Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 194201

November 27, 2013

SPOUSES BAYANI H. ANDAL AND GRACIA G. ANDAL, Petitioners,

vs.
PHILIPPINE NATIONAL BANK REGISTER OF DEEDS OF BATANGAS CITY JOSE
C. CORALES, Respondents.
DECISION
PEREZ, J.:
Before the Court is a Petition for Review on Certiorari 1 under Rule 45 of the Rules of
Court seeking to partially set aside the Decision, 2 dated 30 March 2010, and the
Resolution,3 dated 13 October 2010, of the Court of Appeals (CA) in CA-G.R. CV No.
91250. The challenged Decision dismissed the appeal of herein respondent
Philippine National Bank (respondent bank) and affirmed the decision of the
Regional Trial Court (RTC), Branch 84, Batangas City with the modification that the
interest rate to be applied by respondent bank on the principal loan obligation of
petitioners Spouses Bayani H. Andal and Gracia G. Andal (petitionersspouses)
shall be 12% per annum, to be computed from default.
As found by the CA, the facts of this case are as follows:
x x x on September 7, 1995, [petitioners-spouses] obtained a loan from [respondent
bank] in the amount ofP21,805,000.00, for which they executed twelve (12)
promissory notes x x x [undertaking] to pay [respondent bank] the principal loan
with varying interest rates of 17.5% to 27% per interest period. It was agreed upon
by the parties that the rate of interest may be increased or decreased for the
subsequent interest periods, with prior notice to [petitioners-spouses], in the event
of changes in interest rates prescribed by law or the Monetary Board x x x, or in the
banks overall cost of funds.
To secure the payment of the said loan, [petitioners-spouses] executed in favor of
[respondent bank] a real estate mortgage using as collateral five (5) parcels of land
including all improvements therein, all situated in Batangas City and covered by
Transfer Certificate of Title (TCT) Nos. T-641, T-32037, T-16730, T-31193 and RT 363
(3351) of the Registry of Deeds of Batangas City, in the name of [petitionersspouses].
Subsequently, [respondent bank] advised [petitioners-spouses] to pay their loan
obligation, otherwise the former will declare the latters loan due and demandable.

On July 17, 2001, [petitioners-spouses] paid P14,800,000.00 to [respondent bank] to

avoid foreclosure of the properties subject of the real estate mortgage. Accordingly,
[respondent bank] executed a release of real estate mortgage over the parcels of
land covered by TCT Nos. T-31193 and RT-363 (3351). However, despite payment x
x x, [respondent bank] proceeded to foreclose the real estate mortgage, particularly
with respect to the three (3) parcels of land covered by TCT Nos. T-641, T-32037 and
T-16730 x x x.
x x x [A] public auction sale of the properties proceeded, with the [respondent bank]
emerging as the highest and winning bidder. Accordingly, on August 30, 2002, a
certificate of sale of the properties involved was issued. [Respondent bank]
consolidated its ownership over the said properties and TCT Nos. T-52889, T-52890,
and T-52891 were issued in lieu of the cancelled TCT[s] x x x. This prompted
[petitioners-spouses] to file x x x a complaint for annulment of mortgage, sheriffs
certificate of sale, declaration of nullity of the increased interest rates and penalty
charges plus damages, with the RTC of Batangas City.
In their amended complaint, [petitioners-spouses] alleged that they tried to
religiously pay their loan obligation to [respondent bank], but the exorbitant rate of
interest unilaterally determined and imposed by the latter prevented the former
from paying their obligation. [Petitioners-spouses] also alleged that they signed the
promissory notes in blank, relying on the representation of [respondent bank] that
they were merely proforma [sic] bank requirements. Further, [petitioners-spouses]
alleged that the unilateral increase of interest rates and exorbitant penalty charges
are akin to unjust enrichment at their expense, giving [respondent bank] no right to
foreclose their mortgaged properties. x x x.
xxxx
On August 27, 2004 [respondent bank] filed its answer, denying the allegations in
the complaint. x x x [respondent bank] alleged that: the penalty charges imposed
on the loan was expressly stipulated under the credit agreements and in the
promissory notes; although [petitioners-spouses] paid to [respondent
bank]P14,800,000.00 on July 10, 2001, the former was still indebted to the latter in
the amount of P33,960,633.87; assuming arguendo that the imposition was
improper, the foreclosure of the mortgaged properties is in order since [respondent
banks] bid in the amount of P28,965,100.00 was based on the aggregate appraised
rates of the foreclosed properties. x x x4
After trial, the RTC rendered judgment 5 in favor of petitioners-spouses and against
respondent bank, ordering that:
1. The rate of interest should be reduced as it is hereby reduced to 6% in
accordance with Article 2209 of the Civil Code effective the next 30, 31 and 180
days respectively from the date of the twelve (12) promissory notes x x x covered
by the real estate x x x mortgages, to be applied on a declining balance of the

principal after the partial payments of P14,800,00.00 (paid July 17, 2001)
and P2,000,000.006 (payments of P300,000.00 on October 1, 1999, P1,800,000.00
as [of] December 1, 1999, P700,000.00 [on] January 31, 2000) per certification of
[respondent bank] to be reckoned at (sic) the dates the said payments were made,
thus the corrected amounts of the liability for principal balance and the said 6%
charges per annum shall be the new basis for the [petitioners-spouses] to make
payments to the [respondent bank] x x x which shall automatically extinguish and
release the mortgage contracts and the outstanding liabilities of the [petitionersspouses]; [respondent bank] shall then surrender the new transfer certificates of
title x x x in its name to the [c]ourt x x x, [c]anceling the penalty charges.
xxxx
3. Declaring as illegal and void the foreclosure sales x x x, the Certificates of Sales
and the consolidation of titles of the subject real properties, including the
cancellation of the new Transfer Certificates of Title x x x in the name of the
[respondent] bank and reinstating Transfer Certificates of Title Nos. T-641, T-32037
and T-16730 in the names of the [petitioners-spouses]; the latter acts to be
executed by the Register of Deeds of Batangas City. 7
The foregoing disposition of the RTC was based on the following findings of fact:
As of this writing the [respondent] bank have (sic) not complied with the said orders
as to the interest rates it had been using on the loan of [petitioners-spouses] and
the monthly computation of interest vis a vis (sic) the total shown in the statement
of account as of Aug 30, 2002. Such refusal amounts to suppression of evidence
thus tending to show that the interest used by the bank was unilaterally increased
without the written consent of the [petitioners-spouses]/borrower as required by law
and Central Bank Circular No. 1171. The latter circular provides that any increase of
interest in a given interest period will have to be expressly agreed to in writing by
the borrower. The mortgaged properties were subject of foreclosure and were sold
on August 30, 2002 and the [respondent] banks statement of account as of August
30, 2002 x x x shows unpaid interest up to July 17, 2001 of P12,695,718.99 without
specifying the rate of interest for each interest period of thirty days. Another
statement of account of [respondent bank] x x x as [of] the date of foreclosure on
August 30, 2002 shows account balance ofP20,505,916.51 with a bid price
of P28,965,100.00 and showing an interest of P16,163,281.65. Again, there are no
details of the interest used for each interest period from the time these loans were
incurred up to the date of foreclosure. These statements of account together with
the stated interest and expenses after foreclosure were furnished by the
[respondent] bank during the court hearings. The central legal question is that there
is no agreement in writing from the [petitioners-spouses]/borrowers for the interest
rate for each interest period neither from the data coming from the Central Bank or
the cost of money which is understood to mean the interest cost of the bank
deposits form the public. Such imposition of the increased interest without the

consent of the borrower is null and void pursuant to Article 1956 of the Civil Code
and as held in the pronouncement of the Supreme Court in several cases and C.B.
Circular No. 1191 that the interest rate for each re-pricing period under the floating
rate of interest is subject to mutual agreement in writing. Art. 1956 states that no
interest is due unless it has been expressly stipulated and agreed to in writing.
Any stipulation where the fixing of interest rate is the sole prerogative of the
creditor/mortgagee, belongs to the class of potestative condition which is null and
void under Art. 1308 of the New Civil Code. The fulfillment of a condition cannot be
left to the sole will of [one of] the contracting parties.
xxxx
In the instant case, if the interest is declared null and void, the foreclosure sale for a
higher amount than what is legally due is likewise null and void because under the
Civil Code, a mortgage may be foreclosed only to enforce the fulfillment of the
obligation for whose security it was constituted (Art. 2126, Civil Code).
xxxx
Following the declaration of nullity of the stipulation on floating rate of interest since
no interest may be collected based on the stipulation that is null and void and
legally inexistent and unenforceable. x x x. Since the interest imposed is illegal and
void only the rate of 6% interest per month shall be imposed as liquidated damages
under Art. 2209 of the Civil Code.
It is worth mentioning that these forms used by the bank are pre- printed forms and
therefore contracts of adhesion and x x x any dispute or doubt concerning them
shall be resolved in favor of the x x x borrower. This (sic) circumstances tend to
support the contention of the [petitioners-spouses] that they were made to sign the
real estate mortgages/promissory notes in blank with respect to the interest rates.
xxxx
[Respondent bank has] no right to foreclose [petitioners-spouses] property and any
foreclosure thereof is illegal, unreasonable and void, since [petitioners-spouses] are
not and cannot be considered in default for their inability to pay the arbitrarily,
illegally, and unconscionably adjusted interest rates and penalty charges
unilaterally made and imposed by [respondent] bank.
The [petitioners-spouses] submitted to the court certified copies of the weighted
average of Selected Domestic Interest Rates of the local banks obtained from the
Bangko Sentral ng Pilipinas Statistical Center and it shows a declining balance of
interest rates x x x.
xxxx

There is no showing by the [respondent bank] that any of the foregoing rate was
ever used to increase or decrease the interest rates charged upon the [petitionersspouses] mortgage loan for the 30 day re- pricing period subsequent to the first 30
days from [the] dates of the promissory notes. These documents submitted being
certified public documents are entitled to being taken cognizance of by the court as
an aid to its decision making. x x x.8
Respondent bank appealed the above judgment of the trial court to the CA. Its main
contention is that the lower court erred in ordering the re-computation of
petitioners-spouses loans and applying the interest rate of 6% per annum.
According to respondent bank, the stipulation on the interest rates of 17.5% to 27%,
subject to periodic adjustments, was voluntarily agreed upon by the parties; hence,
it was not left to the sole will of respondent bank. Thus, the lower court erred in
reducing the interest rate to 6% and in setting aside the penalty charges, as such is
contrary to the principle of the obligatory force of contracts under Articles 1315 and
1159 of the Civil Code.9
The CA disposed of the issue in the following manner:
We partly agree with [respondent banks] contention.
Settled is the rule that the contracting parties are free to enter into stipulations,
clauses, terms and conditions as they may deem convenient, as long as these are
not contrary to law, morals, good customs, public order or public policy. Pursuant to
Article 1159 of the Civil Code, these obligations arising from such contracts have
the force of law between the parties and should be complied with in good faith. x x
x.
xxxx
In the case at bar, [respondent bank] and [petitioners-spouses] expressly stipulated
in the promissory notes the rate of interest to be applied to the loan obtained by the
latter from the former, x x x.
xxxx
[Respondent bank] insists that [petitioner-spouses] agreed to the interest rates
stated in the promissory notes since the latter voluntarily signed the same.
However, we find more credible and believable the version of [petitioners-spouses]
that they were made to sign the said promissory notes in blank with respect to the
rate of interest and penalty charges, and subsequently, [respondent] bank filled in
the blanks, imposing high interest rate beyond which they were made to understand
at the time of the signing of the promissory notes.
xxxx

The signing by [petitioners-spouses] of the promissory notes in blank enabled

[respondent] bank to impose interest rates on the loan obligation without prior
notice to [petitioners-spouses]. The unilateral determination and imposition of
interest rates by [respondent] bank without [petitioners-spouses] assent is
obviously violative of the principle of mutuality of contracts ordained in Article 1308
of the Civil Code x x x.
xxxx
[Respondent banks] act converted the loan agreement into a contract of adhesion
where the parties do not bargain on equal footing, the weaker partys participation,
herein [petitioners-spouses], being reduced to the alternative to take it or leave it.
[Respondent] bank tried to sidestep this issue by averring that [petitionersspouses], as businessmen, were on equal footing with [respondent bank] as far as
the subject loan agreements are concerned. That may be true insofar as entering
into the original loan agreements and mortgage contracts are concerned. However,
that does not hold true when it comes to the unilateral determination and
imposition of the escalated interest rates imposed by [respondent] bank.
xxxx
The Court further notes that in the case at bar, [respondent] bank imposed different
rates in the twelve (12) promissory notes: interest rate of 18% in five (5) promissory
notes; 17.5% in two (2) promissory notes; 23% in one (1) promissory note; and 27%
in three (3) promissory notes. Obviously, the interest rates are excessive and
arbitrary. Thus, the foregoing interest rates imposed on [petitioners-spouses] loan
obligation without their knowledge and consent should be disregarded, not only for
being iniquitous and exorbitant, but also for being violative of the principle of
mutuality of contracts.
However, we do not agree with the trial court in fixing the rate of interest of 6%. It is
well-settled that when an obligation is breached and consists in the payment of a
sum of money, i.e., loan or forbearance of money, the interest due shall be that
which may have been stipulated in writing. In the absence of stipulation, the rate of
interest shall be 12% interest per annum to be computed from default, i.e., from
judicial or extra-judicial demand and subject to the provisions of Article 1169 of the
Civil Code. Since the interest rates printed in the promissory notes are void for the
reasons above-stated, the rate of interest to be applied to the loan should be 12%
per annum only.10
The CA, consequently, dismissed respondent banks appeal and affirmed the
decision of the trial court with the modification that the rate of interest shall be 12%
per annum instead of 6%. Respondent bank filed a Motion for Reconsideration of the
CA decision. Petitioners-spouses, on the other hand, filed a comment praying for the
denial of respondent banks motion for reconsideration. They also filed an "Urgent
Manifestation"11 calling the attention of the CA to its respective decisions in the

cases of Spouses Enrique and Epifania Mercado v. China Banking Corporation, et. al.
(CA-GR CV No. 75303)12 and Spouses Bonifacio Caraig and Ligaya Caraig v. The ExOfficio Sheriff of RTC, Batangas City, et. al. (CA-G.R. CV No. 76029). 13
According to petitioners-spouses, in Spouses Mercado v. China Banking, the Special
Seventh Division of the CA held that where the interest rate is potestative, the
entire interest is null and void and no interest is due.
On the other hand, in the case of Spouses Caraig v. The Ex-Officio Sheriff of RTC,
Batangas City, the then Ninth Division of the CA ruled that under the doctrine of
operative facts, no interest is due after the auction sale because the loan is paid in
kind by the auction sale, and interest shall commence to run again upon finality of
the judgment declaring the auction sale null and void. 14
The CA denied respondent banks Motion for Reconsideration for lack of merit. It
likewise found no merit in petitioners-spouses contention that no interest is due on
their principal loan obligation from the time of foreclosure until finality of the
judgment annulling the foreclosure sale. According to the CA:
x x x Notably, this Court disregarded the stipulated rate[s] of interest on the subject
promissory notes after finding that the same are iniquitous and exorbitant, and for
being violative of the principle of mutuality of contracts. Nevertheless, in Equitable
PCI Bank v. Ng Sheung Ngor, the Supreme Court ruled that because the escalation
clause was annulled, the principal amount of the loan was subject to the original or
stipulated interest rate of interest, and that upon maturity, the amount due was
subject to legal interest at the rate of 12% per annum. In this case, while we
similarly annulled the escalation clause contained in the promissory notes, this
Court opted not to impose the original rates of interest stipulated therein for being
excessive, the same being 17.5% to 27% per interest period.
Relevantly, the High Court held in Asian Cathay Finance and Leasing Corporation v.
Spouses Cesario Gravador and Norma De Vera, et. al. that stipulations authorizing
the imposition of iniquitous or unconscionable interest are contrary to morals, if not
against the law. x x x. The nullity of the stipulation on the usurious interest does
not, however, affect the lenders right to recover the principal of the loan. The debt
due is to be considered without the stipulation of the excessive interest. A legal
interest of 12% per annum will be added in place of the excessive interest formerly
imposed.
Following the foregoing rulings of the Supreme Court, it is clear that the imposition
by this Court of a 12% rate of interest per annum on the principal loan obligation of
[petitioners-spouses], computed from the time of default, is proper as it is
consistent with prevailing jurisprudence.
While the decisions of the Special Seventh Division and the Ninth Division of this
Court in CA-G.R. CV No. 75303 and in CA-G.R. No. 76029 are final and executory, the

same merely have persuasive effect but do not outweigh the decisions of the
Supreme Court which we are duty-bound to follow, conformably with the principle of
stare decisis.
The doctrine of stare decisis enjoins adherence to judicial precedents.1wphi1 It
requires courts in a country to follow the rule established in a decision of the
Supreme Court thereof. That decision becomes a judicial precedent to be followed in
subsequent cases by all courts in the land. The doctrine of stare decisis is based on
the principle that once a question of law has been examined and decided, it should
be deemed settled and closed to further argument. 15 (Emphasis supplied.)
Petitioners-spouses are now before us, reiterating their position that no interest
should be imposed on their loan, following the respective pronouncements of the CA
in the Caraig and Mercado Cases. Petitioners-spouses insist that "if the application
of the doctrine of operative facts is upheld, as applied in Caraig vs. Alday, x x x,
interest in the instant case would be computed only from the finality of judgment
declaring the foreclosure sale null and void. If Mercado vs. China Banking
Corporation x x x, applying by analogy the rule on void usurious interest to void
potestative interest rate, is further sustained, no interest is due when the
potestative interest rate stipulation is declared null and void, as in the instant
case.16
Our Ruling
We dismiss the appeal.
We cannot subscribe to the contention of petitioners-spouses that no interest should
be due on the loan they obtained from respondent bank, or that, at the very least,
interest should be computed only from the finality of the judgment declaring the
foreclosure sale null and void, on account of the exorbitant rate of interest imposed
on their loan.
It is clear from the contract of loan between petitioners-spouses and respondent
bank that petitioners-spouses, as borrowers, agreed to the payment of interest on
their loan obligation. That the rate of interest was subsequently declared illegal and
unconscionable does not entitle petitioners-spouses to stop payment of
interest.1wphi1 It should be emphasized that only the rate of interest was declared
void. The stipulation requiring petitioners-spouses to pay interest on their loan
remains valid and binding. They are, therefore, liable to pay interest from the time
they defaulted in payment until their loan is fully paid.
It is worth mentioning that both the RTC and the CA are one in saying that
"[petitioners-spouses] cannot be considered in default for their inability to pay the
arbitrary, illegal and unconscionable interest rates and penalty charges unilaterally
imposed by [respondent] bank."17 This is precisely the reason why the foreclosure
proceedings involving petitioners-spouses properties were invalidated. As pointed

out by the CA, "since the interest rates are null and void, [respondent] bank has no
right to foreclose [petitioners-spouses] properties and any foreclosure thereof is
illegal. x x x. Since there was no default yet, it is premature for [respondent] bank to
foreclose the properties subject of the real estate mortgage contract." 18
Thus, for the purpose of computing the amount of liability of petitioners-spouses,
they are considered in default from the date the Resolution of the Court in G.R. No.
194164 (Philippine National Bank v. Spouses Bayani H. Andal and Gracia G. Andal)
which is the appeal interposed by respondent bank to the Supreme Court from the
judgment of the CA became final and executory. Based on the records of G.R. No.
194164, the Court denied herein respondent banks appeal in a Resolution dated 10
January 2011. The Resolution became final and executory on 20 May 2011. 19
In addition, pursuant to Circular No. 799, series of 2013, issued by the Office of the
Governor of the Bangko Sentral ng Pilipinas on 21 June 2013, and in accordance
with the ruling of the Supreme Court in the recent case of Dario Nacar v. Gallery
Frames and/or Felipe Bordey, Jr., 20 effective 1 July 2013, the rate of interest for the
loan or forbearance of any money, goods or credits and the rate allowed in
judgments, in the absence of an express contract as to such rate of interest, shall
be six percent (6%) per annum. Accordingly, the rate of interest of 12% per annum
on petitioners-spouses obligation shall apply from 20 May 2011 the date of
default until 30 June 2013 only. From 1 July 2013 until fully paid, the legal rate of
6% per annum shall be applied to petitioners-spouses unpaid obligation.
IN VIEW OF THE FOREGOING, the Petition is DENIED and the Judgment of the Court
of Appeals in CA-G.R. CV No. 91250 is AFFIRMED with the MODIFICATION that the
12% interest per annum shall be applied from the date of default until 30 June 2013
only, after which date and until fully paid, the outstanding obligation of petitionersspouses shall earn interest at 6% per annum. Let the records of this case be
remanded to the trial court for the proper computation of the amount of liability of
petitioners Spouses Bayani H. Andal and Gracia G. Andal, in accordance with the
pronouncements of the Court herein and with due regard to the payments
previously made by petitioners-spouses.
SO ORDERED.
JOSE PORTUGAL PEREZ
Associate Justice
WE CONCUR:
ANTONIO T. CARPIO
Associate Justice

ARTURO D. BRION
Associate Justice

MARIANO C. DEL CASTILLO

Associate Justice

ROBERTO A. ABAD*
Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision were reached in consultation
before the case was assigned to the writer of the opinion of the Courts Division.
ANTONIO T. CARPIO
Associate Justice
Chairperson, Second Division
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairperson
s Attestation, it is hereby certified that the conclusions in the above Decision were
reached in consultation before the case was assigned to the writer of the opinion of
the Courts Division.
MA. LOURDES P. A. SERENO
Chief Justice

Footnotes
* Per Special Order No. 1619 dated 22 November 2013.
1

Rollo, pp. 23-46:

Id. at 48-65; Penned by Associate Justice Hakim S. Abdulwahid with Associate

Justices Normandie B. Pizarro and Ruben C. Ayson, concurring.
3

Id. at 18-21.

