[G.R. No. 139539. February 5, 2002] CEROFERR REALTY CORPORATION, petitioner, vs. COURT OF APPEALS and ERNESTO D. SANTIAGO,respondents.

DECISION PARDO, J.:

The Case This is an appeal via certiorari[1] from the decision of the Court of Appeals[2] dismissing petitioners appeal from the order[3] of the Regional Trial Court, Branch 93, Quezon City, which dismissed petitioners complaint for damages and injunction with preliminary injunction, as well as its resolution[4] denying reconsideration.[5]

The Facts The facts, as found by the Court of Appeals,[6] are as follows: On March 16, 1994, plaintiff (Ceroferr Realty Corporation) filed with the Regional Trial Court, Quezon City, Branch 93, a complaint[7] against defendant Ernesto D. Santiago (Santiago), for damages and injunction, with preliminary injunction. In the complaint, Ceroferr prayed that Santiago and his agents be enjoined from - claiming possession and ownership over Lot No. 68 of the Tala Estate Subdivision, Quezon City, covered by TCT No. RT-90200 (334555); that Santiago and his agents be prevented from making use of the vacant lot as a jeepney terminal; that Santiago be ordered to pay Ceroferr P650.00 daily as lost income for the use of the lot until possession is restored to the latter; and that Santiago be directed to pay plaintiff Ceroferr moral, actual and exemplary damages and attorneys fees, plus expenses of litigation. In his answer, defendant Santiago alleged that the vacant lot referred to in the complaint was within Lot No. 90 of the Tala Estate Subdivision, covered by his TCT No. RT-78 110 (3538); that he was not claiming any portion of Lot No. 68 claimed by Ceroferr; that he had the legal right to fence Lot No. 90 since this belonged to him, and he had a permit for the purpose; that Ceroferr had no color of right over Lot No. 90 and, hence, was not entitled to an injunction to prevent Santiago from exercising acts of ownership thereon; and that the complaint did not state a cause of action. In the course of the proceedings, an important issue metamorphosed as a result of the conflicting claims of the parties over the vacant lot actually used as a jeepney terminal the exact identity and location thereof. There was a verification survey, followed by a relocation survey, whereby it would appear that the vacant lot is inside Lot No. 68. The outcome of the survey, however, was vigorously objected to by defendant who insisted that the area is inside his lot. Defendant, in his manifestation dated November 2, 1994, adverted to the report of a geodetic engineer. Mariano V. Flotildes, to the effect that the disputed portion is inside the boundaries of Lot No. 90 of the Tala Estate Subdivision which is separate and distinct from Lot No. 68, and that the two lots are separated by a concrete fence.

Because of the competing claims of ownership of the parties over the vacant lot, it became inevitable that the eye of the storm centered on the correctness of property boundaries which would necessarily result in an inquiry as to the regularity and validity of the respective titles of the parties. While both parties have been brandishing separate certificates of title, defendant asserted a superior claim as against that of the plaintiff in that, according to defendant, his title has been confirmed through judicial reconstitution proceedings, whereas plaintiffs title does not carry any technical description of the property except only as it is designated in the title as Lot No. 68 of the Tala Estate Subdivision. It thus became clear, at least from the viewpoint of defendant, that the case would no longer merely involve a simple case of collection of damages and injunction which was the main objective of the complaint - but a review of the title of defendant vis--vis that of plaintiff. At this point, defendant filed a motion to dismiss the complaint premised primarily on his contention that the trial court cannot adjudicate the issue of damages without passing over the conflicting claims of ownership of the parties over the disputed portion. On May 14, 1996, the trial court issued the order now subject of this appeal which, as earlier pointed out, dismissed the case for lack of cause of action and lack of jurisdiction. The court held that plaintiff was in effect impugning the title of defendant which could not be done in the case for damages and injunction before it. The court cited the hoary rule that a Torens certificate of title cannot be the subject of collateral attack but can only be challenged through a direct proceeding. It concluded that it could not proceed to decide plaintiffs claim for damages and injunction for lack of jurisdiction because its judgment would depend upon a determination of the validity of defendants title and the identity of the land covered by it. From this ruling, plaintiff appealed to this court insisting that the complaint stated a valid cause of action which was determinable from the face thereof, and that, in any event, the trial court could proceed to try and decide the case before it since, under present law, there is now no substantial distinction between the general jurisdiction vested in a regional trial court and its limited jurisdiction when acting as a land registration court, citing Ignacio v. Court of Appeals 246 SCRA 242 (1995). On March 26, 1999, the Court of Appeals promulgated a decision dismissing the appeal. [8] On May 13, 1999, petitioner filed with the Court of Appeals a motion for reconsideration of the decision. [9] On July 29, 1999, the Court of Appeals denied petitioners motion for reconsideration for lac k of merit.[10] Hence, this appeal.[11]

The Issues The issues are: (1) whether Ceroferrs complaint states a sufficient cause of action and (2) whether the trial court has jurisdiction to determine the identity and location of the vacant lot involved in the case.

The Courts Ruling We grant the petition. The rules of procedure require that the complaint must state a concise statement of the ultimate facts or the essential facts constituting the plaintiffs cause of action. A fact is essential if it cannot be stricken out without leaving the statement of the cause of action inadequate. A complaint states a cause of action only when it has its three indispensable elements, namely: (1) a right in favor of the plaintiff by

whatever means and under whatever law it arises or is created; (2) an obligation on the part of the named defendant to respect or not to violate such right; and (3) an act or omission on the part of such defendant violative of the right of plaintiff or constituting a breach of the obligation of defendant to the plaintiff for which the latter may maintain an action for recovery of damages.[12] If these elements are not extant, the complaint becomes vulnerable to a motion to dismiss on the ground of failure to state a cause of action.[13] These elements are present in the case at bar. The complaint[14] alleged that petitioner Ceroferr owned Lot 68 covered by TCT No. RT-90200 (334555). Petitioner Ceroferr used a portion ofLot 68 as a jeepney terminal. The complaint further alleged that respondent Santiago claimed the portion of Lot 68 used as a jeepney terminal since he claimed that the jeepney terminal was within Lot 90 owned by him and covered by TCT No. RT-781 10 (3538) issued in his name. Despite clarification from petitioner Ceroferr that the jeepney terminal was within Lot 68 and not within Lot 90, respondent Santiago persisted in his plans to have the area fenced. He applied for and was issued a fencing permit by the Building Official, Quezon City. It was even alleged in the complaint that respondent- Santiago was preventing petitioner Ceroferr and its agents from entering the property under threats of bodily harm and destroying existing structures thereon. A defendant who moves to dismiss the complaint on the ground of lack of cause of action, as in this case, hypothetically admits all the averments thereof. The test of sufficiency of the facts found in a complaint as constituting a cause of action is whether or not admitting the facts alleged the court can render a valid judgement upon the same in accordance with the prayer thereof. The hypothetical admission extends to the relevant and material facts well pleaded in the complaint and inferences fairly deducible therefrom. Hence, if the allegations in the complaint furnish sufficient basis by which the complaint can be maintained, the same should not be dismissed regardless of the defense that may be assessed by the defendants.[15] In this case, petitioner Ceroferrs cause of action has been sufficiently averred in the complaint. If it were admitted that the right of ownership of petitioner Ceroferr to the peaceful use and possession of Lot 68 was violated by respondent Santiagos act of encroachment and fencing of the same, then petitioner Ceroferr would be entitled to damages. On the issue of jurisdiction, we hold that the trial court has jurisdiction to determine the identity and location of the vacant lot in question. Jurisdiction over the subject matter is conferred by law and is determined by the allegations of the complaint irrespective of whether the plaintiff is entitled to all or some of the claims asserted therein.[16] The jurisdiction of a court over the subject matter is determined by the allegations of the complaint and cannot be made to depend upon the defenses set up in the answer or pleadings filed by the defendant.[17] While the lack of jurisdiction of a court may be raised at any stage of an action, nevertheless, the party raising such question may be estopped if he has actively taken part in the very proceedings which he questions and he only objects to the courts jurisdiction because the judgment or the order subsequently rendered is adverse to him.[18] In this case, respondent Santiago may be considered estopped to question the jurisdiction of the trial court for he took an active part in the case. In his answer, respondent Santiago did not question the jurisdiction of the trial court to grant the reliefs prayed for in the complaint. His geodetic engineers were present in the first and second surveys that the LRA conducted. It was only when the second survey report showed results adverse to his case that he submitted a motion to dismiss. Both parties in this case claim that the vacant lot is within their property. This is an issue that can be best resolved by the trial court in the exercise of its general jurisdiction.

After the land has been originally registered, the Court of Land Registration ceases to have jurisdiction over contests concerning the location of boundary lines. In such case, the action in personam has to be instituted before an ordinary court of general jurisdiction.[19] The regional trial court has jurisdiction to determine the precise identity and location of the vacant lot used as a jeepney terminal.

The Fallo IN VIEW WHEREOF, we GRANT the petition. We REVERSE the decision of the Court of Appeals[20] and the order of the trial court[21]dismissing the case. We remand the case to the Regional Trial Court, Branch 93, Quezon City, for further proceedings. No costs. SO ORDERED.

FIRST DIVISION [G.R. No. 167691, September 23, 2008] CAMARINES SUR IV ELECTRIC COOPERATIVE, INC., PETITIONER, VS. EXPEDITA L. AQUINO, RESPONDENT. RESOLUTION CORONA, J.: This petition for review on certiorari under Rule 45 of the Rules of Court seeks to set aside the January 5, 2005 decision[1] and March 22, 2005 resolution[2] of the Court of Appeals (CA) in CA-G.R. CV No. 81666. Respondent Expedita L. Aquino bought several personal computers and leased a commercial building in Tigaon, Camarines Sur for purposes of establishing a computer gaming business. She had the electrical service in the building restored because the former tenant, a certain Mrs. Paglinawan, [3] had it disconnected when she gave up the occupancy thereof. Respondent paid the reconnection fee as well as the fee corresponding to the electric consumption covering the period of April 17, 2002 to May 16, 2002 to petitioner Camarines Sur IV Electric Cooperative, Inc. in Mrs. Paglinawan's name. However, respondent failed to pay the electric bills in the succeeding months. Because of adverse reports, petitioner conducted an inspection of the electrical wiring of the leased building, took pictures thereof and gave respondent's overseer a report of pilferage of electricity with the notation: "Disconnected w/light/illegal tapping." Petitioner alleged that respondent violated RA 7832[4] and required her to pay the differential billing and penalty within 48 hours; otherwise, the electric service would be disconnected. A conciliatory conference between the parties was held where petitioner presented respondent with two options: deposit the differential billing of P3,367.00 to avoid disconnection during the pendency of the criminal action to be filed by petitioner or pay the amount of the differential billing and the penalty of P15,000.00, in which case the matter would be considered closed and the filing of a criminal case dispensed with. Respondent refused to choose any of the options as she felt that to do so would be tantamount to an admission of guilt. Consequently, her electrical service was permanently disconnected on January 23, 2003. Respondent filed a complaint for damages against petitioner in the Regional Trial Court (RTC). She alleged that due to the disconnection of electrical services, her business operation was interrupted causing her damages in the form of unrealized income, rentals paid for the premises she was unable to use and renovation costs of the leased building. Petitioner filed an answer with affirmative defenses. It alleged, among others, that the complaint failed to state a cause of action. According to petitioner, no contract to supply electricity was entered into between them. Thus, respondent's complaint had no basis and should be dismissed. Respondent subsequently amended her complaint. Petitioner still insisted on moving for its dismissal, reiterating that the complaint stated no cause of action. The trial court initially denied the motion to dismiss in an order dated July 10, 2003. It held that, as respondent was in possession of the premises to which petitioner supplied electricity, there was, in a way, a contract between the parties.

When petitioner moved for reconsideration, the court a quo, in its December 22, 2003 order, made a turnaround and ruled in petitioner's favor (second RTC order).[5] It stated that respondent's payment of the reconnection fee did not suffice to create a new contract between the parties as the same was made in Mrs. Paglinawan's name, whose contract with petitioner was terminated upon the disconnection of the electrical service. Respondent received a copy of the second RTC order on December 23, 2003 and moved for reconsideration thereof on January 5, 2004. Respondent mailed a copy of her motion for reconsideration (with notice of hearing) to petitioner's counsel only on the same date. The notice of hearing indicated that the hearing of the motion was set on January 9, 2004. Petitioner filed an opposition thereto, alleging, among others, that the motion should be denied as respondent did not comply with the 3-day rule (as provided in the Rules of Court). On February 3, 2004, the trial court denied respondent's motion for reconsideration for lack of merit.[6] However, it was silent on the motion's non-compliance with the 3-day rule. Respondent filed an appeal in the CA on February 5, 2004, insisting that the complaint sufficiently stated a cause of action for damages. For its part, petitioner reiterated its stand on the issue. It also called the CA's attention to the alleged flaw in respondent's motion for reconsideration in the RTC. It argued that the motion was a pro forma motion (since it violated the 3-day rule) which should have been dismissed outright by the trial court. Furthermore, it did not stop the running of the 15-day period for respondent to appeal which should have been reckoned from her receipt of the second RTC order on December 23, 2003. Consequently, her February 5, 2004 notice of appeal (which was filed 44 days after she received a copy of the second RTC order) was filed late. The appellate court held that the RTC erred in dismissing the complaint as indeed a cause of action existed. The CA ruled that the matter of whether or not a contract, express or implied, existed between the parties was a matter of defense that must be resolved in a trial on the merits. It stated that such issue was not relevant in a motion to dismiss based on failure to state a cause of action. However, it did not pass upon the issue relative to the timeliness of respondent's appeal. Petitioner filed a motion for reconsideration. It was denied. Hence, this petition. The issues before us are: (1) whether or not respondent's complaint for damages stated a cause of action against petitioner and (2) whether or not respondent's appeal in the CA was filed on time. There is a cause of action when the following elements are present: (1) the legal right of the plaintiff; (2) the correlative obligation of the defendant and (3) the act or omission of the defendant in violation of said legal right.[7] In determining the presence of these elements, only the facts alleged in the complaint must be considered. The test is whether the court can render a valid judgment on the complaint based on the facts alleged and the prayer asked for,[8] such that the facts alleged in the complaint, if true, would justify the relief sought. Only ultimate facts, not legal conclusions or evidentiary facts, are considered for purposes of applying the test.[9] Based on the allegations in the amended complaint, we hold that respondent stated a cause of action for damages. Respondent was in possession of the property supplied with electricity by petitioner when the electric service was disconnected. This resulted in the alleged injury complained of which can be threshed out in a trial on the merits. Whether one is a party or not in a contract is not determinative of the existence of a cause of action. Participation in a contract is not an element in considering whether or not a complaint states a cause of action[10] because even a third party outside the contract can have a cause of action against either or both contracting parties.

