarchy of courts and going directly to this Court to the benefit of any prior public hearing, is void because it violated Article 5 of the New
secure a writ of certiorari, petitioners contend that the transcendental importance of Civil Code, which provides that "Acts executed against the provisions of mandatory or
their Petition can readily be seen in the issues raised therein, to wit: prohibitory laws shall be void, except when the law itself authorizes their validity."

a) Whether under R.A. No. 265 and/or P.D. No. 1684, the CB-MB had the They further claim that just weeks after the issuance of CB Circular No. 905, the
statutory or constitutional authority to prescribe the maximum rates of benchmark 91-day Treasury bills (T-bills),13 then known as "Jobo" bills14 shot up to 40%
interest for all kinds of credit transactions and forbearance of money, goods per annum, as a result. The banks immediately followed suit and re-priced their loans
or credit beyond the limits prescribed in the Usury Law; to rates which were even higher than those of the "Jobo" bills. Petitioners thus assert
that CB Circular No. 905 is also unconstitutional in light of Section 1 of the Bill of
Rights, which commands that "no person shall be deprived of life, liberty or property
b) If so, whether the CB-MB exceeded its authority when it issued CB Circular
without due process of law, nor shall any person be denied the equal protection of the
No. 905, which removed all interest ceilings and thus suspended Act No. 2655
laws."
as regards usurious interest rates;

Finally, petitioners point out that R.A. No. 7653 did not re-enact a provision similar to
c) Whether under R.A. No. 7653, the new BSP-MB may continue to enforce
Section 109 of R.A. No. 265, and therefore, in view of the repealing clause in Section
CB Circular No. 905.5
135 of R.A. No. 7653, the BSP-MB has been stripped of the power either to prescribe
the maximum rates of interest which banks may charge for different kinds of loans and
Petitioners attached to their petition copies of several Senate Bills and Resolutions of
credit transactions, or to suspend Act No. 2655 and continue enforcing CB Circular No.
the 10th Congress, which held its sessions from 1995 to 1998, calling for investigations
905.
by the Senate Committee on Banks and Financial Institutions into alleged
unconscionable commercial rates of interest imposed by these entities. Senate Bill (SB)
Ruling
Nos. 376 and 1860,7 filed by Senator Vicente C. Sotto III and the late Senator Blas F.
Ople, respectively, sought to amend Act No. 2655 by fixing the rates of interest on
loans and forbearance of credit; Philippine Senate Resolution (SR) No. The petition must fail.
1053,8 10739 and 1102,10 filed by Senators Ramon B. Magsaysay, Jr., Gregorio B.
Honasan and Franklin M. Drilon, respectively, urged the aforesaid Senate Committee A. The Petition is procedurally infirm.
to investigate ways to curb the high commercial interest rates then obtaining in the
The decision on whether or not to accept a petition for certiorari, as well as to grant people’s organization did not give it the requisite personality to question the validity
due course thereto, is addressed to the sound discretion of the court.15 A petition for of the contract. Thus:
certiorari being an extraordinary remedy, the party seeking to avail of the same must
strictly observe the procedural rules laid down by law, and non-observance thereof Petitioners do not in fact show what particularized interest they have for bringing this
may not be brushed aside as mere technicality.16 suit. It does not detract from the high regard for petitioners as civic leaders to say that
their interest falls short of that required to maintain an action under the Rule 3, Sec.
As provided in Section 1 of Rule 65, a writ of certiorari is directed against a tribunal 2.24
exercising judicial or quasi-judicial functions.17 Judicial functions are exercised by a
body or officer clothed with authority to determine what the law is and what the legal C. The Petition raises no issues of transcendental importance.
rights of the parties are with respect to the matter in controversy. Quasi-judicial
function is a term that applies to the action or discretion of public administrative In the 1993 case of Joya v. Presidential Commission on Good Government, 25 it was
officers or bodies given the authority to investigate facts or ascertain the existence of held that no question involving the constitutionality or validity of a law or
facts, hold hearings, and draw conclusions from them as a basis for their official action governmental act may be heard and decided by the court unless there is compliance
using discretion of a judicial nature.18 with the legal requisites for judicial inquiry, namely: (a) that the question must be
raised by the proper party; (b) that there must be an actual case or controversy; (c)
The CB-MB (now BSP-MB) was created to perform executive functions with respect to that the question must be raised at the earliest possible opportunity; and (d) that the
the establishment, operation or liquidation of banking and credit institutions, and decision on the constitutional or legal question must be necessary to the
branches and agencies thereof.19 It does not perform judicial or quasi-judicial determination of the case itself.
functions. Certainly, the issuance of CB Circular No. 905 was done in the exercise of an
executive function. Certiorari will not lie in the instant case. 20 In Prof. David v. Pres. Macapagal-Arroyo,26 the Court summarized the requirements
before taxpayers, voters, concerned citizens, and legislators can be accorded a
B. Petitioners have no locus standi to file the Petition standing to sue, viz:

Locus standi is defined as "a right of appearance in a court of justice on a given (1) the cases involve constitutional issues;
question." In private suits, Section 2, Rule 3 of the 1997 Rules of Civil Procedure
provides that "every action must be prosecuted or defended in the name of the real (2) for taxpayers, there must be a claim of illegal disbursement of public funds
party in interest," who is "the party who stands to be benefited or injured by the or that the tax measure is unconstitutional;
judgment in the suit or the party entitled to the avails of the suit." Succinctly put, a
party’s standing is based on his own right to the relief sought. 21
(3) for voters, there must be a showing of obvious interest in the validity of
the election law in question;
Even in public interest cases such as this petition, the Court has generally adopted the
"direct injury" test that the person who impugns the validity of a statute must have "a
(4) for concerned citizens, there must be a showing that the issues raised are
personal and substantial interest in the case such that he has sustained, or will sustain
of transcendental importance which must be settled early; and
direct injury as a result."22 Thus, while petitioners assert a public right to assail CB
Circular No. 905 as an illegal executive action, it is nonetheless required of them to
(5) for legislators, there must be a claim that the official action complained of
make out a sufficient interest in the vindication of the public order and the securing of
infringes upon their prerogatives as legislators.
relief. It is significant that in this petition, the petitioners do not allege that they
sustained any personal injury from the issuance of CB Circular No. 905.
While the Court may have shown in recent decisions a certain toughening in its
attitude concerning the question of legal standing, it has nonetheless always made an
Petitioners also do not claim that public funds were being misused in the enforcement
exception where the transcendental importance of the issues has been established,
of CB Circular No. 905. In Kilosbayan, Inc. v. Morato,23 involving the on-line lottery
notwithstanding the petitioners’ failure to show a direct injury.27 In CREBA v.
contract of the PCSO, there was no allegation that public funds were being misspent,
ERC,28 the Court set out the following instructive guides as determinants on whether a
which according to the Court would have made the action a public one, "and justify
matter is of transcendental importance, namely: (1) the character of the funds or
relaxation of the requirement that an action must be prosecuted in the name of the
other assets involved in the case; (2) the presence of a clear case of disregard of a
real party-in-interest." The Court held, moreover, that the status of Kilosbayan as a
constitutional or statutory prohibition by the public respondent agency or
instrumentality of the government; and (3) the lack of any other party with a more effectivity;"37that "a CB Circular cannot repeal a law, [for] only a law can repeal
direct and specific interest in the questions being raised. Further, the Court stated in another law;"38 that "by virtue of CB Circular No. 905, the Usury Law has been
Anak Mindanao Party-List Group v. The Executive Secretary29 that the rule on standing rendered ineffective;"39 and "Usury has been legally non-existent in our jurisdiction.
will not be waived where these determinants are not established. Interest can now be charged as lender and borrower may agree upon."40