Id. at 48-51.

CA rollo, pp. 17-27; RTC Decision dated 6 July 2007.

Should be P2,800,000.00.

CA rollo, p. 27.

Id. at 22-27.

Rollo, p. 56.

10

Id. at 57-62.

11

CA rollo, pp. 192-195.

12

Rollo, pp. 88-101; Promulgated on 15 November 2005.

13

Id. at 103-115; Promulgated on 31 May 2007.

14

CA rollo, pp. 226-229; Resolution of the CA dated 13 October 2010 in CA-G.R. CV

No. 91250 denying respondent bank banks Motion for Reconsideration.
15

Id. at 228-229.

16

Rollo, p. 41.

17

Id. at 63.

18

Id.

19

Id. at 276.

20

G.R. No. 189871, 13 August 2013.

Republic of the Philippines

SUPREME COURT
Manila

SECOND DIVISION

G.R. No. 107569 November 8, 1994

PHILIPPINE NATIONAL BANK, petitioner,
vs.
COURT OF APPEALS, REMEDIOS JAYME-FERNANDEZ and AMADO
FERNANDEZ, respondents.
Vidad, Corpus & Associates for petitioner.
Remedios Jayme-Fernandez for privaate respondents.

PUNO, J.:
Petitioner bank seeks the review of the decision, dated October 15, 1992, of the
Court of Appeals 1 in CA G.R. CV No. 27195, the dispositive portion of which reads as
follows:
WHEREFORE, the judgment appealed from is hereby SET ASIDE and a new one is
entered ordering defendant-appellee PNB to re-apply the interest rate of 12% per
annum to plaintiffs-appellants' (referring to herein private respondents)
indebtedness and to accordingly take the appropriate charges from plaintiffsappellants' (private respondents') payment of P81,000.00 made on December 26,
1985. Any balance on the indebtedness should, likewise, be charged interest at the
rate of 12%per annum.
SO ORDERED.
The parties do not dispute the facts as laid down by respondent court in its
impugned decision, viz.:
On April 7, 1982, (private respondents) as owners of a NACIDA-registered
enterprise, obtained a loan under the Cottage Industry Guaranty Loan Fund (CIGLF)
from the Philippine National Bank (PNB) in the amount of Fifty Thousand
(P50,000.00) Pesos, as evidenced by a Credit Agreement. Under the Promissory
Note covering the loan, the loan was to be amortized over a period of three (3)
years to end on March 29, 1985, at twelve (12%) percent interest annually.
To secure the loan, (private respondents) executed a Real Estate Mortgage over a
1.5542-hectare parcel of unregistered agricultural land located at Cambang-ug,
Toledo City, which was appraised by the PNB at P1,062.52 and given a loan value of
P531.26 by the Bank. In addition, (private respondents) executed a Chattel

Mortgage over a thermo plastic-forming machine, which had an appraisal value of

P8,800 and a loan value of P4,400.00.
The Credit Agreement provided inter alia, that
(a) The BANK reserves the right to increase the interest rate within the limits
allowed by law at any time depending on whatever policy it may adopt in the
future; Provided, that the interest rate on this accommodation shall be
correspondingly decreased in the event that the applicable maximum interest is
reduced by law or by the Monetary Board. In either case, the adjustment in the
interest rate agreed upon shall take effect on the effectivity date of the increase or
decrease in the maximum interest rate.
The Promissory Note, in turn, authorized the PNB to raise the rate of interest, at any
time without notice, beyond the stipulated rate of 12% but only "within the limits
allowed by law."
The Real Estate Mortgage contract likewise provided that
(k) INCREASE OF INTEREST RATE: The rate of interest charged on the obligation
secured by this mortgage as well as the interest on the amount which may have
been advanced by the MORTGAGE, in accordance with the provision hereof, shall be
subject during the life of this contract to such an increase within the rate allowed by
law, as the Board of Directors of the MORTGAGEE may prescribe for its debtors.
On February 17, 1983, (private respondents) were granted an additional NACIDA
loan of Fifty Thousand (P50,000.00) Pesos by the PNB, for which (private
respondents) executed another Promissory Note, which was to mature on April 1,
1985. Other than the date of maturity, the second promissory note contained the
same terms and stipulations as the previous note. The parties likewise executed a
new Credit Agreement, changing the amount of the loan from P50,000.00 to
P100,000.00, but otherwise preserving the stipulations contained in the original
agreement.
As additional security for the loan, (private respondents) constituted another real
estate mortgage over 2 parcels of registered land, with a combined area of 311
square meters, located at Guadalupe, Cebu City. The land, upon which several
buildings are standing, was appraised by the PNB to have a value of P40,000.00 and
a loan value of P28,000.00.
In a letter dated August 1, 1984, the PNB informed (private respondents) "that the
interest rate of your CIGLF loan account with us is now 25% per annum plus a
penalty of 6% per annum on past dues." The PNB further increased this interest rate
to 30% on October 15, 1984; and to 42% on October 25, 1984.
The records show that as of December 1985, (private respondents) had an
outstanding principal account of P81,000.00 of which P18,523.14 was credited to

the principal, P57,488.89 to the interest, and the rest to penalty and other charges.
Thus, as of said date, the unpaid principal obligation of (private respondent)
amounted to P62,830.32.
Thereafter, (private respondents) exerted efforts to get the PNB to re-adopt the 12%
interest and to condone the present interest and penalties due; but to no
avail. 2 (Citations omitted.)
On December 15, 1987, private respondents filed a suit for specific performance
against petitioner PNB and the NACIDA. It was docketed as Civil Case No. CEB-5610,
and raffled to the Regional Trial Court, 7th Judicial Region, Cebu City, Br. 7. 3 Private
respondents prayed the trial court to order:
1. The PNB and NACIDA to issue in (private respondents') favor, a release of
mortgage;
2. The PNB to pay pecuniary consequential damages for the destruction of (private
respondents') enterprise;
3. The PNB to pay moral and exemplary damages as well as the costs of suit; and
4. Granting (private respondents') such other relief as may be found just and
equitable in the premises. 4
On February 26, 1990, the trial court dismissed private respondents' complaint in
Civil Case No. CEB-5610. On October 15, 1992, the Court of Appeals reversed the
dismissal with respect to petitioner bank, and disallowed the increases in interest
rates.
Petitioner bank now contends that "respondent Court of Appeals committed grave
error when it ruled (1) that the increase in interest rates are unauthorized; (2) that
the Credit Agreement and the Promissory Notes are not the law between the
parties; (3) that CB Circular No. 773 and CB Circular
No. 905 are not applicable; and (4) that private respondents are not estopped from
questioning the increase of rate interest made by petitioner." 5
The petition is bereft of merit.
In making the unilateral increases in interest rates, petitioner bank relied on the
escalation clause contained in their credit agreement which provides, as follows:
The Bank reserves the right to increase the interest rate within the limits allowed by
law at any time depending on whatever policy it may adopt in the future
and provided, that, the interest rate on this accommodation shall be
correspondingly decreased in the event that the applicable maximum interest rate
is reduced by law or by the Monetary Board. In either case, the adjustment in the

interest rate agreed upon shall take effect on the effectivity date of the increase or
decrease in maximum interest rate.
This clause is authorized by Section 2 of Presidential Decree (P.D.)
No. 1684 which further amended Act No. 2655 ("The Usury Law"), as amended,
thus:
Section 2. The same Act is hereby amended by adding a new section after Section
7, to read as follows:
Sec. 7-a. Parties to an agreement pertaining to a loan or forbearance of money,
goods or credits may stipulate that the rate of interest agreed upon may be
increased in the event that the applicable maximum rate of interest is increased by
law or by the Monetary Board; Provided, That such stipulation shall be valid only if
there is also a stipulation in the agreement that the rate of interest agreed upon
shall be reduced in the event that the applicable maximum rate of interest is
reduced by law or by the Monetary Board; Provided further, That the adjustment in
the rate of interest agreed upon shall take effect on or after the effectivity of the
increase or decrease in the maximum rate of interest.
Section 1 of P.D. No. 1684 also empowered the Central Bank's Monetary Board to
prescribe the maximum rates of interest for loans and certain forbearances.
Pursuant to such authority, the Monetary Board issued Central Bank (C.B.) Circular
No. 905, series of 1982, Section 5 of which provides:
Sec. 5. Section 1303 of the Manual of Regulations (for Banks and Other Financial
Intermediaries) is hereby amended to read as follows:
Sec. 1303. Interest and Other Charges. The rate of interest, including
commissions, premiums, fees and other charges, on any loan, or forbearance of any
money, goods or credits, regardless of maturity and whether secured or unsecured,
shall not be subject to any ceiling prescribed under or pursuant to the Usury Law, as
amended.
P.D. No. 1684 and C.B. Circular No. 905 no more than allow contracting parties to
stipulate freely regarding any subsequent adjustment in the interest rate that shall
accrue on a loan or forbearance of money, goods or credits. In fine, they can agree
to adjust, upward or downward, the interest previously stipulated. However,
contrary to the stubborn insistence of petitioner bank, the said law and circular did
not authorize either party to unilaterally raise the interest rate without the other's
consent.
It is basic that there can be no contract in the true sense in the absence of the
element of agreement, or of mutual assent of the parties. If this assent is wanting
on the part of the one who contracts, his act has no more efficacy than if it had
been done under duress or by a person of unsound mind. 6

Similarly, contract changes must be made with the consent of the contracting
parties. The minds of all the parties must meet as to the proposed modification,
especially when it affects an important aspect of the agreement. In the case of loan
contracts, it cannot be gainsaid that the rate of interest is always a vital component,
for it can make or break a capital venture. Thus, any change must
be mutually agreed upon, otherwise, it is bereft of any binding effect.
We cannot countenance petitioner bank's posturing that the escalation clause at
bench gives it unbridled right tounilaterally upwardly adjust the interest on private
respondents' loan. That would completely take away from private respondents the
right to assent to an important modification in their agreement, and would negate
the element of mutuality in contracts. In Philippine National Bank v. Court of
Appeals, et al., 196 SCRA 536, 544-545 (1991) we held
. . . The unilateral action of the PNB in increasing the interest rate on the private
respondent's loan violated the mutuality of contracts ordained in Article 1308 of the
Civil Code:
Art. 1308. The contract must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them.
In order that obligations arising from contracts may have the force or 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 . . . .
Hence, even assuming that
the . . . 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" . . . . Such a contract is a veritable
trap for the weaker party whom the courts of justice must protect against abuse and
imposition. (Citation omitted.)
Private respondents are not also estopped from assailing the unilateral increases in
interest rate made by petitioner bank. No one receiving a proposal to change a
contract to which he is a party, is obliged to answer the proposal, and his
silence per se cannot be construed as an acceptance. 7 In the case at bench, the
circumstances do not show that private respondents implicitly agreed to the
proposed increases in interest rate which by any standard were too sudden and too
stiff.

IN VIEW THEREOF, the instant petition is DENIED for lack of merit, and the decision
of the Court of Appeals in CA-G.R. CV No. 27195, dated October 15, 1992, is
AFFIRMED. Costs against petitioner.
SO ORDERED.
Narvasa, C.J., Regalado and Mendoza, JJ., concur.

#Footnotes
1 Through its Second Division, composed of Associate Justices Santiago M. Kapunan
(chairman andponente), Oscar M. Herrera, and Serafin V.C. Guingona.
2 Rollo, pp. 32-34.
3 Presided by Judge Generoso A. Juaban.
4 Rollo, p. 35.
5 Petition, p. 9; Rollo, p. 16.
6 See Mutual Life Ins. Co. of New York v. Young's Adm'rs, 23 L.Ed. 152; Noland Co. v.
Graver Tank & Mfg. Co., 301 F. 2d 43; Miller v. Miller, 134 F. 2d 583, 588; See
also Linne v. Ronkienen, 37 N.W. 2d 237, 239.
7 See Suitter v. Thompson, 358 P. 2d 267; Levy v. Baetjer, 81 A. 2d 644.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 113926 October 23, 1996
SECURITY BANK AND TRUST COMPANY, petitioner,
vs.
REGIONAL TRIAL COURT OF MAKATI, BRANCH 61, MAGTANGGOL EUSEBIO
and LEILA VENTURA,respondents.

HERMOSISIMA, JR. J.:p

Questions of law which are of first impression are sought to be resolved in this case:
Should the rate of interest on a loan or forbearance of money, goods or credits, as
stipulated in a contract, far in excess of the ceiling prescribed under or pursuant to
the Usury Law, prevail over Section 2 of Central Bank Circular No. 905 which
prescribes that the rate of interest thereof shall continue to be 12% per annum? Do
the Courts have the discretion to arbitrarily override stipulated interest rates of
promissory notes and stipulated interest rates of promissory notes and thereby
impose a 12% interest on the loans, in the absence of evidence justifying the
imposition of a higher rate?
This is a petition for review on certiorari for the purpose of assailing the decision of
Honorable Judge Fernando V. Gorospe of the Regional Trial Court of Makati, Branch
61, dated March 30, 1993, which found private respondent Eusebio liable to
petitioner for a sum of money. Interest was lowered by the court a quo from
23% per annum as agreed upon the parties to 12% per annum.
The undisputed facts are as follows:
On April 27, 1983, private respondent Magtanggol Eusebio executed Promissory
Note No. TL/74/178/83 in favor of petitioner Security Bank and Trust Co. (SBTC) in
the total amount of One Hundred Thousand Pesos (P100,000.00) payable in six
monthly installments with a stipulated interest of 23% per annum up to the fifth
installment. 1
On July 28, 1983, respondent Eusebio again executed Promissory Note No.
TL/74/1296/83 in favor of petitioner SBTC. Respondent bound himself to pay the
sum of One Hundred Thousand Pesos (P100,000.00) in six (6) monthly installments
plus 23% interest per annum. 2
Finally, another Promissory Note No. TL74/1491/83 was executed on August 31,
1983 in the amount of Sixty Five Thousand Pesos (P65,000.00). Respondent agreed
to pay this note in six (6) monthly installments plus interest at the rate of 23% per
annum. 3
On all the abovementioned promissory notes, private respondent Leila Ventura had
signed as co-maker. 4
Upon maturity which fell on the different dates below, the principal balance
remaining on the notes stood at:
1) PN No. TL/74/748/83 P16,665.00 as of September 1983.
2) PN No. TL/74/1296/83 P83,333.00 as of August 1983.
3) PN No. TL/74/1991/83 P65,000.00 as of August 1983.

Upon the failure and refusal of respondent Eusebio to pay the aforestated balance
payable, a collection case was filed in court by petitioner SBTC. 5 On March 30,
1993, the court a quo rendered a judgment in favor of petitioner SBTC, the
dispositive portion which reads:
WHEREFORE, premises above-considered, and plaintiff's claim having been duly
proven, judgment is hereby rendered in favor of plaintiff and as against defendant
Eusebio who is hereby ordered to:
1. Pay the sum of P16,655.00, plus interest of 12% per annum starting 27
September 1983, until fully paid;
2. Pay the sum of P83,333.00, plus interest of 12% per annum starting 28 August
1983, until fully paid;
3. Pay the sum of P65,000.00, plus interest of 12% per annum starting 31 August
1983, until fully paid;
4. Pay the sum equivalent to 20% of the total amount due and payable to plaintiff as
and by way of attorney's fees; and to
5. Pay the costs of this suit.
SO ORDERED.

On August 6, 1993, a motion for partial reconsideration was filed by petitioner SBTC
contending that:
(1) the interest rate agreed upon by the parties during the signing of the promissory
notes was 23%per annum;
(2) the interests awarded should be compounded quarterly from due date as
provided in the three (3) promissory notes;
(3) defendants Leila Ventura should likewise be held liable to pay the balance on the
promissory notes since she has signed as co-maker and as such, is liable jointly and
severally with defendant Eusebio without a need for demand upon her. 7
Consequently, an Order was issued by the court a quo denying the motion to grant
the rates of interest beyond 12% per annum; and holding defendant Leila Ventura
jointly and severally liable with co-defendants Eusebio.
Hence, this petition.
The sole issue to be settled in this petition is whether or not the 23% rate of
interest per annum agreed upon by petitioner bank and respondents is allowable
and not against the Usury Law.
We find merit in this petition.

From the examination of the records, it appears that indeed the agreed rate of
interest as stipulated on the three (3) promissory notes is 23% per annum. 8 The
applicable provision of law is the Central Bank Circular No. 905 which took effect on
December 22, 1982, particularly Sections 1 and 2 which state: 9
Sec. 1. The rate of interest, including commissions, premiums, fees and other
charges, on a loan or forbearance of any money, goods or credits, regardless of
maturity and whether secured or unsecured, that may be charged or collected by
any person, whether natural or judicial, shall not be subject to any ceiling prescribed
under or pursuant to the Usury Law, as amended.
Sec. 2. The rate of interest for the loan or forbearance of any money, goods or
credits and the rate allowed in judgments, in the absence of express contract as to
such rate of interest, shall continue to be twelve per cent (12%) per annum.
CB Circular 905 was issued by the Central Bank's Monetary Board pursuant to P.D.
1684 empowering them to prescribe the maximum rates of interest for loans and
certain forbearances, to wit:
Sec. 1. Section 1-a of Act No. 2655, as amended, is hereby amended to read as
follows:
Sec. 1-a. The Monetary Board is hereby authorized to prescribe the maximum rate
of interest for the loan or renewal thereof or the forbearance of any money, goods
or credits, and to change such rate or rates whenever warranted by prevailing
economic and social conditions: Provided, That changes in such rate or rates may
be effected gradually on scheduled dates announced in advance.
In the exercise of the authority herein granted, the Monetary Board may prescribe
higher maximum rates for loans of low priority, such as consumer loans or renewals
thereof as well as such loans made by pawnshops, finance companies and other
similar credit institutions although the rates prescribed for these institutions need
not necessarily be uniform. The Monetary Board is also authorized to prescribed
different maximum rate or rates for different types of borrowings, including deposits
and deposit substitutes, or loans of financial intermediaries. 10
The court has ruled in the case of Philippine National Bank v. Court of
Appeals 11 that:
P.D. No. 1684 and C.B. Circular No. 905 no more than allow contracting parties to
stipulate freely regarding any subsequent adjustment in the interest rate that shall
accrue on a loan or forbearance of money, goods or credits. In fine, they can agree
to adjust, upward or downward, the interest previously stipulated.
All the promissory notes were signed in 1983 and, therefore, were already covered
by CB Circular No. 905. Contrary to the claim of respondent court, this circular did

not repeal nor in anyway amend the Usury Law but simply suspended the latter's
effectivity.
Basic is the rule of statutory construction that when the law is clear and
unambiguous, the court is left with no alternative but to apply the same according
to its clear language. As we have held in the case of Quijano v.Development Bank of
the Philippines: 12
. . . We cannot see any room for interpretation or construction in the clear and
unambiguous language of the above-quoted provision of law. This Court had
steadfastly adhered to the doctrine that its first and fundamental duty is the
application of the law according to its express terms, interpretation being called for
only when such literal application is impossible. No process of interpretation or
construction need be resorted to where a provision of law peremptorily calls for
application. Where a requirement or condition is made in explicit and unambiguous
terms, no discretion is left to the judiciary. It must see to it that is mandate is
obeyed.
The rate of interest was agreed upon by the parties freely. Significantly, respondent
did not question that rate. It is not for respondent court a quo to change the
stipulations in the contract where it is not illegal. Furthermore, Article 1306 of the
New Civil Code provides that contracting parties may establish such stipulations,
clauses, terms and conditions as they may deem convenient, provided they are not
contrary to law, morals, good customs, public order, or public policy. We find no
valid reason for the respondent court a quo to impose a 12% rate of interest on the
principal balance owing to petitioner by respondent in the presence of a valid
stipulation. In a loan or forbearance of money, the interest due should be that
stipulated in writing, and in the absence thereof, the rate shall be 12% per
annum. 13 Hence, only in the absence of a stipulation can the court impose the 12%
rate of interest.
The promissory notes were signed by both parties voluntarily. Therefore, stipulations
therein are binding between them. Respondent Eusebio, likewise, did not question
any of the stipulations therein. In fact, in the Comment filed by respondent Eusebio
to this court, he chose not to question the decision and instead expressed his desire
to negotiate with the petitioner bank for "terms within which to settle his
obligation." 14
IN VIEW OF THE FOREGOING, the decision of the respondent court a quo, is hereby
AFFIRMED with the MODIFICATION that the rate of interest that should be imposed
be 23% per annum.
SO ORDERED.
Padilla, Bellosillo, Vitug and Kapunan, JJ., concur.