Be that as it may, respondent's appeal in the CA should have been denied outright for having been filed out of time. In its petition in this Court, petitioner insisted that respondent mailed a copy of her motion for reconsideration (with notice of hearing) to its (petitioner's) counsel only on January 5, 2004, although the motion was already scheduled for hearing on January 9, 2004. Respondent should have foreseen that the registered mail, which originated from Naga City, would not be able to reach the law office of petitioner's counsel in Manila at least 3 days before said date. As expected, the mail did not reach petitioner's counsel on time. In fact, he received it only on the day of the hearing itself.[11] Thus, respondent's motion for reconsideration was fatally flawed for failure to comply with the 3-day rule under Section 4, Rule 15 of the Rules of Court. It did not toll the reglementary period for respondent to appeal the RTC's decision. We note that respondent's comment did not even touch on the issues of the perceived deficiency in her motion for reconsideration and the timeliness of her appeal in the CA. Although her memorandum briefly discussed these issues, the same was insufficient as it merely reiterated the statement of facts in her appellant's brief in the CA (specifically, as to when she filed said motion in the RTC). No discussion was proffered regarding the date of mailing of a copy of the assailed motion to petitioner's counsel. Furthermore, as if admitting her failure to comply with the mandatory rule on notice of hearing, respondent invoked the much abused exhortation of losing litigants on the primacy of substantial justice over mere technicalities. Respondent's arguments have no merit. Section 4, Rule 15 of the Rules of Court provides: Sec. 4. Hearing of Motion. - Except for motions which the court may act upon without prejudicing the rights of the adverse party, every motion shall be set for hearing by the applicant. Every written motion required to be heard and the notice of hearing thereof shall be served in such a manner as to ensure its receipt by the other party at least three (3) days before the date of hearing, unless the court for good cause sets the hearing on shorter notice. (Emphasis supplied) Time and again, we have held that non-compliance with Section 4 of Rule 15 of the Rules of Court is a fatal defect. A motion which fails to comply with said Rule is a mere scrap of paper. If filed, such motion is not entitled to judicial cognizance.[12]The fact that the RTC took cognizance of a defective motion, such as requiring the parties to set it for hearing and denying the same for lack of merit, did not cure the defect of said motion.[13] It did not suspend the running of the period to appeal.[14] Based on the foregoing, respondent's defective motion for reconsideration did not stop the running of her period to appeal. Thus, the appeal in the CA should have been dismissed outright as the decision of the RTC had by then already become final and executory. WHEREFORE, the petition is hereby GRANTED. The January 5, 2005 decision and March 22, 2005 resolution of the Court of Appeals are REVERSED and SET ASIDEand CA-G.R. CV No. 81666 is ordered DISMISSED. SO ORDERED.

G.R. No. 141309

June 19, 2007

LIWAYWAY VINZONS-CHATO, petitioner, vs. FORTUNE TOBACCO CORPORATION, respondent. DECISION YNARES-SANTIAGO, J.: Petitioner assails the May 7, 1999 Decision1 of the Court of Appeals in CA-G.R. SP No. 47167, which affirmed the September 29, 1997 Order 2 of the Regional Trial Court (RTC) of Marikina, Branch 272, in Civil Case No. 97-341-MK, denying petitioners motion to dismiss. The complaint filed by respondent sought to recover damages for the alleged violation of its const itutional rights arising from petitioners issuance of Revenue Memorandum Circular No. 37-93 (RMC 37-93), which the Court declared invalid in Commissioner of Internal Revenue v. Court of Appeals.3 Petitioner Liwayway Vinzons-Chato was then the Commissioner of Internal Revenue while respondent Fortune Tobacco Corporation is an entity engaged in the manufacture of different brands of cigarettes, among which are "Champion," "Hope," and "More" cigarettes. On June 10, 1993, the legislature enacted Republic Act No. 7654 (RA 7654), which took effect on July 3, 1993. Prior to its effectivity, cigarette brands Champion," "Hope," and "More" were considered local brands subjected to an ad valorem tax at the rate of 20-45%. However, on July 1, 1993, or two days before RA 7654 took effect, petitioner issued RMC 37-93 reclassifying "Champion," "Hope," and "More" as locally manufactured cigarettes bearing a foreign brand subject to the 55% ad valorem tax.4 RMC 37-93 in effect subjected "Hope," "More," and"Champion" cigarettes to the provisions of RA 7654, specifically, to Sec. 142,5 (c)(1) on locally manufactured cigarettes which are currently classified and taxed at 55%, and which imposes an ad valorem tax of "55% provided that the minimum tax shall not be less than Five Pesos (P5.00) per pack."6 On July 2, 1993, at about 5:50 p.m., BIR Deputy Commissioner Victor A. Deoferio, Jr. sent via telefax a copy of RMC 37-93 to Fortune Tobacco but it was addressed to no one in particular. On July 15, 1993, Fortune Tobacco received, by ordinary mail, a certified xerox copy of RMC 37-93. On July 20, 1993, respondent filed a motion for reconsideration requesting the recall of RMC 37-93, but was denied in a letter dated July 30, 1993.7 The same letter assessed respondent for ad valorem tax deficiency amounting to P9,598,334.00 (computed on the basis of RMC 37-93) and demanded payment within 10 days from receipt thereof.8 On August 3, 1993, respondent filed a petition for review with the Court of Tax Appeals (CTA), which on September 30, 1993, issued an injunction enjoining the implementation of RMC 37-93.9 In its decision dated August 10, 1994, the CTA ruled that RMC 37-93 is defective, invalid, and unenforceable and further enjoined petitioner from collecting the deficiency tax assessment issued pursuant to RMC No. 37-93. This ruling was affirmed by the Court of Appeals, and finally by this Court in Commissioner of Internal Revenue v. Court of Appeals.10 It was held, among others, that RMC 37-93, has fallen short of the requirements for a valid administrative issuance. On April 10, 1997, respondent filed before the RTC a complaint 11 for damages against petitioner in her private capacity. Respondent contended that the latter should be held liable for damages under Article 32 of the Civil Code considering that the issuance of RMC 37-93 violated its constitutional right against deprivation of property without due process of law and the right to equal protection of the laws. Petitioner filed a motion to dismiss12 contending that: (1) respondent has no cause of action against her because she issued RMC 37-93 in the performance of her official function and within the scope of her

authority. She claimed that she acted merely as an agent of the Republic and therefore the latter is the one responsible for her acts; (2) the complaint states no cause of action for lack of allegation of malice or bad faith; and (3) the certification against forum shopping was signed by respondents counsel in violation of the rule that it is the plaintiff or the principal party who should sign the same. On September 29, 1997, the RTC denied petitioners motion to dismiss holding that to rule on the allegations of petitioner would be to prematurely decide the merits of the case without allowing the parties to present evidence. It further held that the defect in the certification against forum shopping was cured by respondents submission of the corporate secretarys certificate authorizing its counsel to execute the certification against forum shopping. The dispositive portion thereof, states: WHEREFORE, foregoing premises considered, the motion to dismiss filed by the defendant Liwayway Vinzons-Chato and the motion to strike out and expunge from the record the said motion to dismiss filed by plaintiff Fortune Tobacco Corporation are both denied on the grounds aforecited. The defendant is ordered to file her answer to the complaint within ten (10) days from receipt of this Order. SO ORDERED.13 The case was elevated to the Court of Appeals via a petition for certiorari under Rule 65. However, same was dismissed on the ground that under Article 32 of the Civil Code, liability may arise even if the defendant did not act with malice or bad faith. The appellate court ratiocinated that Section 38, Book I of the Administrative Code is the general law on the civil liability of public officers while Article 32 of the Civil Code is the special law that governs the instant case. Consequently, malice or bad faith need not be alleged in the complaint for damages. It also sustained the ruling of the RTC that the defect of the certification against forum shopping was cured by the submission of the corporate secretarys certificate giving authority to its counsel to execute the same. Undaunted, petitioner filed the instant recourse contending that the suit is grounded on her acts done in the performance of her functions as a public officer, hence, it is Section 38, Book I of the Administrative Code which should be applied. Under this provision, liability will attach only when there is a clear showing of bad faith, malice, or gross negligence. She further averred that the Civil Code, specifically, Article 32 which allows recovery of damages for violation of constitutional rights, is a general law on the liability of public officers; while Section 38, Book I of the Administrative Code is a special law on the superior public officers liability, such that, if the complaint, as in the instant case, does not allege bad faith, malice, or gross negligence, the same is dismissible for failure to state a cause of action. As to the defect of the certification against forum shopping, she urged the Court to strictly construe the rules and to dismiss the complaint. Conversely, respondent argued that Section 38 which treats in general the public officers "acts" from which civil liability may arise, is a general law; while Article 32 which deals specifically with the public officers violation of constitutional rights, is a special provision which should determine whether the complaint states a cause of action or not. Citing the case of Lim v. Ponce de Leon,14 respondent alleged that under Article 32 of the Civil Code, it is enough that there was a violation of the constitutional rights of the plaintiff and it is not required that said public officer should have acted with malice or in bad faith. Hence, it concluded that even granting that the complaint failed to allege bad faith or malice, the motion to dismiss for failure to state a cause of action should be denied inasmuch as bad faith or malice are not necessary to hold petitioner liable. The issues for resolution are as follows:

(1) May a public officer be validly sued in his/her private capacity for acts done in connection with the discharge of the functions of his/her office? (2) Which as between Article 32 of the Civil Code and Section 38, Book I of the Administrative Code should govern in determining whether the instant complaint states a cause of action? (3) Should the complaint be dismissed for failure to comply with the rule on certification against forum shopping? (4) May petitioner be held liable for damages? On the first issue, the general rule is that a public officer is not liable for damages which a person may suffer arising from the just performance of his official duties and within the scope of his assigned tasks.15 An officer who acts within his authority to administer the affairs of the office which he/she heads is not liable for damages that may have been caused to another, as it would virtually be a charge against the Republic, which is not amenable to judgment for monetary claims without its consent. 16 However, a public officer is by law not immune from damages in his/her personal capacity for acts done in bad faith which, being outside the scope of his authority, are no longer protected by the mantle of immunity for official actions.17 Specifically, under Section 38, Book I of the Administrative Code, civil liability may arise where there is bad faith, malice, or gross negligence on the part of a superior public officer. And, under Section 39 of the same Book, civil liability may arise where the subordinate public officers act is characterized by willfulness or negligence. Thus Sec. 38. Liability of Superior Officers. (1) A public officer shall not be civilly liable for acts done in the performance of his official duties, unless there is a clear showing of bad faith, malice or gross negligence. xxxx Section 39. Liability of Subordinate Officers. No subordinate officer or employee shall be civilly liable for acts done by him in good faith in the performance of his duties. However, he shall be liable for willful or negligent acts done by him which are contrary to law, morals, public policy and good customs even if he acts under orders or instructions of his superior. In addition, the Court held in Cojuangco, Jr. v. Court of Appeals,18 that a public officer who directly or indirectly violates the constitutional rights of another, may be validly sued for damages under Article 32 of the Civil Code even if his acts were not so tainted with malice or bad faith. Thus, the rule in this jurisdiction is that a public officer may be validly sued in his/her private capacity for acts done in the course of the performance of the functions of the office, where said public officer: (1) acted with malice, bad faith, or negligence; or (2) where the public officer violated a constitutional right of the plaintiff. Anent the second issue, we hold that the complaint filed by respondent stated a cause of action and that the decisive provision thereon is Article 32 of the Civil Code. A general statute is one which embraces a class of subjects or places and does not omit any subject or place naturally belonging to such class. A special statute, as the term is generally understood, is one

which relates to particular persons or things of a class or to a particular portion or section of the state only.19 A general law and a special law on the same subject are statutes in pari materia and should, accordingly, be read together and harmonized, if possible, with a view to giving effect to both. The rule is that where there are two acts, one of which is special and particular and the other general which, if standing alone, would include the same matter and thus conflict with the special act, the special law must prevail since it evinces the legislative intent more clearly than that of a general statute and must not be taken as intended to affect the more particular and specific provisions of the earlier act, unless it is absolutely necessary so to construe it in order to give its words any meaning at all.20 The circumstance that the special law is passed before or after the general act does not change the principle. Where the special law is later, it will be regarded as an exception to, or a qualification of, the prior general act; and where the general act is later, the special statute will be construed as remaining an exception to its terms, unless repealed expressly or by necessary implication.21 Thus, in City of Manila v. Teotico,22 the Court held that Article 2189 of the Civil Code which holds provinces, cities, and municipalities civilly liable for death or injuries by reason of defective conditions of roads and other public works, is a special provision and should prevail over Section 4 of Republic Act No. 409, the Charter of Manila, in determining the liability for defective street conditions. Under said Charter, the city shall not be held for damages or injuries arising from the failure of the local officials to enforce the provision of the charter, law, or ordinance, or from negligence while enforcing or attempting to enforce the same. As explained by the Court: Manila maintains that the former provision should prevail over the latter, because Republic Act 409 is a special law, intended exclusively for the City of Manila, whereas the Civil Code is a general law, applicable to the entire Philippines. The Court of Appeals, however, applied the Civil Code, and, we think, correctly. It is true that, insofar as its territorial application is concerned, Republic Act No. 409 is a special law and the Civil Code a general legislation; but, as regards the subject matter of the provisions above quoted, Section 4 of Republic Act 409 establishes a general rule regulating the liability of the City of Manila for "damages or injury to persons or property arising from the failure of" city officers "to enforce the provisions of" said Act "or any other law or ordinance, or from negligence" of the city "Mayor, Municipal Board, or other officers while enforcing or attempting to enforce said provisions." Upon the other hand, Article 2189 of the Civil Code constitutes a particular prescription making "provinces, cities and municipalities . . . liable for damages for the death of, or injury suffered by, any person by reason" specifically "of the defective condition of roads, streets, bridges, public buildings, and other public works under their control or supervision." In other words, said section 4 refers to liability arising from negligence, in general, regardless of the object thereof, whereas Article 2189 governs liability due to "defective streets," in particular. Since the present action is based upon the alleged defective condition of a road, said Article 2189 is decisive thereon .23 In the case of Bagatsing v. Ramirez,24 the issue was which law should govern the publication of a tax ordinance, the City Charter of Manila, a special act which treats ordinances in general and which requires their publication before enactment and after approval, or the Tax Code, a general law, which deals in particular with "ordinances levying or imposing taxes, fees or other charges," and which demands publication only after approval. In holding that it is the Tax Code which should prevail, the Court elucidated that:

There is no question that the Revised Charter of the City of Manila is a special act since it relates only to the City of Manila, whereas the Local Tax Code is a general law because it applies universally to all local governments. Blackstone defines general law as a universal rule affecting the entire community and special law as one relating to particular persons or things of a class. And the rule commonly said is that a prior special law is not ordinarily repealed by a subsequent general law. The fact that one is special and the other general creates a presumption that the special is to be considered as remaining an exception of the general, one as a general law of the land, the other as the law of a particular case. However, the rule readily yields to a situation where the special statute refers to a subject in general, which the general statute treats in particular. Th[is] exactly is the circumstance obtaining in the case at bar. Section 17 of the Revised Charter of the City of Manila speaks of "ordinance" in general, i.e., irrespective of the nature and scope thereof, whereas, Section 43 of the Local Tax Code relates to "ordinances levying or imposing taxes, fees or other charges" in particular. In regard, therefore, to ordinances in general, the Revised Charter of the City of Manila is doubtless dominant, but, that dominant force loses its continuity when it approaches the realm of "ordinances levying or imposing taxes, fees or other charges" in particular. There, the Local Tax Code controls. Here, as always, a general provision must give way to a particular provision. Special provision governs. Let us examine the provisions involved in the case at bar. Article 32 of the Civil Code provides: ART. 32. Any public officer or employee, or any private individual, who directly or indirectly obstructs, defeats, violates, or in any manner impedes or impairs any of the following rights and liberties of another person shall be liable to the latter for damages: xxxx (6) The right against deprivation of property without due process of law; xxxx (8) The right to the equal protection of the laws; xxxx The rationale for its enactment was explained by Dean Bocobo of the Code Commission, as follows: "DEAN BOCOBO. Article 32, regarding individual rights, Attorney Cirilo Paredes proposes that Article 32 be so amended as to make a public official liable for violation of another persons constitutional rights only if the public official acted maliciously or in bad faith. The Code Commission opposes this suggestion for these reasons: "The very nature of Article 32 is that the wrong may be civil or criminal. It is not necessary therefore that there should be malice or bad faith. To make such a requisite would defeat the main purpose of Article 32 which is the effective protection of individual rights. Public officials in the past have abused their powers on the pretext of justifiable motives or good faith in the performance of their duties. Precisely, the object of the Article is to put an end to official abuse by the plea of good faith. In the United States this remedy is in the nature of a tort. "Mr. Chairman, this article is firmly one of the fundamental articles introduced in the New Civil Code to implement democracy. There is no real democracy if a public official is abusing and we

made the article so strong and so comprehensive that it concludes an abuse of individual rights even if done in good faith, that official is liable. As a matter of fact, we know that there are very few public officials who openly and definitely abuse the individual rights of the citizens. In most cases, the abuse is justified on a plea of desire to enforce the law to comply with ones duty. An d so, if we should limit the scope of this article, that would practically nullify the object of the article. Precisely, the opening object of the article is to put an end to abuses which are justified by a plea of good faith, which is in most cases the plea of officials abusing individual rights."25 The Code Commission deemed it necessary to hold not only public officers but also private individuals civilly liable for violation of the rights enumerated in Article 32 of the Civil Code. It is not necessary that the defendant under this Article should have acted with malice or bad faith, otherwise, it would defeat its main purpose, which is the effective protection of individual rights. It suffices that there is a violation of the constitutional right of the plaintiff.26 Article 32 was patterned after the "tort" in American law.27 A tort is a wrong, a tortious act which has been defined as the commission or omission of an act by one, without right, whereby another receives some injury, directly or indirectly, in person, property, or reputation. 28 There are cases in which it has been stated that civil liability in tort is determined by the conduct and not by the mental state of the tortfeasor, and there are circumstances under which the motive of the defendant has been rendered immaterial. The reason sometimes given for the rule is that otherwise, the mental attitude of the alleged wrongdoer, and not the act itself, would determine whether the act was wrongful. 29 Presence of good motive, or rather, the absence of an evil motive, does not render lawful an act which is otherwise an invasion of anothers legal right; that is, liability in tort is not precluded by the fact that defendant acted without evil intent.30 The clear intention therefore of the legislature was to create a distinct cause of action in the nature of tort for violation of constitutional rights, irrespective of the motive or intent of the defendant. 31 This is a fundamental innovation in the Civil Code, and in enacting the Administrative Code pursuant to the exercise of legislative powers, then President Corazon C. Aquino, could not have intended to obliterate this constitutional protection on civil liberties. In Aberca v. Ver,32 it was held that with the enactment of Article 32, the principle of accountability of public officials under the Constitution acquires added meaning and assumes a larger dimension. No longer may a superior official relax his vigilance or abdicate his duty to supervise his subordinates, secure in the thought that he does not have to answer for the transgressions committed by the latter against the constitutionally protected rights and liberties of the citizen. Part of the factors that propelled people power in February 1986 was the widely held perception that the government was callous or indifferent to, if not actually responsible for, the rampant violations of human rights. While it would certainly be too naive to expect that violators of human rights would easily be deterred by the prospect of facing damage suits, it should nonetheless be made clear in no uncertain terms that Article 32 of the Civil Code makes the persons who are directly, as well as indirectly, responsible for the transgression, joint tortfeasors. On the other hand, Sections 38 and 39, Book I of the Administrative Code, laid down the rule on the civil liability of superior and subordinate public officers for acts done in the performance of their duties. For both superior and subordinate public officers, the presence of bad faith, malice, and negligence are vital elements that will make them liable for damages. Note that while said provisions deal in particular with the liability of government officials, the subject thereof is general, i.e., "acts" done in the performance of official duties, without specifying the action or omission that may give rise to a civil suit against the official concerned. Contrarily, Article 32 of the Civil Code specifies in clear and unequivocal terms a particular specie of an "act" that may give rise to an action for damages against a public officer, and that is, a tort for

impairment of rights and liberties. Indeed, Article 32 is the special provision that deals specifically with violation of constitutional rights by public officers. All other actionable acts of public officers are governed by Sections 38 and 39 of the Administrative Code. While the Civil Code, specifically, the Chapter on Human Relations is a general law, Article 32 of the same Chapter is a special and specific provision that holds a public officer liable for and allows redress from a particular class of wrongful acts that may be committed by public officers. Compared thus with Section 38 of the Administrative Code, which broadly deals with civil liability arising from errors in the performance of duties, Article 32 of the Civil Code is the specific provision which must be applied in the instant case precisely filed to seek damages for violation of constitutional rights. The complaint in the instant case was brought under Article 32 of the Civil Code. Considering that bad faith and malice are not necessary in an action based on Article 32 of the Civil Code, the failure to specifically allege the same will not amount to failure to state a cause of action. The courts below therefore correctly denied the motion to dismiss on the ground of failure to state a cause of action, since it is enough that the complaint avers a violation of a constitutional right of the plaintiff. Anent the issue on non-compliance with the rule against forum shopping, the subsequent submission of the secretarys certificate authorizing the counsel to sign and execute the certification against forum shopping cured the defect of respondents complaint. Besides, the merits of the inst ant case justify the liberal application of the rules.33 WHEREFORE, in view of the foregoing, the petition is DENIED. The Decision of the Court of Appeals dated May 7, 1999 which affirmed the Order of the Regional Trial Court of Marikina, Branch 272, denying petitioners motion to dismiss, is AFFIRMED. The Presiding Judge, Regional Trial Court of Marikina, Branch 272, is hereby DIRECTEDto continue with the proceedings in Civil Case No. 97-341-MK with dispatch. With costs. SO ORDERED.

G.R. No. 167724

June 27, 2006

BPI FAMILY SAVINGS BANK, INC., Petitioner, vs. MARGARITA VDA. DE COSCOLLUELA, Respondent. DECISION CALLEJO, SR., J.: Assailed before this Court is a Petition for Review under Rule 45 of the Rules of Court of the Decision 1 of the Court of Appeals (CA) in CA-G.R. SP No. 69732 granting respondents petition for certiorari, and its resolution denying petitioners motion for reconsideration. The Antecedents Respondent Margarita Coscolluela and her husband Oscar Coscolluela obtained an agricultural sugar crop loan from the Far East Bank & Trust Co. (FEBTC) Bacolod City Branch (later merged with petitioner Bank of the Philippine Islands) for crop years 1997 and 1998.2 However, in the book of FEBTC, the loan account of the spouses was treated as a single account,3 which amounted to P13,592,492.00 as evidenced by 67 Promissory Notes4 executed on various dates, from August 29, 1996 to January 23, 1998, to wit:

1avvphil.net
Promissory Note No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 02-052-960971 02-052-961095 02-052-961122 02-052-961205 02-052-961231 02-052-961252 02-052-961274 02-052-961310 02-052-961373 02-052-961442 02-052-961464 02-052-961498 Date 29 August 1996 23 September 1996 27 September 1996 11 October 1996 18 October 1996 24 October 1996 30 October 1996 8 November 1996 21 November 1996 6 December 1996 12 December 1996 19 December 1996 Amount (in Phil. Peso) 148,000 1,200,000 550,000 180,000 155,000 190,000 115,000 90,000 125,000 650,000 240,000 164,000

13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37. 38.

02-052-961542 02-052-970018 02-052-970052 02-052-970078 02-052-970087 02-052-970131 02-052-970163 02-052-970190 02-052-970215 02-052-970254 02-052-970293 02-052-970345 02-052-970367 02-052-970402 02-052-970422 02-052-970453 02-052-970478 02-052-970502 02-052-970539 02-052-970558 02-052-970589 02-052-970770 02-052-970781 02-052-970819 02-052-970852 02-052-970926

27 December 1996 3 January 1997 10 January 1997 15 January 1997 17 January 1997 23 January 1997 31 January 1997 7 February 1997 13 February 1997 20 February 1997 28 February 1997 7 March 1997 13 March 1997 21 March 1997 26 March 1997 4 April 1997 11 April 1997 17 April 1997 25 April 1997 30 April 1997 8 May 1997 25 June 1997 27 June 1997 4 July 1997 11 July 1997 1 August 1997

200,000 120,000 185,000 80,000 170,000 180,000 220,000 110,000 170,000 140,000 130,000 90,000 50,000 160,000 190,000 82,000 150,000 80,000 145,000 135,000 54,000 646,492 160,000 250,000 350,000 170,000

39. 40. 41. 42. 43. 44. 45. 46. 47. 48. 49. 50. 51. 52. 53. 54. 55. 56. 57. 58. 59. 60. 61. 62. 63. 64.

02-052-970949 02-052-970975 02-052-970999 02-052-971028 02-052-971053 02-052-971073 02-052-971215 02-052-971253 02-052-971280 02-052-971317 02-052-971340 02-052-971351 02-052-971362 02-052-971394 02-052-971407 02-052-971449 02-052-971464 02-052-971501 02-052-971527 02-052-971538 02-052-971569 02-052-971604 02-052-971642 02-052-971676 02-052-971688 02-052-980019

5 August 1997 8 August 1997 15 August 1997 22 August 1997 29 August 1997 4 September 1997 12 September 1997 19 September 1997 26 September 1997 2 October 1997 10 October 1997 15 October 1997 16 October 1997 24 October 1997 29 October 1997 6 November 1997 13 November 1997 20 November 1997 25 November 1997 28 November 1997 4 December 1997 12 December 1997 18 December 1997 23 December 1997 29 December 1997 7 January 1998

200,000 120,000 150,000 110,000 130,000 90,000 160,000 190,000 140,000 115,000 115,000 700,000 90,000 185,000 170,000 105,000 170,000 150,000 620,000 130,000 140,000 220,000 185,000 117,000 100,000 195,000

65. 66. 67.

02-052-980032 02-052-980064 02-052-980079

8 January 1998 15 January 1998 23 January 1998

170,000 225,000 176,000

The promissory notes listed under Nos. 1 to 33 bear the maturity date of February 9, 1998, with a 30-day extension of up to March 11, 1998, while those listed under Nos. 34 to 67 bear December 28, 1998 as maturity date. Meanwhile, on June 13, 1997, the spouses Coscolluela executed a real estate mortgage in favor of FEBTC over their parcel of land located in Bacolod City covered by Transfer Certificate of Title (TCT) No. T109329 as security of loans on credit accommodation obtained by the spouses from FEBTC and those that may be obtained by the mortgagees which was fixed at P7,000,000.00, as well as those that may be extended by the mortgagor to the mortgagees.5 Under the terms and conditions of the real estate mortgage, in the event of failure to pay the mortgage obligation or any portion thereof when due, the entire principal, interest, penalties and other charges then outstanding, shall become immediately due; upon such breach or violation of the terms and conditions thereof, FEBTC may, at its absolute discretion foreclose the same extrajudicially in accordance with the procedure prescribed by Act No. 3135, as amended, and for the purpose appointed FEBTC as its attorney-in-fact with full power and authority to enter the premises where the mortgaged property is located and to take actual possession and control thereof without need of any order of any court, nor written permission from the spouses, and with special power to sell the mortgaged property at a public or private sale at the option of the mortgagee; and that the spouses expressly waived the term of 30 days or any other terms granted by law as the period which must elapse before the mortgage agreement may be foreclosed and, in any case, such period has already lapsed. The mortgage was registered with the Registry of Deeds of Bacolod and was annotated in the title of the land on June 20, 1997.6 Meantime, Oscar died intestate and was survived by his widow, herein respondent. For failure to settle the outstanding obligation on the maturity dates, FEBTC sent a final demand letter 7 to respondent on March 10, 1999 demanding payment, within five days from notice, of the principal of the loan amounting to P13,481,498.68, with past due interests and penalties or in the total amount of P19,482,168.31 as of March 9, 1999.8 Respondent failed to settle her obligation. On June 10, 1999, FEBTC filed a petition for the extrajudicial foreclosure of the mortgaged property, significantly only for the total amount of P4,687,006.68 exclusive of balance, interest and penalty, covered by promissory notes from 1 to 33, except nos. 2 and 10. 9 While the extrajudicial foreclosure proceeding was pending, petitioner FEBTC filed a complaint 10 with the Regional Trial Court (RTC) of Makati City, Branch 64, against respondent for the collection of the principal amount ofP8,794,492.00 plus interest and penalty, or the total amount of P12,672,000.31, representing the amounts indicated in the rest of the promissory notes, specifically Promissory Note Nos. 34 to 67, as well as those dated December 6, 1996 and September 23, 1996: PN No. 2-052-980079 Date January 02, 1998 Amount 176,000.00 Annex A