In the instant case, there is no allegation of misuse of public funds in the In First Metro Investment Corp. v. Este Del Sol Mountain Reserve, Inc.41 cited in DBP v.
implementation of CB Circular No. 905. Neither were borrowers who were actually Perez,42 we also belied the contention that the CB was engaged in self-legislation.
affected by the suspension of the Usury Law joined in this petition. Absent any Thus:
showing of transcendental importance, the petition must fail.
Central Bank Circular No. 905 did not repeal nor in any way amend the Usury Law but
More importantly, the Court notes that the instant petition adverted to the regime of simply suspended the latter’s effectivity. The illegality of usury is wholly the creature
high interest rates which obtained at least 15 years ago, when the banks’ prime of legislation. A Central Bank Circular cannot repeal a law. Only a law can repeal
lending rates ranged from 26% to 31%,30 or even 29 years ago, when the 91-day Jobo another law. x x x.43
bills reached 40% per annum. In contrast, according to the BSP, in the first two (2)
months of 2012 the bank lending rates averaged 5.91%, which implies that the banks’ In PNB v. Court of Appeals,44 an escalation clause in a loan agreement authorized the
prime lending rates were lower; moreover, deposit interests on savings and long-term PNB to unilaterally increase the rate of interest to 25% per annum, plus a penalty of
deposits have also gone very low, averaging 1.75% and 1.62%, respectively. 31 6% per annum on past dues, then to 30% on October 15, 1984, and to 42% on October
25, 1984. The Supreme Court invalidated the rate increases made by the PNB and
Judging from the most recent auctions of T-bills, the savings rates must be upheld the 12% interest imposed by the CA, in this wise:
approaching 0%.1âwphi1 In the auctions held on November 12, 2012, the rates of 3-
month, 6-month and 1-year T-bills have dropped to 0.150%, 0.450% and 0.680%, P.D. No. 1684 and C.B. Circular No. 905 no more than allow contracting parties to
respectively.32 According to Manila Bulletin, this very low interest regime has been stipulate freely regarding any subsequent adjustment in the interest rate that shall
attributed to "high liquidity and strong investor demand amid positive economic accrue on a loan or forbearance of money, goods or credits. In fine, they can agree to
indicators of the country."33 adjust, upward or downward, the interest previously stipulated. x x x. 45

While the Court acknowledges that cases of transcendental importance demand that Thus, according to the Court, by lifting the interest ceiling, CB Circular No. 905 merely
they be settled promptly and definitely, brushing aside, if we must, technicalities of upheld the parties’ freedom of contract to agree freely on the rate of interest. It cited
procedure,34 the delay of at least 15 years in the filing of the instant petition has Article 1306 of the New Civil Code, under which the contracting parties may establish
actually rendered moot and academic the issues it now raises. such stipulations, clauses, terms and conditions as they may deem convenient,
provided they are not contrary to law, morals, good customs, public order, or public
For its part, BSP-MB maintains that the petitioners’ allegations of constitutional and policy.
statutory violations of CB Circular No. 905 are really mere challenges made by
petitioners concerning the wisdom of the Circular. It explains that it was in view of the E. The BSP-MB has authority to enforce CB Circular No. 905.
global economic downturn in the early 1980’s that the executive department through
the CB-MB had to formulate policies to achieve economic recovery, and among these Section 1 of CB Circular No. 905 provides that "The rate of interest, including
policies was the establishment of a market-oriented interest rate structure which commissions, premiums, fees and other charges, on a loan or forbearance of any
would require the removal of the government-imposed interest rate ceilings.35 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
D. The CB-MB merely suspended the effectivity of the Usury Law when it issued CB be subject to any ceiling prescribed under or pursuant to the Usury Law, as amended."
Circular No. 905. It does not purport to suspend the Usury Law only as it applies to banks, but to all
lenders.
The power of the CB to effectively suspend the Usury Law pursuant to P.D. No. 1684
has long been recognized and upheld in many cases. As the Court explained in the Petitioners contend that, granting that the CB had power to "suspend" the Usury Law,
landmark case of Medel v. CA,36 citing several cases, CB Circular No. 905 "did not the new BSP-MB did not retain this power of its predecessor, in view of Section 135 of
repeal nor in anyway amend the Usury Law but simply suspended the latter’s
R.A. No. 7653, which expressly repealed R.A. No. 265. The petitioners point out that and therefore cannot be ratified, nor may the right to set up their illegality as a
R.A. No. 7653 did not reenact a provision similar to Section 109 of R.A. No. 265. defense be waived.

A closer perusal shows that Section 109 of R.A. No. 265 covered only loans extended Nonetheless, the nullity of the stipulation of usurious interest does not affect the
by banks, whereas under Section 1-a of the Usury Law, as amended, the BSP-MB may lender’s right to recover the principal of a loan, nor affect the other terms
prescribe the maximum rate or rates of interest for all loans or renewals thereof or the thereof.52 Thus, in a usurious loan with mortgage, the right to foreclose the mortgage
forbearance of any money, goods or credits, including those for loans of low priority subsists, and this right can be exercised by the creditor upon failure by the debtor to
such as consumer loans, as well as such loans made by pawnshops, finance companies pay the debt due. The debt due is considered as without the stipulated excessive
and similar credit institutions. It even authorizes the BSP-MB to prescribe different interest, and a legal interest of 12% per annum will be added in place of the excessive
maximum rate or rates for different types of borrowings, including deposits and interest formerly imposed,53following the guidelines laid down in the landmark case of
deposit substitutes, or loans of financial intermediaries. Eastern Shipping Lines, Inc. v. Court of Appeals,54 regarding the manner of computing
legal interest:
Act No. 2655, an earlier law, is much broader in scope, whereas R.A. No. 265, now R.A.
No. 7653, merely supplemented it as it concerns loans by banks and other financial II. With regard particularly to an award of interest in the concept of actual and
institutions. Had R.A. No. 7653 been intended to repeal Section 1-a of Act No. 2655, it compensatory damages, the rate of interest, as well as the accrual thereof, is imposed,
would have so stated in unequivocal terms. as follows:

Moreover, the rule is settled that repeals by implication are not favored, because laws 1. When the obligation is breached, and it consists in the payment of a sum of
are presumed to be passed with deliberation and full knowledge of all laws existing money, i.e., a loan or forbearance of money, the interest due should be that
pertaining to the subject.46 An implied repeal is predicated upon the condition that a which may have been stipulated in writing. Furthermore, the interest due
substantial conflict or repugnancy is found between the new and prior laws. Thus, in shall itself earn legal interest from the time it is judicially demanded. In the
the absence of an express repeal, a subsequent law cannot be construed as repealing absence of stipulation, the rate of interest shall be 12% per annum to be
a prior law unless an irreconcilable inconsistency and repugnancy exists in the terms of computed from default, i.e., from judicial or extrajudicial demand under and
the new and old laws.47 We find no such conflict between the provisions of Act 2655 subject to the provisions of Article 1169 of the Civil Code.
and R.A. No. 7653.
2. When an obligation, not constituting a loan or forbearance of money, is
F. The lifting of the ceilings for interest rates does not authorize stipulations charging breached, an interest on the amount of damages awarded may be imposed at
excessive, unconscionable, and iniquitous interest. 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
It is settled that nothing in CB Circular No. 905 grants lenders a carte blanche authority demand can be established with reasonable certainty. Accordingly, where the
to raise interest rates to levels which will either enslave their borrowers or lead to a demand is established with reasonable certainty, the interest shall begin to
hemorrhaging of their assets.48 As held in Castro v. Tan:49 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 imposition of an unconscionable rate of interest on a money debt, even if the time the demand is made, the interest shall begin to run only from the
knowingly and voluntarily assumed, is immoral and unjust. It is tantamount to a date the judgment of the court is made (at which time the quantification of
repugnant spoliation and an iniquitous deprivation of property, repulsive to the damages may be deemed to have been reasonably ascertained). The actual
common sense of man. It has no support in law, in principles of justice, or in the base for the computation of legal interest shall, in any case, be on the amount
human conscience nor is there any reason whatsoever which may justify such finally adjudged.
imposition as righteous and as one that may be sustained within the sphere of public
or private morals.50 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
Stipulations authorizing iniquitous or unconscionable interests have been invariably paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality
struck down for being contrary to morals, if not against the law. 51 Indeed, under until its satisfaction, this interim period being deemed to be by then an
Article 1409 of the Civil Code, these contracts are deemed inexistent and void ab initio, equivalent to a forbearance of credit.55 (Citations omitted)
The foregoing rules were further clarified in Sunga-Chan v. Court of Appeals, 56 as [G.R. No. 116285. October 19, 2001]
follows:
ANTONIO TAN, petitioner, vs. COURT OF APPEALS and the CULTURAL CENTER OF THE
Eastern Shipping Lines, Inc. synthesized the rules on the imposition of interest, if PHILIPPINES, respondents.
proper, and the applicable rate, as follows: The 12% per annum rate under CB Circular
No. 416 shall apply only to loans or forbearance of money, goods, or credits, as well as DECISION
to judgments involving such loan or forbearance of money, goods, or credit, while the
6% per annum under Art. 2209 of the Civil Code applies "when the transaction DE LEON, JR., J.:
involves the payment of indemnities in the concept of damage arising from the breach
or a delay in the performance of obligations in general," with the application of both Before us is a petition for review of the Decision [1] dated August 31, 1993 and
rates reckoned "from the time the complaint was filed until the [adjudged] amount is Resolution[2] dated July 13, 1994 of the Court of Appeals affirming the Decision [3] dated
fully paid." In either instance, the reckoning period for the commencement of the May 8, 1991 of the Regional Trial Court (RTC) of Manila, Branch 27.
running of the legal interest shall be subject to the condition "that the courts are
The facts are as follows:
vested with discretion, depending on the equities of each case, on the award of
interest."57 (Citations omitted) 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
WHEREFORE, premises considered, the Petition for certiorari is DISMISSED. 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 In affirming the decision of the trial court imposing surcharges and interest, the
proposed to settle his indebtedness to respondent CCP by proposing to make a down appellate court held that:
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 We are unable to accept appellants (petitioners) claim for modification on the basis of
every year thereafter until the balance is fully paid. However, respondent CCP did not alleged partial or irregular performance, there being none. Appellants offer or tender
agree to the petitioners proposals and so the trial of the case ensued. 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.
On May 8, 1991, the trial court rendered a decision, the dispositive portion of
which reads:
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
WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendant,
to five percent (5%), by ratiocinating as follows:
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 Given the circumstances of the case, plus the fact that plaintiff was represented by a
amount equivalent to 25% of said outstanding account, plus P50,000.00, as exemplary government lawyer, We believe the award of 25% as attorneys fees and P500,000.00
damages, plus costs. 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.
Defendants counterclaims are ordered dismissed, for lack of merit.
In a Resolution dated July 13, 1994, the appellate court denied the petitioners
motion for reconsideration of the said decision.
SO ORDERED.[4]
Hence, this petition anchored on the following assigned errors:
The trial court gave five (5) reasons in ruling in favor of respondent CCP. First, it
I
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 THE HONORABLE COURT OF APPEALS COMMITTED A MISTAKE IN
not credible in itself. Second, assuming, arguendo, that the petitioner did not GIVING ITS IMPRIMATUR TO THE DECISION OF THE TRIAL COURT WHICH
personally benefit from the said loan, he should have filed a third party complaint COMPOUNDED INTEREST ON SURCHARGES.
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 II
CCP. Fourth, petitioner may not avoid his liability to pay his obligation under the THE HONORABLE COURT OF APPEALS ERRED IN NOT SUSPENDING
promissory note (Exh. A) which he must comply with in good faith pursuant to Article IMPOSITION OF INTEREST FOR THE PERIOD OF TIME THAT PRIVATE
1159 of the New Civil Code. Fifth, petitioner is estopped from denying his liability or RESPONDENT HAS FAILED TO ASSIST PETITIONER IN APPLYING FOR
loan obligation to the private respondent. RELIEF OF LIABILITY THROUGH THE COMMISSION ON AUDIT AND THE
The petitioner appealed the decision of the trial court to the Court of Appeals OFFICE OF THE PRESIDENT.
insofar as it charged interest, surcharges, attorneys fees and exemplary damages III
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 THE HONORABLE COURT OF APPEALS ERRED IN NOT DELETING AWARD
trial court that he merely accommodated his friend, Wilson Lucmen, in obtaining the OF ATTORNEYS FEES AND IN REDUCING PENALTIES.
loan, and instead admitted the validity of the same. On August 31, 1993, the appellate
Significantly, the petitioner does not question his liability for his restructured
court rendered a decision, the dispositive portion of which reads:
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
WHEREFORE, with the foregoing modification, the judgment appealed from is hereby the penalty, interest on the penalty and attorneys fees.
AFFIRMED.
The petitioner imputes error on the part of the appellate court in not totally
SO ORDERED. [5] 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 The stipulated fourteen percent (14%) per annum interest charge until full
for the non-imposition of interest on the surcharges inasmuch as the compounding of payment of the loan constitutes the monetary interest on the note and is allowed
interest on surcharges is not provided in the promissory note marked Exhibit A. The under Article 1956 of the New Civil Code.[7] On the other hand, the stipulated two
petitioner takes exception to the computation of the private respondent whereby the percent (2%) per month penalty is in the form of penalty charge which is separate and
interest, surcharge and the principal were added together and that on the total sum distinct from the monetary interest on the principal of the loan.
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 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
of any provision allowing the imposition of interest on surcharges.
permits an agreement upon a penalty apart from the monetary interest. If the parties
We find no merit in the petitioners contention. Article 1226 of the New Civil Code stipulate this kind of agreement, the penalty does not include the monetary interest,
provides that: 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
In obligations with a penal clause, the penalty shall substitute the indemnity for state that such a stipulation about payment of an additional interest rate partakes of
damages and the payment of interests in case of non-compliance, if there is no the nature of a penalty clause which is sanctioned by law, more particularly under
stipulation to the contrary. Nevertheless, damages shall be paid if the obligor refuses Article 2209 of the New Civil Code which provides that:
to pay the penalty or is guilty of fraud in the fulfillment of the obligation.
If the obligation consists in the payment of a sum of money, and the debtor incurs in
The penalty may be enforced only when it is demandable in accordance with the delay, the indemnity for damages, there being no stipulation to the contrary, shall be
provisions of this Code. the payment of the interest agreed upon, and in the absence of stipulation, the legal
interest, which is six per cent per annum.
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 The penalty charge of two percent (2%) per month in the case at bar began to
petitioner in the payment of the subjectrestructured loan. The pertinent[6] portion of accrue from the time of default by the petitioner. There is no doubt that the petitioner
the promissory note (Exhibit A) imposing interest and penalties provides that: is liable for both the stipulated monetary interest and the stipulated penalty
charge. The penalty charge is also called penalty or compensatory interest. Having
For value received, I/We jointly and severally promise to pay to the CULTURAL CENTER clarified the same, the next issue to be resolved is whether interest may accrue on the
OF THE PHILIPPINES at its office in Manila, the sum of THREE MILLION FOUR HUNDRED penalty or compensatory interest without violating the provisions of Article 1959 of
ELEVEN THOUSAND FOUR HUNDRED + PESOS (P3,411,421.32) Philippine Currency, the New Civil Code, which provides that:
xxx.
Without prejudice to the provisions of Article 2212, interest due and unpaid shall not
xxx xxx xxx earn interest. However, the contracting parties may by stipulation capitalize the
interest due and unpaid, which as added principal, shall earn new interest.
With interest at the rate of FOURTEEN per cent (14%) per annum from the date hereof
until paid. PLUS THREE PERCENT (3%) SERVICE CHARGE. 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
In case of non-payment of this note at maturity/on demand or upon default of
there is no law that allows imposition of interest on penalties, the penalties should not