Footnotes
1 Annex C, Rollo, p. 29.
2 Annex D, Rollo, p. 31.
3 Annex E, Rollo, p. 33.
4 Annexes C,D,E.
5 Rollo, p. 35, Demand letters, Annexes F,G,H.
6 Rollo, p. 25.
7 Rollo, p. 39.
8 Rollo, pp. 29, 31, 32, Annexes "C", "D" & "E".
9 Official Gazette, Vol. 78, No. 52, p. 7336.
10 March 17, 1980.
11 238 SCRA 20.
12 35 SCRA 270.
13 Eastern Shipping Lines, Inc. v. Court of Appeals, 234 SCRA 78.
14 Rollo, p. 109.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 141811

November 15, 2001

FIRST METRO INVESTMENT CORPORATION, petitioner,

vs.
ESTE DEL SOL MOUNTAIN RESERVE, INC., VALENTIN S. DAEZ, JR., MANUEL
Q. SALIENTES, MA. ROCIO A. DE VEGA, ALEXANDER G. ASUNCION,
ALBERTO * M. LADORES, VICENTE M. DE VERA, JR., and FELIPE B.
SESE, respondents.
DE LEON, JR., J.:
Before us is a petition for review on certiorari of the Decision 1 of the Court of
Appeals2 dated November 8, 1999 in CA-G.R. CV No. 53328 reversing the
Decision3 of the Regional Trial Court of Pasig City, Branch 159 dated June 2, 1994 in
Civil Case No. 39224. Essentially, the Court of Appeals found and declared that the
fees provided for in the Underwriting and Consultancy Agreements executed by and
between petitioner First Metro Investment Corp. (FMIC) and respondent Este del Sol
Mountain Reserve, Inc. (Este del Sol) simultaneously with the Loan Agreement dated
January 31, 1978 were mere subterfuges to camouflage the usurious interest
charged by petitioner FMIC.
The facts of the case are as follows:
It appears that on January 31, 1978, petitioner FMIC granted respondent Este del Sol
a loan of Seven Million Three Hundred Eighty-Five Thousand Five Hundred Pesos
(P7,385,500.00) to finance the construction and development of the Este del Sol
Mountain Reserve, a sports/resort complex project located at Barrio Puray,
Montalban, Rizal.4
Under the terms of the Loan Agreement, the proceeds of the loan were to be
released on staggered basis. Interest on the loan was pegged at sixteen (16%)
percent per annum based on the diminishing balance. The loan was payable in
thirty-six (36) equal and consecutive monthly amortizations to commence at the
beginning of the thirteenth month from the date of the first release in accordance
with the Schedule of Amortization.5 In case of default, an acceleration clause was,
among others, provided and the amount due was made subject to a twenty (20%)
percent one-time penalty on the amount due and such amount shall bear interest at

the highest rate permitted by law from the date of default until full payment thereof
plus liquidated damages at the rate of two (2%) percent per month compounded
quarterly on the unpaid balance and accrued interests together with all the
penalties, fees, expenses or charges thereon until the unpaid balance is fully paid,
plus attorney's fees equivalent to twenty-five (25%) percent of the sum sought to be
recovered, which in no case shall be less than Twenty Thousand Pesos (P20,000.00)
if the services of a lawyer were hired.6
In accordance with the terms of the Loan Agreement, respondent Este del Sol
executed several documents7 as security for payment, among them, (a) a Real
Estate Mortgage dated January 31, 1978 over two (2) parcels of land being utilized
as the site of its development project with an area of approximately One Million
Twenty-Eight Thousand and Twenty-Nine (1,028,029) square meters and particularly
described in TCT Nos. N-24332 and N-24356 of the Register of Deeds of Rizal,
inclusive of all improvements, as well as all the machineries, equipment, furnishings
and furnitures existing thereon; and (b) individual Continuing Suretyship
agreements by co-respondents Valentin S. Daez, Jr., Manuel Q. Salientes, Ma. Rocio
A. De Vega, Alexander G. Asuncion, Alberto M. Ladores, Vicente M. De Vera, Jr. and
Felipe B. Sese, all dated February 2, 1978, to guarantee the payment of all the
obligations of respondent Este del Sol up to the aggregate sum of Seven Million Five
Hundred Thousand Pesos (P7,500,000.00) each. 8
Respondent Este del Sol also executed, as provided for by the Loan Agreement, an
Underwriting Agreement on January 31, 1978 whereby petitioner FMIC shall
underwrite on a best-efforts basis the public offering of One Hundred Twenty
Thousand (120,000) common shares of respondent Este del Sol's capital stock for a
one-time underwriting fee of Two Hundred Thousand Pesos (P200,000.00). In
addition to the underwriting fee, the Underwriting Agreement provided that for
supervising the public offering of the shares, respondent Este del Sol shall pay
petitioner FMIC an annual supervision fee of Two Hundred Thousand Pesos
(P200,000.00) per annum for a period of four (4) consecutive years. The
Underwriting Agreement also stipulated for the payment by respondent Este del Sol
to petitioner FMIC a consultancy fee of Three Hundred Thirty-Two Thousand Five
Hundred Pesos (P332,500.00) per annum for a period of four (4) consecutive years.
Simultaneous with the execution of and in accordance with the terms of the
Underwriting Agreement, a Consultancy Agreement was also executed on January
31, 1978 whereby respondent Este del Sol engaged the services of petitioner FMIC
for a fee as consultant to render general consultancy services. 9
In three (3) letters all dated February 22, 1978 petitioner billed respondent Este del
Sol for the amounts of [a] Two Hundred Thousand Pesos (P200,000.00) as the
underwriting fee of petitioner FMIC in connection with the public offering of the
common shares of stock of respondent Este del Sol; [b] One Million Three Hundred
Thirty Thousand Pesos (P1,330,000.00) as consultancy fee for a period of four (4)
years; and [c] Two Hundred Thousand Pesos (P200,000.00) as supervision fee for

the year beginning February, 1978, in accordance to the Underwriting

Agreement.10 The said amounts of fees were deemed paid by respondent Este del
Sol to petitioner FMIC which deducted the same from the first release of the loan.
Since respondent Este del Sol failed to meet the schedule of repayment in
accordance with a revised Schedule of Amortization, it appeared to have incurred a
total obligation of Twelve Million Six Hundred Seventy-Nine Thousand Six Hundred
Thirty Pesos and Ninety-Eight Centavos (P12,679,630.98) per the petitioner's
Statement of Account dated June 23, 1980,11 to wit:
STATEMENT OF ACCOUNT OF ESTE DEL SOL MOUNTAIN RESERVE,
INC.
AS OF JUNE 23, 1980
PARTICULARS

AMOUNT

Total amount due as of 11-22-78 per revised

amortization schedule dated 1-3-78

P7,999,631.4
2

Interest on P7,999,631.42 @ 16% p.a. from 11-2278 to 2-22-79 (92 days)

327,096.04
Balance

8,326,727.46

One time penalty of 20% of the entire unpaid

obligations under Section 6.02 (ii) of Loan
Agreement

1,665,345.49

Past due interest under Section 6.02 (iii) of loan

Agreement:
@ 19% p.a. from 2-22-79 to 11-30-79 (281 days)
@ 21% p.a. from 11-30-79 to 6-23-80 (206 days)

1,481,879.93
1,200,714.10

Other charges publication of extra judicial

foreclosure of REM made on 5-23-80 & 6-6-80

4,964.00

Total Amount Due and Collectible as of June 23,

1980

P12,679,630.
98

Accordingly, petitioner FMIC caused the extrajudicial foreclosure of the real estate
mortgage on June 23, 1980.12At the public auction, petitioner FMIC was the highest
bidder of the mortgaged properties for Nine Million Pesos (P9,000,000.00). The total
amount of Three Million One Hundred Eighty-Eight Thousand Six Hundred Thirty
Pesos and Seventy-Five Centavos (P3,188,630.75) was deducted therefrom, that is,
for the publication fee for the publication of the Sheriff's Notice of Sale, Four
Thousand Nine Hundred Sixty-Four Pesos (P4,964.00); for Sheriff's fees for

conducting the foreclosure proceedings, Fifteen Thousand Pesos (P15,000.00); and

for Attorney's fees, Three Million One Hundred Sixty-Eight Thousand Six Hundred
Sixty-Six Pesos and Seventy-Five Centavos (P3,168,666.75). The remaining balance
of Five Million Eight Hundred Eleven Thousand Three Hundred Sixty-Nine Pesos and
Twenty-Five Centavos (P5,811,369.25) was applied to interests and penalty charges
and partly against the principal, due as of June 23, 1980, thereby leaving a balance
of Six Million Eight Hundred Sixty-Three Thousand Two Hundred Ninety-Seven Pesos
and Seventy-Three Centavos (P6,863,297.73) on the principal amount of the loan as
of June 23, 1980.13
Failing to secure from the individual respondents, as sureties of the loan of
respondent Este del Sol by virtue of their continuing surety agreements, the
payment of the alleged deficiency balance, despite individual demands sent to each
of them,14 petitioner instituted on November 11, 1980 the instant collection
suit15 against the respondents to collect the alleged deficiency balance of Six Million
Eight Hundred Sixty-Three Thousand Two Hundred Ninety-Seven Pesos and SeventyThree Centavos (P6,863,297.73) plus interest thereon at twenty-one (21%) percent
per annum from June 24, 1980 until fully paid, and twenty-five (25%) percent
thereof as and for attorney's fees and costs.
In their Answer, the respondents sought the dismissal of the case and set up several
special and affirmative defenses, foremost of which is that the Underwriting and
Consultancy Agreements executed simultaneously with and as integral parts of the
Loan Agreement and which provided for the payment of Underwriting, Consultancy
and Supervision fees were in reality subterfuges resorted to by petitioner FMIC and
imposed upon respondent Este del Sol to camouflage the usurious interest being
charged by petitioner FMIC.16
The petitioner FMIC presented as its witnesses during the trial: Cesar Valenzuela, its
former Senior Vice-President, Felipe Neri, its Vice-President for Marketing, and
Dennis Aragon, an Account Manager of its Account Management Group, as well as
documentary evidence. On the other hand, co-respondents Vicente M. De Vera, Jr.
and Valentin S. Daez, Jr., and Perfecto Doroja, former Senior Manager and Assistant
Vice-President of FMIC, testified for the respondents.
After the trial, the trial court rendered its decision in favor of petitioner FMIC, the
dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of plaintiff and against
defendants, ordering defendants jointly and severally to pay to plaintiff the amount
of P6,863,297.73 plus 21% interest per annum, from June 24, 1980, until the entire
amount is fully paid, plus the amount equivalent to 25% of the total amount due, as
attorney's fees, plus costs of suit.
Defendants' counterclaims are dismissed, for lack of merit.

Finding the decision of the trial court unacceptable, respondents interposed an

appeal to the Court of Appeals. On November 8, 1999, the appellate court reversed
the challenged decision of the trial court. The appellate court found and declared
that the fees provided for in the Underwriting and Consultancy Agreements were
mere subterfuges to camouflage the excessively usurious interest charged by the
petitioner FMIC on the loan of respondent Este del Sol; and that the stipulated
penalties, liquidated damages and attorney's fees were "excessive, iniquitous,
unconscionable and revolting to the conscience," and declared that in lieu thereof,
the stipulated one time twenty (20%) percent penalty on the amount due and ten
(10%) percent of the amount due as attorney's fees would be reasonable and suffice
to compensate petitioner FMIC for those items. Thus, the appellate court dismissed
the complaint as against the individual respondents sureties and ordered petitioner
FMIC to pay or reimburse respondent Este del Sol the amount of Nine Hundred
Seventy-One Thousand Pesos (P971,000.00) representing the difference between
what is due to the petitioner and what is due to respondent Este del Sol, based on
the following computation:17
A: DUE TO THE [PETITIONER]

Principal of Loan

Add: 20% one-time

Penalty
Attorney's fees

P7,382,500.
00
1,476,500.0
0
P9,759,000.
900,000.00 00

Less: Proceeds of foreclosure Sale

9,000,000.0
0

Deficiency

P759,000.0
0

B. DUE TO [RESPONDENT ESTE DEL SOL]

Return of usurious interest in the

form of:
Underwriting fee
Supervision fee
Consultancy fee
Total amount due Este

P
200,000.00
200,000.00
1,330,000.0
0
P1,730,000.

00
The appellee is, therefore, obliged to return to the appellant Este del Sol the
difference of P971,000.00 or (P1,730,000.00 less P759,000.00).
Petitioner moved for reconsideration of the appellate court's adverse decision.
However, this was denied in a Resolution 18 dated February 9, 2000 of the appellate
court.
Hence, the instant petition anchored on the following assigned errors: 19
THE APPELLATE COURT HAS DECIDED QUESTIONS OF SUBSTANCE IN A WAY NOT IN
ACCORD WITH LAW AND WITH APPLICABLE DECISIONS OF THIS HONORABLE COURT
WHEN IT:
a] HELD THAT ALLEGEDLY THE UNDERWRITING AND CONSULTANCY AGREEMENTS
SHOULD NOT BE CONSIDERED SEPARATE AND DISTINCT FROM THE LOAN
AGREEMENT, AND INSTEAD, THEY SHOULD BE CONSIDERED AS A SINGLE
CONTRACT.
b] HELD THAT THE UNDERWRITING AND CONSULTANCY AGREEMENTS ARE "MERE
SUBTERFUGES TO CAMOUFLAGE THE USURIOUS INTEREST CHARGED" BY THE
PETITIONER.
c] REFUSED TO CONSIDER THE TESTIMONIES OF PETITIONER'S WITNESSES ON THE
SERVICES PERFORMED BY PETITIONER.
d] REFUSED TO CONSIDER THE FACT [i] THAT RESPONDENTS HAD WAIVED THEIR
RIGHT TO SEEK RECOVERY OF THE AMOUNTS THEY PAID TO PETITIONER, AND [ii]
THAT RESPONDENTS HAD ADMITTED THE VALIDITY OF THE UNDERWRITING AND
CONSULTANCY AGREEMENTS.
e] MADE AN ERRONEOUS COMPUTATION ON SUPPOSEDLY "WHAT IS DUE TO EACH
PARTY AFTER THE FORECLOSURE SALE", AS SHOWN IN PP. 34-35 OF THE ASSAILED
DECISION, EVEN GRANTING JUST FOR THE SAKE OF ARGUMENT THAT THE
APPELLATE COURT WAS CORRECT IN STIGMATIZING [i] THE PROVISIONS OF THE
LOAN AGREEMENT THAT REFER TO STIPULATED PENALTIES, LIQUIDATED DAMAGES
AND ATTORNEY'S FEES AS SUPPOSEDLY "EXCESSIVE, INIQUITOUS AND
UNCONSCIONABLE AND REVOLTING TO THE CONSCIENCE" AND [ii] THE
UNDERWRITING, SUPERVISION AND CONSULTANCY SERVICES AGREEMENT AS
SUPPOSEDLY "MERE SUBTERFUGES TO CAMOUFLAGE THE USURIOUS INTEREST
CHARGED" UPON THE RESPONDENT ESTE BY PETITIONER.
f] REFUSED TO CONSIDER THE FACT THAT RESPONDENT ESTE, AND THUS THE
INDIVIDUAL RESPONDENTS, ARE STILL OBLIGATED TO THE PETITIONER.

Petitioner essentially assails the factual findings and conclusion of the appellate
court that the Underwriting and Consultancy Agreements were executed to conceal
a usurious loan. Inquiry upon the veracity of the appellate court's factual findings
and conclusion is not the function of this Court for the Supreme Court is not a trier
of facts. Only when the factual findings of the trial court and the appellate court are
opposed to each other does this Court exercise its discretion to re-examine the
factual findings of both courts and weigh which, after considering the record of the
case, is more in accord with law and justice.
After a careful and thorough review of the record including the evidence adduced,
we find no reason to depart from the findings of the appellate court.
First, there is no merit to petitioner FMIC's contention that Central Bank Circular No.
905 which took effect on January 1, 1983 and removed the ceiling on interest rates
for secured and unsecured loans, regardless of maturity, should be applied
retroactively to a contract executed on January 31, 1978, as in the case at bar, that
is, while the Usury Law was in full force and effect. It is an elementary rule of
contracts that the laws, in force at the time the contract was made and entered
into, govern it.20 More significantly, Central Bank Circular No. 905 did not repeal nor
in any way amend the Usury Law but simply suspended the latter's effectivity. 21 The
illegality of usury is wholly the creature of legislation. A Central Bank Circular cannot
repeal a law. Only a law can repeal another law. 22 Thus, retroactive application of a
Central Bank Circular cannot, and should not, be presumed. 23
Second, when a contract between two (2) parties is evidenced by a written
instrument, such document is ordinarily the best evidence of the terms of the
contract. Courts only need to rely on the face of written contracts to determine the
intention of the parties. However, this rule is not without exception. 24 The form of
the contract is not conclusive for the law will not permit a usurious loan to hide itself
behind a legal form. Parol evidence is admissible to show that a written document
though legal in form was in fact a device to cover usury. If from a construction of the
whole transaction it becomes apparent that there exists a corrupt intention to
violate the Usury Law, the courts should and will permit no scheme, however
ingenious, to becloud the crime of usury. 25
In the instant case, several facts and circumstances taken altogether show that the
Underwriting and Consultancy Agreements were simply cloaks or devices to cover
an illegal scheme employed by petitioner FMIC to conceal and collect excessively
usurious interest, and these are:
a) The Underwriting and Consultancy Agreements are both dated January 31, 1978
which is the same date of the Loan Agreement. 26 Furthermore, under the
Underwriting Agreement payment of the supervision and consultancy fees was set
for a period of four (4) years27 to coincide ultimately with the term of the Loan
Agreement.28 This fact means that all the said agreements which were executed

simultaneously were set to mature or shall remain effective during the same period
of time.
b) The Loan Agreement dated January 31, 1978 stipulated for the execution and
delivery of an underwriting agreement29 and specifically mentioned that such
underwriting agreement is a condition precedent 30 for petitioner FMIC to extend the
loan to respondent Este del Sol, indicating and as admitted by petitioner FMIC's
employees,31 that such Underwriting Agreement is "part and parcel of the Loan
Agreement."32
c) Respondent Este del Sol was billed by petitioner on February 28, 1978 One Million
Three Hundred Thirty Thousand Pesos (P1,330,000.00) 33 as consultancy fee despite
the clear provision in the Consultancy Agreement that the said agreement is for
Three Hundred Thirty-Two Thousand Five Hundred Pesos (P332,500.00) per annum
for four (4) years and that only the first year consultancy fee shall be due upon
signing of the said consultancy agreement. 34
d) The Underwriting, Supervision and Consultancy fees in the amounts of Two
Hundred Thousand Pesos (P200,000.00), and one Million Three Hundred Thirty
Thousand Pesos (P1,330,000.00), respectively, were billed by petitioner to
respondent Este del Sol on February 22, 1978, 35 that is, on the same occasion of the
first partial release of the loan in the amount of Two Million Three Hundred EightyTwo Thousand Five Hundred Pesos (P2,382,500.00). 36 It is from this first partial
release of the loan that the said corresponding bills for Underwriting, Supervision
and Constantly fees were conducted and apparently paid, thus, reverting back to
petitioner FMIC the total amount of One Million Seven Hundred Thirty Thousand
Pesos (P1,730,000.00) as part of the amount loaned to respondent Este del Sol. 37
e) Petitioner FMIC was in fact unable to organize an underwriting/selling syndicate
to sell any share of stock of respondent Este del Sol and much less to supervise
such a syndicate, thus failing to comply with its obligation under the Underwriting
Agreement.38 Besides, there was really no need for an Underwriting Agreement
since respondent Este del Sol had its own licensed marketing arm to sell its shares
and all its shares have been sold through its marketing arm. 39
f) Petitioner FMIC failed to comply with its obligation under the Consultancy
Agreement,40 aside from the fact that there was no need for a Consultancy
Agreement, since respondent Este del Sol's officers appeared to be more competent
to be consultants in the development of the projected sports/resort complex. 41
All the foregoing established facts and circumstances clearly belie the contention of
petitioner FMIC that the Loan, Underwriting and Consultancy Agreements are
separate and independent transactions. The Underwriting and Consultancy
Agreements which were executed and delivered contemporaneously with the Loan
Agreement on January 31, 1978 were exacted by petitioner FMIC as essential
conditions for the grant of the loan. An apparently lawful loan is usurious when it is