2-052-980064 2-052-980032 2-052-980019 2-052-971688 2-052-971676 2-052-971642 2-052-971604 2-052-971569 2-052-971538 2-052-971527 2-052-971501 2-052-971464 2-052-971449 2-052-971407 2-052-971394 2-052-971362 2-052-971351 2-052-971340 2-052-971317 2-052-971280 2-052-971253 2-052-971215 2-052-971073 2-052-971053 2-052-971028 2-052-970999

January 15, 1998 January 08, 1998 January 07, 1998 December 29, 1997 December 23, 1997 December 18, 1997 December 12, 1997 December 04, 1997 November 28, 1997 November 25, 1997 November 20, 1997 November 13, 1997 November 06, 1997 October 29, 1997 October 24, 1997 October 16, 1997 October 15, 1997 October 15, 1997 October 02, 1997 September 26, 1997 September 19, 1997 September 12, 1997 September 04, 1997 August 29, 1997 August 22, 1997 August 15, 1997

225,000.00 170,000.00 195,000.00 100,000.00 117,000.00 185,000.00 220,000.00 140,000.00 130,000.00 620,000.00 150,000.00 170,000.00 105,000.00 170,000.00 185,000.00 90,000.00 700,000.00 115,000.00 115,000.00 140,000.00 190,000.00 160,000.00 90,000.00 130,000.00 110,000.00 150,000.00

B C D E F G H I J K L M N O P Q R S T U V W X Y Z AA

2-052-970975 2-052-970949 2-052-970926 2-052-970852 2-052-970819 2-052-970781 2-052-970770 2-052-961442 2-052-961095

August 08, 1997 August 05, 1997 August 01, 1997 July 11, 1997 July 04, 1997 June 27, 1997 June 25, 1997 December 06, 1996 September 23, 1996

120,000.00 200,000.00 170,000.00 350,000.00 250,000.00 160,000.00 646,492.00 650,000.00 1,200,000.00

BB CC DD EE FF GG HH II JJ11

Petitioner prayed that, after due proceedings, judgment be rendered in its favor, thus: WHEREFORE, it is respectfully prayed that, after trial, judgment be rendered in its favor and against defendants ordering them to pay the following: a. The amount TWELVE MILLION SIX HUNDRED SEVENTY-TWO THOUSAND PESOS and 31/100 (P12,672,000.31), with additional stipulated interest and penalty equivalent to one (1%) percent of the amount due for every thirty (30) days or fraction thereof, until fully paid; b. Expense of litigation amounting to P50,000.00; c. The amount of P500,000.00 as attorneys fees. Other reliefs just and equitable in the premises are similarly prayed for. 12 In her answer, respondent alleged, by way of special and affirmative defense, that the complaint was barred by litis pendentia, specifically, the pending petition for the extrajudicial foreclosure of the real estate mortgage, thus: 8) That plaintiff is guilty of forum shopping, in that some of the promissory notes attached to plaintiffs complaint are also the same promissory notes which were made the basis of the plaintiff in their extrajudicial foreclosure of mortgage filed against the defendant-spouses and also marked in evidence in support of their opposition to the issuance of the preliminary injunction in Civil Case No. 99-10864; 9) That plaintiff-bank has not only charged but over charged the defendant-spouses with excessive and exorbitant interest over and above those authorized by law. And in order to add more injury to the defendants, plaintiff also included other charges not legally collectible from the defendant-spouses; 10) That the act of the plaintiff-bank in seeking to collect twice on the same promissory notes is not only unfair and unjust but also condemnable as plaintiff seek to unjustly enrich itself at the expense of the defendants;

11) That there is another action pending between the same parties for the same cause; 12) That the claim or demand set forth in the plaintiffs complaint has either been waived, abandoned or otherwise extinguished.13 Petitioner presented Emmanuel Ganuelas, its loan officer in its Bacolod City Branch, as sole witness. He testified that the spouses Coscolluela were granted an agricultural sugar loan which is designed to finance the cultivation and plantation of sugar farms of the borrowers. 14 Borrowers were allowed to make successive drawdowns or availments against the loan as their need arose. Each drawdown is covered by a promissory note with uniform maturity dates.15 The witness also testified that the loan account of the spouses was a "single loan account."16 After petitioner rested its case, respondent filed a demurrer to evidence17 contending, among others, that, with Ganuelas admission, there is only one loan account secured by the real estate mortgage, that the promissory notes were executed as evidence of the loans. Plaintiff was thus barred from instituting a personal action for collection of the drawdowns evidenced by Promissory Note Nos. 2, 10, and 34 to 67 after instituting a petition for extrajudicial foreclosure of the real estate mortgage for the amount covered by Promissory Note Nos. 1, 3 to 9, and 11 to 33. Respondent insisted that by filing a complaint for a sum of money, petitioner thereby split its cause of action against her; hence, the complaint must perforce be dismissed on the ground of litis pendentia. Petitioner opposed the demurrer arguing that while the loans were considered as a single account, each promissory note executed by respondent constituted a separate contract. It reiterated that its petition for the extrajudicial and foreclosure of the real estate mortgage before the Ex-Oficio Provincial Sheriff involves obligations different and separate from those in its action for a sum of money before the court. Thus, petitioner could avail of the personal action for the collection of the amount evidenced by the 36 promissory notes not subject of its petition for the extrajudicial foreclosure of the real estate mortgage. Petitioner insists that the promissory notes subject of its collection suit should be treated separately from the other set of obligations, that is, the 31 promissory notes subject of its extrajudicial foreclosure petition.18 In its Order19 dated January 10, 2002, the trial court denied the demurrer on the ground that the promissory notes executed by respondent and her deceased husband contained different amounts, and each note covered a loan distinct from the others. Thus, petitioner had the option to file a petition for the extrajudicial foreclosure of the real estate mortgage covering 31 of the promissory notes, and, as to the rest, to file an ordinary action for collection. Petitioner, thus, merely opted to institute an action for collection of the debt on the 36 promissory notes, and waived its action for the foreclosure of the security given on these notes. Respondent filed a motion for reconsideration,20 which the trial court denied in its February 19, 2002 Order,21prompting her to file a certiorari petition22 under Rule 65 with the CA, assailing the January 10, 2002 and February 19, 2002 Orders of the trial court. Respondent alleged that: 1. PUBLIC RESPONDENT GRAVELY ABUSED HER DISCRETION TANTAMOUNT TO LACK AND/OR EXCESS OF JURISDICTION IN HOLDING THAT THE RESPONDENT BANK CAN FILE SIMULTANEOUS ACTIONS FOR FORECLOSURE AND FOR COLLECTION. Meanwhile, on January 6, 2003, the parcel of land subject of the aforementioned real estate mortgage was sold at public auction where petitioner emerged as the highest bidder. 23 On September 30, 2004, the CA rendered its Decision24 granting the petition, holding, under prevailing jurisprudence, the remedies either a real action to foreclose the mortgage or a personal action to

collect the debt of a mortgage creditor are alternative and not cumulative. Since respondent availed of the first one, it was deemed to have waived the second. Further, the filing of both actions results in a splitting of a single cause of action. Thus, in denying her Demurrer to Evidence, the RTC committed grave abuse of discretion as it overruled settled judicial pronouncements. The dispositive part of the decision states: WHEREFORE, the instant petition is GRANTED. The assailed Orders dated January 10, 2002 and February 19, 2002 are SET ASIDE. SO ORDERED. The CA cited the ruling of this Court in Bachrach Motor Co., Inc. v. Esteban Icaragal and Oriental Commercial Co., Inc.25 Aggrieved, petitioner filed a motion for reconsideration26 on October 12, 2004. Respondent filed her opposition27to the motion on October 26, 2004. The CA thereafter denied the motion in a resolution promulgated on April 6, 2005.28 Petitioner filed the instant petition for review on certiorari, alleging that: I. THE COURT OF APPEALS ERRED IN GRANTING THE PETITION FOR CERTIORARI OF RESPONDENT ON THE GROUND OF GRAVE ABUSE OF DISCRETION. xxxx The Trial Court did not commit grave abuse of discretion amounting to lack or excess of jurisdiction in denying the Demurrer to Evidence filed by the respondents. Petitioner, in instituting a petition for the Extra Judicial Foreclosure of the Mortgage of respondents based on 31 promissory notes executed by respondents and another action to collect on a separate set of 36 promissory notes, did not split their cause of action. xxxx The trial court did not commit grave abuse of discretion amounting to lack or excess of jurisdiction when it denied respondents Demurrer to Evidence. In this wise, the Petition for Certiorari filed by respondents should not have been granted.29 During the pendency of this appeal, petitioner filed with this Court on December 2, 2005 a manifestation and joint motion for substitution, informing the court that petitioner bank has assigned to the Philippine Asset Investment, Inc. all its rights, title and interest over its non-performing loan accounts pursuant to Republic Act No. 9182 entitled "The Special Purpose Vehicle Act of 2002." The issues raised in this case are (1) whether the petition for certiorari under Rule 65 of the Rules of Court filed by respondent in the CA was the proper remedy to assail the January 10, 2002 Order of the trial court; (2) whether the appellate court issued its January 10, 2002 Order with grave abuse of its discretion amounting to excess or lack of jurisdiction. Petitioner avers that the January 10, 2002 Order of the RTC denying the Demurrer to Evidence of respondent was interlocutory, and as such could not be the subject of a petition for certiorari. 30 The RTC

did not commit a grave abuse of its discretion in issuing its January 10, 2002 Order. Petitioner maintains that respondent executed 67 separate loan obligations evidenced by 67 separate promissory notes, with different amounts and maturity dates. It avers that each of the loans, as evidenced by each of the promissory notes, may properly be the subject of a separate action; thus, each promissory note is an actionable document. Moreover, the real estate mortgage executed by the spouses secured an obligation only to a fixed amount of P7,000,000.00 which is covered by Promissory Note Nos. 1 to 31, whereas the loans secured by the spouses covered by the Promissory Note Nos. 32 to 67 for the total amount of P12,672,000.31 were not secured by the real estate mortgage. Petitioner insists that it was proper to file the petition for extrajudicial foreclosure of the real estate mortgage only for respondents loan account covered by the 36 promissory notes for the amount of P7,755,733.64. It was not barred from filing a separate action for the collection of the P12,672,000.31 against respondent in the RTC for the drawdowns as evidenced by Promissory Note Nos. 34 to 67. What should apply, petitioner asserts, is the ruling of this Court in Caltex Philippines, Inc. v. Intermediate Appellate Court 31 and Quiogue v. Bautista,32 and not the ruling of this Court in Bachrach which involves only one promissory note. Petitioner insists that, although respondent and her husband had a joint account with it, they had separate loan obligations as evidenced by the promissory notes; hence, it had separate causes of action for each and every drawdown evidenced by a promissory note. For her part, respondent admits having executed the promissory notes. However, as testified to by Ganuelas, the witness for petitioner, she and her husband only have one loan account with petitioner, hence, the latter had only one cause of action against her either for the collection of the entire loan account or for the extrajudicial foreclosure of the real estate mortgage, also for the entire amount of the loan. Petitioner cannot split her single loan account by filing a simple collection suit and a petition for extrajudicial foreclosure of the real estate mortgage without violating the rule against splitting a single cause of action. Respondent asserts that the real estate mortgage executed by respondent and her deceased husband was a security not only of their loan account in the amount of P7,000,000.00 but for all other loans that may have been extended to them in excess of that amount. The petition is unmeritorious. On the first issue, we agree with petitioners contention that the general rule is that an order denying a motion to dismiss or demurrer to evidence is interlocutory and is not appealable. Consequently, defendant must go to trial and adduce its evidence, and appeal, in due course, from an adverse decision of the trial court. However, the rule admits of exceptions. Where the denial by the trial court of a motion to dismiss or demurrer to evidence is tainted with grave abuse of discretion amounting to excess or lack of jurisdiction, the aggrieved party may assail the order of dismissal on a petition for certiorari under Rule 65 of the Rules of Court. A wide breadth of discretion is granted in certiorari proceedings in the interest of substantial justice and to prevent a substantial wrong. 33 As the Court held in Preferred Home Specialties, Inc. v. Court of Appeals:34 It bears stressing that a writ of certiorari is of the highest utility and importance for curbing excessive jurisdiction and correcting errors and most essential to the safety of the people and the public welfare. Its scope has been broadened and extended, and is now one of the recognized modes for the correction of errors by this Court. The cases in which it will lie cannot be defined. To do so would be to destroy its comprehensiveness and limit its usefulness. The appropriate function of a certiorari writ is to relieve aggrieved parties from the injustice arising from errors of law committed in proceedings affecting justiciable rights when no other means for an adequate and speedy relief is open. It is founded upon a sense of justice, to release against wrongs otherwise

irreconcilable, wrongs which go unredressed because of want of adequate remedy which would be a grave reproach to any system of jurisprudence.35 The aggrieved party is entitled to a writ of certiorari where the trial court commits a grave abuse of discretion amounting to excess or lack of jurisdiction in denying a motion to dismiss a complaint on the ground of litis pendentia. An appeal while available eventually is cumbersome and inadequate for it requires the parties to undergo a useless and time-consuming and expensive trial. The second case constitutes a rude if not debilitating imposition on the trial and the docket of the judiciary. 36 In the present case, we agree with the ruling of the CA that the RTC acted with grave abuse of discretion amounting to excess or lack of jurisdiction when it denied the Demurrer to Evidence of respondent and, in the process, ignored applicable rulings of this Court. Although respondent had the right to appeal the decision of the trial court against her after trial, however, she, as defendant, need not use up funds and undergo the tribulations of a trial and thereafter appeal from an adverse decision. Section 3, Rule 2 of the 1997 Rules of Civil Procedure provides that a party may not institute more than one suit for a single cause of action and, if two or more suits are instituted on the basis of the same cause of action, the filing of one on a judgment upon the merits in any one is available as ground for the dismissal of the other or others.37 A party will not be permitted to split up a single cause of action and make it a basis for several suits.38 A party seeking to enforce a claim must present to the court by the pleadings or proofs or both, all the grounds upon which he expects a judgment in his favor. He is not at liberty to split up his demands and prosecute it by piecemeal, or present only a portion of the grounds upon which special relief is sought, and leave the rest to be presented in a second suit if the first fails.39 The law does not permit the owner of a single or entire cause of action or an entire or indivisible demand to divide and split the cause or demand so as to make it the subject of several actions. The whole cause must be determined in one action. Indeed, in Goldberg v. Eastern Brewing Co.,40 the New York Supreme Court emphasized that: It was held in the case of Bendernagle v. Cocks, 19 Wend. 207 (32 Am.Dec. 448), that where a party had several demands or existing causes of action growing out of the same contract or resting in matter of account, which may be joined and sued for in the same action, they must be joined; and if the demands or causes of action be split up, and a suit brought for part only, and subsequently a second suit for the residue is brought, the first action may be pleaded in abatement or in bar of the second action. x x x 41 The rule against splitting causes of action is not altogether one of original legal right but is one of interposition based upon principles of public policy and of equity to prevent the inconvenience and hardship incident to repeated and unnecessary litigation. 42 It is not always easy to determine whether in a particular case under consideration, the cause of action is single and entire or separate. The question must often be determined, not by the general rules but by reference to the facts and circumstances of the particular case. Where deeds arising out of contract are distinct and separate, they give rise to separate cause of action for which separate action may be maintained; but it is also true that the same contract may give rise to different causes of action either by reason of successive breaches thereof or by reason of different stipulations or provisions of the contract.43 The true rule which determines whether a party has only a single and entire cause of action for all that is due him, and which must be sued for in one action, or has a severable demand for which he may maintain separate suits, is whether the entire amount arises from one and the same act or contract or the several parts arise from distinct and different acts or contracts. 44 Where there are entirely distinct and separate contracts, they give rise to separate causes of action for which separate actions may be instituted and presented. When money is payable by installments, a