payment of any portion of it when due, I/We jointly and severally agree to
earn interest. But as we have already explained, penalty clauses can be in the form of
pay additional penalty charges at the rate of TWO per cent (2%) per month on the
penalty or compensatory interest. Thus, the compounding of the penalty or
total amount due until paid, payable and computed monthly. Default of payment of
compensatory interest is sanctioned by and allowed pursuant to the above-quoted
this note or any portion thereof when due shall render all other installments and all
provision of Article 1959 of the New Civil Code considering that:
existing promissory notes made by us in favor of the CULTURAL CENTER OF THE
PHILIPPINES immediately due and demandable. (Underscoring supplied) 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
xxx xxx xxx 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 Hundred Thirty-Eight Thousand Four Hundred Fifty-Four Pesos and Sixty-Eight
express stipulation on the specific rate of interest, as in the case at bar. Centavos (P2,838,454.68). Thus, petitioner contends that reduction of the penalty is
justifiable pursuant to Article 1229 of the New Civil Code which provides that: The
Second, Article 2212 of the New Civil Code provides that Interest due shall earn
judge shall equitably reduce the penalty when the principal obligation has been partly
legal interest from the time it is judicially demanded, although the obligation may be
or irregularly complied with by the debtor. Even if there has been no performance, the
silent upon this point. In the instant case, interest likewise began to run on the penalty
penalty may also be reduced by the courts if it is iniquitous or
interest upon the filing of the complaint in court by respondent CCP on August 29, unconscionable. Petitioner insists that the penalty should be reduced to ten percent
1984. Hence, the courts a quo did not err in ruling that the petitioner is bound to pay
(10%) of the unpaid debt in accordance with Bachrach Motor Company v. Espiritu.[15]
the interest on the total amount of the principal, the monetary interest and the
penalty interest. There appears to be a justification for a reduction of the penalty charge but not
necessarily to ten percent (10%) of the unpaid balance of the loan as suggested by
The petitioner seeks the elimination of the compounded interest imposed on the petitioner. Inasmuch as petitioner has made partial payments which showed his good
total amount based allegedly on the case of National Power Corporation v. National
faith, a reduction of the penalty charge from two percent (2%) per month on the total
Merchandising Corporation,[12]wherein we ruled that the imposition of interest on the
amount due, compounded monthly, until paid can indeed be justified under the said
damages from the filing of the complaint is unjust where the litigation was prolonged provision of Article 1229 of the New Civil Code.
for twenty-five (25) years through no fault of the defendant.However, the ruling in the
said National Power Corporation (NPC) case is not applicable to the case at bar In other words, we find the continued monthly accrual of the two percent (2%)
inasmuch as our ruling on the issue of interest in that NPC case was based on penalty charge on the total amount due to be unconscionable inasmuch as the same
equitable considerations and on the fact that the said case lasted for twenty-five (25) appeared to have been compounded monthly.
years through no fault of the defendant. In the case at bar, however, equity cannot be
Considering petitioners several partial payments and the fact he is liable under
considered inasmuch as there is a contractual stipulation in the promissory note
the note for the two percent (2%) penalty charge per month on the total amount due,
whereby the petitioner expressly agreed to the compounding of interest in case of
compounded monthly, for twenty-one (21) years since his default in 1980, we find it
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 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
appear to be inequitable or unjust, the said written stipulation should be respected.
Statement of Account (Exhibits C to C-2). We also took into consideration the offers of
The private respondents Statement of Account (marked Exhibits C to C- the petitioner to enter into a compromise for the settlement of his debt by presenting
2)[13] shows the following breakdown of the petitioners indebtedness as of August 28, proposed payment schemes to respondent CCP. The said offers at compromise also
1986: 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
Principal P2,838,454.68 deprivation of the use of its money collectible from the petitioner.
The petitioner also imputes error on the part of the appellate court for not
Interest P 576,167.89 declaring the suspension of the running of the interest during that period when the
respondent allegedly failed to assist the petitioner in applying for relief from
Surcharge P4,581,692.10 liability. In this connection, the petitioner referred to the private respondents
letter[16] dated September 28, 1988 addressed to petitioner which partially reads:
P7,996,314.67
Dear Mr. Tan:
The said statement of account also shows that the above amounts stated therein are
net of the partial payments amounting to a total of Four Hundred Fifty-Two Thousand xxx xxx xxx
Five Hundred Sixty-One Pesos and Forty-Three Centavos (P452,561.43) which were
made during the period from May 13, 1983 to September 30, 1983. [14] The petitioner With reference to your appeal for condonation of interest and surcharge, we wish to
now seeks the reduction of the penalty due to the said partial payments.The principal inform you that the center will assist you in applying for relief of liability through the
amount of the promissory note (Exhibit A) was Three Million Four Hundred Eleven Commission on Audit and Office of the President xxx.
Thousand Four Hundred Twenty-One Pesos and Thirty-Two Centavos (P3,411,421.32)
when the loan was restructured on August 31, 1979. As of August 28, 1986, the
principal amount of the said restructured loan has been reduced to Two Million Eight
While your application is being processed and awaiting approval, the center will be G.R. No. 128833 April 20, 1998
accepting your proposed payment scheme with the downpayment of P160,000.00 and
monthly remittances of P60,000.00 xxx. RIZAL COMMERCIAL BANKING CORPORATION, UY CHUN BING AND ELI D.
LAO, petitioners,
xxx xxx xxx vs.
COURT OF APPEALS and GOYU & SONS, INC., respondents.
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
G.R. No. 128834 April 20, 1998
become conditional, that is dependent on a future and uncertain event which consists
of whether the petitioners request for condonation of interest and surcharge would be
recommended by the Commission on Audit and the Office of the President to the RIZAL COMMERCIAL BANKING CORPORATION, petitioners,
House of Representatives for approval as required under Section 36 of Presidential vs.
Decree No. 1445. Since the condition has not happened allegedly due to the private COURT OF APPEALS, ALFREDO C. SEBASTIAN, GOYU & SONS, INC., GO SONG HIAP,
respondents reneging on its promise, his liability to pay the interest and surcharge on SPOUSES GO TENG KOK and BETTY CHIU SUK YING alias BETTY GO, respondents.
the loan has not arisen. This is the petitioners contention.
G.R. No. 128866 April 20, 1998
It is our view, however, that the running of the interest and surcharge was not
suspended by the private respondents promise to assist the petitioners in applying for MALAYAN INSURANCE INC., petitioners,
relief therefrom through the Commission on Audit and the Office of the President. vs.
First, the letter dated September 28, 1988 alleged to have been sent by the GOYU & SONS, INC. respondent.
respondent CCP to the petitioner is not part of the formally offered documentary
evidence of either party in the trial court. That letter cannot be considered evidence MELO, J.:
pursuant to Rule 132, Section 34 of the Rules of Court which provides that: The court
shall consider no evidence which has not been formally offered xxx. Besides, the said The issue relevant to the herein three consolidated petitions revolve around the fire
letter does not contain any categorical agreement on the part of respondent CCP that loss claims of respondent Goyu & Sons, Inc. (GOYU) with petitioner Malayan Insurance
the payment of the interest and surcharge on the loan is deemed suspended while his Company, Inc. (MICO) in connection with the mortgage contracts entered into by and
appeal for condonation of the interest and surcharge was being processed. between Rizal Commercial Banking Corporation (RCBC) and GOYU.
Second, the private respondent correctly asserted that it was the primary
responsibility of petitioner to inform the Commission on Audit and the Office of the The Court of Appeals ordered MICO to pay GOYU its claims in the total amount of
President of his application for condonation of interest and surcharge. It was P74,040,518.58, plus 37% interest per annum commending July 27, 1992. RCBC was
incumbent upon the petitioner to bring his administrative appeal for condonation of ordered to pay actual and compensatory damages in the amount of P5,000,000.00.
interest and penalty charges to the attention of the said government offices. 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
On the issue of attorneys fees, the appellate court ruled correctly and justly in at P68,785,069.04 as of April 1992, without any interest, surcharges, and penalties.
reducing the trial courts award of twenty-five percent (25%) attorneys fees to five RCBC and MICO appealed separately but, in view of the common facts and issues
percent (5%) of the total amount due. involved, their individual petitions were consolidated.
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 The undisputed facts may be summarized as follows:
total amount due, compounded monthly, is hereby reduced to a straight twelve
percent (12%) per annum starting from August 28, 1986. With costs against the GOYU applied for credit facilities and accommodations with RCBC at its Binondo
petitioner. Branch. After due evaluation, RCBC Binondo Branch, through its key officers,
petitioners Uy Chun Bing and Eli D. Lao, recommended GOYU's application for
SO ORDERED. 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 a. To pay the plaintiff its fire loss claims in the total
and two chattel mortgages in favor of RCBC, which were registered with the Registry amount of P74,040,518.58 less the amount of
of Deeds at Valenzuela, Metro Manila. Under each of these four mortgage contracts, P50,000,000.00 which is deposited with this Court;
GOYU committed itself to insure the mortgaged property with an insurance company
approved by RCBC, and subsequently, to endorse and deliver the insurance polices to b. To pay the plaintiff damages by was of interest
RCBC. for the duration of the delay since July 27, 1992 (ninety days
after defendant insurer's receipt of the required proof of
GOYU obtained in its name a total of ten insurance policies from MICO. In February loss and notice of loss) at the rate of twice the ceiling
1992, Alchester Insurance Agency, Inc., the insurance agent where GOYU obtained the prescribed by the Monetary Board, on the following
Malayan insurance policies, issued nine endorsements in favor of RCBC seemingly amounts:
upon instructions of GOYU (Exhibits "1-Malayan" to "9-Malayan").
1) P50,000,000.00 — from July 27, 1992 up to the
On April 27, 1992, one of GOYU's factory buildings in Valenzuela was gutted by fire. time said amount was deposited with this Court on January
Consequently, GOYU submitted its claim for indemnity on account of the loss insured 7, 1994;
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 2) P24,040,518.58 — from July 27, 1992 up to the
that the insurance proceeds were also claimed by other creditors of GOYU alleging time when the writs of attachments were received by
better rights to the proceeds than the insured. GOYU filed a complaint for specific defendant Malayan;
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 2. For defendant Rizal Commercial Banking
subject of the present G.R. No. 128833 and 128866. Corporation:

RCBC, one of GOYU's creditors, also filed with MICO its formal claim over the proceeds a. To pay the plaintiff actual and
of the insurance policies, but said claims were also denied for the same reasons that compensatory damages in the
MICO denied GOYU's claims. amount of P2,000,000.00;

In an interlocutory order dated October 12, 1993 (Record, pp. 311-312), the Regional 3. For both defendants Malayan and RCBC:
Trial Court of Manila (Branch 3), confirmed that GOYU's other creditors, namely,
Urban Bank, Alfredo Sebastian, and Philippine Trust Company obtained their
a. To pay the plaintiff, jointly and
respective writs of attachments from various courts, covering an aggregate amount of
severally, the following amounts:
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,
1) P1,000,000.00 as exemplary damages;
on January 7, 1994, MICO deposited the amount of P50,505,594.60 with Branch 3 of
the Manila RTC.
2) P1,000,000.00 as, and for, attorney's fees;
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"). 3) Costs of suit.

After trial, Branch 3 of the Manila RTC rendered judgment in favor of GOYU, disposing: and on the Counterclaim of defendant RCBC,
ordering the plaintiff to pay its loan obligations
with defendant RCBC in the amount of
WHEREFORE, judgment is hereby rendered in favor of the plaintiff
P68,785,069.04, as of April 27, 1992, with interest
and against the defendant, Malayan Insurance Company, Inc. and
thereon at the rate stipulated in the respective
Rizal Commercial Banking Corporation, ordering the latter as follows:
promissory notes (without surcharges and
penalties) per computation, pp. 14-A, 14-B & 14-C.
1. For defendant Malayan Insurance Co., Inc.:
 FURTHER, the Clerk of Court of the Regional Trial Court of Manila is a) To pay the plaintiff jointly and
hereby ordered to release immediately to the plaintiff the amount of severally the following amounts:
P50,000,000.00 deposited with the Court by defendant Malayan,
together with all the interest earned thereon. 1. P1,500,000.00 as exemplary
damages;
(Record, pp. 478-479.)
2. P1,500,000.00 as and for
From this judgment, all parties interposed their respective appeals. GOYU was attorney's fees.
unsatisfied with the amount awarded in its favor. MICO and RCBC disputed the trial
court's findings of liability on their part. The Court of Appeals party granted GOYU's 4. And on RCBC's Counterclaim, ordering the
appeal, but sustained the findings of the trial court with respect to MICO and RCBC's plaintiff Goyu & Sons, Inc. to pay its loan obligation
liabilities, thusly: with RCBC in the amount of P68,785,069.04 as of
April 27, 1992 without any interest, surcharges and
WHEREFORE, the decision of the lower court dated June 29, 1994 is penalties.
hereby modified as follows:
The Clerk of the Court of the Regional Trial Court of Manila is hereby
1. FOR DEFENDANT MALAYAN INSURANCE CO., ordered to immediately release to Goyu & Sons, Inc. the amount of
INC: P50,505,594.60 (per O.R. No. 3649285) deposited with it by Malayan
Insurance Co., Inc., together with all the interests thereon.
a) To pay the plaintiff its fire loss
claim in the total amount of (Rollo, p. 200.)
P74,040,518.58 less the amount
of P50,505,594.60 (per O.R. No. RCBC and MICO are now before us in G.R. No. 128833 and 128866, respectively,
3649285) plus deposited in court seeking review and consequent reversal of the above dispositions of the Court of
and damages by way of interest Appeals.
commencing July 27, 1992 until
the time Goyu receives the said In G.R. No. 128834, RCBC likewise appeals from the decision in C.A. G.R. No. CV-48376,
amount at the rate of thirty- which case, by virtue of the Court of Appeals' resolution dated August 7, 1996, was
seven (37%) percent per consolidated with C.A. G.R. No. CV-46162 (subject of herein G.R. No. 128833). At issue
annum which is twice the ceiling in said petition is RCBC's right to intervene in the action between Alfredo C. Sebastian
prescribed by the Monetary (the creditor) and GOYU (the debtor), where the subject insurance policies were
Board. attached in favor of Sebastian.

2. FOR DEFENDANT RIZAL COMMERCIAL BANKING After a careful reviews of the material facts as found by the two courts below in
CORPORATION; relation to the pertinent and applicable laws, we find merit in the submission of RCBC
and MICO.
a) To pay the plaintiff actual and
compensatory damages in the The several causes of action pursued below by GOYU gave rise to several related issues
amount of P5,000,000.00. 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
3. FOR DEFENDANTS MALAYAN INSURANCE CO., right over the insurance policies taken by GOYU, the mortgagor, in case of the
INC., RIZAL COMMERCIAL BANKING occurrence of loss.
CORPORATION, UY CHUN BING AND ELI D. LAO:
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 administration of justice where without its aid injustice might result.
with any of the insurance companies acceptable to RCBC. GOYU indeed insured the It has been applied by this Court wherever and whenever special
mortgaged property with MICO, an insurance company acceptable to RCBC. Bases on circumstances of a case so demand.
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, (p. 368.)
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- Evelyn Lozada of Alchester testified that upon instructions of Mr. Go, through a certain
RCBC" to "59-RCBC"), copies of which were delivered to GOYU, RCBC, and MICO. Mr. Yam, she prepared in quadruplicate on February 11, 1992 the nine endorsement
However, because these endorsements do not bear the signature of any officer of documents for GOYU's nine insurance policies in favor of RCBC. The original copies of
GOYU, the trial court, as well as the Court of Appeals, concluded that the each of these nine endorsement documents were sent to GOYU, and the others were
endorsements are defective. sent to RCBC and MICO, while the fourth copies were detained for Alchester's file (tsn,
February 23, pp. 7-8). GOYU has not denied having received from Alchester the
We do not quite agree. originals of these documents.

It is settled that a mortgagor and a mortgagee have separated and distinct insurable RCBC, in good faith, relied upon the endorsement documents sent to it as this was
interests in the same mortgaged property, such that each one of them may insure the only pursuant to the stipulation in the mortgage contracts. We find such reliance to be
same property for his own sole benefit. There is no question that GOYU could insure justified under the circumstances of the case. GOYU failed to seasonably repudiate the
the mortgaged property for its own exclusive benefit. In the present case, although it authority of the person or persons who prepared such endorsements. Over and above
appears that GOYU obtained the subject insurance policies naming itself as the sole this, GOYU continued, in the meantime, to enjoy the benefits of the credit facilities
payee, the intentions of the parties as shown by their contemporaneous acts, must be extended to it by RCBC. After the occurrence of the loss insure against, it was too late
given due consideration in order to better serve the interest of justice and equity. for GOYU to disown the endorsements for any imagined or contrived lack of authority
of Alchester to prepare and issue said endorsements. If there had not been actually an
It is to be noted that nine endorsement documents were prepared by Alchester in implied ratification of said endorsements by virtue of GOYU's inaction in this case,
favor of RCBC. The Court is in a quandary how Alchester could arrive at the idea of GOYU is at the very least estopped from assailing their operative effects. To permit
endorsing any specific insurance policy in favor of any particular beneficiary or payee GOYU to capitalize on its non-confirmation of these endorsements while it continued
other than the insured had not such named payee or beneficiary been specifically to enjoy the benefits of the credit facilities of RCBC which believed in good faith that
disclosed by the insured itself. It is also significant that GOYU voluntarily and purposely there was due endorsement pursuant to their mortgage contracts, is to countenance
took the insurance policies from MICO, a sister company of RCBC, and not just from grave contravention of public policy, fair dealing, good faith, and justice. Such an
any other insurance company. Alchester would not have found out that the subject unjust situation, the Court cannot sanction. Under the peculiar circumstances
pieces of property were mortgaged to RCBC had not such information been voluntarily obtaining in this case, the Court is bound to recognize RCBC's right to the proceeds of
disclosed by GOYU itself. Had it not been for GOYU, Alchester would not have known the insurance polices if not for the actual endorsement of the policies, at least on the
of GOYU's intention of obtaining insurance coverage in compliance with its basis of the equitable principle of estoppel.
undertaking in the mortgage contracts with RCBC, and verily, Alchester would not
have endorsed the policies to RCBC had it not been so directed by GOYU. 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
On equitable principles, particularly on the ground of estoppel, the Court is name or for whose benefit it is made. The peculiarity of the circumstances obtaining in
constrained to rule in favor of mortgagor RCBC. The basis and purpose of the doctrine the instant case presents a justification to take exception to the strict application of
was explained in Philippine National Bank vs. Court of Appeals (94 SCRA 357 [1979]), to said provision, it having been sufficiently established that it was the intention of the
wit: parties to designate RCBC as the party for whose benefit the insurance policies were
taken out. Consider thus the following:
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 1. It is undisputed that the insured pieces of property were the subject of mortgage
speak against his own act, representations, or commitments to the contracts entered into between RCBC and GOYU in consideration of and for securing
injury of one to whom they were directed and who reasonably relied GOYU's credit facilities from RCBC. The mortgage contracts contained common
thereon. The doctrine of estoppel springs from equitable principles provisions whereby GOYU, as mortgagor, undertook to have the mortgaged property
and the equities in the case. It is designed to aid the law in the properly covered against any loss by an insurance company acceptable to RCBC.
2. GOYU voluntarily procured insurance policies to cover the mortgaged property from Expiry Date April 5, 1993
MICO, no less than a sister company of RCBC and definitely an acceptable insurance Amount P9,646,224.92
company to RCBC.
b. Policy Number ACIA/F-174-07660 Exhibit "1-
3. Endorsement documents were prepared by MICO's underwriter, Alchester Malayan"
Insurance Agency, Inc., and copies thereof were sent to GOYU, MICO, and RCBC. GOYU Issue Date January 18, 1992
did not assail, until of late, the validity of said endorsements. Expiry Date February 9, 1993
Amount P4,307,217.54
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 c. Policy Number ACIA/F-114-07661 Exhibit "2-
insurance policies to be taken by GOYU to cover the mortgaged properties. Malayan"
Issue Date January 18, 1992
This Court can not over stress the fact that upon receiving its copies of the Expiry Date February 15, 1993
endorsement documents prepared by Alchester, GOYU, despite the absence of its Amount P6,603,586.43
written conformity thereto, obviously considered said endorsement to be sufficient
compliance with its obligation under the mortgage contracts since RCBC accordingly d. Policy Number ACIA/F-114-07662 Exhibit "3-
continued to extend the benefits of its credits facilities and GOYU continued to benefit Malayan"
therefrom. Just as plain too is the intention of the parties to constitute RCBC as the Issue Date January 18, 1992
beneficiary of the various insurance policies obtained by GOYU. The intention of the Expiry Date (not legible)
parties will have to be given full force and effect particular case. The insurance Amount P6,603,586.43
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 polices e. Policy Number ACIA/F-114-07663 Exhibit "4-
were clearly intended. Malayan"
Issue Date January 18, 1992
Moreover, the law's evident intention to protect the interests of the mortgage upon Expiry Date February 9, 1993
the mortgaged property is expressed in Article 2127 of the Civil Code which states: Amount P9,457,972.76