intended that additional compensation for the loan be disguised by an ostensibly

unrelated contract providing for payment by the borrower for the lender's services
which are of little value or which are not in fact to be rendered, such as in the
instant case.42 In this connection, Article 1957 of the New Civil Code clearly provides
that:
Art. 1957. Contracts and stipulations, under any cloak or device whatever, intended
to circumvent the laws against usury shall be void. The borrower may recover in
accordance with the laws on usury.
In usurious loans, the entire obligation does not become void because of an
agreement for usurious interest; the unpaid principal debt still stands and remains
valid but the stipulation as to the usurious interest is void, consequently, the debt is
to be considered without stipulation as to the interest.43 The reason for this rule was
adequately explained in the case of Angel Jose Warehousing Co., Inc. v. Chelda
Enterprises44 where this Court held:
In simple loan with stipulation of usurious interest, the prestation of the debtor to
pay the principal debt, which is the cause of the contract (Article 1350, Civil Code),
is not illegal. The illegality lies only as to the prestation to pay the stipulated
interest; hence, being separable, the latter only should be deemed void, since it is
the only one that is illegal.
Thus, the nullity of the stipulation on the usurious interest does not affect the
lender's right to receive back the principal amount of the loan. With respect to the
debtor, the amount paid as interest under a usurious agreement is recoverable by
him, since the payment is deemed to have been made under restraint, rather than
voluntarily.45
This Court agrees with the factual findings and conclusion of the appellate court, to
wit:
We find the stipulated penalties, liquidated damages and attorney's fees, excessive,
iniquitous and unconscionable and revolting to the conscience as they hardly allow
the borrower any chance of survival in case of default. And true enough, ESTE
folded up when the appellee extrajudicially foreclosed on its (ESTE's) development
project and literally closed its offices as both the appellee and ESTE were at the
time holding office in the same building. Accordingly, we hold that 20% penalty on
the amount due and 10% of the proceeds of the foreclosure sale as attorney's fees
would suffice to compensate the appellee, especially so because there is no clear
showing that the appellee hired the services of counsel to effect the foreclosure, it
engaged counsel only when it was seeking the recovery of the alleged deficiency.
Attorney's fees as provided in penal clauses are in the nature of liquidated
damages. So long as such stipulation does not contravene any law, morals, or public
order, it is binding upon the parties. Nonetheless, courts are empowered to reduce

the amount of attorney's fees if the same is "iniquitous or

unconscionable."46 Articles 1229 and 2227 of the New Civil Code provide that:
Art. 1229. The judge shall equitably reduce the penalty when the principal
obligation has been partly or irregularly complied with by the debtor. Even if there
has been no performance, the penalty may also be reduced by the courts if it is
iniquitous or unconscionable.
Art. 2227. Liquidated damages, whether intended as an indemnity or a penalty,
shall be equitably reduced if they are iniquitous or unconscionable.
In the case at bar, the amount of Three Million One Hundred Eighty-Eight Thousand
Six Hundred Thirty Pesos and Seventy-Five Centavos (93,188,630.75) for the
stipulated attorney's fees equivalent to twenty-five (25%) percent of the alleged
amount due, as of the date of the auction sale on June 23, 1980, is manifestly
exorbitant and unconscionable. Accordingly, we agree with the appellate court that
a reduction of the attorney's fees to ten (10%) percent is appropriate and
reasonable under the facts and circumstances of this case.
Lastly, there is no merit to petitioner FMIC's contention that the appellate court
erred in awarding an amount allegedly not asked nor prayed for by respondents.
Whether the exact amount of the relief was not expressly prayed for is of no
moment for the reason that the relief was plainly warranted by the allegations of
the respondents as well as by the facts as found by the appellate court. A party is
entitled to as much relief as the facts may warrant 47
In view of all the foregoing, the Court is convinced that the appellate court
committed no reversible error in its challenged Decision.
WHEREFORE, the instant petition is hereby DENIED, and the assailed Decision of the
Court of Appeals is AFFIRMED. Costs against petitioner.
SO ORDERED.
Bellosillo, Mendoza, Quisumbing, and Buena, JJ., concur.

Footnotes
*

Also known in the Records as Albert.

Penned by Associate Justice Salvador J. Valdez, Jr., and concurred in by Associate

Justices Bernardo P. Abesamis and Renato C. Dacudao, Rollo, pp. 80-115.
2

Special Seventh Division.

Judge Willelmo C. Fortun, Rollo, pp. 79-114.

Records, pp. 307-333.

Records, pp. 320, 334-335

Records. pp. 320, 327, 333

Other required documents were (a) an Assignment of Receivables over all the
receivables of private respondent Este del Sol from the sales of all its shares/capital
stock; (b) an Assignment of Realty Rights and Interests over nine (9) parcels of land
with an aggregate area of approximately 767,074 square meters and more
particularly described in TCT Nos. N-1370, N-1372, N-1373, N 1374, N-1375, N-1376,
N-1377 and OCT No. 5615 of the Registry of Deeds for Rizal together with the land
subject of Tax Declaration No. 3956 of the Land Records of Montalban, Rizal; (c) an
Assignment of Subscription Rights, together with duly-executed irrevocable Voting
Trust Agreement.
8

Records, pp. 337-343

The Consultancy Agreement specifically provided that petitioner FMIC discharge

essentially four (4) functions, namely, (a) render professional counseling and
assistance on management issues and objectives; (b) render professional advice on
planning, structuring and arranging for specific projects; (c) make recommendations
to resolve unique and/or recurring problems; (d) render services on matters related
to the above functions which the client may from time to time require.
10

TSN, February 21, 1991, pp. 13-14; Records, pp. 371-373.

11

Records, p. 368.

12

Records, pp. 363-365.

13

Records, pp. 369-370.

14

TSN, September 10, 1990, pp. 9-10; Records, pp. 369, 374-387.

15

Civil Case No. 39224 filed before then Court of First Instance of Rizal and raffled
off to Branch XI thereof; Records, pp. 1-5.
16

Records, pp. 61-69.

17

Rollo, pp. 113-114.

18

Rollo, p. 116.

19

Rollo, pp. 33-36.

20

United States v. Diaz Conde and R. de Conde, 42 Phil. 767, 769 [1922].

21

Medel v. Court of Appeals, 299 SCRA 481, 489 [1998]; Security Bank and Trust
Company v. Regional Trial Court of Makati, Branch 61, 263 SCRA 483, 488 [1996].
22

Palanca v. Court of Appeals, 238 SCRA 593, 601 [1994]; Article 7, Civil Code of the
Philippines.
23

Article 4, Civil Code of the Philippines.

24

Section 3, Rule 130 of the Rules of Court

25

United States v Constantino Tan Quingco Chua, 39 Phil 552, 558 [1919].

26

Records, pp. 307, 344, 358.

27

Records, p. 348.

28

Records, p. 324.

29

Section 4.04 of Article IV "Covenants of the Borrower" of the Loan Agreement,

Records, p. 321.
30

Section 5.01 of Article V "Conditions of Lending" of the Loan Agreement, Records

pp. 322-323
31

TSNs', September 8, 1983, pp. 4-5; November 3, 1983, pp. 8-9; March 11, 1986,
pp. 4-5; April 20, 1989, pp. 6-7; July 1, 1991, pp. 13-14.
32

TSN, April 20, 1989, pp. 6-7.

33

Records, p. 372.

34

Records, p. 348.

35

Records, pp. 371-373

36

Records, p. 334

37

TSNs' February 7, 1991, pp. 11-12; February 21, 1991, pp. 15-16; July 1, 1991, pp.
36-38.
38

TSNs' January 11, 1990, pp. 11-13, 15; August 7, 1990, pp. 15-17; September 3,
1990, p. 4; July 1, 1991, pp. 36-38.
39

TSNs' January 11, 1990, p. 11; August 7, 1990, pp. 13-16.

40

TSNs' January 11, 1990, pp. 11-13, 15; August 7, 1990, pp. 15-17; September 3,
1990, p. 4; July 1, 1991, pp. 36-38.
41

TSN, February 7, 1991, p. 13.

42

81 ALR 2d 1282; Terry Trading Corporation v. Barsky, 292 P 474 [1930].

43

Private Development Corporation of the Philippines v. Intermediate Appellate

Court, 213 SCRA 282, 287 [1992]; 13 Cal Jur 3d[Rev], Part 2, Consumer and
Protection Laws 411.
44

23 SCRA 119, 124 [1968]; cited in Briones v. Cammayo, 41 SCRA 404, 4 10

[1971].
45

13 Cal Jur 3d [Rev], Part 2, Consumer and Protection Laws 416, 419.

46

Barons Marketing Corp. v. Court of Appeals, 286 SCRA 96, 108 [1998].

47

UBS Marketing Corporation v. The Honorable Special Third Division of the Court of
Appeals, et. al., G.R. No. 130328, May 31, 2000; Schenker v. Gemperle, 5 SCRA
1042, 1046 [1962]; Baguioro v. Barrios and Tupas Vda. De Atas, 77 Phil. 120, 123124 [1946].

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION

G.R. No. 131622 November 27, 1998

LETICIA Y. MEDEL, DR. RAFAEL MEDEL and SERVANDO FRANCO, petitioners,
vs.
COURT OF APPEALS, SPOUSES VERONICA R. GONZALES and DANILO G.
GONZALES, JR. doing lending business under the trade name and style
"GONZALES CREDIT ENTERPRISES", respondents.

PARDO, J.:
The case before the Court is a petition for review on certiorari, under Rule 45 of the
Revised Rules of Court, seeking to set aside the decision of the Court of
Appeals, 1 and its resolution denying reconsideration, 2 the dispositive portion of
which decision reads as follows:
WHEREFORE, the appealed judgment is hereby MODIFIED such that defendants are
hereby-ordered to pay the plaintiff: the sum of P500,000.00, plus 5.5% per month

interest and 2% service charge per annum effective July 23, 1986, plus 1% per
month of the total amount due and demandable as penalty charges effective August
23, 1986, until the entire amount is fully paid.
The award to the plaintiff of P50,000.00 as attorney's fees is affirmed. And so is the
imposition of costs against the defendants.
SO ORDERED.

The Court required the respondents to comment on the petition, 4 which was filed on
April 3, 1998, 5 and the petitioners to reply thereto, which was filed on May 29,
1998. 6 We now resolve to give due course to the petition and decide the case.
The facts of the case, as found by the Court of Appeals in its decision, which are
considered binding and conclusive on the parties herein, as the appeal is limited to
questions of law, are as follows:
On November 7, 1985, Servando Franco and Leticia Medel (hereafter Servando and
Leticia) obtained a loan from Veronica R. Gonzales (hereafter Veronica), who was
engaged in the money lending business under the name "Gonzales Credit
Enterprises", in the amount of P50,000.00, payable in two months. Veronica gave
only the amount of P47,000.00, to the borrowers, as she retained P3,000.00, as
advance interest for one month at 6% per month. Servando and Leticia executed a
promissory note for P50,000.00, to evidence the loan, payable on January 7, 1986.
On November 19, 1985, Servando and Liticia obtained from Veronica another loan in
the amount of P90,000.00, payable in two months, at 6% interest per month. They
executed a promissory note to evidence the loan, maturing on Janaury 19, 1986.
They received only P84,000.00, out of the proceeds of the loan.
On maturity of the two promissory notes, the borrowers failed to pay the
indebtedness.
On June 11, 1986, Servando and Leticia secured from Veronica still another loan in
the amout of P300,000.00, maturing in one month, secured by a real estate
mortgage over a property belonging to Leticia Makalintal Yaptinchay, who issued a
special power of attorney in favor of Leticia Medel, authorizing her to execute the
mortgage. Servando and Leticia executed a promissory note in favor of Veronica to
pay the sum of P300,000.00, after a month, or on July 11, 1986. However, only the
sum of P275.000.00, was given to them out of the proceeds of the loan.
Like the previous loans, Servando and Medel failed to pay the third loan on maturity.
On July 23, 1986, Servando and Leticia with the latter's husband, Dr. Rafael Medel,
consolidated all their previous unpaid loans totaling P440,000.00, and sought from
Veronica another loan in the amount of P60,000.00, bringing their indebtedness to a

total of P500,000.00, payable on August 23, 1986. They executed a promissory

note, reading as follows:
Baliwag, Bulacan July 23, 1986
Maturity Date Augsut 23, 1986
P500,000.00
FOR VALUE RECEIVED, I/WE jointly and severally promise to pay to the order of
VERONICA R. GONZALES doing business in the business style of GONZALES CREDIT
ENTERPRISES, Filipino, of legal age, married to Danilo G. Gonzales, Jr., of Baliwag,
Bulacan, the sum of PESOS . . . FIVE HUNDRED THOUSAND . . . (P500,000.00)
Philippine Currency with interest thereon at the rate of 5.5 PER CENT per month
plus 2% service charge per annum from date hereof until fully paid according to the
amortization schedule contained herein. (Emphasis supplied)
Payment will be made in full at the maturity date.
Should I/WE fail to pay any amortization or portion hereof when due, all the other
installments together with all interest accrued shall immediately be due and
payable and I/WE hereby agree to pay an additional amount equivalent to one per
cent (1%) per month of the amount due and demandable as penalty charges in the
form of liquidated damages until fully paid; and the furthersum of TWENTY FIVE PER
CENT (25%) thereof in full, without deductions as Attorney's Fee whether actually
incurred or not, of the total amount due and demandable, exclusive of costs and
judicial or extra judicial expenses. (Emphasis supplied).
I, WE further agree that in the event the present rate of interest on loan is increased
by law or the Central Bank of the Philippines, the holder shall have the option to
apply and collect the increased interest charges without notice although the original
interest have already been collected wholly or partially unless the contrary is
required by law.
It is also a special condition of this contract that the parties herein agree that the
amount of peso-obligation under this agreement is based on the present value of
the peso, and if there be any change in the value thereof, due to extraordinary
inflation or deflation, or any other cause or reason, then the peso-obligation herein
contracted shall be adjusted in accordance with the value of the peso then
prevailing at the time of the complete fulfillment of the obligation.
Demand and notice of dishonor waived. Holder may accept partial payments and
grant renewals of this note or extension of payments, reserving rights against each
and all indorsers and all parties to this note.

IN CASE OF JUDICIAL Execution of this obligation, or any part of it, the debtors waive
all his/their rights under the provisions of Section 12, Rule 39, of the Revised Rules
of Court.
On maturity of the loan, the borrowers failed to pay the indebtedness of
P500,000.00, plus interests and penalties, evidenced by the above-quoted
promissory note.
On February 20, 1990, Veronica R. Gonzales, joined by her husband Danilo G.
Gonzales, filed with the Regional Trial Court of Bulacan, Branch 16, at Malolos,
Bulacan, a complaint for collection of the full amount of the loan including interests
and other charges.
In his answer to the complaint filed with the trial court on April 5, 1990, defendant
Servando alleged that he did not obtain any loan from the plaintiffs; that it was
defendants Leticia and Dr. Rafael Medel who borrowed from the plaintiffs the sum of
P500,000.00, and actually received the amount and benefited therefrom; that the
loan was secured by a real estate mortgage executed in favor of the plaintiffs, and
that he (Servando Franco) signed the promissory note only as a witness.
In their separate answer filed on April 10, 1990, defendants Leticia and Rafael Medel
alleged that the loan was the transaction of Leticia Yaptinchay, who executed a
mortgage in favor of the plaintiffs over a parcel of real estate situated in San Juan,
Batangas; that the interest rate is excessive at 5.5% per month with additional
service charge of 2% per annum, and penalty charge of 1% per month; that the
stipulation for attorney's fees of 25% of the amount due is unconscionable, illegal
and excessive, and that substantial payments made were applied to interest,
penalties and other charges.
After due trial, the lower court declared that the due execution and genuineness of
the four promissory notes had been duly proved, and ruled that although the Usury
Law had been repealed, the interest charged by the plaintiffs on the loans was
unconscionable and "revolting to the conscience". Hence, the trial court applied "the
provision of the New [Civil] Code" that the "legal rate of interest for loan or
forbearance of money, goods or credit is 12% per annum." 7
Accordingly, on December 9, 1991, the trial court rendered judgment, the
dispositive portion of which reads as follows:
WHEREFORE, premises considered, judgment is hereby rendered, as follows:
1. Ordering the defendants Servando Franco and Leticia Medel, jointly and severally,
to pay plaintiffs the amount of P47,000.00 plus 12% interest per annum from
November 7, 1985 and 1% per month as penalty, until the entire amount is paid in
full.

2. Ordering the defendants Servando Franco and Leticia Y. Medel to plaintiffs, jointly
and severally the amount of P84,000.00 with 12% interest per annum and 1% per
cent per month as penalty from November 19, 1985 until the whole amount is fully
paid;
3. Ordering the defendants to pay the plaintiffs, jointly and severally, the amount of
P285,000.00 plus 12% interest per annum and 1% per month as penalty from July
11, 1986, until the whole amount is fully paid;
4. Ordering the defendants to pay plaintiffs, jointly and severally, the amount of
P50,000.00 as attorney's fees;
5. All counterclaims are hereby dismissed.
With costs against the defendants. 8
In due time, both plaintiffs and defendants appealed to the Court of Appeals.
In their appeal, plaintiffs-appellants argued that the promissory note, which
consolidated all the unpaid loans of the defendants, is the law that governs the
parties. They further argued that Circular No. 416 of the Central Bank prescribing
the rate of interest for loans or forbearance of money, goods or credit at 12% per
annum, applies only in the absence of a stipulation on interest rate, but not when
the parties agreed thereon.
The Court of Appeals sustained the plaintiffs-appellants' contention. It ruled that
"the Usury Law having become 'legally inexistent' with the promulgation by the
Central Bank in 1982 of Circular No. 905, the lender and borrower could agree on
any interest that may be charged on the loan". 9 The Court of Appeals further held
that "the imposition of 'an additional amount equivalent to 1% per month of the
amount due and demandable as penalty charges in the form of liquidated damages
until fully paid' was allowed by
law". 10
Accordingly, on March 21, 1997, the Court of Appeals promulgated its decision
reversing that of the Regional Trial Court, disposing as follows:
WHEREFORE, the appealed judgment is hereby MODIFIED such that defendants are
hereby ordered to pay the plaintiffs the sum of P500,000.00, plus 5.5% per month
interest and 2% service charge per annum effective July 23, 1986, plus 1% per
month of the total amount due and demandable as penalty charges effective August
24, 1986, until the entire amount is fully paid.
The award to the plaintiffs of P50,000.00 as attorney's fees is affirmed. And so is the
imposition of costs against the defendants.
SO ORDERED.

11

On April 15, 1997, defendants-appellants filed a motion for reconsideration of the

said decision. By resolution dated November 25, 1997, the Court of Appeals denied
the motion. 12
Hence, defendants interposed the present recourse via petition for review
on certiorari. 13
We find the petition meritorious.
Basically, the issue revolves on the validity of the interest rate stipulated upon.
Thus, the question presented is whether or not the stipulated rate of interest at
5.5% per month on the loan in the sum of P500,000.00, that plaintiffs extended to
the defendants is usurious. In other words, is the Usury Law still effective, or has it
been repealed by Central Bank Circular No. 905, adopted on December 22, 1982,
pursuant to its powers under P.D. No. 116, as amended by P.D. No. 1684?
We agree with petitioners that the stipulated rate of interest at 5.5% per month on
the P500,000.00 loan is excessive, iniquitous, unconscionable and
exorbitant. 13 However, we can not consider the rate "usurious" because this Court
has consistently held that Circular No. 905 of the Central Bank, adopted on
December 22, 1982, has expressly removed the interest ceilings prescribed by the
Usury Law 14 and that the Usury Law is now "legally inexistent". 15
In Security Bank and Trust Company vs. Regional Trial Court of Makati, Branch
61 16 the Court held that CB Circular No. 905 "did not repeal nor in anyway amend
the Usury Law but simply suspended the latter's effectivity." Indeed, we have held
that "a Central Bank Circular can not repeal a law. Only a law can repeal another
law." 17 In the recent case ofFlorendo vs. Court of Appeals 18, the Court reiterated
the ruling that "by virtue of CB Circular 905, the Usury Law has been rendered
ineffective". "Usury has been legally non-existent in our jurisdiction. Interest can
now be charged as lender and borrower may agree upon." 19
Nevertheless, we find the interest at 5.5% per month, or 66% per annum, stipulated
upon by the parties in the promissory note iniquitous or unconscionable, and,
hence, contrary to morals ("contra bonos mores"), if not against the law. 20 The
stipulation is void. 21 The courts shall reduce equitably liquidated damages, whether
intended as an indemnity or a penalty if they are iniquitous or unconscionable. 22
Consequently, the Court of Appeals erred in upholding the stipulation of the parties.
Rather, we agree with the trial court that, under the circumstances, interest at 12%
per annum, and an additional 1% a month penalty charge as liquidated damages
may be more reasonable.
WHEREFORE, the Court hereby REVERSES and SETS ASIDE the decision of the Court
of Appeals promulgated on March 21, 1997, and its resolution dated November 25,
1997. Instead, we render judgment REVIVING and AFFIRMING the decision dated

December 9, 1991, of the Regional Trial Court of Bulacan, Branch 16, Malolos,
Bulacan, in Civil Case No. 134-M-90, involving the same parties.
No pronouncement as to costs in this instance.
SO ORDERED.
Narvasa, C.J., Romero, Kapunan and Purisima, JJ., concur.
Footnotes
1 CA-G.R. CV No. 36096, promulgated on March 21, 1997.
2 Issued on November 25, 1995.
3 Rollo, pp. 22-78.
4 Resolution dated February 23, 1998, p. 44, Rollo.
5 Rollo, pp. 45-48.
6 Rollo, pp. 53-56.
7 Petition, Rollo, pp. 8-21, 17.
8 Rollo, pp. 36-A-43.
9 Citing Verdejo v. Court of Appeals, 157 SCRA 743 ( 1988); Liam Law v. Olympic
Sawmill Co., 129 SCRA 439 (1984).
10 Citing Article 2209, Civil Code, and State Investment House, Inc. v. Court of
Appeals, 198 SCRA 390.
11 Rollo, p. 27.
12 Rollo, p. 36.
13 Rollo, pp. 8-21.
13 Petition, pp. 15-17, Rollo.
14 People v. Dizon, 379 Phil. 687 [1996].
15 Liam Law v. Olympic Sawmill Co., 129 SCRA 439, 442.
16 331 Phil. 787 [1996].
17 Palanca v. Court of Appeals, 238 SCRA 593, 601 [1994].
18 333 Phil. 535 [1996].