distinct cause of action assails upon the following due by each installment and they may be recovered in successive action. On the other hand, where several claims payable at different times arise out of the same transactions, separate actions may be brought as each liability accounts. But where no action is brought until more than one is due, all that are due must be included in one action; and that if an action is brought to recover upon one or more that are due but not upon all that are due, a recovery in such action will be a bar to a several or other actions brought to recover one or more claims of the other claims that were due at the time the first action was brought. 45 The weight of authority is that in the absence of special controlling circumstances, an open or continuous running account between the same parties constitutes a single and indivisible demand, the aggregate of all the items of the account constituting the amount due. But the rule is otherwise where it affirmatively appears that the parties regarded the different items of the account as separate transactions and not parts of an ordinary running account. And there may also be, even between the same parties, distinct and separate actions upon which separate actions may be maintained.46 In fine, what is decisive is that there be either an express contract, or the circumstances must be such as to raise an implied contract embracing all the items to make them, when they arise, at different times, a single or entire demand or cause of action.47 Decisive of the principal issue is the ruling of this Court in Bachrach Motor Co., Inc. v. Esteban Icaragal and Oriental Commercial Co., Inc.48 in which it ruled that on the nonpayment of a note secured by a mortgage, the creditor has a single cause of action against the debtor. The single cause of action consists in the recovery of the credit with execution of the suit. In a mortgage credit transaction, the credit gives rise to a personal action for collection of the money. The mortgage is the guarantee which gives rise to a mortgage foreclosure suit to collect from the very property that secured the debt. 49 The action of the creditor is anchored on one and the same cause: the nonpayment by the debtor of the debt to the creditor-mortgagee. Though the debt may be covered by a promissory note or several promissory notes and is covered by a real estate mortgage, the latter is subsidiary to the former and both refer to one and the same obligation. A mortgage creditor may institute two alternative remedies against the mortgage debtor, either a personal action for the collection of debt, or a real action to foreclose the mortgage, but not both. Each remedy is complete by itself. As explained by this Court: We hold, therefore, that, in the absence of express statutory provisions, a mortgage creditor may institute against the mortgage debtor either a personal action for debt or a real action to foreclose the mortgage. In other words, he may pursue either of the two remedies, but not both. By such election, his cause of action can by no means be impaired, for each of the two remedies is complete in itself. Thus, an election to bring a personal action will leave open to him all the properties of the debtor for attachment and execution, even including the mortgaged property itself. And, if he waives such personal action and pursues his remedy against the mortgaged property, an unsatisfied judgment thereon would still give him the right to sue for a deficiency judgment, in which case, all the properties of the defendant, other than the mortgaged property, are again open to him for the satisfaction of the deficiency. In either case, his remedy is complete, his cause of action undiminished, and any advantages attendant to the pursuit of one or the other remedy are purely accidental and are all under his right of election. On the other hand, a rule that would authorize the plaintiff to bring a personal action against the debtor and simultaneously or successively another action against the mortgaged property, would result not only in multiplicity of suits so offensive to justice (Soriano v. Enriques, 24 Phil. 584) and obnoxious to law and equity (Osorio v. San Agustin, 25 Phil. 404), but also in subjecting the defendant to the vexation of being sued in the place of his residence or of the residence of the plaintiff, and then again in the place where the property lies.50

If the mortgagee opts to foreclose the real estate mortgage, he thereby waives the action for the collection of the debt and vice versa.51 If the creditor is allowed to file its separate complaints simultaneously or successively, one to recover his credit and another to foreclose his mortgage, he will, in effect, be authorized plural redress for a single breach of contract at so much costs to the court and with so much vexation and oppressiveness to the debtor.52 In the present case, petitioner opted to file a petition for extrajudicial foreclosure of the real estate mortgage but only for the principal amount of P4,687,006.08 or in the total amount of P7,755,733.64 covering only 31 of the 67 promissory notes. By resorting to the extrajudicial foreclosure of the real estate mortgage, petitioner thereby waived its personal action to recover the amount covered not only by said promissory notes but also of the rest of the promissory notes. This is so because when petitioner filed its petition before the Ex-Oficio Provincial Sheriff on June 10, 1999, the entirety of the loan account of respondent under the 67 promissory notes was already due. The obligation of respondent under Promissory Note Nos. 1 to 33 became due on February 9, 1998 but was extended up to March 11, 1998, whereas, those covered by Promissory Note Nos. 34 to 67 matured on December 28, 1998. Petitioner should have caused the extrajudicial foreclosure of the real estate mortgage for the recovery of the entire obligation of respondent, on all the promissory notes. By limiting the account for which the real estate mortgage was being foreclosed to the principal amount of P4,687,006.68, exclusive of interest and penalties, petitioner thereby waived recovery of the rest of respondents agricultural loan account. It must be stressed that the parties agreed in the Real Estate Mortgage that in the event that respondent shall fail to pay the mortgage obligation "or any portion thereof when due, the entire principal, interest, penalties and other charges then outstanding shall become immediately due, payable and defaulted," thus: 3. The terms and conditions of the Mortgage have been violated when the Mortgagors failed and/or refused to pay, notwithstanding repeated demands, the installment and/or maturity amount of the Mortgage obligation which became due and payable on the said date; 4. Under the terms and conditions of the Mortgage Agreement, in the event the Mortgagors fail and/or refuse to pay the Mortgage obligation or any portion thereof when due, the entire principal, interest, penalties and other charges then outstanding, shall, without need for demand, notice, or any other act or deed, become immediately due, payable and defaulted; 5. The Mortgage Agreement provides that upon such breach or violation of the terms and conditions thereof, the Mortgagee may, at its absolute discretion foreclose the same extrajudicially in accordance with the procedure prescribed by Act No. 3135, as amended, and for the purpose appointed the Mortgagee as its attorney-in-fact with full power and authority to enter the premises where the Mortgaged property is located and to take actual possession and control thereof without need of any order of any Court, nor written permission from the Mortgagors, and with special power to sell the Mortgaged Property at a public or private sale at the option of the Mortgagee.53 Petitioner cannot split the loan account of respondent by filing a petition for the extrajudicial foreclosure of the real estate mortgage for the principal amount of P4,687,006.68 covered by the first set of promissory notes, and a personal action for the collection of the principal amount of P12,672,000.31 covered by the second set of promissory notes without violating the proscription against splitting a single cause of action against respondent. The contention of petitioner that respondents loan account that was secured by the real estate mortgage was limited only to those covered by the Promissory Note Nos. 1 to 33 or for the total amount of P7,000,000.00 is belied by the real estate mortgage and by its own evidence.

Under the deed, the mortgage was to secure the payment of a credit accommodation already obtained by respondent, the principal of all of which was fixed at P7,000,000.00, as well as any other obligation that may be extended to respondent, including interest and expenses, to wit: That for and in consideration of credit accommodation obtained from the MORTGAGEE, and to secure the payment of the same and those that may hereafter be obtained, the principal of all of which is hereby fixed at SEVEN MILLION PESOS ONLY (P7,000,000.00), Philippine Currency, as well as those that the MORTGAGEE may extend to the MORTGAGOR, including interest and expenses or any other obligation owing to the MORTGAGEE, whether direct or indirect, principal or secondary, as appears in the accounts, books and records of the MORTGAGEE, the MORTGAGOR does hereby transfer and convey by way of mortgage unto the MORTGAGEE, its successors or assigns, the parcels of land which are described in the list inserted on the back of this document and/or appended herein, together with all the buildings and improvements now existing or which may hereafter be erected or constructed thereon, of which the MORTGAGOR declares that he/it is the absolute owner free from all liens and encumbrances. However, if the MORTGAGOR shall pay to the MORTGAGEE, its successors or assigns, the obligation secured by this mortgage when due, together with interest, and shall keep and perform all and singular the covenants and agreements herein contained for the MORTGAGOR to keep and perform, then this mortgage shall be void, otherwise, it shall remain in full force and effect.54 (Emphasis supplied) The testimony of Ganuelas in the RTC relative to the real estate mortgage follows: Q The real estate mortgage states: "That for and in consideration of credit accommodation obtained from the mortgagee." This simply means, Mr. Witness, that this mortgage is offered to secure loans already obtained by the mortgagor from the mortgagee Far East Bank and Trust Company. I am referring only to that phrase, obtained from the mortgagee, is that correct? A Yes, Sir. Q So from this phrase in the real estate mortgage, this mortgage was constituted to secure the credit accommodation already obtained by the mortgagor, the defendant spouses, as of the time of the execution of the real estate mortgage, is that correct? A Yes, Sir. Q Now since the loan secured by the defendants are evidenced by promissory notes, will you agree with me, Mr. Witness, that this real estate mortgage was executed for promissory notes already executed by the defendant spouses as of the time of the execution of the mortgage on June 13, 1997, is that correct? A Yes, Sir. ATTY. MIRANO: For purposes of identification, we respectfully request that this phrase: "that for and in consideration of the credit accommodation obtained from the mortgagee" be bracketed and mark as Exhibit 6-B. (Acting court interpreter marking said phrase as Exhibit 6-B.) Q Now in accordance with the terms of this real estate mortgage, this real estate mortgage was executed by the defendant spouses not only to secure the loan already obtained by the said spouses as of the time of the execution of the mortgage on June 13, 1997 but also all other loans that may be extended by Far East Bank and Trust Company to the defendant spouses after the execution of the mortgage as stated in

this portion of the real estate mortgage which we quote: "to secure the payment as and those that may hereafter be obtained," is that correct? A Yes, Sir. Q So from your statement, Mr. Witness, this real estate mortgage was offered by the defendant spouses as a security for the loans they already secured as of the time of the execution of the mortgage but also for the loans that they will secure thereafter, is that correct? A Yes, Sir.55 (Emphasis supplied) As gleaned from the plain terms of the real estate mortgage, the real estate of respondent served as continuing security liable for future advancements or obligations beyond the amount of P7,000,000.00. The mortgage partakes of the nature of contract for future advancements. As explained by this Court in the early case of Lim Julian v. Lutero:56 The rule, of course, is well settled that an action to foreclose a mortgage must be limited to the amount mentioned in the mortgage. The exact amount, however, for which the mortgage is given need not always be specifically named. The amount for which the mortgage is given may be stated in definite or general terms, as is frequently the case in mortgages to secure future advancements. The amount named in the mortgage does not limit the amount for which it may stand as security, if, from the four corners of the document, the intent to secure future indebtedness or future advancements is apparent. Where the plain terms, of the mortgage, evidence such an intent, they will control as against a contention of the mortgagor that it was the understanding of the parties that the mortgage was security only for the specific amount named. (Citizens Savings Bank v. Kock, 117 Mich. 225). In that case, the amount mentioned in the mortgage was $7,000. The mortgage, however, contained a provision that "the mortgagors agree to pay said mortgagee any sum of money which they may now or hereafter owe said mortgagee." At the time the action of foreclosure was brought, the mortgagors owed the mortgagee the sum of $21,522. The defendants contended that the amount to be recovered in an action to foreclose should be limited to the amount named in the mortgage. The court held that the amount named as consideration for the mortgage did not limit the amount for which the mortgage stood as security, if, from the whole instrument the intent to secure future indebtedness could be gathered. The court held that a mortgage to cover future advances is valid. (Michigan Insurance Co. v. Brown, 11 Mich. 265; Jones on Mortgages, 1, sec. 373; Keyes v. Bumps Administrator, 59 Vt. 391; Fisher v. Otis, 3 Pin. 78; Brown v. Kiefer, 71 N.Y. 610; Douglas v. Reynolds, 7 Peters [U.S.] 113; Shores v. Doherty, 65 Wis. 153) Literal accuracy in describing the amount due, secured by a mortgage, is not required, but the description of the debt must be correct and full enough to direct attention to the sources of correct information in regard to it, and be such as not to mislead or deceive as to the amount of it, by the language used. Reading the mortgage before us from its four corners, we find that the description of the debt is full enough to give information concerning the amount due. The mortgage recites that it is given to secure the sum of P12,000, interest, commissions, damages, and all other amounts which may be found to be due at maturity. The terms of the contract are sufficiently clear to put all parties who may have occasion to deal with the property mortgaged upon inquiry. The parties themselves from the very terms of the mortgage could not be in ignorance at any time of the amount of their obligation and the security held to guarantee the payment. When a mortgage is given for future advancements and the money is paid to the mortgagor "little by little" and repayments are made from time to time, the advancements and the repayments must be considered together for the purpose of ascertaining the amount due upon the mortgage at maturity. Courts of equity will not permit the consideration of the repayments only for the purpose of determining the balance due upon the mortgage. (Luengo & Martinez v. Moreno, 26 Phil. 111) The mere fact that, in

contract of advancements, the repayments at any one time exceeds the specific amount mentioned in the mortgage will not have the effect of discharging the mortgage when the advancements at that particular time are greatly in excess of the repayments; especially is this true when the contract of advancement or mortgage contains a specific provision that the mortgage shall cover all "such other amounts as may be then due." Such a provision is added to the contract of advancements or mortgage for the express purpose of covering advancements in excess of the amount mentioned in the mortgage. (Luengo & Martinez v. Moreno, supra) The sum found to be owing by the debtor at the termination of the contract of advancements between him and the mortgagee, during continuing credit, is still secured by the mortgage on the debtors property, and the mortgagee is entitled to bring the proper action for the collection of the amounts still due and to request the sale of the property covered by the mortgage. (Luengo & Martinez v. Moreno, supra; Russell v. Davey, 7 Grant Ch. 13; Patterson First National Bank v. Byard, 26 N.J. Equity 225) Under a mortgage to secure the payment of future advancements, the mere fact that the repayments on a particular day equal the amount of the mortgage will not discharge the mortgage before maturity so long as advancements may be demanded and are being received. (Luengo & Martinez v. Moreno, supra)57 Moreover, the series of loan advancements herein cannot be likened to the credit line discussed in Caltex Philippines, Inc. v. Intermediate Appellate Court,58 as petitioner posited in its reply59 filed before this Court. In Caltex, unlike the instant case, the real estate mortgage executed did not contain a "dragnet" clause60 that would subsume all past and future debts. The mortgage therein specifically secured only the loans extended prior to the mortgage. Thus, in the said case, the future debts were deemed as constituting a separate transaction from the past debts secured by the mortgage. The ruling of the Court in Quiogue v. Bautista 61 is likewise inapplicable. In that case, the Court deemed the loan transactions as separate, considering that those were two separate loans secured by two separate mortgages. In this case, however, there is only one mortgage securing all 67 drawdowns made by respondent. In fine, for the failure of respondent to pay her loan obligation, petitioner had only one cause of action arising from such non-payment. This single cause of action consists in the recovery of the credit with execution of the security.62 Petitioner is proscribed from splitting its single cause of action by filing an extrajudicial foreclosure proceedings on June 10, 1999 with respect to the amounts in the 31 promissory notes, and, during the pendency thereof, file a collection case on June 23, 1999, with respect to the amounts in the remaining 36 promissory notes. Considering, therefore, that, in the case at bar, petitioner had already instituted extrajudicial foreclosure proceedings of the mortgaged property, it is now barred from availing itself of a personal action for the collection of the indebtedness. IN VIEW OF ALL THE FOREGOING, the instant petition is DISMISSED for lack of merit. Costs against petitioner. SO ORDERED.