Art. 2127. The mortgage extends to the natural accessions, to the f. Policy Number ACIA/F-114-07623 Exhibit "7-
improvements, growing fruits, and the rents or income not yet Malayan"
received when the obligation becomes due, and to the amount of Issue Date January 13, 1992
the indemnity granted or owing to the proprietor from the insurers Expiry Date January 13, 1993
of the property mortgaged, or in virtue of expropriation for public Amount P24,750,000.00
use, with the declarations, amplifications and limitations established
by law, whether the estate remains in the possession of the g. Policy Number ACIA/F-174-07223 Exhibit "6-
mortgagor, or it passes into the hands of a third person. Malayan"
Issue Date May 29, 1991
Significantly, the Court notes that out of the 10 insurance policies subject of this case, Expiry Date June 27, 1992
only 8 of them appear to have been subject of the endorsements prepared and Amount P6,000,000.00
delivered by Alchester for and upon instructions of GOYU as shown below:
h. Policy Number CI/F-128-03341 None
INSURANCE POLICY PARTICULARS ENDORSEMENT Issue Date May 3, 1991
Expiry Date May 3, 1992
a. Policy Number F-114-07795 None Amount P10,000,000.00
Issue Date March 18, 1992
 i. Policy Number F-114-07402 Exhibit "8-Malayan" Promissory Note No. 908-91) and Promissory Note No. 420-92 (renewal of Promissory
Issue Date September 16, 1991 Note No. 952-91) on the ground that their execution is highly questionable for not only
Expiry Date October 19, 1992 are these dated after the fire, but also because the signatures of either GOYU or any
Amount P32,252,125.20 its representative are conspicuously absent. Accordingly, the Court of Appeals
speculated thusly:
j. Policy Number F-114-07525 Exhibit "9-Malayan"
Issue Date November 20, 1991 . . . Hence, this Court is inclined to conclude that said promissory
Expiry Date December 5, 1992 notes were pre-signed by plaintiff in bank terms, as averred by
Amount P6,603,586.43 plaintiff, in contemplation of the speedy grant of future loans, for
the same practice of procedure has always been adopted in its
(pp. 456-457, Record; Folder of Exhibits for MICO.) previous dealings with the bank.

Policy Number F-114-07795 [(a) above] has not been endorsed. This fact was admitted (Rollo, pp. 181-182.)
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 The fact that the promissory notes bear dates posterior to the fire does not necessarily
endorsement documents, Exhibit "5-Malayan", refers to a certain insurance policy mean that the documents are spurious, for it is presumed that the ordinary course of
number ACIA-F-07066, which is not among the insurance policies involved in the business had been followed (Metropolitan Bank and Trust Company vs. Quilts and All,
complaint. Inc., 22 SCRA 486 [1993]). The obligor and not the holder of the negotiable instrument
has the burden of proof of showing that he no longer owes the obligee any amount
The proceeds of the 8 insurance policies endorsed to RCBC aggregate to (Travel-On, Inc. vs. Court of Appeals, 210 SCRA 351 [1992]).
P89,974,488.36. Being excessively payable to RCBC by reason of the endorsement by
Alchester to RCBC, which we already ruled to have the force and effect of an Even casting aside the presumption of regularity of private transactions, receipt of the
endorsement by GOYU itself, these 8 policies can not be attached by GOYU's other loan amounting to P121,966,058.67 (Exhibits 1-29, RCBC) was admitted by GOYU as
creditors up to the extent of the GOYU's outstanding obligation in RCBC's favor. indicated in the testimony of Go Song Hiap when he answered the queries of the trial
Section 53 of the Insurance Code ordains that the insurance proceeds of the endorsed court.
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 ATTY. NATIVIDAD
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 Q: But insofar as the amount stated in Exhibits 1 to
creditors of GOYU, like Alfredo Sebastian in the present G.R. No. 128834, which may 29-RCBC, you received all the amounts stated
nonetheless forthwith be dismissed for being moot and academic in view of the results therein?
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
A: Yes, sir, I received the amount.
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
COURT
attachment, garnishment, and levy by the other creditors of GOYU.

He is asking if he received all the amounts stated in

This brings us to the next issue to be resolved, which is, the extent of GOYU's
Exhibits 1 to 29-RCBC?
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. WITNESS:

The Court of Appeals simply echoed the declaration of the trial court finding that Yes, Your Honor, I received all the amounts.
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 COURT
 Indicated in the Promissory Notes? basis for giving GOYU's judicial admission of liability in the amount of P116,301,992.60
full force and effect.
WITNESS
It should, however, be quickly added that whatever amount RCBC may have recovered
A. The promissory Notes they did not give to me from the other insurers of the mortgage property will, nonetheless, have to be applied
but the amount I asked which is correct, Your as payment against GOYU's obligation. But, contrary to the lower courts' findings,
Honor. 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
COURT date March 9, 1993, wherein it admitted that its past due account totaled
P116,301,992.60 as of January 21, 1993.
Q Your mean to say the amounts indicated in
Exhibits 1 to 29-RCBC is correct? The net obligation of GOYU, after deductions, is thus reduced to P107,246,887.90 as of
January 21, 1993, to wit:
A Yes, Your Honor.
Total Obligation as admitted by GOYU
as of January 21, 1993: P116,301,992.60
(tsn, Jan. 14, 1994, p. 26.)