19 People v. Dizon, supra, citing other cases.

20 Art. 1306, Civil Code.
21 Cf. Ibarra v. Aveyro, 37 Phil. 274; Almeda v. Court of Appeals, 256 SCRA 292
[1996].
22 Art. 2227, Civil Code; Joe's Radio and Electrical Supply v. Alto Electronics Corp.,
104 Phil. 33 [1958]; Social Security Commission v. Almeda, 168 SCRA 474 [1988];
Palmares v. Court of Appeals, G.R. No. 126490, March 31, 1998, reported in The
Court Systems Journal, Special Edition I, October, 1998, pp. 79-93.

Republic of the Philippines

SUPREME COURT
Manila
EN BANC
G.R. No. 192986

January 15, 2013

ADVOCATES FOR TRUTH IN LENDING, INC. and EDUARDO B.

OLAGUER, Petitioners,
vs.
BANGKO SENTRAL MONETARY BOARD, represented by its Chairman,
GOVERNOR ARMANDO M. TETANGCO, JR., and its incumbent members:
JUANITA D. AMATONG, ALFREDO C. ANTONIO, PETER FA VILA, NELLY F.
VILLAFUERTE, IGNACIO R. BUNYE and CESAR V. PURISIMA, Respondents.
DECISION
REYES, J.:
Petitioners, claiming that they are raising issues of transcendental importance to
the public, filed directly with this Court this Petition for Certiorari under Rule 65 of
the 1997 Rules of Court, seeking to declare that the Bangko Sentral ng Pilipinas
Monetary Board (BSP-MB), replacing the Central Bank Monetary Board (CB-MB) by
virtue of Republic Act (R.A.) No. 7653, has no authority to continue enforcing Central
Bank Circular No. 905,1 issued by the CB-MB in 1982, which "suspended" Act No.
2655, or the Usury Law of 1916.
Factual Antecedents
Petitioner "Advocates for Truth in Lending, Inc." (AFTIL) is a non-profit, non-stock
corporation organized to engage in pro bono concerns and activities relating to
money lending issues. It was incorporated on July 9, 2010, 2 and a month later, it
filed this petition, joined by its founder and president, Eduardo B. Olaguer, suing as
a taxpayer and a citizen.
R.A. No. 265, which created the Central Bank (CB) of the Philippines on June 15,
1948, empowered the CB-MB to, among others, set the maximum interest rates
which banks may charge for all types of loans and other credit operations, within
limits prescribed by the Usury Law. Section 109 of R.A. No. 265 reads:
Sec. 109. Interest Rates, Commissions and Charges. The Monetary Board may fix
the maximum rates of interest which banks may pay on deposits and on other
obligations.
The Monetary Board may, within the limits prescribed in the Usury Law fix the
maximum rates of interest which banks may charge for different types of loans and

for any other credit operations, or may fix the maximum differences which may
exist between the interest or rediscount rates of the Central Bank and the rates
which the banks may charge their customers if the respective credit documents are
not to lose their eligibility for rediscount or advances in the Central Bank.
Any modifications in the maximum interest rates permitted for the borrowing or
lending operations of the banks shall apply only to future operations and not to
those made prior to the date on which the modification becomes effective.
In order to avoid possible evasion of maximum interest rates set by the Monetary
Board, the Board may also fix the maximum rates that banks may pay to or collect
from their customers in the form of commissions, discounts, charges, fees or
payments of any sort. (Underlining ours)
On March 17, 1980, the Usury Law was amended by Presidential Decree (P.D.) No.
1684, giving the CB-MB authority to prescribe different maximum rates of interest
which may be imposed for a loan or renewal thereof or the forbearance of any
money, goods or credits, provided that the changes are effected gradually and
announced in advance. Thus, Section 1-a of Act No. 2655 now reads:
Sec. 1-a. The Monetary Board is hereby authorized to prescribe the maximum rate
or rates of interest for the loan or renewal thereof or the forbearance of any money,
goods or credits, and to change such rate or rates whenever warranted by
prevailing economic and social conditions: Provided, That changes in such rate or
rates may be effected gradually on scheduled dates announced in advance.
In the exercise of the authority herein granted the Monetary Board may prescribe
higher maximum rates for loans of low priority, such as consumer loans or renewals
thereof as well as such loans made by pawnshops, finance companies and other
similar credit institutions although the rates prescribed for these institutions need
not necessarily be uniform. The Monetary Board is also authorized to prescribe
different maximum rate or rates for different types of borrowings, including deposits
and deposit substitutes, or loans of financial intermediaries. (Underlining and
emphasis ours)
In its Resolution No. 2224 dated December 3, 1982, 3 the CB-MB issued CB Circular
No. 905, Series of 1982, effective on January 1, 1983. Section 1 of the Circular,
under its General Provisions, removed the ceilings on interest rates on loans or
forbearance of any money, goods or credits, to wit:
Sec. 1. The rate of interest, including commissions, premiums, fees and other
charges, on a loan or forbearance of any money, goods, or credits, regardless of
maturity and whether secured or unsecured, that may be charged or collected by
any person, whether natural or juridical, shall not be subject to any ceiling
prescribed under or pursuant to the Usury Law, as amended. (Underscoring and
emphasis ours)

The Circular then went on to amend Books I to IV of the CBs "Manual of Regulations
for Banks and Other Financial Intermediaries" (Manual of Regulations) by removing
the applicable ceilings on specific interest rates. Thus, Sections 5, 9 and 10 of CB
Circular No. 905 amended Book I, Subsections 1303, 1349, 1388.1 of the Manual of
Regulations, by removing the ceilings for interest and other charges, commissions,
premiums, and fees applicable to commercial banks; Sections 12 and 17 removed
the interest ceilings for thrift banks (Book II, Subsections 2303, 2349); Sections 19
and 21 removed the ceilings applicable to rural banks (Book III, Subsection 3152.3c); and, Sections 26, 28, 30 and 32 removed the ceilings for non-bank financial
intermediaries (Book IV, Subsections 4303Q.1 to 4303Q.9, 4303N.1, 4303P). 4
On June 14, 1993, President Fidel V. Ramos signed into law R.A. No. 7653
establishing the Bangko Sentral ng Pilipinas (BSP) to replace the CB. The repealing
clause thereof, Section 135, reads:
Sec. 135. Repealing Clause. Except as may be provided for in Sections 46 and
132 of this Act, Republic Act No. 265, as amended, the provisions of any other law,
special charters, rule or regulation issued pursuant to said Republic Act No. 265, as
amended, or parts thereof, which may be inconsistent with the provisions of this Act
are hereby repealed. Presidential Decree No. 1792 is likewise repealed.
Petition for Certiorari
To justify their skipping the hierarchy of courts and going directly to this Court to
secure a writ of certiorari, petitioners contend that the transcendental importance of
their Petition can readily be seen in the issues raised therein, to wit:
a) Whether under R.A. No. 265 and/or P.D. No. 1684, the CB-MB had the statutory or
constitutional authority to prescribe the maximum rates of interest for all kinds of
credit transactions and forbearance of money, goods or credit beyond the limits
prescribed in the Usury Law;
b) If so, whether the CB-MB exceeded its authority when it issued CB Circular No.
905, which removed all interest ceilings and thus suspended Act No. 2655 as
regards usurious interest rates;
c) Whether under R.A. No. 7653, the new BSP-MB may continue to enforce CB
Circular No. 905.5
Petitioners attached to their petition copies of several Senate Bills and Resolutions
of the 10th Congress, which held its sessions from 1995 to 1998, calling for
investigations by the Senate Committee on Banks and Financial Institutions into
alleged unconscionable commercial rates of interest imposed by these entities.
Senate Bill (SB) Nos. 376 and 1860,7 filed by Senator Vicente C. Sotto III and the late
Senator Blas F. Ople, respectively, sought to amend Act No. 2655 by fixing the rates
of interest on loans and forbearance of credit; Philippine Senate Resolution (SR) No.

1053,8 10739 and 1102,10 filed by Senators Ramon B. Magsaysay, Jr., Gregorio B.
Honasan and Franklin M. Drilon, respectively, urged the aforesaid Senate Committee
to investigate ways to curb the high commercial interest rates then obtaining in the
country; Senator Ernesto Maceda filed SB No. 1151 to prohibit the collection of more
than two months of advance interest on any loan of money; and Senator Raul Roco
filed SR No. 114411 seeking an investigation into an alleged cartel of commercial
banks, called "Club 1821", reportedly behind the regime of high interest rates. The
petitioners also attached news clippings 12 showing that in February 1998 the banks
prime lending rates, or interests on loans to their best borrowers, ranged from 26%
to 31%.
Petitioners contend that under Section 1-a of Act No. 2655, as amended by P.D. No.
1684, the CB-MB was authorized only to prescribe or set the maximum rates of
interest for a loan or renewal thereof or for the forbearance of any money, goods or
credits, and to change such rates whenever warranted by prevailing economic and
social conditions, the changes to be effected gradually and on scheduled dates; that
nothing in P.D. No. 1684 authorized the CB-MB to lift or suspend the limits of interest
on all credit transactions, when it issued CB Circular No. 905. They further insist that
under Section 109 of R.A. No. 265, the authority of the CB-MB was clearly only to fix
the banks maximum rates of interest, but always within the limits prescribed by the
Usury Law.
Thus, according to petitioners, CB Circular No. 905, which was promulgated without
the benefit of any prior public hearing, is void because it violated Article 5 of the
New Civil Code, which provides that "Acts executed against the provisions of
mandatory or prohibitory laws shall be void, except when the law itself authorizes
their validity."
They further claim that just weeks after the issuance of CB Circular No. 905, the
benchmark 91-day Treasury bills (T-bills),13 then known as "Jobo" bills14 shot up to
40% per annum, as a result. The banks immediately followed suit and re-priced their
loans to rates which were even higher than those of the "Jobo" bills. Petitioners thus
assert that CB Circular No. 905 is also unconstitutional in light of Section 1 of the Bill
of Rights, which commands that "no person shall be deprived of life, liberty or
property without due process of law, nor shall any person be denied the equal
protection of the laws."
Finally, petitioners point out that R.A. No. 7653 did not re-enact a provision similar
to Section 109 of R.A. No. 265, and therefore, in view of the repealing clause in
Section 135 of R.A. No. 7653, the BSP-MB has been stripped of the power either to
prescribe the maximum rates of interest which banks may charge for different kinds
of loans and credit transactions, or to suspend Act No. 2655 and continue enforcing
CB Circular No. 905.
Ruling

The petition must fail.

A. The Petition is procedurally infirm.
The decision on whether or not to accept a petition for certiorari, as well as to grant
due course thereto, is addressed to the sound discretion of the court. 15 A petition for
certiorari being an extraordinary remedy, the party seeking to avail of the same
must strictly observe the procedural rules laid down by law, and non-observance
thereof may not be brushed aside as mere technicality. 16
As provided in Section 1 of Rule 65, a writ of certiorari is directed against a tribunal
exercising judicial or quasi-judicial functions. 17 Judicial functions are exercised by a
body or officer clothed with authority to determine what the law is and what the
legal rights of the parties are with respect to the matter in controversy. Quasijudicial function is a term that applies to the action or discretion of public
administrative officers or bodies given the authority to investigate facts or ascertain
the existence of facts, hold hearings, and draw conclusions from them as a basis for
their official action using discretion of a judicial nature. 18
The CB-MB (now BSP-MB) was created to perform executive functions with respect
to the establishment, operation or liquidation of banking and credit institutions, and
branches and agencies thereof. 19 It does not perform judicial or quasi-judicial
functions. Certainly, the issuance of CB Circular No. 905 was done in the exercise of
an executive function. Certiorari will not lie in the instant case. 20
B. Petitioners have no locus standi to file the Petition
Locus standi is defined as "a right of appearance in a court of justice on a given
question." In private suits, Section 2, Rule 3 of the 1997 Rules of Civil Procedure
provides that "every action must be prosecuted or defended in the name of the real
party in interest," who is "the party who stands to be benefited or injured by the
judgment in the suit or the party entitled to the avails of the suit." Succinctly put, a
partys standing is based on his own right to the relief sought. 21
Even in public interest cases such as this petition, the Court has generally adopted
the "direct injury" test that the person who impugns the validity of a statute must
have "a personal and substantial interest in the case such that he has sustained, or
will sustain direct injury as a result." 22 Thus, while petitioners assert a public right to
assail CB Circular No. 905 as an illegal executive action, it is nonetheless required of
them to make out a sufficient interest in the vindication of the public order and the
securing of relief. It is significant that in this petition, the petitioners do not allege
that they sustained any personal injury from the issuance of CB Circular No. 905.
Petitioners also do not claim that public funds were being misused in the
enforcement of CB Circular No. 905. In Kilosbayan, Inc. v. Morato, 23 involving the online lottery contract of the PCSO, there was no allegation that public funds were

being misspent, which according to the Court would have made the action a public
one, "and justify relaxation of the requirement that an action must be prosecuted in
the name of the real party-in-interest." The Court held, moreover, that the status of
Kilosbayan as a peoples organization did not give it the requisite personality to
question the validity of the contract. Thus:
Petitioners do not in fact show what particularized interest they have for bringing
this suit. It does not detract from the high regard for petitioners as civic leaders to
say that their interest falls short of that required to maintain an action under the
Rule 3, Sec. 2.24
C. The Petition raises no issues of transcendental importance.
In the 1993 case of Joya v. Presidential Commission on Good Government, 25 it was
held that no question involving the constitutionality or validity of a law or
governmental act may be heard and decided by the court unless there is
compliance with the legal requisites for judicial inquiry, namely: (a) that the
question must be raised by the proper party; (b) that there must be an actual case
or controversy; (c) that the question must be raised at the earliest possible
opportunity; and (d) that the decision on the constitutional or legal question must
be necessary to the determination of the case itself.
In Prof. David v. Pres. Macapagal-Arroyo, 26 the Court summarized the requirements
before taxpayers, voters, concerned citizens, and legislators can be accorded a
standing to sue, viz:
(1) the cases involve constitutional issues;
(2) for taxpayers, there must be a claim of illegal disbursement of public funds or
that the tax measure is unconstitutional;
(3) for voters, there must be a showing of obvious interest in the validity of the
election law in question;
(4) for concerned citizens, there must be a showing that the issues raised are of
transcendental importance which must be settled early; and
(5) for legislators, there must be a claim that the official action complained of
infringes upon their prerogatives as legislators.
While the Court may have shown in recent decisions a certain toughening in its
attitude concerning the question of legal standing, it has nonetheless always made
an exception where the transcendental importance of the issues has been
established, notwithstanding the petitioners failure to show a direct injury. 27 In
CREBA v. ERC,28the Court set out the following instructive guides as determinants on
whether a matter is of transcendental importance, namely: (1) the character of the
funds or other assets involved in the case; (2) the presence of a clear case of

disregard of a constitutional or statutory prohibition by the public respondent

agency or instrumentality of the government; and (3) the lack of any other party
with a more direct and specific interest in the questions being raised. Further, the
Court stated in Anak Mindanao Party-List Group v. The Executive Secretary 29 that the
rule on standing will not be waived where these determinants are not established.
In the instant case, there is no allegation of misuse of public funds in the
implementation of CB Circular No. 905. Neither were borrowers who were actually
affected by the suspension of the Usury Law joined in this petition. Absent any
showing of transcendental importance, the petition must fail.
More importantly, the Court notes that the instant petition adverted to the regime of
high interest rates which obtained at least 15 years ago, when the banks prime
lending rates ranged from 26% to 31%,30 or even 29 years ago, when the 91-day
Jobo bills reached 40% per annum. In contrast, according to the BSP, in the first two
(2) months of 2012 the bank lending rates averaged 5.91%, which implies that the
banks prime lending rates were lower; moreover, deposit interests on savings and
long-term deposits have also gone very low, averaging 1.75% and 1.62%,
respectively.31
Judging from the most recent auctions of T-bills, the savings rates must be
approaching 0%.1wphi1 In the auctions held on November 12, 2012, the rates of 3month, 6-month and 1-year T-bills have dropped to 0.150%, 0.450% and 0.680%,
respectively.32 According to Manila Bulletin, this very low interest regime has been
attributed to "high liquidity and strong investor demand amid positive economic
indicators of the country."33
While the Court acknowledges that cases of transcendental importance demand
that they be settled promptly and definitely, brushing aside, if we must,
technicalities of procedure,34 the delay of at least 15 years in the filing of the instant
petition has actually rendered moot and academic the issues it now raises.
For its part, BSP-MB maintains that the petitioners allegations of constitutional and
statutory violations of CB Circular No. 905 are really mere challenges made by
petitioners concerning the wisdom of the Circular. It explains that it was in view of
the global economic downturn in the early 1980s that the executive department
through the CB-MB had to formulate policies to achieve economic recovery, and
among these policies was the establishment of a market-oriented interest rate
structure which would require the removal of the government-imposed interest rate
ceilings.35
D. The CB-MB merely suspended the effectivity of the Usury Law when it issued CB
Circular No. 905.
The power of the CB to effectively suspend the Usury Law pursuant to P.D. No. 1684
has long been recognized and upheld in many cases. As the Court explained in the

landmark case of Medel v. CA,36 citing several cases, CB Circular No. 905 "did not
repeal nor in anyway amend the Usury Law but simply suspended the latters
effectivity;"37 that "a CB Circular cannot repeal a law, [for] only a law can repeal
another law;"38 that "by virtue of CB Circular No. 905, the Usury Law has been
rendered ineffective;"39 and "Usury has been legally non-existent in our jurisdiction.
Interest can now be charged as lender and borrower may agree upon." 40
In First Metro Investment Corp. v. Este Del Sol Mountain Reserve, Inc. 41 cited in DBP
v. Perez,42 we also belied the contention that the CB was engaged in self-legislation.
Thus:
Central Bank Circular No. 905 did not repeal nor in any way amend the Usury Law
but simply suspended the latters effectivity. The illegality of usury is wholly the
creature of legislation. A Central Bank Circular cannot repeal a law. Only a law can
repeal another law. x x x.43
In PNB v. Court of Appeals,44 an escalation clause in a loan agreement authorized
the PNB to unilaterally increase the rate of interest to 25% per annum, plus a
penalty of 6% per annum on past dues, then to 30% on October 15, 1984, and to
42% on October 25, 1984. The Supreme Court invalidated the rate increases made
by the PNB and upheld the 12% interest imposed by the CA, in this wise:
P.D. No. 1684 and C.B. Circular No. 905 no more than allow contracting parties to
stipulate freely regarding any subsequent adjustment in the interest rate that shall
accrue on a loan or forbearance of money, goods or credits. In fine, they can agree
to adjust, upward or downward, the interest previously stipulated. x x x. 45
Thus, according to the Court, by lifting the interest ceiling, CB Circular No. 905
merely upheld the parties freedom of contract to agree freely on the rate of
interest. It cited Article 1306 of the New Civil Code, under which the contracting
parties may establish such stipulations, clauses, terms and conditions as they may
deem convenient, provided they are not contrary to law, morals, good customs,
public order, or public policy.
E. The BSP-MB has authority to enforce CB Circular No. 905.
Section 1 of CB Circular No. 905 provides that "The rate of interest, including
commissions, premiums, fees and other charges, on a loan or forbearance of any
money, goods, or credits, regardless of maturity and whether secured or unsecured,
that may be charged or collected by any person, whether natural or juridical, shall
not be subject to any ceiling prescribed under or pursuant to the Usury Law, as
amended." It does not purport to suspend the Usury Law only as it applies to banks,
but to all lenders.
Petitioners contend that, granting that the CB had power to "suspend" the Usury
Law, the new BSP-MB did not retain this power of its predecessor, in view of Section