UNITED COCONUT PLANTERS BANK, Petitioner,

G.R. No. 159912 Present: YNARES-SANTIAGO, J., Chairperson, AUSTRIA-MARTINEZ, CHICO-NAZARIO, NACHURA, and REYES, JJ.

- versus -

SPOUSES BELUSO,

SAMUEL

and

ODETTE Promulgated:

Respondents.

August 17, 2007 x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

CHICO-NAZARIO, J.:

This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, which seeks to annul the Court of Appeals Decision[1] dated 21 January 2003 and its Resolution[2] dated 9 September 2003 in CA-G.R. CV No. 67318. The assailed Court of Appeals Decision and Resolution affirmed in turn the Decision[3] dated 23 March 2000 and Order[4] dated 8 May 2000 of the Regional Trial Court (RTC), Branch 65 of Makati City, in Civil Case No. 99-314, declaring void the interest rate provided in the promissory notes executed by the respondents Spouses Samuel and Odette Beluso (spouses Beluso) in favor of petitioner United Coconut Planters Bank (UCPB). The procedural and factual antecedents of this case are as follows: On 16 April 1996, UCPB granted the spouses Beluso a Promissory Notes Line under a Credit Agreement whereby the latter could avail from the former credit of up to a maximum amount of P1.2 Million pesos for a term ending on 30 April 1997. The spouses Beluso constituted, other than their promissory notes, a real estate mortgage over parcels of land in Roxas City, covered by Transfer Certificates of Title No. T-31539 and T-27828, as additional security for the obligation. The Credit Agreement was subsequently amended to increase the amount of the Promissory Notes Line to a maximum of P2.35 Million pesos and to extend the term thereof to28 February 1998. The spouses Beluso availed themselves of the credit line under the following Promissory Notes: PN # 8314-96-00083-3 Date of PN 29 April 1996 Maturity Date 27 August 1996 Amount Secured P 700,000

8314-96-00085-0 8314-96-000292-2

2 May 1996 20 November 1996

30 August 1996 20 March 1997

P 500,000 P 800,000

The three promissory notes were renewed several times. On 30 April 1997, the payment of the principal and interest of the latter two promissory notes were debited from the spouses Belusos account with UCPB; yet, a consolidated loan for P1.3 Million was again released to the spouses Beluso under one promissory note with a due date of 28 February 1998. To completely avail themselves of the P2.35 Million credit line extended to them by UCPB, the spouses Beluso executed two more promissory notes for a total of P350,000.00: PN # 97-00363-1 98-00002-4 Date of PN 11 December 1997 2 January 1998 Maturity Date 28 February 1998 28 February 1998 Amount Secured P 200,000 P 150,000

However, the spouses Beluso alleged that the amounts covered by these last two promissory notes were never released or credited to their account and, thus, claimed that the principal indebtedness was only P2 Million. In any case, UCPB applied interest rates on the different promissory notes ranging from 18% to 34%. From 1996 to February 1998 the spouses Beluso were able to pay the total sum of P763,692.03. From 28 February 1998 to 10 June 1998, UCPB continued to charge interest and penalty on the obligations of the spouses Beluso, as follows: PN # 97-00363-1 97-00366-6 97-00368-2 98-00002-4 Amount Secured P P 200,000 700,000 Interest 31% 30.17% (7 days) 28% (2 days) 33% (102 days) Penalty 36% 32.786% (102 days) 30.41% (102 days) 36% P P Total 225,313.24 795,294.72

P 1,300,000 P 150,000

P 1,462,124.54 P 170,034.71

The spouses Beluso, however, failed to make any payment of the foregoing amounts. On 2 September 1998, UCPB demanded that the spouses Beluso pay their total obligation of P2,932,543.00 plus 25% attorneys fees, but the spouses Beluso failed to comply therewith. On 28 December 1998, UCPB foreclosed the properties mortgaged by the spouses Beluso to secure their credit line, which, by that time, already ballooned to P3,784,603.00. On 9 February 1999, the spouses Beluso filed a Petition for Annulment, Accounting and Damages against UCPB with the RTC of Makati City.

On 23 March 2000, the RTC ruled in favor of the spouses Beluso, disposing of the case as follows: PREMISES CONSIDERED, judgment is hereby rendered declaring the interest rate used by [UCPB] void and the foreclosure and Sheriffs Certificate of Sale void. [UCPB] is hereby ordered to return to [the spouses Beluso] the properties subject of the foreclosure; to pay [the spouses Beluso] the amount of P50,000.00 by way of attorneys fees; and to pay the costs of suit. [The spouses Beluso] are hereby ordered to pay [UCPB] the sum of P1,560,308.00.[5]

On 8 May 2000, the RTC denied UCPBs Motion for Reconsideration, [6] prompting UCPB to appeal the RTC Decision with the Court of Appeals. The Court of Appeals affirmed the RTC Decision, to wit: WHEREFORE, premises considered, the decision dated March 23, 2000 of the Regional Trial Court, Branch 65, Makati City in Civil Case No. 99-314 is hereby AFFIRMED subject to the modification that defendant-appellant UCPB is not liable for attorneys fees or the costs of suit.[7] On 9 September 2003, the Court of Appeals denied UCPBs Motion for Reconsideration for lack of merit. UCPB thus filed the present petition, submitting the following issues for our resolution: I WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR WHEN IT AFFIRMED THE DECISION OF THE TRIAL COURT WHICH DECLARED VOID THE PROVISION ON INTEREST RATE AGREED UPON BETWEEN PETITIONER AND RESPONDENTS II WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR WHEN IT AFFIRMED THE COMPUTATION BY THE TRIAL COURT OF RESPONDENTS INDEBTEDNESS AND ORDERED RESPONDENTS TO PAY PETITIONER THE AMOUNT OF ONLY ONE MILLION FIVE HUNDRED SIXTY THOUSAND THREE HUNDRED EIGHT PESOS (P1,560,308.00) III WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR WHEN IT AFFIRMED THE DECISION OF THE TRIAL COURT WHICH ANNULLED THE FORECLOSURE BY PETITIONER OF THE SUBJECT PROPERTIES DUE TO AN ALLEGED INCORRECT COMPUTATION OF RESPONDENTS INDEBTEDNES S IV WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR WHEN IT AFFIRMED THE DECISION OF THE TRIAL COURT WHICH FOUND PETITIONER LIABLE FOR VIOLATION OF THE TRUTH IN LENDING ACT

V WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS AND REVERSIBLE ERROR WHEN IT FAILED TO ORDER THE DISMISSAL OF THE CASE BECAUSE THE RESPONDENTS ARE GUILTY OF FORUM SHOPPING[8]

Validity of the Interest Rates The Court of Appeals held that the imposition of interest in the following provision found in the promissory notes of the spouses Beluso is void, as the interest rates and the bases therefor were determined solely by petitioner UCPB: FOR VALUE RECEIVED, I, and/or We, on or before due date, SPS. SAMUEL AND ODETTE BELUSO (BORROWER), jointly and severally promise to pay to UNITED COCONUT PLANTERS BANK (LENDER) or order at UCPB Bldg., Makati Avenue, Makati City, Philippines, the sum of ______________ PESOS, (P_____), Philippine Currency, with interest thereon at the rate indicative of DBD retail rate or as determined by the Branch Head.[9]

UCPB asserts that this is a reversible error, and claims that while the interest rate was not numerically quantified in the face of the promissory notes, it was nonetheless categorically fixed, at the time of execution thereof, at the rate indicative of the DBD retail rate. UCPB contends that said provision must be read with another stipulation in the promissory notes subjecting to review the interest rate as fixed: The interest rate shall be subject to review and may be increased or decreased by the LENDER considering among others the prevailing financial and monetary conditions; or the rate of interest and charges which other banks or financial institutions charge or offer to charge for similar accommodations; and/or the resulting profitability to the LENDER after due consideration of all dealings with the BORROWER. [10] In this regard, UCPB avers that these are valid reference rates akin to a prevailing rate or prime rate allowed by this Court inPolotan v. Court of Appeals.[11] Furthermore, UCPB argues that even if the proviso as determined by the branch head is considered void, such a declaration would not ipso facto render the connecting clause indicative of DBD retail rate void in view of t he separability clause of the Credit Agreement, which reads: Section 9.08 Separability Clause. If any one or more of the provisions contained in this AGREEMENT, or documents executed in connection herewith shall be declared invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions hereof shall not in any way be affected or impaired.[12] According to UCPB, the imposition of the questioned interest rates did not infringe on the principle of mutuality of contracts, because the spouses Beluso had the liberty to choose whether or not to renew their credit line at the new interest rates pegged by petitioner. [13] UCPB also claims that assuming there was any defect in the mutuality of the contract at the time of its inception, such defect

was cured by the subsequent conduct of the spouses Beluso in availing themselves of the credit line from April 1996 to February 1998 without airing any protest with respect to the interest rates imposed by UCPB. According to UCPB, therefore, the spouses Beluso are in estoppel.[14] We agree with the Court of Appeals, and find no merit in the contentions of UCPB. Article 1308 of the Civil Code provides: Art. 1308. The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them. We applied this provision in Philippine National Bank v. Court of Appeals,[15] where we held: In order that obligations arising from contracts may have the force of law between the parties, there must be mutuality between the parties based on their essential equality. A contract containing a condition which makes its fulfillment dependent exclusively upon the uncontrolled will of one of the contracting parties, is void (Garcia vs. Rita Legarda, Inc., 21 SCRA 555). Hence, even assuming that the P1.8 million loan agreement between the PNB and the private respondent gave the PNB a license (although in fact there was none) to increase the interest rate at will during the term of the loan, that license would have been null and void for being violative of the principle of mutuality essential in contracts. It would have invested the loan agreement with the character of a contract of adhesion, where the parties do not bargain on equal footing, the weaker party's (the debtor) participation being reduced to the alternative "to take it or leave it" (Qua vs. Law Union & Rock Insurance Co., 95 Phil. 85). Such a contract is a veritable trap for the weaker party whom the courts of justice must protect against abuse and imposition.

The provision stating that the interest shall be at the rate indicative of DBD retail rate or as determined by the Branch Head is indeed dependent solely on the will of petitioner UCPB. Under such provision, petitioner UCPB has two choices on what the interest rate shall be: (1) a rate indicative of the DBD retail rate; or (2) a rate as determined by the Branch Head. As UCPB is given this choice, the rate should be categorically determinable in both choices. If either of these two choices presents an opportunity for UCPB to fix the rate at will, the bank can easily choose such an option, thus making the entire interest rate provision violative of the principle of mutuality of contracts. Not just one, but rather both, of these choices are dependent solely on the will of UCPB. Clearly, a rate as determined by the Branch Head gives the latter unfettered discretion on what the rate may be. The Branch Head may choose any rate he or she desires. As regards the rate indicative of the DBD retail rate, the same cannot be considered as valid for being akin to a prevailing rate or prime rate allowed by this Court in Polotan. The interest rate in Polotan reads: The Cardholder agrees to pay interest per annum at 3% plus the prime rate of Security Bank and Trust Company. x x x.[16] In this provision in Polotan, there is a fixed margin over the reference rate: 3%. Thus, the parties can easily determine the interest rate by applying simple arithmetic. On the other hand, the provision in the

case at bar does not specify any margin above or below the DBD retail rate. UCPB can peg the interest at any percentage above or below the DBD retail rate, again giving it unfettered discretion in determining the interest rate. The stipulation in the promissory notes subjecting the interest rate to review does not render the imposition by UCPB of interest rates on the obligations of the spouses Beluso valid. According to said stipulation: The interest rate shall be subject to review and may be increased or decreased by the LENDER considering among others the prevailing financial and monetary conditions; or the rate of interest and charges which other banks or financial institutions charge or offer to charge for similar accommodations; and/or the resulting profitability to the LENDER after due consideration of all dealings with the BORROWER.[17]