Broken down as follows:

Furthermore, aside from its judicial admission of having received all the proceeds of
the 29 promissory notes as hereinabove quotes, GOYU also offered and admitted to
RCBC that is obligation be fixed at P116,301,992.60 as shown in its letter date March 9, Principal 1 Interest
1993, which pertinently reads:
Regular 80,535,946.32
We wish to inform you, therefore that we are ready and willing to FDU 27,548,025.17
pay the current past due account of this company in the amount of ____________
P116,301,992.60 as of 21 January 1993, specified in pars. 15, p. 10, Total 108,083,971.49 8,218,021.11 2
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 LESS:
Zamboanga city, respectively, less the total of P8,851,519.71 paid
from the Seaboard and Equitable insurance companies and other 1) Proceeds from
legitimate deductions. We accept and confirm this amount of Seaboard Eastern
P116,301,992.60 as stated as true and correct. Insurance Company 6,095,145.81

(Exhibit BB.) 2) Proceeds from

Equitable Insurance
The Court of Appeals erred in placing much significance on the fact that the excluded Company 2,756,373.00
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 3) Payment from
be paid to the fact that Promissory Notes No. 420-92 and 421-92 are mere renewals of foreign department
Promissory Notes No. 908-91 and 952-91, loans already availed of by GOYU. negotiation: 203,584.89
___________
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 9,055,104.70 3
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 NET AMOUNT as of January 21, 1993 P107,246,887.90
The need for the payment of interest due the principal amount of the obligation, I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts,
which is the cost of money to RCBC, the primary end and the ultimate reason for delicts or quasi-delicts is breached, the contravenor can be held liable for damages.
RCBC's existence and being, was duly recognized by the trial court when it ruled The provisions under Title XVIII on "Damages" of the Civil Code govern in determining
favorably on RCBC's counterclaim, ordering GOYU "to pay its loan obligation with RCBC the measure of recoverable damages.
in the amount of 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 II. With regard particularly to an award of interest in the concept of actual and
computation, pp. 14-A, 14-B 14-C" (Record, p. 479). Inexplicably, the Court of Appeals, compensatory damages, the rate of interest, as well as the actual thereof, is imposed,
without even laying down the factual or legal justification for its ruling, modified the as follows:
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). 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
It is to be noted in this regard that even the trial court hedgingly and with much due should be that which may have been stipulated in writing.
uncertainty deleted the payment of additional interest, penalties, and charges, in this Furthermore, the interest due shall itself earn legal interest from the
manner: 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.,
Regarding defendant RCBC's commitment not to charge additional from judicial or extrajudicial demand under and subject to the
interest, penalties and surcharges, the same does not require that it provisions of Article 1169 of the Civil Code.
be embodied in a document or some form of writing to be binding
and enforceable. The principle is well known that generally a verbal 2. When an obligation, not constituting a loan or forbearance of
agreement or contract is no less binding and effective than a written money, is breached, an interest on the amount of damages awarded
one. And the existence of such a verbal agreement has been amply may be imposed at the discretion of the court at the rate of 6% per
established by the evidence in this case. In any event, regardless of annum. No interest, however, shall be adjudged on unliquidated
the existence of such verbal agreement, it would still be unjust and claims or damages except when or until the demand can be
inequitable for defendant RCBC to charge the plaintiff with established with reasonable certainty. Accordingly, where the
surcharges and penalties considering the latter's pitiful situation. demand is established with reasonable certainty, the interest shall
(Emphasis supplied). begin to run from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code) but when such certainty cannot
(Record, p. 476) 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
The essence or rationale for the payment of interest or cost of money is separate and court is made (at which time the quantification of damages may be
distinct from that of surcharges and penalties. What may justify a court in not allowing deemed to have been reasonably ascertained). The actual base for
the creditor to charge surcharges and penalties despite express stipulation therefor in the computation of legal interest shall, in any case, be on the
a valid agreement, may not equally justify non-payment of interest. The charging of amount finally adjudged.
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 3. When the judgment of the court awarding a sum of money
being. It is inconceivable for a bank to grant loans for which it will not charge any becomes final and executory, the rate of legal interest, whether the
interest at all. We fail to find justification for the Court of Appeal's outright deletion of case falls under paragraph 1 or paragraph 2, above, shall be 12% per
the payment of interest as agreed upon in the respective promissory notes. This annum from such finality until its satisfaction, this interim period
constitutes gross error. being deemed to be by then an equivalent to a forbearance of credit.

For the computation of the interest due to be paid to RCBC, the following rules of (pp. 95-97).
thumb laid down by this Court in Eastern Shipping Lines, Inc. vs. Court of Appeals (234
SCRA 78 [1994]), shall apply, to wit: 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 Secondly, for an insurance company to be held liable for unreasonably delaying and
paragraph II, sub-paragraph 1 quoted above. 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
On the issue of payment of surcharges and penalties, we partly agree that GOYU's agreed, however, that an insurer may in good faith and honesty entertain a difference
pitiful situation must be taken into account. We do not agree, however, that payment of opinion as to its liability. Accordingly, the statutory penalty for vexatious refusal of
of any amount as surcharges and penalties should altogether be deleted. Even an insurer to pay a claim should not be inflicted unless the evidence and circumstances
assuming that RCBC, through its responsible officers, herein petitioners Eli Lao and Uy show that such refusal was willful and without reasonable cause as the facts appear to
Chun Bing, may have relayed its assurance for assistance to GOYU immediately after a reasonable and prudent man (Bufallo Ins. Co. vs. Bommarito [CCA 8th] 42 F [2d] 53,
the occurrence of the fire, we cannot accept the lower courts' finding that RCBC had 70 ALR 1211; Phoenix Ins. Co. vs. Clay, 101 Ga. 331, 28 SE 853, 65 Am St. Rep 307;
thereby ipso facto effectively waived collection of any additional interests, surcharges, Kusnetsky vs. Security Ins. Co., 313 Mo. 143, 281 SW 47, 45 ALR 189). The case at bar
and penalties from GOYU. Assurances of assistance are one thing, but waiver of does not show that MICO wantonly and in bad faith delayed the release of the
additional interests, surcharges, and penalties is another. 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
Surcharges and penalties agreed to be paid by the debtor in case of default partake of of the insurance proceeds, not to mention the importance of the endorsement to
the nature of liquidated damages, covered by Section 4, Chapter 3, Title XVIII of the RCBC, to our mind, and as now borne out by the outcome herein, justified MICO in
Civil Code. Article 2227 thereof provides: withholding payment to GOYU.

Art. 2227. Liquidated damages, whether intended as a indemnity or In adjudging RCBC liable in damages to GOYU, the Court of Appeals said that RCBC
penalty, shall be equitably reduced if they are iniquitous and cannot avail itself of two simultaneous remedies in enforcing the claim of an unpaid
unconscionable. 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
In exercising this vested power to determine what is iniquitous and unconscionable,
giving due consideration to this argument of GOYU, for the foreclosure suit is still
the Court must consider the circumstances of each case. It should be stressed that the
pending appeal before the same Court of Appeals in CA G.R. CV No. 46247, the case
Court will not make any sweeping ruling that surcharges and penalties imposed by
having been elevated by RCBC.
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 In finding that the foreclosure suit cannot prosper, the Fifteenth Division of the Court
the established facts of any given case. Given the circumstance under which GOYU of Appeals pre-empted the resolution of said foreclosure case which is not before it.
found itself after the occurrence of the fire, the Court rules the surcharges rates This is plain reversible error if not grave abuse of discretion.
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%, As held in Peña vs. Court of Appeals (245 SCRA 691 [1995]):
respectively. Furthermore, in the light of GOYU's offer to pay the amount of
P116,301,992.60 to RCBC as March 1993 (See: Exhibit "BB"), which RCBC refused, we It should have been enough, nonetheless, for the appellate court to
find it more in keeping with justice and equity for RCBC not to charge additional merely set aside the questioned ordered of the trial court for having
interest, surcharges, and penalties from that time onward. been issued by the latter with grave abuse of discretion. In likewise
enjoining permanently herein petitioner "from entering in and
Given the factual milieu hereover, we rule that it was error to hold MICO liable in interfering with the use or occupation and enjoyment of petitioner's
damages for denying or withholding the proceeds of the insurance claim to GOYU. (now private respondent) residential house and compound," the
appellate court in effect, precipitately resolved with finality the case
Firstly, by virtue of the mortgage contracts as well as the endorsements of the for injunction that was yet to be heard on the merits by the lower
insurance policies, RCBC has the right to claim the insurance proceeds, in substitution court. Elevated to the appellate court, it might be stressed, were
of the property lost in the fire. Having assigned its rights, GOYU lost its standing as the mere incidents of the principal case still pending with the trial court.
beneficiary of the said insurance policies. 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 certiorariproceeding 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.) preferential rights of Rizal Commercial Banking Corporation over the Malayan
insurance policies as first mortgagee.
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 (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 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
herein arrived at. Respondent Sebastian's right as attaching creditor must yield to the
G.R. No. 160533 January 12, 2005 the amount of P114,000.00 to Gloria D. Padillo, and (2) deleting the award of
attorney’s fees in favor of appellee. Other claims and counterclaims are dismissed for
FIRST FIL-SIN LENDING CORPORATION, petitioner, lack of sufficient causes. No pronouncement as to cost.
vs.
GLORIA D. PADILLO, respondent. SO ORDERED.6