135 of R.A. No. 7653, which expressly repealed R.A. No. 265. The petitioners point
out that R.A. No. 7653 did not reenact a provision similar to Section 109 of R.A. No.
265.
A closer perusal shows that Section 109 of R.A. No. 265 covered only loans
extended by banks, whereas under Section 1-a of the Usury Law, as amended, the
BSP-MB may prescribe the maximum rate or rates of interest for all loans or
renewals thereof or the forbearance of any money, goods or credits, including those
for loans of low priority such as consumer loans, as well as such loans made by
pawnshops, finance companies and similar credit institutions. It even authorizes the
BSP-MB to prescribe different maximum rate or rates for different types of
borrowings, including deposits and deposit substitutes, or loans of financial
intermediaries.
Act No. 2655, an earlier law, is much broader in scope, whereas R.A. No. 265, now
R.A. No. 7653, merely supplemented it as it concerns loans by banks and other
financial institutions. Had R.A. No. 7653 been intended to repeal Section 1-a of Act
No. 2655, it would have so stated in unequivocal terms.
Moreover, the rule is settled that repeals by implication are not favored, because
laws are presumed to be passed with deliberation and full knowledge of all laws
existing pertaining to the subject.46 An implied repeal is predicated upon the
condition that a substantial conflict or repugnancy is found between the new and
prior laws. Thus, in the absence of an express repeal, a subsequent law cannot be
construed as repealing a prior law unless an irreconcilable inconsistency and
repugnancy exists in the terms of the new and old laws. 47 We find no such conflict
between the provisions of Act 2655 and R.A. No. 7653.
F. The lifting of the ceilings for interest rates does not authorize stipulations
charging excessive, unconscionable, and iniquitous interest.
It is settled that nothing in CB Circular No. 905 grants lenders a carte blanche
authority to raise interest rates to levels which will either enslave their borrowers or
lead to a hemorrhaging of their assets.48 As held in Castro v. Tan:49
The imposition of an unconscionable rate of interest on a money debt, even if
knowingly and voluntarily assumed, is immoral and unjust. It is tantamount to a
repugnant spoliation and an iniquitous deprivation of property, repulsive to the
common sense of man. It has no support in law, in principles of justice, or in the
human conscience nor is there any reason whatsoever which may justify such
imposition as righteous and as one that may be sustained within the sphere of
public or private morals.50
Stipulations authorizing iniquitous or unconscionable interests have been invariably
struck down for being contrary to morals, if not against the law. 51 Indeed, under
Article 1409 of the Civil Code, these contracts are deemed inexistent and void ab

initio, and therefore cannot be ratified, nor may the right to set up their illegality as
a defense be waived.
Nonetheless, the nullity of the stipulation of usurious interest does not affect the
lenders right to recover the principal of a loan, nor affect the other terms
thereof.52 Thus, in a usurious loan with mortgage, the right to foreclose the
mortgage subsists, and this right can be exercised by the creditor upon failure by
the debtor to pay the debt due. The debt due is considered as without the stipulated
excessive interest, and a legal interest of 12% per annum will be added in place of
the excessive interest formerly imposed,53following the guidelines laid down in the
landmark case of Eastern Shipping Lines, Inc. v. Court of Appeals, 54 regarding the
manner of computing legal interest:
II. With regard particularly to an award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as the accrual thereof, is
imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of
money, i.e., a loan or forbearance of money, the interest due should be that which
may have been stipulated in writing. Furthermore, the interest due shall itself earn
legal interest from the time it is judicially demanded. In the absence of stipulation,
the rate of interest shall be 12% per annum to be computed from default, i.e., from
judicial or extrajudicial demand under and subject to the provisions of Article 1169
of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached,
an interest on the amount of damages awarded may be imposed at the discretion of
the court at the rate of 6% per annum. No interest, however, shall be adjudged on
unliquidated claims or damages except when or until the demand can be
established with reasonable certainty. Accordingly, where the demand is established
with reasonable certainty, the interest shall begin to run from the time the claim is
made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty
cannot be so reasonably established at the time the demand is made, the interest
shall begin to run only from the date the judgment of the court is made (at which
time the quantification of damages may be deemed to have been reasonably
ascertained). The actual base for the computation of legal interest shall, in any
case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and
executory, the rate of legal interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 12% per annum from such finality until its satisfaction,
this interim period being deemed to be by then an equivalent to a forbearance of
credit.55 (Citations omitted)
The foregoing rules were further clarified in Sunga-Chan v. Court of Appeals,
follows:

56

as

Eastern Shipping Lines, Inc. synthesized the rules on the imposition of interest, if
proper, and the applicable rate, as follows: The 12% per annum rate under CB
Circular No. 416 shall apply only to loans or forbearance of money, goods, or
credits, as well as to judgments involving such loan or forbearance of money,
goods, or credit, while the 6% per annum under Art. 2209 of the Civil Code applies
"when the transaction involves the payment of indemnities in the concept of
damage arising from the breach or a delay in the performance of obligations in
general," with the application of both rates reckoned "from the time the complaint
was filed until the [adjudged] amount is fully paid." In either instance, the reckoning
period for the commencement of the running of the legal interest shall be subject to
the condition "that the courts are vested with discretion, depending on the equities
of each case, on the award of interest." 57 (Citations omitted)
WHEREFORE, premises considered, the Petition for certiorari is DISMISSED.
SO ORDERED.
BIENVENIDO L. REYES
Associate Justice
WE CONCUR:
MARIA LOURDES P. A. SERENO
Chief Justice
ANTONIO T. CARPIO
Associate Justice

PRESBITERO J. VELASCO, JR.

Associate Justice

TERESITA J. LEONARDO-DE
CASTRO
Associate Justice

(On leave)
ARTURO D. BRION*
Associate Justice

DIOSDADO M. PERALTA
Associate Justice

LUCAS P. BERSAMIN
Associate Justice

MARIANO C. DEL CASTILLO

Associate Justice

ROBERTO A. ABAD
Associate Justice

MARTIN S. VILLARAMA, JR.

Associate Justice

JOSE PORTUGAL PEREZ

Associate Justice

JOSE CATRAL MENDOZA

ESTELA M. PERLAS-BERNABE

Associate Justice

Associate Justice

MARVIC MARIO VICTOR F. LEONEN

Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions
in the above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Court.
MARIA LOURDES P. A. SERENO
Chief Justice

Footnotes
*

On leave.

Rollo, pp. 48-56.

Id. at 40-45.

Id. at 48-56.

Id. at 10-12.

Id. at 13.

Id. at 31-32.

Id. at 33.

Id. at 34-35.

Id. at 36-37.

10

Id. at 38.

11

Id. at 30.

12

Id. at 26-29.

13

Treasury bills are government debt securities issued by the Bureau of the Treasury
with maturities of less than 1 year.
14

Named after CB Governor Jose "Jobo" Fernandez.

15

Chong v. Dela Cruz, G.R. No. 184948, July 21, 2009, 593 SCRA 311, 313-314.

16

Sea Power Shipping Enterprises, Inc. v. Court of Appeals, 412 Phil. 603, 611
(2001).
17

Sec. 1. Petition for certiorari. When any tribunal, board or officer exercising
judicial or quasi-judicial functions has acted without or in excess of its or his
jurisdiction, or with grave abuse of discretion amounting to lack or excess of
jurisdiction, and there is no appeal, nor any plain, speedy, and adequate remedy in
the ordinary course of law, a person aggrieved thereby may file a verified petition in
the proper court, alleging the facts with certainty and praying that judgment be
rendered annulling or modifying the proceedings of such tribunal, board or officer,
and granting such incidental reliefs as law and justice may require.
18

Chamber of Real Estate and Builders Associations, Inc. (CREBA) v. Energy

Regulatory Commission (ERC), G.R. No. 174697, July 8, 2010, 624 SCRA 556, 571.
19

Central Bank of the Philippines v. CA, 158 Phil. 986, 993 (1974).

20

In Philnabank Employees Association v. Estanislao (G.R. No. 104209, November

16, 1993, 227 SCRA 804), the Supreme Court refused to issue a writ of certiorari
against the Secretaries of Finance and of Labor after noting that they did not act in
any judicial or quasi-judicial capacity but were merely promulgating the
implementing rules of R.A. No. 6971, the Productivity Incentives Act of 1990.
21

Prof. David v. Pres. Macapagal-Arroyo, 522 Phil. 705, 755-756 (2006). (Citations
omitted)
22

People of the Philippines and HSBC v. Vera, 65 Phil. 56, 89 (1937).

23

320 Phil. 171 (1995); 316 Phil. 652 (1995).

24

Id. at 696.

25

G.R. No. 96541, August 24, 1993, 225 SCRA 568.

26

Supra note 21.

27

Id.

28

Supra note 18.

29

G.R. No. 166052, August 29, 2007, 531 SCRA 583.

30

Rollo, p. 27. In contrast, as reported in the October 10, 2012 issue of the
Philippine Daily Inquirer, Section B-2-1, a recent 25-year treasury bond issue,
government securities which mature in more than a year, carried an annual rate of
6.125%, way below 31%. It fetched P63 billion, more than double the governments
original offer of P30 billion.

31

See www.bsp.gov.ph/statistics.online.asp.

32

Manila Bulletin article, November 13, 2012, p. B-1: "Treasury Bill Yields Tumble to
Record Lows, 91-Day at 0.150%"
33

Id.

34

Araneta v. Dinglasan, 84 Phil. 368, 373 (1949).

35

Rollo, pp. 79-80, 103-105.

36

359 Phil. 820 (1998).

37

Security Bank and Trust Co. v. RTC-Makati, Branch 61, 331 Phil. 787, 793 (1996).

38

Palanca v. Court of Appeals, G.R. No. 106685, December 2, 1994, 238 SCRA 593,
601.
39

Sps. Florendo v. CA, 333 Phil. 535, 546 (1996).

40

People v. Dizon, 329 Phil. 685, 696 (1996).

41

420 Phil. 902 (2001).

42

484 Phil. 843 (2004).

43

Supra note 41, at 914, citing Medel v. CA, supra note 36, at 829; Security Bank
and Trust v. RTC-Makati, Branch 61, supra note 37; Palanca v. CA, supra note 38.
44

G.R. No. 107569, November 8, 1994, 238 SCRA 20.

45

Id. at 25.

46

Sps. Recana, Jr. v. CA, 402 Phil. 26, 35 (2001), citing City Government of San
Pablo, Laguna v. Reyes, 364 Phil. 842 (1999).
47

Berces v. Guingona, 311 Phil. 614, 620 (1995).

48

Spouses Solangon v. Salazar, 412 Phil. 816, 822 (2001), citing Sps. Almeda v. CA,
326 Phil. 309 (1996).
49

G.R. No. 168940, November 24, 2009, 605 SCRA 231

50

Id. at 232-233, citing Ibarra v. Aveyro, 37 Phil. 273, 282 (1917).

51

Medel v. CA, supra note 36, at 830.

52

First Metro Investment Corp. v. Este del Sol Mountain Reserve, Inc., supra note 41,
at 918.

53

See Castro v. Tan, supra note 49, at 240; Heirs of Zoilo Espiritu v. Landrito, G.R.
No. 169617, April 3, 2007, 520 SCRA 383, 394; Cuaton v. Salud, 465 Phil. 999
(2004); Sps. Almeda v. CA, supra note 48; First Metro Investment Corp. v. Este Del
Sol Mountain Reserve, Inc., supra note 41, at 918; Ruiz v. Court of Appeals, 449 Phil.
419, 433-435 (2003); Spouses Solangon v. Salazar, supra note 48.
54

G.R. No. 97412, July 12, 1994, 234 SCRA 78.

55

Id. at 95-97.

56

G.R. No. 164401, June 25,2008, 555 SCRA 275.

57

Id. at 288.

Republic of the Philippines

SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 149004

April 14, 2004

RESTITUTA M. IMPERIAL, petitioner,

vs.
ALEX A. JAUCIAN, respondent.
DECISION
PANGANIBAN, J.:
Iniquitous and unconscionable stipulations on interest rates, penalties and
attorneys fees are contrary to morals. Consequently, courts are granted authority
to reduce them equitably. If reasonably exercised, such authority shall not be
disturbed by appellate courts.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, assailing the
July 19, 2000 Decision2 and the June 14, 2001 Resolution3 of the Court of Appeals
(CA) in CA-GR CV No. 43635. The decretal portion of the Decision is as follows:
"WHEREFORE, premises considered, the appealed Decision of the Regional Trial
Court, 5th Judicial Region, Branch 21, Naga City, dated August 31, 1993, in Civil
Case No. 89-1911 for Sum of Money, is hereby AFFIRMED in toto."4
The assailed Resolution denied petitioners Motion for Reconsideration.

The dispositive portion of the August 31, 1993 Decision, promulgated by the
Regional Trial Court (RTC) of Naga City (Branch 21) and affirmed by the CA, reads as
follows:
"Wherefore, Judgment is hereby rendered declaring Section I, Central Bank Circular
No. 905, series of 1982 to be of no force and legal effect, it having been
promulgated by the Monetary Board of the Central Bank of the Philippines with
grave abuse of discretion amounting to excess of jurisdiction; declaring that the rate
of interest, penalty, and charges for attorneys fees agreed upon between the
parties are unconscionable, iniquitous, and in violation of Act No. 2655, otherwise
known as the Usury Law, as amended; and ordering Defendant to pay Plaintiff the
amount of FOUR HUNDRED SEVENTY-EIGHT THOUSAND, ONE HUNDRED NINETYFOUR and 54/100 (P478,194.54) PESOS, Philippine currency, with regular and
compensatory interests thereon at the rate of twenty-eight (28%) per centum per
annum, computed from August 31, 1993 until full payment of the said amount, and
in addition, an amount equivalent to ten (10%) per centum of the total amount due
and payable, for attorneys fees, without pronouncement as to costs." 5
The Facts
The CA summarized the facts of the case in this wise:
"The present controversy arose from a case for collection of money, filed by Alex A.
Jaucian against Restituta Imperial, on October 26, 1989. The complaint alleges, inter
alia, that defendant obtained from plaintiff six (6) separate loans for which the
former executed in favor of the latter six (6) separate promissory notes and issued
several checks as guarantee for payment. When the said loans became overdue
and unpaid, especially when the defendants checks were dishonored, plaintiff made
repeated oral and written demands for payment.
"Specifically, the six (6) separate loans obtained by defendant from plaintiff on
various dates are as follows:
(a) November 13, 1987

P 50,000.00

(b) December 28, 1987

40,000.00

(c) January 6, 1988

30,000.00

(d) January 11, 1988

50,000.00

(e) January 12, 1988

50,000.00

(f) January 13, 1988

100,000.00

Total

P320,000.00

"The loans were covered by six (6) separate promissory notes executed by
defendant. The face value of each promissory notes is bigger [than] the amount
released to defendant because said face value already include[d] the interest from
date of note to date of maturity. Said promissory notes, which indicate the interest
of 16% per month, date of issue, due date, the corresponding guarantee checks
issued by defendant, penalties and attorneys fees, are the following:
1. Exhibit D for loan of P40,000.00 on December 28, 1987, with face value
of P65,000.00;
2. Exhibit E for loan of P50,000.00 on January 11, 1988, with face value
of P82,000.00;
3. Exhibit F for loan of P50,000.00 on January 12, 1988, with face value
of P82,000.00;
4. Exhibit G for loan of P100,000.00 on January 13, 1988, with face value
of P164,000.00;
5. Exhibit H This particular promissory note covers the second renewal of the
original loan ofP50,000.00 on November 13, 1987, which was renewed for the first
time on March 16, 1988 after certain payments, and which was renewed finally for
the second time on January 4, 1988 also after certain payments, with a face value
of P56,240.00;
6. Exhibit I This particular promissory note covers the second renewal of the
original loan ofP30,000.00 on January 6, 1988, which was renewed for the first time
on June 4, 1988 after certain payments, and which was finally renewed for the
second time on August 6, 1988, also after certain payments, with [a] face value
of P12,760.00;
"The particulars about the postdated checks, i.e., number, amount, date, etc., are
indicated in each of the promissory notes. Thus, for Exhibit D, four (4) PB checks
were issued; for Exhibit E four (4) checks; for Exhibit F four (4) checks; for Exhibit
G four (4) checks; for Exhibit H one (1) check; for Exhibit I one (1) check;
"The arrangement between plaintiff and defendant regarding these guarantee
checks was that each time a check matures the defendant would exchange it with
cash.
"Although, admittedly, defendant made several payments, the same were not
enough and she always defaulted whenever her loans mature[d]. As of August 16,

1991, the total unpaid amount, including accrued interest, penalties and attorneys
fees, [was] P2,807,784.20.
"On the other hand, defendant claims that she was extended loans by the plaintiff
on several occasions, i.e., from November 13, 1987 to January 13, 1988, in the total
sum of P320,000.00 at the rate of sixteen percent (16%) per month. The notes
mature[d] every four (4) months with unearned interest compounding every four (4)
months if the loan [was] not fully paid. The loan releases [were] as follows:
(a) November 13, 1987

P 50,000.00

(b) December 28, 1987

40,000.00

(c) January 6, 1988

30,000.00

(d) January 11, 1988

50,000.00

(e) January 12, 1988

50,000.00

(f) January 13, 1988

100,000.00

Total

P320,000.00

"The loan on November 13, 1987 and January 6, 1988 ha[d] been fully paid
including the usurious interests of 16% per month, this is the reason why these
were not included in the complaint.
"Defendant alleges that all the above amounts were released respectively by checks
drawn by the plaintiff, and the latter must produce these checks as these were
returned to him being the drawer if only to serve the truth. The above amount are
the real amount released to the defendant but the plaintiff by masterful
machinations made it appear that the total amount released was P462,600.00.
Because in his computation he made it appear that the true amounts released was
not the original amount, since it include[d] the unconscionable interest for four
months.
"Further, defendant claims that as of January 25, 1989, the total payments made by
defendants [were] as follows:
a. Paid releases on November 13, 1987
ofP50,000.00 and January 6, 1988
ofP30,000.00 these two items were not
included in the complaint affirming the

P 80,000.
00

fact that these were paid

b. Exhibit 26 Receipt

231,000.0
0

c. Exhibit 8-25 Receipt

65,300.00

d. Exhibit 27 Receipt

65,000.00

Total

P441,780
.00

Less:

Excess Payment

320,000.0
0

P121,780
.00

"Defendant contends that from all perspectives the above excess payment
of P121,780.00 is more than the interest that could be legally charged, and in fact
as of January 25, 1989, the total releases have been fully paid.
"On 31 August 1993, the trial court rendered the assailed decision." 6
Ruling of the Court of Appeals
On appeal, the CA held that without judicial inquiry, it was improper for the RTC to
rule on the constitutionality of Section 1, Central Bank Circular No. 905, Series of
1982. Nonetheless, the appellate court affirmed the judgment of the trial court,
holding that the latters clear and detailed computation of petitioners outstanding
obligation to respondent was convincing and satisfactory.
Hence, this Petition.7
The Issues
Petitioner raises the following arguments for our consideration:
"1. That the petitioner has fully paid her obligations even before filing of this case.
"2. That the charging of interest of twenty-eight (28%) per centum per annum
without any writing is illegal.

"3. That charging of excessive attorneys fees is hemorrhagic.