It should be pointed out that the authority to review the interest rate was given UCPB alone as the lender. Moreover, UCPB may apply the considerations enumerated in this provision as it wishes. As worded in the above provision, UCPB may give as much weight as it desires to each of the following considerations: (1) the prevailing financial and monetary condition; (2) the rate of interest and charges which other banks or financial institutions charge or offer to charge for similar accommodations; and/or (3) the resulting profitability to the LENDER (UCPB) after due consideration of all dealings with the BORROWER (the spouses Beluso). Again, as in the case of the interest rate provision, there is no fixed margin above or below these considerations. In view of the foregoing, the Separability Clause cannot save either of the two options of UCPB as to the interest to be imposed, as both options violate the principle of mutuality of contracts. UCPB likewise failed to convince us that the spouses Beluso were in estoppel. Estoppel cannot be predicated on an illegal act. As between the parties to a contract, validity cannot be given to it by estoppel if it is prohibited by law or is against public policy.[18] The interest rate provisions in the case at bar are illegal not only because of the provisions of the Civil Code on mutuality of contracts, but also, as shall be discussed later, because they violate the Truth in Lending Act. Not disclosing the true finance charges in connection with the extensions of credit is, furthermore, a form of deception which we cannot countenance. It is against the policy of the State as stated in the Truth in Lending Act: Sec. 2. Declaration of Policy. It is hereby declared to be the policy of the State to protect its citizens from a lack of awareness of the true cost of credit to the user by assuring a full disclosure of such cost with a view of preventing the uninformed use of credit to the detriment of the national economy.[19]

Moreover, while the spouses Beluso indeed agreed to renew the credit line, the offending provisions are found in the promissory notes themselves, not in the credit line. In fixing the interest

rates in the promissory notes to cover the renewed credit line, UCPB still reserved to itself the same two options (1) a rate indicative of the DBD retail rate; or (2) a rate as determined by the Branch Head. Error in Computation UCPB asserts that while both the RTC and the Court of Appeals voided the interest rates imposed by UCPB, both failed to include in their computation of the outstanding obligation of the spouses Beluso the legal rate of interest of 12% per annum. Furthermore, the penalty charges were also deleted in the decisions of the RTC and the Court of Appeals. Section 2.04, Article II on Interest and other Bank Charges of the subject Credit Agreement, provides: Section 2.04 Penalty Charges. In addition to the interest provided for in Section 2.01 of this ARTICLE, any principal obligation of the CLIENT hereunder which is not paid when due shall be subject to a penalty charge of one percent (1%) of the amount of such obligation per month computed from due date until the obligation is paid in full. If the bank accelerates teh (sic) payment of availments hereunder pursuant to ARTICLE VIII hereof, the penalty charge shall be used on the total principal amount outstanding and unpaid computed from the date of acceleration until the obligation is paid in full.[20]

Paragraph 4 of the promissory notes also states: In case of non-payment of this Promissory Note (Note) at maturity, I/We, jointly and severally, agree to pay an additional sum equivalent to twenty-five percent (25%) of the total due on the Note as attorneys fee, aside from the expenses and costs of collection whether actually incurred or not, and a penalty charge of one percent (1%) per month on the total amount due and unpaid from date of default until fully paid. [21]

Petitioner further claims that it is likewise entitled to attorneys fees, pursuant to Section 9.06 of the Credit Agreement, thus: If the BANK shall require the services of counsel for the enforcement of its rights under this AGREEMENT, the Note(s), the collaterals and other related documents, the BANK shall be entitled to recover attorneys fees equivalent to not less than twenty -five percent (25%) of the total amounts due and outstanding exclusive of costs and other expenses.[22] Another alleged computational error pointed out by UCPB is the negation of the Compounding Interest agreed upon by the parties under Section 2.02 of the Credit Agreement: Section 2.02 Compounding Interest. Interest not paid when due shall form part of the principal and shall be subject to the same interest rate as herein stipulated. [23]

and paragraph 3 of the subject promissory notes: Interest not paid when due shall be added to, and become part of the principal and shall likewise bear interest at the same rate.[24]

UCPB lastly avers that the application of the spouses Belusos payments in the disputed computation does not reflect the parties agreement. The RTC deducted the payment made by the spouses Beluso amounting to P763,693.00 from the principal ofP2,350,000.00. This was allegedly inconsistent with the Credit Agreement, as well as with the agreement of the parties as to the facts of the case. In paragraph 7 of the spouses Belusos Manifestation and Motion on Proposed Stipulation of Facts and Issues vis--visUCPBs Manifestation, the parties agreed that the amount of P763,693.00 was applied to the interest and not to the principal, in accord with Section 3.03, Article II of the Credit Agreement on Order of the Application of Payments, which provides: Section 3.03 Application of Payment. Payments made by the CLIENT shall be applied in accordance with the following order of preference: 1. 2. 3. 4. 5. 6. 7. 8. Accounts receivable and other out-of-pocket expenses Front-end Fee, Origination Fee, Attorneys Fee and other expenses of collection; Penalty charges; Past due interest; Principal amortization/Payment in arrears; Advance interest; Outstanding balance; and All other obligations of CLIENT to the BANK, if any.[25]

Thus, according to UCPB, the interest charges, penalty charges, and attorneys fees had been erroneously excluded by the RTC and the Court of Appeals from the computation of the total amount due and demandable from spouses Beluso. The spouses Belusos defense as to all these issues is that the demand made by UCPB is for a considerably bigger amount and, therefore, the demand should be considered void. There being no valid demand, according to the spouses Beluso, there would be no default, and therefore the interests and penalties would not commence to run. As it was likewise improper to foreclose the mortgaged properties or file a case against the spouses Beluso, attorneys fees were not warranted. We agree with UCPB on this score. Default commences upon judicial or extrajudicial demand.[26] The excess amount in such a demand does not nullify the demand itself, which is valid with respect to the proper amount. A contrary ruling would put commercial transactions in disarray, as validity of demands would be dependent on the exactness of the computations thereof, which are too often contested. There being a valid demand on the part of UCPB, albeit excessive, the spouses Beluso are considered in default with respect to the proper amount and, therefore, the interests and the penalties began to run at that point. As regards the award of 12% legal interest in favor of petitioner, the RTC actually recognized that said legal interest should be imposed, thus: There being no valid stipulation as to interest, the legal

rate of interest shall be charged.[27] It seems that the RTC inadvertently overlooked its non-inclusion in its computation. The spouses Beluso had even originally asked for the RTC to impose this legal rate of interest in both the body and the prayer of its petition with the RTC: 12. Since the provision on the fixing of the rate of interest by the sole will of the respondent Bank is null and void, only the legal rate of interest which is 12% per annum can be legally charged and imposed by the bank, which would amount to only about P599,000.00 since 1996 up to August 31, 1998. xxxx WHEREFORE, in view of the foregoing, petiitoners pray for judgment or order: xxxx 2. By way of example for the public good against the Banks taking unfair advantage of the weaker party to their contract, declaring the legal rate of 12% per annum, as the imposable rate of interest up to February 28, 1999 on the loan of 2.350 million.[28]

All these show that the spouses Beluso had acknowledged before the RTC their obligation to pay a 12% legal interest on their loans. When the RTC failed to include the 12% legal interest in its computation, however, the spouses Beluso merely defended in the appellate courts this non-inclusion, as the same was beneficial to them. We see, however, sufficient basis to impose a 12% legal interest in favor of petitioner in the case at bar, as what we have voided is merely the stipulated rate of interest and not the stipulation that the loan shall earn interest. We must likewise uphold the contract stipulation providing the compounding of interest. The provisions in the Credit Agreement and in the promissory notes providing for the compounding of interest were neither nullified by the RTC or the Court of Appeals, nor assailed by the spouses Beluso in their petition with the RTC. The compounding of interests has furthermore been declared by this Court to be legal. We have held in Tan v. Court of Appeals,[29] that: Without prejudice to the provisions of Article 2212, interest due and unpaid shall not earn interest. However, the contracting parties may by stipulation capitalize the interest due and unpaid, which as added principal, shall earn new interest.

As regards the imposition of penalties, however, although we are likewise upholding the imposition thereof in the contract, we find the rate iniquitous. Like in the case of grossly excessive interests, the penalty stipulated in the contract may also be reduced by the courts if it is iniquitous or unconscionable.[30] We find the penalty imposed by UCPB, ranging from 30.41% to 36%, to be iniquitous considering the fact that this penalty is already over and above the compounded interest likewise

imposed in the contract. If a 36% interest in itself has been declared unconscionable by this Court,[31] what more a 30.41% to 36% penalty, over and above the payment of compounded interest? UCPB itself must have realized this, as it gave us a sample computation of the spouses Belusos obligation if both the interest and the penalty charge are reduced to 12%. As regards the attorneys fees, the spouses Beluso can actually be liable therefor even if there had been no demand. Filing a case in court is the judicial demand referred to in Article 1169[32] of the Civil Code, which would put the obligor in delay. The RTC, however, also held UCPB liable for attorneys fees in this case, as the spouses Beluso were forced to litigate the issue on the illegality of the interest rate provision of the promissory notes. The award of attorneys fees, it must be recalled, falls under the sound discretion of the court.[33] Since both parties were forced to litigate to protect their respective rights, and both are entitled to the award of attorneys fees from the other, practical reasons dictate that we set off or compensate both parties liabilities for attorneys fees. Therefore, instead of awarding attorneys fees in favo r of petitioner, we shall merely affirm the deletion of the award of attorneys fees to the spouses Beluso. In sum, we hold that spouses Beluso should still be held liable for a compounded legal interest of 12% per annum and a penalty charge of 12% per annum. We also hold that, instead of awarding attorneys fees in favor of petitioner, we shall merely affirm the deletion of the award of attorneys fees to the spouses Beluso. Annulment of the Foreclosure Sale Properties of spouses Beluso had been foreclosed, titles to which had already been consolidated on 19 February 2001 and 20 March 2001 in the name of UCPB, as the spouses Beluso failed to exercise their right of redemption which expired on 25 March 2000. The RTC, however, annulled the foreclosure of mortgage based on an alleged incorrect computation of the spouses Belusos indebtedness. UCPB alleges that none of the grounds for the annulment of a foreclosure sale are present in the case at bar. Furthermore, the annulment of the foreclosure proceedings and the certificates of sale were mooted by the subsequent issuance of new certificates of title in the name of said bank. UCPB claims that the spouses Belusos action for annulment of foreclosure constitutes a collateral attack on its certificates of title, an act proscribed by Section 48 of Presidential Decree No. 1529, otherwise known as the Property Registration Decree, which provides: Section 48. Certificate not subject to collateral attack. A certificate of title shall not be subject to collateral attack. It cannot be altered, modified or cancelled except in a direct proceeding in accordance with law.

The spouses Beluso retort that since they had the right to refuse payment of an excessive demand on their account, they cannot be said to be in default for refusing to pay the same. Consequently, according to the spouses Beluso, the enforcement of such illegal and overcharged demand through foreclosure of mortgage should be voided.

We agree with UCPB and affirm the validity of the foreclosure proceedings. Since we already found that a valid demand was made by UCPB upon the spouses Beluso, despite being excessive, the spouses Beluso are considered in default with respect to the proper amount of their obligation to UCPB and, thus, the property they mortgaged to secure such amounts may be foreclosed. Consequently, proceeds of the foreclosure sale should be applied to the extent of the amounts to which UCPB is rightfully entitled. As argued by UCPB, none of the grounds for the annulment of a foreclosure sale are present in this case. The grounds for the proper annulment of the foreclosure sale are the following: (1) that there was fraud, collusion, accident, mutual mistake, breach of trust or misconduct by the purchaser; (2) that the sale had not been fairly and regularly conducted; or (3) that the price was inadequate and the inadequacy was so great as to shock the conscience of the court. [34]

Liability for Violation of Truth in Lending Act The RTC, affirmed by the Court of Appeals, imposed a fine of P26,000.00 for UCPBs alleged violation of Republic Act No. 3765, otherwise known as the Truth in Lending Act. UCPB challenges this imposition, on the argument that Section 6(a) of the Truth in Lending Act which mandates the filing of an action to recover such penalty must be made under the following circumstances: Section 6. (a) Any creditor who in connection with any credit transaction fails to disclose to any person any information in violation of this Act or any regulation issued thereunder shall be liable to such person in the amount of P100 or in an amount equal to twice the finance charge required by such creditor in connection with such transaction, whichever is greater, except that such liability shall not exceed P2,000 on any credit transaction. Action to recover such penalty may be brought by such person within one year from the date of the occurrence of the violation, in any court of competent jurisdiction. x x x (Emphasis ours.) According to UCPB, the Court of Appeals even stated that [a]dmittedly the original complaint did not explicitly allege a violation of the Truth in Lending Act and no action to formally admit the amended petition [which expressly alleges violation of the Truth in Lending Act] was made either by [respondents] spouses Beluso and the lower court. x x x.[35] UCPB further claims that the action to recover the penalty for the violation of the Truth in Lending Act had been barred by the one-year prescriptive period provided for in the Act. UCPB asserts that per the records of the case, the latest of the subject promissory notes had been executed on 2 January 1998, but the original petition of the spouses Beluso was filed before the RTC on 9 February 1999, which was after the expiration of the period to file the same on 2 January 1999. On the matter of allegation of the violation of the Truth in Lending Act, the Court of Appeals ruled:

Admittedly the original complaint did not explicitly allege a violation of the Truth in Lending Act and no action to formally admit the amended petition was made ei ther by [respondents] spouses Beluso and the lower court. In such transactions, the debtor and the lending institutions do not deal on an equal footing and this law was intended to protect the public from hidden or undisclosed charges on their loan obligations, requiring a full disclosure thereof by the lender. We find that its infringement may be inferred or implied from allegations that when [respondents] spouses Beluso executed the promissory notes, the interest rate chargeable thereon were left blank. Thus, [petitioner] UCPB failed to discharge its duty to disclose in full to [respondents] Spouses Beluso the charges applicable on their loans.[36]

We agree with the Court of Appeals. The allegations in the complaint, much more than the title thereof, are controlling. Other than that stated by the Court of Appeals, we find that the allegation of violation of the Truth in Lending Act can also be inferred from the same allegation in the complaint we discussed earlier: b.) In unilaterally imposing an increased interest rates (sic) respondent bank has relied on the provision of their promissory note granting respondent bank the power to unilaterally fix the interest rates, which rate was not determined in the promissory note but was left solely to the will of the Branch Head of the respondent Bank, x x x.[37]

The allegation that the promissory notes grant UCPB the power to unilaterally fix the interest rates certainly also means that the promissory notes do not contain a clear statement in writing of (6) the finance charge expressed in terms of pesos and centavos; and (7) the percentage that the finance charge bears to the amount to be financed expressed as a simple annual rate on the outstanding unpaid balance of the obligation.[38] Furthermore, the spouses Belusos prayer for such other reliefs just and equitable in the premises should be deemed to include the civil penalty provided for in Section 6(a) of the Truth in Lending Act. UCPBs contention that this action to recover the penalty for the violation of the Truth in Lending Act has already prescribed is likewise without merit. The penalty for the violation of the act is P100 or an amount equal to twice the finance charge required by such creditor in connection with such transaction, whichever is greater, except that such liability shall not exceed P2,000.00 on any credit transaction.[39] As this penalty depends on the finance charge required of the borrower, the borrowers cause of action would only accrue when such finance charge is required. In the case at bar, the date of the demand for payment of the finance charge is 2 September 1998, while the foreclosure was made on 28 December 1998. The filing of the case on 9 February 1999 is therefore within the one-year prescriptive period. UCPB argues that a violation of the Truth in Lending Act, being a criminal offense, cannot be inferred nor implied from the allegations made in the complaint.[40] Pertinent provisions of the Act read: Sec. 6. (a) Any creditor who in connection with any credit transaction fails to disclose to any person any information in violation of this Act or any regulation issued thereunder shall be liable to such person in the amount of P100 or in an amount equal to

twice the finance charge required by such creditor in connection with such transaction, whichever is the greater, except that such liability shall not exceed P2,000 on any credit transaction. Action to recover such penalty may be brought by such person within one year from the date of the occurrence of the violation, in any court of competent jurisdiction. In any action under this subsection in which any person is entitled to a recovery, the creditor shall be liable for reasonable attorneys fees and court cost s as determined by the court. xxxx (c) Any person who willfully violates any provision of this Act or any regulation issued thereunder shall be fined by not less than P1,000 or more than P5,000 or imprisonment for not less than 6 months, nor more than one year or both.