DECISION The appellate court ruled that, based on the disclosure statements executed by
respondent, the interest rates should be imposed on a monthly basis but only for the
YNARES-SANTIAGO, J.: 3-month term of the loan.l^vvphi1.net Thereafter, the legal interest rate will apply.
The CA also found the penalty charges pegged at 1% per day of delay highly
Before us is a petition for review under Rule 45 of the Rules of Court, seeking a unconscionable as it would translate to 365% per annum. Thus, it was reduced to 1%
reversal of the Court of Appeals’ decision in CA-G.R. CV No. 751831 dated October 16, per month or 12% per annum.
2003, which reversed and set aside the decision of the Regional Trial Court of Manila,
Branch 21 in Civil Case No. 00-96235. Hence, the instant petition on the following assignment of errors:

On July 22, 1997, respondent Gloria D. Padillo obtained a P500,000.00 loan from I
petitioner First Fil-Sin Lending Corp. On September 7, 1997, respondent obtained
another P500,000.00 loan from petitioner. In both instances, respondent executed a THE COURT OF APPEALS ERRED IN FINDING THAT THE APPLICABLE INTEREST SHOULD
promissory note and disclosure statement.2 BE THE LEGAL INTEREST OF TWELVE PER CENT (12%) PER ANNUM DESPITE THE CLEAR
AGREEMENT OF THE PARTIES ON ANOTHER APPLICABLE RATE.
For the first loan, respondent made 13 monthly interest payments of P22,500.00 each
before she settled the P500,000.00 outstanding principal obligation on February 2, II
1999. As regards the second loan, respondent made 11 monthly interest payments of
P25,000.00 each before paying the principal loan of P500,000.00 on February 2, THE COURT OF APPEALS ERRED IN IMPOSING A PENALTY COMPUTED AT THE RATE OF
1999.3 In sum, respondent paid a total of P792,500.00 for the first loan and TWELVE PER CENT (12%) PER ANNUM DESPITE THE CLEAR AGREEMENT OF THE
P775,000.00 for the second loan. PARTIES ON ANOTHER APPLICABLE RATE.

On January 27, 2000, respondent filed an action for sum of money against herein III
petitioner before the Regional Trial Court of Manila. Alleging that she only agreed to
pay interest at the rates of 4.5% and 5% per annum, respectively, for the two loans, THE COURT OF APPEALS ERRED IN DELETING THE ATTORNEY’S FEES AWARDED BY THE
and not 4.5% and 5% per month, respondent sought to recover the amounts she REGIONAL TRIAL COURT.7
allegedly paid in excess of her actual obligations.
Petitioner maintains that the trial court and the CA are correct in ruling that the
On October 12, 2001,4 the trial court dismissed respondent’s complaint, and on the interest rates are to be imposed on a monthly and not on a per annum basis. However,
counterclaim, ordered her to pay petitioner P311,125.00 with legal interest from it insists that the 4.5% and 5% monthly interest shall be imposed until the outstanding
February 3, 1999 until fully paid plus 10% of the amount due as attorney’s fees and obligations have been fully paid.
costs of the suit.5 The trial court ruled that by issuing checks representing interest
payments at 4.5% and 5% monthly interest rates, respondent is now estopped from
As to the penalty charges, petitioner argues that the 12% per annum penalty imposed
questioning the provisions of the promissory notes.
by the CA in lieu of the 1% per day as agreed upon by the parties violates their
freedom to stipulate terms and conditions as they may deem proper.
On appeal, the Court of Appeals (CA) reversed and set aside the decision of the court
a quo, the dispositive portion of which reads:
Petitioner finally contends that the CA erred in deleting the trial court’s award of
attorney’s fees arguing that the same is anchored on sound and legal ground.
IN VIEW OF ALL THE FOREGOING, the appealed decision is REVERSED and SET
ASIDE and a new one entered: (1) ordering First Fil-Sin Lending Corporation to return
Respondent, on the other hand, avers that the interest on the loans is per annum as Notably, petitioner even admitted that it was solely responsible for the preparation of
expressly stated in the promissory notes and disclosure statements. The provision as the loan documents, and that it failed to correct the pro forma note "p.a." to "per
to annual interest rate is clear and requires no room for interpretation. Respondent month".11 Since the mistake is exclusively attributed to petitioner, the same should be
asserts that any ambiguity in the promissory notes and disclosure statements should charged against it. This unilateral mistake cannot be taken against respondent who
not favor petitioner since the loan documents were prepared by the merely affixed her signature on the pro forma loan agreements. As between two
latter.1awphi1.nét parties to a written agreement, the party who gave rise to the mistake or error in the
provisions of the same is estopped from asserting a contrary intention to that
We agree with respondent. contained therein. The checks issued by respondent do not clearly and convincingly
prove that the real intent of the parties is to apply the interest rates on a monthly
Perusal of the promissory notes and the disclosure statements pertinent to the July 22, basis. Absent any proof of vice of consent, the promissory notes and disclosure
1997 and September 7, 1997 loan obligations of respondent clearly and statements remain the best evidence to ascertain the real intent of the
unambiguously provide for interest rates of 4.5% per annum and 5% per annum, parties.1a\^/phi1.net
respectively. Nowhere was it stated that the interest rates shall be applied on a
monthly basis. The same promissory note provides that "x x x any and all remaining amount due on
the principal upon maturity hereof shall earn interest at the rate of _____ from date of
Thus, when the terms of the agreement are clear and explicit that they do not justify maturity until fully paid." The CA thus properly imposed the legal interest of 12% per
an attempt to read into it any alleged intention of the parties, the terms are to be annum from the time the loans matured until the same has been fully paid on
understood literally just as they appear on the face of the contract. 8 It is only in February 2, 1999. As decreed in Eastern Shipping Lines, Inc. v. Court of Appeals,12 "in
instances when the language of a contract is ambiguous or obscure that courts ought the absence of stipulation, the rate of interest shall be 12% per annum to be
to apply certain established rules of construction in order to ascertain the supposed computed from default."
intent of the parties.l^vvphi1.net However, these rules will not be used to make a new
contract for the parties or to rewrite the old one, even if the contract is inequitable or As regards the penalty charges, we agree with the CA in ruling that the 1% penalty per
harsh. They are applied by the court merely to resolve doubts and ambiguities within day of delay is highly unconscionable. Applying Article 1229 of the Civil Code, courts
the framework of the agreement.9 shall equitably reduce the penalty when the principal obligation has been partly or
irregularly complied with, or if it is iniquitous or unconscionable.
The lower court and the CA mistook the Loan Transactions Summary for the Disclosure
Statement. The former was prepared exclusively by petitioner and merely summarizes With regard to the attorney’s fees, the CA correctly deleted the award in favor of
the payments made by respondent and the income earned by petitioner. There was no petitioner since the trial court’s decision does not reveal any explicit basis for such an
mention of any interest rates and having been prepared exclusively by petitioner, the award. Attorney’s fees are not automatically awarded to every winning
same is self serving. On the contrary, the Disclosure Statements were signed by both litigant.l^vvphi1.net It must be shown that any of the instances enumerated under Art.
parties and categorically stated that interest rates were to be imposed annually, not 220813 of the Civil Code exists to justify the award thereof. 14 Not one of such instances
monthly. exists here. Besides, by filing the complaint, respondent was merely asserting her
rights which, after due deliberations, proved to be lawful, proper and valid.
As such, since the terms and conditions contained in the promissory notes and
disclosure statements are clear and unambiguous, the same must be given full force WHEREFORE, in view of the foregoing, the October 16, 2003 decision of the Court of
and effect. The expressed intention of the parties as laid down on the loan documents Appeals in CA-G.R. CV No. 75183 is AFFIRMED with the MODIFICATION that the
controls.1a\^/phi1.net interest rates on the July 22, 1997 and September 7, 1997 loan obligations of
respondent Gloria D. Padillo from petitioner First Fil-Sin Lending Corporation be
Also, reformation cannot be resorted to as the documents have not been assailed on imposed and computed on a per annum basis, and upon their respective maturities,
the ground of mutual mistake. When a party sues on a written contract and no the interest rate of 12% per annum shall be imposed until full payment. In addition,
attempt is made to show any vice therein, he cannot be allowed to lay claim for more the penalty at the rate of 12% per annum shall be imposed on the outstanding
than what its clear stipulations accord. His omission cannot be arbitrarily supplied by obligations from date of default until full payment.
the courts by what their own notions of justice or equity may dictate.10
SO ORDERED.