"4. Charging of excessive penalties per month is in the guise of hidden interest.
"5. The non-inclusion of the husband of the petitioner at the time the case was filed
should have dismissed this case."8
The Courts Ruling
The Petition has no merit.
First Issue:
Computation of Outstanding Obligation
Arguing that she had already fully paid the loan before the filing of the case,
petitioner alleges that the two lower courts misappreciated the facts when they
ruled that she still had an outstanding balance of P208,430.
This issue involves a question of fact. Such question exists when a doubt or
difference arises as to the truth or the falsehood of alleged facts; and when there is
need for a calibration of the evidence, considering mainly the credibility of
witnesses and the existence and the relevancy of specific surrounding
circumstances, their relation to each other and to the whole, and the probabilities of
the situation.9
It is a well-entrenched rule that pure questions of fact may not be the subject of an
appeal by certiorari under Rule 45 of the Rules of Court, as this remedy is generally
confined to questions of law.10 The jurisdiction of this Court over cases brought to it
is limited to the review and rectification of errors of law allegedly committed by the
lower court. As a rule, the latters factual findings, when adopted and affirmed by
the CA, are final and conclusive and may not be reviewed on appeal. 11
Generally, this Court is not required to analyze and weigh all over again the
evidence already considered in the proceedings below. 12 In the present case, we find
no compelling reason to overturn the factual findings of the RTC -- that the total
amount of the loans extended to petitioner was P320,000, and that she paid a total
of onlyP116,540 on twenty-nine dates. These findings are supported by a
preponderance of evidence. Moreover, the amount of the outstanding obligation has
been meticulously computed by the trial court and affirmed by the CA. Petitioner
has not given us sufficient reason why her cause falls under any of the exceptions to
this rule on the finality of factual findings.
Second Issue:
Rate of Interest

The trial court, as affirmed by the CA, reduced the interest rate from 16 percent to
1.167 percent per month or 14 percent per annum; and the stipulated penalty
charge, from 5 percent to 1.167 percent per month or 14 percent per annum.
Petitioner alleges that absent any written stipulation between the parties, the lower
courts should have imposed the rate of 12 percent per annum only.
The records show that there was a written agreement between the parties for the
payment of interest on the subject loans at the rate of 16 percent per month. As
decreed by the lower courts, this rate must be equitably reduced for being
iniquitous, unconscionable and exorbitant. "While the Usury Law ceiling on interest
rates was lifted by C.B. Circular No. 905, nothing in the said circular grants
lenders carte blanche authority to raise interest rates to levels which will either
enslave their borrowers or lead to a hemorrhaging of their assets." 13
In Medel v. CA,14 the Court found the stipulated interest rate of 5.5 percent per
month, or 66 percent per annum, unconscionable. In the present case, the rate is
even more iniquitous and unconscionable, as it amounts to 192 percent per annum.
When the agreed rate is iniquitous or unconscionable, it is considered "contrary to
morals, if not against the law. [Such] stipulation is void." 15
Since the stipulation on the interest rate is void, it is as if there were no express
contract thereon.16 Hence, courts may reduce the interest rate as reason and equity
demand. We find no justification to reverse or modify the rate imposed by the two
lower courts.
Third and Fourth Issue:
Penalties and Attorneys Fees
Article 1229 of the Civil Code states thus:
"The judge shall equitably reduce the penalty when the principal obligation has
been partly or irregularly complied with by the debtor. Even if there has been no
performance, the penalty may also be reduced by the courts if it is iniquitous or
unconscionable."
In exercising this power to determine what is iniquitous and unconscionable, courts
must consider the circumstances of each case. 17 What may be iniquitous and
unconscionable in one may be totally just and equitable in another. In the present
case, iniquitous and unconscionable was the parties stipulated penalty charge of 5
percent per month or 60 percent per annum, in addition to regular interests and
attorneys fees. Also, there was partial performance by petitioner when she
remitted P116,540 as partial payment of her principal obligation of P320,000. Under
the circumstances, the trial court was justified in reducing the stipulated penalty
charge to the more equitable rate of 14 percent per annum.

The Promissory Note carried a stipulation for attorneys fees of 25 percent of the
principal amount and accrued interests. Strictly speaking, this covenant on
attorneys fees is different from that mentioned in and regulated by the Rules of
Court.18 "Rather, the attorneys fees here are in the nature of liquidated damages
and the stipulation therefor is aptly called a penal clause." 19 So long as the
stipulation does not contravene the law, morals, public order or public policy, it is
binding upon the obligor. It is the litigant, not the counsel, who is the judgment
creditor entitled to enforce the judgment by execution.
Nevertheless, it appears that petitioners failure to comply fully with her obligation
was not motivated by ill will or malice. The twenty-nine partial payments she made
were a manifestation of her good faith. Again, Article 1229 of the Civil Code
specifically empowers the judge to reduce the civil penalty equitably, when the
principal obligation has been partly or irregularly complied with. Upon this premise,
we hold that the RTCs reduction of attorneys fees -- from 25 percent to 10 percent
of the total amount due and payable -- is reasonable.
Fifth Issue:
Non-Inclusion of Petitioners Husband
Petitioner contends that the case against her should have been dismissed, because
her husband was not included in the proceedings before the RTC.
We are not persuaded. The husbands non-joinder does not warrant dismissal, as it
is merely a formal requirement that may be cured by amendment. 20 Since petitioner
alleges that her husband has already passed away, such an amendment has thus
become moot.
WHEREFORE, the Petition is DENIED. Costs against petitioner.
SO ORDERED.
Davide, Jr., Ynares-Santiago, Carpio, and Azcuna, JJ., concur.

Footnotes
1

Rollo, pp. 13-42.

Id., pp. 43-54. Special Twelfth Division. Penned by Justice Bernardo P. Abesamis
and concurred in by Justices Eugenio S. Labitoria (Division chairman) and Elvi John
S. Asuncion (member).
3

Id., p. 73.

Assailed CA Decision, p. 11; rollo, p. 53.

RTC Decision, p. 14; rollo, p. 68. Written by Judge David C. Naval.

Assailed CA Decision, pp. 2-6; rollo, pp. 44-48.

This case was deemed submitted for resolution on May 14, 2002, upon receipt by
the Court of petitioners Memorandum, which was signed by Atty. Alfredo V. Abundo.
Respondents Memorandum, filed on March 26, 2002, was signed by Atty. Fred P.
Cledera.
8

Petitioners Memorandum, p. 7; rollo, p. 206.

Sesbreo v. Court of Appeals, 310 Phil. 671, January 26, 1995.

10

Spouses Uy v. Court of Appeals, 411 Phil. 788, June 21, 2001; Metropolitan Bank
and Trust Company v. Wong, 412 Phil. 207, June 26, 2001; Spouses Solangon v.
Salazar, 412 Phil. 816, June 29, 2001; Llana v. Court of Appeals, 361 SCRA 27, July
11, 2001.
11

Go v. Court of Appeals, 351 SCRA 145, February 5, 2001.

12

Baas v. Asia Pacific Finance Corporation, 343 SCRA 527, October 18, 2000.

13

Spouses Solangon v. Salazar, supra, p. 822, per Sandoval-Gutierrez, J.

14

359 Phil. 820, November 27, 1998; citing Art. 1306, Civil Code.

15

Id., p. 830, per Pardo, J. See also Ibarra v. Aveyro, 37 Phil. 274, December 6,
1917; Spouses Almeda v. Court of Appeals, 326 Phil. 309, April 17, 1996.
16

Tongoy v. Court of Appeals, 123 SCRA 99, June 28, 1983.

17

RCBC v. Court of Appeals, 352 Phil. 101, April 20, 1998.

18

Baas v. Asia Pacific Finance Corporation, supra.

19

Id., p. 537, per Bellosillo, J.

20

Spouses Uy v. Court of Appeals, supra.

Republic of the Philippines

SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 175490

September 17, 2009

ILEANA DR. MACALINAO, Petitioner,

vs.
BANK OF THE PHILIPPINE ISLANDS, Respondent.
DECISION
VELASCO, JR., J.:
The Case
Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court
seeking to reverse and set aside the June 30, 2006 Decision 1 of the Court of Appeals
(CA) and its November 21, 2006 Resolution 2 denying petitioners motion for
reconsideration.
The Facts
Petitioner Ileana Macalinao was an approved cardholder of BPI Mastercard, one of
the credit card facilities of respondent Bank of the Philippine Islands
(BPI).3 Petitioner Macalinao made some purchases through the use of the said credit
card and defaulted in paying for said purchases. She subsequently received a letter
dated January 5, 2004 from respondent BPI, demanding payment of the amount of
one hundred forty-one thousand five hundred eighteen pesos and thirty-four
centavos (PhP 141,518.34), as follows:
Statement
Date

Previous
Balance

Purchases
(Payments)

10/27/2002 94,843.70

Penalty
Interest

Finance
Charges

Balance
Due

559.72

3,061.99

98,456.4
1

11/27/2002 98,465.41

(15,000)

2,885.61

86,351.0
2

12/31/2002 86,351.02

30,308.80

259.05

2,806.41

119,752.
28

1/27/2003

119,752.28

618.23

3,891.07

124,234.
58

2/27/2003

124,234.58

990.93

4,037.62

129,263.
13

3/27/2003

129,263.13

298.72

3,616.05

115,177.

(18,000.00)

90
644.26

3,743.28

119,565.
44

(10,000.00)

402.95

3,571.71

113,540.
10

8,362.50
(7,000.00)

323.57

3,607.32

118,833.
49

118,833.49

608.07

3,862.09

123,375.
65

8/27/2003

123,375.65

1,050.20

4,009.71

128,435.
56

9/28/2003

128,435.56

1,435.51

4,174.16

134,045.
23

141,518.34

8,491.10

4,599.34

154,608.
78

4/27/2003

115,177.90

5/27/2003

119,565.44

6/29/2003

113,540.10

7/27/2003

10/28/2003
11/28/2003
12/28/2003
1/27/2004

Under the Terms and Conditions Governing the Issuance and Use of the BPI Credit
and BPI Mastercard, the charges or balance thereof remaining unpaid after the
payment due date indicated on the monthly Statement of Accounts shall bear
interest at the rate of 3% per month and an additional penalty fee equivalent to
another 3% per month. Particularly:
8. PAYMENT OF CHARGES BCC shall furnish the Cardholder a monthly Statement of
Account (SOA) and the Cardholder agrees that all charges made through the use of
the CARD shall be paid by the Cardholder as stated in the SOA on or before the last
day for payment, which is twenty (20) days from the date of the said SOA, and such
payment due date may be changed to an earlier date if the Cardholders account is
considered overdue and/or with balances in excess of the approved credit limit, or
to such other date as may be deemed proper by the CARD issuer with notice to the
Cardholder on the same monthly SOA. If the last day fall on a Saturday, Sunday or a

holiday, the last day for the payment automatically becomes the last working day
prior to said payment date. However, notwithstanding the absence or lack of proof
of service of the SOA of the Cardholder, the latter shall pay any and all charges
made through the use of the CARD within thirty (30) days from date or dates
thereof. Failure of the Cardholder to pay the charges made through the CARD within
the payment period as stated in the SOA or within thirty (30) days from actual date
or dates of purchase whichever occur earlier, shall render him in default without the
necessity of demand from BCC, which the Cardholder expressly waives. The charges
or balance thereof remaining unpaid after the payment due date indicated on the
monthly Statement of Accounts shall bear interest at the rate of 3% per month for
BPI Express Credit, BPI Gold Mastercard and an additional penalty fee equivalent to
another 3% of the amount due for every month or a fraction of a months delay.
PROVIDED that if there occurs any change on the prevailing market rates, BCC shall
have the option to adjust the rate of interest and/or penalty fee due on the
outstanding obligation with prior notice to the cardholder. The Cardholder hereby
authorizes BCC to correspondingly increase the rate of such interest [in] the event
of changes in the prevailing market rates, and to charge additional service fees as
may be deemed necessary in order to maintain its service to the Cardholder. A
CARD with outstanding balance unpaid after thirty (30) days from original billing
statement date shall automatically be suspended, and those with accounts unpaid
after ninety (90) days from said original billing/statement date shall automatically
be cancel (sic), without prejudice to BCCs right to suspend or cancel any card
anytime and for whatever reason. In case of default in his obligation as provided
herein, Cardholder shall surrender his/her card to BCC and in addition to the interest
and penalty charges aforementioned , pay the following liquidated damages and/or
fees (a) a collection fee of 25% of the amount due if the account is referred to a
collection agency or attorney; (b) service fee for every dishonored check issued by
the cardholder in payment of his account without prejudice, however, to BCCs right
of considering Cardholders account, and (c) a final fee equivalent to 25% of the
unpaid balance, exclusive of litigation expenses and judicial cost, if the payment of
the account is enforced though court action. Venue of all civil suits to enforce this
Agreement or any other suit directly or indirectly arising from the relationship
between the parties as established herein, whether arising from crimes, negligence
or breach thereof, shall be in the process of courts of the City of Makati or in other
courts at the option of BCC.4 (Emphasis supplied.)1avvphi1
For failure of petitioner Macalinao to settle her obligations, respondent BPI filed with
the Metropolitan Trial Court (MeTC) of Makati City a complaint for a sum of money
against her and her husband, Danilo SJ. Macalinao. This was raffled to Branch 66 of
the MeTC and was docketed as Civil Case No. 84462 entitled Bank of the Philippine
Islands vs. Spouses Ileana Dr. Macalinao and Danilo SJ. Macalinao. 5
In said complaint, respondent BPI prayed for the payment of the amount of one
hundred fifty-four thousand six hundred eight pesos and seventy-eight centavos

(PhP 154,608.78) plus 3.25% finance charges and late payment charges equivalent
to 6% of the amount due from February 29, 2004 and an amount equivalent to 25%
of the total amount due as attorneys fees, and of the cost of suit. 6
After the summons and a copy of the complaint were served upon petitioner
Macalinao and her husband, they failed to file their Answer. 7 Thus, respondent BPI
moved that judgment be rendered in accordance with Section 6 of the Rule on
Summary Procedure.8 This was granted in an Order dated June 16,
2004.9 Thereafter, respondent BPI submitted its documentary evidence. 101avvphi1
In its Decision dated August 2, 2004, the MeTC ruled in favor of respondent BPI and
ordered petitioner Macalinao and her husband to pay the amount of PhP 141,518.34
plus interest and penalty charges of 2% per month, to wit:
WHEREFORE, finding merit in the allegations of the complaint supported by
documentary evidence, judgment is hereby rendered in favor of the plaintiff, Bank
of the Philippine Islands and against defendant-spouses Ileana DR Macalinao and
Danilo SJ Macalinao by ordering the latter to pay the former jointly and severally the
following:
1. The amount of PESOS: ONE HUNDRED FORTY ONE THOUSAND FIVE HUNDRED
EIGHTEEN AND 34/100 (P141,518.34) plus interest and penalty charges of 2% per
month from January 05, 2004 until fully paid;
2. P10,000.00 as and by way of attorneys fees; and
3. Cost of suit.
SO ORDERED.11
Only petitioner Macalinao and her husband appealed to the Regional Trial Court
(RTC) of Makati City, their recourse docketed as Civil Case No. 04-1153. In its
Decision dated October 14, 2004, the RTC affirmed in toto the decision of the MeTC
and held:
In any event, the sum of P141,518.34 adjudged by the trial court appeared to be the
result of a recomputation at the reduced rate of 2% per month. Note that the total
amount sought by the plaintiff-appellee was P154,608.75 exclusive of finance
charge of 3.25% per month and late payment charge of 6% per month.
WHEREFORE, the appealed decision is hereby affirmed in toto.
No pronouncement as to costs.
SO ORDERED.12

Unconvinced, petitioner Macalinao filed a petition for review with the CA, which was
docketed as CA-G.R. SP No. 92031. The CA affirmed with modification the Decision
of the RTC:
WHEREFORE, the appealed decision is AFFIRMED but MODIFIED with respect to the
total amount due and interest rate. Accordingly, petitioners are jointly and severally
ordered to pay respondent Bank of the Philippine Islands the following:
1. The amount of One Hundred Twenty Six Thousand Seven Hundred Six Pesos and
Seventy Centavos plus interest and penalty charges of 3% per month from January
5, 2004 until fully paid;
2. P10,000.00 as and by way of attorneys fees; and
3. Cost of Suit.
SO ORDERED.13
Although sued jointly with her husband, petitioner Macalinao was the only one who
filed the petition before the CA since her husband already passed away on October
18, 2005.14
In its assailed decision, the CA held that the amount of PhP 141,518.34 (the amount
sought to be satisfied in the demand letter of respondent BPI) is clearly not the
result of the re-computation at the reduced interest rate as previous higher interest
rates were already incorporated in the said amount. Thus, the said amount should
not be made as basis in computing the total obligation of petitioner Macalinao.
Further, the CA also emphasized that respondent BPI should not compound the
interest in the instant case absent a stipulation to that effect. The CA also held,
however, that the MeTC erred in modifying the amount of interest rate from 3%
monthly to only 2% considering that petitioner Macalinao freely availed herself of
the credit card facility offered by respondent BPI to the general public. It explained
that contracts of adhesion are not invalid per se and are not entirely prohibited.
Petitioner Macalinaos motion for reconsideration was denied by the CA in its
Resolution dated November 21, 2006. Hence, petitioner Macalinao is now before
this Court with the following assigned errors:
I.
THE REDUCTION OF INTEREST RATE, FROM 9.25% TO 2%, SHOULD BE UPHELD
SINCE THE STIPULATED RATE OF INTEREST WAS UNCONSCIONABLE AND
INIQUITOUS, AND THUS ILLEGAL.
II.
THE COURT OF APPEALS ARBITRARILY MODIFIED THE REDUCED RATE OF INTEREST
FROM 2% TO 3%, CONTRARY TO THE TENOR OF ITS OWN DECISION.

III.
THE COURT A QUO, INSTEAD OF PROCEEDING WITH A RECOMPUTATION, SHOULD
HAVE DISMISSED THE CASE FOR FAILURE OF RESPONDENT BPI TO PROVE THE
CORRECT AMOUNT OF PETITIONERS OBLIGATION, OR IN THE ALTERNATIVE,
REMANDED THE CASE TO THE LOWER COURT FOR RESPONDENT BPI TO PRESENT
PROOF OF THE CORRECT AMOUNT THEREOF.
Our Ruling
The petition is partly meritorious.
The Interest Rate and Penalty Charge of 3% Per Month or 36% Per Annum
Should Be Reduced to 2% Per Month or 24% Per Annum
In its Complaint, respondent BPI originally imposed the interest and penalty charges
at the rate of 9.25% per month or 111% per annum. This was declared as
unconscionable by the lower courts for being clearly excessive, and was thus
reduced to 2% per month or 24% per annum. On appeal, the CA modified the rate
of interest and penalty charge and increased them to 3% per month or 36% per
annum based on the Terms and Conditions Governing the Issuance and Use of the
BPI Credit Card, which governs the transaction between petitioner Macalinao and
respondent BPI.
In the instant petition, Macalinao claims that the interest rate and penalty charge of
3% per month imposed by the CA is iniquitous as the same translates to 36% per
annum or thrice the legal rate of interest. 15 On the other hand, respondent BPI
asserts that said interest rate and penalty charge are reasonable as the same are
based on the Terms and Conditions Governing the Issuance and Use of the BPI
Credit Card.16
We find for petitioner. We are of the opinion that the interest rate and penalty
charge of 3% per month should be equitably reduced to 2% per month or 24% per
annum.
Indeed, in the Terms and Conditions Governing the Issuance and Use of the BPI
Credit Card, there was a stipulation on the 3% interest rate. Nevertheless, it should
be noted that this is not the first time that this Court has considered the interest
rate of 36% per annum as excessive and unconscionable. We held in Chua vs.
Timan:17
The stipulated interest rates of 7% and 5% per month imposed on respondents
loans must be equitably reduced to 1% per month or 12% per annum. We need not
unsettle the principle we had affirmed in a plethora of cases that stipulated interest
rates of 3% per month and higher are excessive, iniquitous, unconscionable and
exorbitant. Such stipulations are void for being contrary to morals, if not against the
law. While C.B. Circular No. 905-82, which took effect on January 1, 1983, effectively

removed the ceiling on interest rates for both secured and unsecured loans,
regardless of maturity, nothing in the said circular could possibly be read as
granting carte blanche authority to lenders to raise interest rates to levels which
would either enslave their borrowers or lead to a hemorrhaging of their assets.
(Emphasis supplied.)
Since the stipulation on the interest rate is void, it is as if there was no express
contract thereon. Hence, courts may reduce the interest rate as reason and equity
demand.18
The same is true with respect to the penalty charge. Notably, under the Terms and
Conditions Governing the Issuance and Use of the BPI Credit Card, it was also stated
therein that respondent BPI shall impose an additional penalty charge of 3% per
month. Pertinently, Article 1229 of the Civil Code states:
Art. 1229. The judge shall equitably reduce the penalty when the principal
obligation has been partly or irregularly complied with by the debtor. Even if there
has been no performance, the penalty may also be reduced by the courts if it is
iniquitous or unconscionable.
In exercising this power to determine what is iniquitous and unconscionable, courts
must consider the circumstances of each case since what may be iniquitous and
unconscionable in one may be totally just and equitable in another. 19
In the instant case, the records would reveal that petitioner Macalinao made partial
payments to respondent BPI, as indicated in her Billing Statements. 20 Further, the
stipulated penalty charge of 3% per month or 36% per annum, in addition to regular
interests, is indeed iniquitous and unconscionable.
Thus, under the circumstances, the Court finds it equitable to reduce the interest
rate pegged by the CA at 1.5% monthly to 1% monthly and penalty charge fixed by
the CA at 1.5% monthly to 1% monthly or a total of 2% per month or 24% per
annum in line with the prevailing jurisprudence and in accordance with Art. 1229 of
the Civil Code.
There Is No Basis for the Dismissal of the Case,
Much Less a Remand of the Same for Further Reception of Evidence
Petitioner Macalinao claims that the basis of the re-computation of the CA, that is,
the amount of PhP 94,843.70 stated on the October 27, 2002 Statement of Account,
was not the amount of the principal obligation. Thus, this allegedly necessitates a
re-examination of the evidence presented by the parties. For this reason, petitioner
Macalinao further contends that the dismissal of the case or its remand to the lower
court would be a more appropriate disposition of the case.