As can be gleaned from Section 6(a) and (c) of the Truth in Lending Act, the violation of the said Act gives rise to both criminal and civil liabilities. Section 6(c) considers a criminal offense the willful violation of the Act, imposing the penalty therefor of fine, imprisonment or both. Section 6(a), on the other hand, clearly provides for a civil cause of action for failure to disclose any information of the required information to any person in violation of the Act. The penalty therefor is an amount of P100 or in an amount equal to twice the finance charge required by the creditor in connection with such transaction, whichever is greater, except that the liability shall not exceed P2,000.00 on any credit transaction. The action to recover such penalty may be instituted by the aggrieved private person separately and independently from the criminal case for the same offense. In the case at bar, therefore, the civil action to recover the penalty under Section 6(a) of the Truth in Lending Act had been jointly instituted with (1) the action to declare the interests in the promissory notes void, and (2) the action to declare the foreclosure void. This joinder is allowed under Rule 2, Section 5 of the Rules of Court, which provides: SEC. 5. Joinder of causes of action.A party may in one pleading assert, in the alternative or otherwise, as many causes of action as he may have against an opposing party, subject to the following conditions: (a) The party joining the causes of action shall comply with the rules on joinder of parties; (b) special rules; The joinder shall not include special civil actions or actions governed by

(c) Where the causes of action are between the same parties but pertain to different venues or jurisdictions, the joinder may be allowed in the Regional Trial Court provided one of the causes of action falls within the jurisdiction of said court and the venue lies therein; and (d) Where the claims in all the causes of action are principally for recovery of money, the aggregate amount claimed shall be the test of jurisdiction.

In attacking the RTCs disposition on the violation of the Truth in Lending Act since the same was not alleged in the complaint, UCPB is actually asserting a violation of due process. Indeed, due process

mandates that a defendant should be sufficiently apprised of the matters he or she would be defending himself or herself against. However, in the 1 July 1999 pre-trial brief filed by the spouses Beluso before the RTC, the claim for civil sanctions for violation of the Truth in Lending Act was expressly alleged, thus: Moreover, since from the start, respondent bank violated the Truth in Lending Act in not informing the borrower in writing before the execution of the Promissory Notes of the interest rate expressed as a percentage of the total loan, the respondent bank instead is liable to pay petitioners double the amount the bank is charging petitioners by way of sanction for its violation.[41]

In the same pre-trial brief, the spouses Beluso also expressly raised the following issue: b.) Does the expression indicative rate of DBD retail (sic) comply with the Truth in Lending Act provision to express the interest rate as a simple annual percentage of the loan?[42]

These assertions are so clear and unequivocal that any attempt of UCPB to feign ignorance of the assertion of this issue in this case as to prevent it from putting up a defense thereto is plainly hogwash. Petitioner further posits that it is the Metropolitan Trial Court which has jurisdiction to try and adjudicate the alleged violation of the Truth in Lending Act, considering that the present action allegedly involved a single credit transaction as there was only one Promissory Note Line. We disagree. We have already ruled that the action to recover the penalty under Section 6(a) of the Truth in Lending Act had been jointly instituted with (1) the action to declare the interests in the promissory notes void, and (2) the action to declare the foreclosure void. There had been no question that the above actions belong to the jurisdiction of the RTC. Subsection (c) of the above-quoted Section 5 of the Rules of Court on Joinder of Causes of Action provides: (c) Where the causes of action are between the same parties but pertain to different venues or jurisdictions, the joinder may be allowed in the Regional Trial Court provided one of the causes of action falls within the jurisdiction of said court and the venue lies therein.

Furthermore, opening a credit line does not create a credit transaction of loan or mutuum, since the former is merely a preparatory contract to the contract of loan or mutuum. Under such credit line, the bank is merely obliged, for the considerations specified therefor, to lend to the other party amounts not exceeding the limit provided. The credit transaction thus occurred not when the credit line was opened, but rather when the credit line was availed of. In the case at bar, the violation of the Truth in Lending Act allegedly occurred not when the parties executed the Credit Agreement, where no interest rate was mentioned, but when the parties executed the promissory notes, where the allegedly offending interest rate was stipulated.

UCPB further argues that since the spouses Beluso were duly given copies of the subject promissory notes after their execution, then they were duly notified of the terms thereof, in substantial compliance with the Truth in Lending Act. Once more, we disagree. Section 4 of the Truth in Lending Act clearly provides that the disclosure statement must be furnished prior to the consummation of the transaction: SEC. 4. Any creditor shall furnish to each person to whom credit is extended, prior to the consummation of the transaction, a clear statement in writing setting forth, to the extent applicable and in accordance with rules and regulations prescribed by the Board, the following information: (1) (2) (3) (4) the cash price or delivered price of the property or service to be acquired; the amounts, if any, to be credited as down payment and/or trade-in; the difference between the amounts set forth under clauses (1) and (2) the charges, individually itemized, which are paid or to be paid by such person in connection with the transaction but which are not incident to the extension of credit; the total amount to be financed; the finance charge expressed in terms of pesos and centavos; and the percentage that the finance bears to the total amount to be financed expressed as a simple annual rate on the outstanding unpaid balance of the obligation.

(5) (6) (7)

The rationale of this provision is to protect users of credit from a lack of awareness of the true cost thereof, proceeding from the experience that banks are able to conceal such true cost by hidden charges, uncertainty of interest rates, deduction of interests from the loaned amount, and the like. The law thereby seeks to protect debtors by permitting them to fully appreciate the true cost of their loan, to enable them to give full consent to the contract, and to properly evaluate their options in arriving at business decisions. Upholding UCPBs claim of substantial compliance would defeat these purposes of the Truth in Lending Act. The belated discovery of the true cost of credit will too often not be able to reverse the ill effects of an already consummated business decision. In addition, the promissory notes, the copies of which were presented to the spouses Beluso after execution, are not sufficient notification from UCPB. As earlier discussed, the interest rate provision therein does not sufficiently indicate with particularity the interest rate to be applied to the loan covered by said promissory notes. Forum Shopping UCPB had earlier moved to dismiss the petition (originally Case No. 99-314 in RTC, Makati City) on the ground that the spouses Beluso instituted another case (Civil Case No. V-7227) before the RTC of

Roxas City, involving the same parties and issues. UCPB claims that while Civil Case No. V-7227 initially appears to be a different action, as it prayed for the issuance of a temporary restraining order and/or injunction to stop foreclosure of spouses Belusos properties, it poses issues which are similar to those of the present case.[43] To prove its point, UCPB cited the spouses Belusos Amended Petition in Civil Case No. V-7227, which contains similar allegations as those in the present case. The RTC of Makati denied UCPBs Motion to Dismiss Case No. 99-314 for lack of merit. Petitioner UCPB raised the same issue with the Court of Appeals, and is raising the same issue with us now. The spouses Beluso claim that the issue in Civil Case No. V-7227 before the RTC of Roxas City, a Petition for Injunction Against Foreclosure, is the propriety of the foreclosure before the true account of spouses Beluso is determined. On the other hand, the issue in Case No. 99-314 before the RTC of Makati City is the validity of the interest rate provision. The spouses Beluso claim that Civil Case No. V-7227 has become moot because, before the RTC of Roxas City could act on the restraining order, UCPB proceeded with the foreclosure and auction sale. As the act sought to be restrained by Civil Case No. V-7227 has already been accomplished, the spouses Beluso had to file a different action, that of Annulment of the Foreclosure Sale, Case No. 99-314 with the RTC, Makati City. Even if we assume for the sake of argument, however, that only one cause of action is involved in the two civil actions, namely, the violation of the right of the spouses Beluso not to have their property foreclosed for an amount they do not owe, the Rules of Court nevertheless allows the filing of the second action. Civil Case No. V-7227 was dismissed by the RTC of Roxas City before the filing of Case No. 99314 with the RTC of Makati City, since the venue of litigation as provided for in the Credit Agreement is inMakati City. Rule 16, Section 5 bars the refiling of an action previously dismissed only in the following instances: SEC. 5. Effect of dismissal.Subject to the right of appeal, an order granting a motion to dismiss based on paragraphs (f), (h) and (i) of section 1 hereof shall bar the refiling of the same action or claim. (n) Improper venue as a ground for the dismissal of an action is found in paragraph (c) of Section 1, not in paragraphs (f), (h) and (i): SECTION 1. Grounds.Within the time for but before filing the answer to the complaint or pleading asserting a claim, a motion to dismiss may be made on any of the following grounds: (a) That the court has no jurisdiction over the person of the defending party; (b) That the court has no jurisdiction over the subject matter of the claim;

(c) That venue is improperly laid;

(d) That the plaintiff has no legal capacity to sue;

cause;

(e) That there is another action pending between the same parties for the same

(f) That the cause of action is barred by a prior judgment or by the statute of limitations;
(g) That the pleading asserting the claim states no cause of action;

(h) That the claim or demand set forth in the plaintiffs pleading has been paid, waived, abandoned, or otherwise extinguished; (i) That the claim on which the action is founded is unenforceable under the provisions of the statute of frauds; and
(j) That a condition precedent for filing the claim has not been complied with.[44] (Emphases supplied.)

When an action is dismissed on the motion of the other party, it is only when the ground for the dismissal of an action is found in paragraphs (f), (h) and (i) that the action cannot be refiled. As regards all the other grounds, the complainant is allowed to file same action, but should take care that, this time, it is filed with the proper court or after the accomplishment of the erstwhile absent condition precedent, as the case may be. UCPB, however, brings to the attention of this Court a Motion for Reconsideration filed by the spouses Beluso on 15 January 1999 with the RTC of Roxas City, which Motion had not yet been ruled upon when the spouses Beluso filed Civil Case No. 99-314 with the RTC of Makati. Hence, there were allegedly two pending actions between the same parties on the same issue at the time of the filing of Civil Case No. 99-314 on 9 February 1999 with the RTC of Makati. This will still not change our findings. It is indeed the general rule that in cases where there are two pending actions between the same parties on the same issue, it should be the later case that should be dismissed. However, this rule is not absolute. According to this Court in Allied Banking Corporation v. Court of Appeals[45]: In these cases, it is evident that the first action was filed in anticipation of the filing of the later action and the purpose is to preempt the later suit or provide a basis for seeking the dismissal of the second action. Even if this is not the purpose for the filing of the first action, it may nevertheless be dismissed if the later action is the more appropriate vehicle for the ventilation of the issues between the parties. Thus, in Ramos v. Peralta, it was held: [T]he rule on litis pendentia does not require that the later case should yield to the earlier case. What is required merely is that there be another pending action, not a prior pending action. Considering the broader scope of inquiry involved in Civil Case No. 4102 and the location of the property involved, no error was committed by the lower court in deferring to the Bataan court's jurisdiction.

Given, therefore, the pendency of two actions, the following are the relevant considerations in determining which action should be dismissed: (1) the date of filing, with preference generally given to the first action filed to be retained; (2) whether the action sought to be dismissed was filed merely to preempt the later action or to anticipate its filing and lay the basis for its dismissal; and (3) whether the action is the appropriate vehicle for litigating the issues between the parties.

In the case at bar, Civil Case No. V-7227 before the RTC of Roxas City was an action for injunction against a foreclosure sale that has already been held, while Civil Case No. 99-314 before the RTC of Makati City includes an action for the annulment of said foreclosure, an action certainly more proper in view of the execution of the foreclosure sale. The former case was improperly filed inRoxas City, while the latter was filed in Makati City, the proper venue of the action as mandated by the Credit Agreement. It is evident, therefore, that Civil Case No. 99-314 is the more appropriate vehicle for litigating the issues between the parties, as compared to Civil Case No. V-7227. Thus, we rule that the RTC of Makati City was not in error in not dismissing Civil Case No. 99-314. WHEREFORE, the Decision of the Court of Appeals is hereby AFFIRMED with the following MODIFICATIONS: 1. In addition to the sum of P2,350,000.00 as determined by the courts a quo, respondent spouses Samuel and Odette Beluso are also liable for the following amounts: a. Penalty of 12% per annum on the amount due[46] from the date of demand; and b. Compounded legal interest of 12% per annum on the amount due [47] from date of demand; The following amounts shall be deducted from the liability of the spouses Samuel and Odette Beluso: a. Payments made by the spouses in the amount of P763,692.00. These payments shall be applied to the date of actual payment of the following in the order that they are listed, to wit: i. penalty charges due and demandable as of the time of payment; ii. interest due and demandable as of the time of payment; iii. principal amortization/payment in arrears as of the time of payment; iv. outstanding balance. b. Penalty under Republic Act No. 3765 in the amount of P26,000.00. This amount shall be deducted from the liability of the spouses Samuel and Odette Beluso on 9 February 1999 to the following in the order that they are listed, to wit: i. penalty charges due and demandable as of time of payment; ii. interest due and demandable as of the time of payment; iii. principal amortization/payment in arrears as of the time of payment;

2.

3.

iv. outstanding balance. The foreclosure of mortgage is hereby declared VALID. Consequently, the amounts which the Regional Trial Court and the Court of Appeals ordered respondents to pay, as modified in this Decision, shall be deducted from the proceeds of the foreclosure sale.

SO ORDERED.