Such contention is untenable. Based on the records, the summons and a copy of the
complaint were served upon petitioner Macalinao and her husband on May 4, 2004.
Nevertheless, they failed to file their Answer despite such service. Thus, respondent
BPI moved that judgment be rendered accordingly. 21 Consequently, a decision was
rendered by the MeTC on the basis of the evidence submitted by respondent BPI.
This is in consonance with Sec. 6 of the Revised Rule on Summary Procedure, which
states:
Sec. 6. Effect of failure to answer. Should the defendant fail to answer the
complaint within the period above provided, the court, motu proprio, or on motion of
the plaintiff, shall render judgment as may be warranted by the facts alleged in the
complaint and limited to what is prayed for therein: Provided, however, that the
court may in its discretion reduce the amount of damages and attorneys fees
claimed for being excessive or otherwise unconscionable. This is without prejudice
to the applicability of Section 3(c), Rule 10 of the Rules of Court, if there are two or
more defendants. (As amended by the 1997 Rules of Civil Procedure; emphasis
supplied.)
Considering the foregoing rule, respondent BPI should not be made to suffer for
petitioner Macalinaos failure to file an answer and concomitantly, to allow the latter
to submit additional evidence by dismissing or remanding the case for further
reception of evidence. Significantly, petitioner Macalinao herself admitted the
existence of her obligation to respondent BPI, albeit with reservation as to the
principal amount. Thus, a dismissal of the case would cause great injustice to
respondent BPI. Similarly, a remand of the case for further reception of evidence
would unduly prolong the proceedings of the instant case and render inutile the
proceedings conducted before the lower courts.
Significantly, the CA correctly used the beginning balance of PhP 94,843.70 as basis
for the re-computation of the interest considering that this was the first amount
which appeared on the Statement of Account of petitioner Macalinao. There is no
other amount on which the re-computation could be based, as can be gathered from
the evidence on record. Furthermore, barring a showing that the factual findings
complained of are totally devoid of support in the record or that they are so
glaringly erroneous as to constitute serious abuse of discretion, such findings must
stand, for this Court is not expected or required to examine or contrast the evidence
submitted by the parties.22
In view of the ruling that only 1% monthly interest and 1% penalty charge can be
applied to the beginning balance of PhP 94,843.70, this Court finds the following
computation more appropriate:
Statemen
t Date

Previous
Balance

Purchases Balance
(Payments)

Interest
(1%)

Penalty
Charge

Total Amount
Due for the

(1%)

Month

10/27/200
94,843.70
2

94,843.7
948.44
0

948.44

96,740.58

11/27/200
94,843.70 (15,000)
2

79,843.7
798.44
0

798.44

81,440.58

12/31/200
79,843.70 30,308.80
2

110,152. 1,101.5
50
3

1,101.5
112,355.56
3

1/27/2003

110,152.5
0

110,152. 1,101.5
50
3

1,101.5
112,355.56
3

2/27/2003

110,152.5
0

110,152. 1,101.5
50
3

1,101.5
112,355.56
3

3/27/2003

110,152.5 (18,000.00
0
)

92,152.5
921.53
0

921.53

93,995.56

92,152.5
921.53
0

921.53

93,995.56

4/27/2003 92,152.50

5/27/2003 92,152.50

(10,000.00
)

82,152.5
821.53
0

821.53

83,795.56

6/29/2003 82,152.50

8,362.50
(7,000.00)

83,515.0
835.15
0

835.15

85,185.30

7/27/2003 83,515.00

83,515.0
835.15
0

835.15

85,185.30

8/27/2003 83,515.00

83,515.0
835.15
0

835.15

85,185.30

9/28/2003 83,515.00

83,515.0
835.15
0

835.15

85,185.30

10/28/200
83,515.00
3

83,515.0
835.15
0

835.15

85,185.30

11/28/200 83,515.00

83,515.0 835.15

835.15

85,185.30

12/28/200
83,515.00
3

83,515.0
835.15
0

835.15

85,185.30

1/27/2004 83,515.00

83,515.0
835.15
0

835.15

85,185.30

TOTAL

83,515.0 14,397.
0
26

14,397.
112,309.52
26

WHEREFORE, the petition is PARTLY GRANTED. The CA Decision dated June 30,
2006 in CA-G.R. SP No. 92031 is hereby MODIFIED with respect to the total amount
due, interest rate, and penalty charge. Accordingly, petitioner Macalinao is ordered
to pay respondent BPI the following:
(1) The amount of one hundred twelve thousand three hundred nine pesos and fiftytwo centavos (PhP 112,309.52) plus interest and penalty charges of 2% per month
from January 5, 2004 until fully paid;
(2) PhP 10,000 as and by way of attorneys fees; and
(3) Cost of suit.
SO ORDERED.
PRESBITERO J. VELASCO, JR.
Associate Justice
WE CONCUR:
CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson
MINITA V. CHICO-NAZARIO
Associate Justice

ANTONIO EDUARDO B. NACHURA

Associate Justice

DIOSDADO M. PERALTA
Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Courts Division.

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division
Chairpersons Attestation, I certify that the conclusions in the above Decision had
been reached in consultation before the case was assigned to the writer of the
opinion of the Courts Division.
REYNATO S. PUNO
Chief Justice

Footnotes
1

Rollo, pp. 29-38. Penned by Associate Justice Magdangal M. De Leon and concurred
in by Associate Justices Godardo A. Jacinto and Rosalinda Asuncion-Vicente.
2

Id. at 40-41.

Id. at 30.

Id. at 30-31.

Id. at 184.

Id. at 2-3.

Id. at 141.

Id. at 165.

Id. at 228.

10

Id. at 192-223. The documentary evidence was presented pursuant to the Order
dated June 16, 2004 of the MeTC.
11

Id. at 166. Penned by Judge Perpetua Atal-Pao.

12

Id. at 142-143. Penned by Hon. Manuel D. Victorio.

13

Id. at 37.

14

Id. at 146.

15

Id. at 17.

16

Id. at 323.

17

G.R. No. 170452, August 13, 2008, 562 SCRA 146, 149-150.

18

Imperial v. Jaucian, G.R. No. 149004, April 14, 2004, 427 SCRA 517; citing Tongoy
v. Court of Appeals, No. L-45645, June 28, 1983, 123 SCRA 99.
19

Imperial, id.

20

Rollo, pp. 56-81.

21

Id. at 165.

22

Atlantic Gulf and Pacific Company of Manila v. Court of Appeals, G.R. Nos. 11484143, August 23, 1995, 247 SCRA 606.

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 200868

November 12, 2012

ANITA A. LEDDA, Petitioner,

vs.
BANK OF THE PHILIPPINE ISLANDS, Respondent.
DECISION
CARPIO, J.:
The Case
This petition for rebiew1 assails the 15 July 2011 Decision2 and 9 February 2012
Resolution3 of the Court of Appeals in CA-G.R. CV No. 93747. The Court of Appeals
partially granted the appeal filed by petitioner Anita A. Ledda (Ledda) and modified
the 4 June 2009 Decision4 of the Regional Trial Court, Makati City, Branch 61. The
Court of Appeals denied the motion for reconsideration.
The Facts
This case arose from a collection suit filed by respondent Bank of the Philippine
Islands (BPI) against Ledda for the latters unpaid credit card obligation.
BPI, through its credit card system, extends credit accommodations to its clientele
for the purchase of goods and availment of various services from accredited
merchants, as well as to secure cash advances from authorized bank branches or
through automated teller machines.
As one of BPIs valued clients, Ledda was issued a pre-approved BPI credit card
under Customer Account Number 020100-9-00-3041167. The BPI Credit Card
Package, which included the Terms and Conditions governing the use of the credit
card, was delivered at Leddas residence on 1 July 2005. Thereafter, Ledda used the
credit card for various purchases of goods and services and cash advances.

Ledda defaulted in the payment of her credit card obligation, which BPI claimed in
their complaint amounted to P548,143.73 per Statement of Account dated 9
September 2007.5 Consequently, BPI sent letters6 to Ledda demanding the payment
of such amount, representing the principal obligation with 3.25% finance charge
and 6% late payment charge per month.
Despite BPIs repeated demands, Ledda failed to pay her credit card obligation
constraining BPI to file an action for collection of sum of money with the Regional
Trial Court, Makati City, Branch 61. The trial court declared Ledda in default for
failing to file Answer within the prescribed period, despite receipt of the complaint
and summons. Upon Leddas motion for reconsideration, the trial court lifted the
default order and admitted Leddas Answer Ad Cautelam.
While she filed a Pre-Trial Brief, Ledda and her counsel failed to appear during the
continuation of the Pre-Trial. Hence, the trial court allowed BPI to present its
evidence ex-parte.
In its Decision of 4 June 2009, the trial court ruled in favor of BPI, thus:
WHEREFORE, premises duly considered, the instant "Complaint" of herein plaintiff
Bank of the Philippine Islands (BPI) is hereby given DUE COURSE/GRANTED.
Accordingly, judgment is hereby rendered against herein defendant ANITA A. LEDDA
and in favor of the plaintiff.
Ensuably, the herein defendant ANITA A. LEDDA is hereby ordered to pay the herein
plaintiff Bank of the Philippine Islands (BPI) the following sums, to wit:
1. Five Hundred Forty-Eight Thousand One Hundred Forty-Three Pesos and SeventyThree Centavos (P548,143.73) as and for actual damages, with finance and latepayment charges at the rate of three and one-fourth percent (3.25%) and six
percent (6%) per month, respectively, to be counted from 19 October 2007 until the
amount is fully paid;
2. Attorneys fees equivalent to twenty-five percent (25%) of the total obligation due
and demandable, exclusive of appearance fee for every court hearing, and
3. Costs of suit.
SO ORDERED.7 (Emphasis in the original)
The Ruling of the Court of Appeals
The Court of Appeals rejected Leddas argument that the document containing the
Terms and Conditions governing the use of the BPI credit card is an actionable
document contemplated in Section 7, Rule 8 of the 1997 Rules of Civil Procedure.
The Court of Appeals held that BPIs cause of action is based on "Leddas availment
of the banks credit facilities through the use of her credit/plastic cards, coupled

with her refusal to pay BPIs outstanding credit for the cost of the goods, services
and cash advances despite lawful demands."
Citing Macalinao v. Bank of the Philippine Islands, 8 the Court of Appeals held that
the interest rates and penalty charges imposed by BPI for Leddas non-payment of
her credit card obligation, totalling 9.25% per month or 111% per annum, are
exorbitant and unconscionable. Accordingly, the Court of Appeals reduced the
monthly finance charge to 1% and the late payment charge to 1%, or a total of 2%
per month or 24% per annum.
The Court of Appeals recomputed Leddas total credit card obligation by deducting
P226,000.15, representing interests and charges, from P548,143.73, leaving a
difference of P322,138.58 as the principal amount, on which the reduced interest
rates should be imposed.
The Court of Appeals awarded BPI P10,000 attorneys fees, pursuant to the ruling in
Macalinao.
The dispositive portion of the Court of Appeals Decision reads:
WHEREFORE, premises considered, the appeal is PARTLY GRANTED, and accordingly
the herein assailed June 4, 2009 Decision of the trial court is hereby MODIFIED,
ordering defendant-appellant Anita Ledda to pay plaintiff-appellee BPI the amount
of Php322,138.58, with 1% monthly finance charges from date of availment of the
plaintiffs credit facilities, and penalty charge at 1% per month of the amount due
from the date the amount becomes due and payable, until full payment. The award
of attorneys fees is fixed at Php10,000.00.
SO ORDERED.9 (Emphasis in the original)
The Issues
Ledda raises the following issues:
1. Whether the Court of Appeals erred in holding that the document containing the
Terms and Conditions governing the issuance and use of the credit card is not an
actionable document contemplated in Section 7, Rule 8 of the 1997 Rules of Civil
Procedure.
2. Whether the Court of Appeals erred in applying Macalinao v. Bank of the
Philippine Islands instead of Alcaraz v. Court of Appeals 10 as regards the imposition
of interest and penalty charges on the credit card obligation.
3. Whether the Court of Appeals erred in awarding attorneys fees in favor of BPI.
The Ruling of the Court
The petition is partially meritorious.

I.
Whether the document containing the
Terms and Conditions is an actionable document.
Section 7, Rule 8 of the 1997 Rules of Civil Procedure provides:
SEC. 7. Action or defense based on document. Whenever an action or defense is
based upon a written instrument or document, the substance of such instrument or
document shall be set forth in the pleading, and the original or a copy thereof shall
be attached to the pleading as an exhibit, which shall be deemed to be a part of the
pleading, or said copy may with like effect be set forth in the pleading.
Clearly, the above provision applies when the action is based on a written
instrument or document.
In this case, the complaint is an action for collection of sum of money arising from
Leddas default in her credit card obligation with BPI. BPIs cause of action is
primarily based on Leddas (1) acceptance of the BPI credit card, (2) usage of the
BPI credit card to purchase goods, avail services and secure cash advances, and (3)
non-payment of the amount due for such credit card transactions, despite
demands.11 In other words, BPIs cause of action is not based only on the document
containing the Terms and Conditions accompanying the issuance of the BPI credit
card in favor of Ledda. Therefore, the document containing the Terms and
Conditions governing the use of the BPI credit card is not an actionable document
contemplated in Section 7, Rule 8 of the 1997 Rules of Civil Procedure. As such, it is
not required by the Rules to be set forth in and attached to the complaint.
At any rate, BPI has sufficiently established a cause of action against Ledda, who
admits having received the BPI credit card, subsequently used the credit card, and
failed to pay her obligation arising from the use of such credit card. 12
II.
Whether Alcaraz v. Court of Appeals,
instead of Macalinao v. BPI, is applicable.
Ledda contends that the case of Alcaraz v. Court of Appeals, 13 instead of Macalinao
v. Bank of the Philippine Islands14 which the Court of Appeals invoked, is applicable
in the computation of the interest rate on the unpaid credit card obligation. Ledda
claims that similar to Alcaraz, she was a "pre-screened" client who did not sign any
credit card application form or terms and conditions prior to the issuance of the
credit card. Like Alcaraz, Ledda asserts that the provisions of the Terms and
Conditions, particularly on the interests, penalties and other charges for nonpayment of any outstanding obligation, are not binding on her as such Terms and
Conditions were never shown to her nor did she sign it.

We agree with Ledda. The ruling in Alcaraz v. Court of Appeals 15 applies squarely to
the present case. In Alcaraz, petitioner there, as a pre-screened client of Equitable
Credit Card Network, Inc., did not submit or sign any application form or document
before the issuance of the credit card. There is no evidence that petitioner Alcaraz
was shown a copy of the terms and conditions before or after the issuance of the
credit card in his name, much less that he has given his consent thereto.
In this case, BPI issued a pre-approved credit card to Ledda who, like Alcaraz, did
not sign any credit card application form prior to the issuance of the credit card.
Like the credit card issuer in Alcaraz, BPI, which has the burden to prove its
affirmative allegations, failed to establish Leddas agreement with the Terms and
Conditions governing the use of the credit card. It must be noted that BPI did not
present as evidence the Terms and Conditions which Ledda allegedly received and
accepted.16 Clearly, BPI failed to prove Leddas conformity and acceptance of the
stipulations contained in the Terms and Conditions. Therefore, as the Court held in
Alcaraz, the Terms and Conditions do not bind petitioner (Ledda in this case)
"without a clear showing that x x x petitioner was aware of and consented to the
provisions of such document."17
On the other hand, Macalinao v. Bank of the Philippine Islands, 18 which the Court of
Appeals cited, involves a different set of facts. There, petitioner Macalinao did not
challenge the existence of the Terms and Conditions Governing the Issuance and
Use of the BPI Credit Card and her consent to its provisions, including the imposition
of interests and other charges on her unpaid BPI credit card obligation. Macalinao
simply questioned the legality of the stipulated interest rate and penalty charge,
claiming that such charges are iniquitous. In fact, one of Macalinaos assigned errors
before this Court reads: "The reduction of interest rate, from 9.25% to 2%, should
be upheld since the stipulated rate of interest was unconscionable and iniquitous,
and thus illegal."19 Therefore, there is evidence that Macalinao was fully aware of
the stipulations contained in the Terms and Conditions Governing the Issuance and
Use of the Credit Card, unlike in this case where there is no evidence that Ledda
was aware of or consented to the Terms and Conditions for the use of the credit
card.
Since there is no dispute that Ledda received, accepted and used the BPI credit card
issued to her and that she defaulted in the payment of the total amount arising
from the use of such credit card, Ledda is liable to pay BPI P322,138.58 representing
the principal amount of her unpaid credit card obligation. 20
Consistent with Alcaraz, Ledda must also pay interest on the total unpaid credit card
amount at the rate of 12% per annum since her credit card obligation consists of a
loan or forbearance of money.21 In Eastern Shipping Lines, Inc. v. Court of
Appeals,22 the Court explained:

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

money, i.e., a loan or forbearance of money, the interest due should be that which
may have been stipulated in writing. Furthermore, the interest due shall itself earn
legal interest from the time it is judicially demanded. In the absence of stipulation,
the rate of interest shall be 12% per annum to be computed from default, i.e., from
judicial or extrajudicial demand under and subject to the provisions of Article 1169
of the Civil Code.
We reject Leddas contention that, since there was no written agreement to pay a
higher interest rate, the interest rate should only be 6%. Ledda erroneously invokes
Article 2209 of the Civil Code.23 Article 2209 refers to indemnity for damages and
not interest on loan or forbearance of money, which is the case here. In Sunga-Chan
v. Court of Appeals,24 the Court held:
Eastern Shipping Lines, Inc. synthesized the rules on the imposition of interest, if
proper, and the applicable rate, as follows: The 12% per annum rate under CB
Circular No. 416 shall apply only to loans or forbearance of money, goods, or
credits, as well as to judgments involving such loan or forbearance of money,
goods, or credit, while the 6% per annum under Art. 2209 of the Civil Code applies
"when the transaction involves the payment of indemnities in the concept of
damage arising from the breach or a delay in the performance of obligations in
general," with the application of both rates reckoned "from the time the complaint
was filed until the adjudged amount is fully paid." In either instance, the reckoning
period for the commencement of the running of the legal interest shall be subject to
the condition "that the courts are vested with discretion, depending on the equities
of each case, on the award of interest. (Emphasis supplied)
In accordance with Eastern Shipping Lines, Inc., the 12% legal interest shall be
reckoned from the date BPI extrajudicially demanded from Ledda the payment of
her overdue credit card obligation. Thus, the 12% legal interest shall be computed
from 2 October 2007, when Ledda, through her niece Sally D. Gancea, 25 received
BPIs letter26 dated 26 September 2007 demanding the payment of the alleged
overdue amount of P548,143.73.
III.
Whether the award of attorneys fees is proper.
Ledda assails the award of attorneys fees in favor of BPI on the grounds of (1)
erroneous reliance by the Court of Appeals on the case of Macalinao and (2) failure
by the trial court to state the reasons for the award of attorneys fees.
Settled is the rule that the trial court must state the factual, legal or equitable
justification for the award of attorneys fees.27 The matter of attorneys fees cannot
be stated only in the dispositive portion of the decision. 28The body of the courts
decision must state the reasons for the award of attorneys fees. 29 In Frias v. San
Diego-Sison,30 the Court held:

Article 2208 of the New Civil Code enumerates the instances where such may be
awarded and, in all cases, it must be reasonable, just and equitable if the same
were to be granted. Attorneys fees as part of damages are not meant to enrich the
winning party at the expense of the losing litigant. They are not awarded every time
a party prevails in a suit because of the policy that no premium should be placed on
the right to litigate. The award of attorneys fees is the exception rather than the
general rule.1wphi1 As such, it is necessary for the trial court to make findings of
facts and law that would bring the case within the exception and justify the grant of
such award. The matter of attorneys fees cannot be mentioned only in the
dispositive portion of the decision. They must be clearly explained and justified by
the court in the body of its decision. On appeal, the CA is precluded from
supplementing the bases for awarding attorneys fees when the trial court failed to
discuss in its Decision the reasons for awarding the same. Consequently, the award
of attorneys fees should be deleted.1wphi1
In this case, the trial court failed to state in the body of its decision the factual or
legal reasons for the award of attorneys fees in favor of BPI. Therefore, the same
must be deleted.
WHEREFORE, we GRANT the petition IN PART. Petitioner Anita A. Ledda is ORDERED
to pay respondent Bank of the Philippine Islands the amount of .P322, 138.58,
representing her unpaid credit card obligation, with interest thereon at the rate of
12% per annum to be computed from 2 October 2007, until full payment thereof.
The award of attorney's fees is DELETED for lack of basis.
SO ORDERED.
ANTONIO T. CARPIO
Associate Justice
WE CONCUR:
ARTURO D. BRION
Associate Justice
MARIANO C. DEL CASTILLO
Associate Justice

JOSE PORTUGAL PEREZ

Associate Justice

ESTELA M. PERLAS-BERNABE
Associate Justice
ATTESTATION
I attest that the conclusions in the above Decision had been reached in consultation
before the case was assigned to the writer of the opinion of the Court's Division.

ANTONIO T. CARPIO
Associate Justice
Chairperson
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division
Chairperson's Attestation, I certify that the conclusions in the above Decision had
been reached in consultation before the case was assigned to the writer of the
opinion of the Court's Division.
MARIA LOURDES P. A. SERENO
Chief Justice

Footnotes
1

Under Rule 45 of the 1997 Rules of Civil Procedure.

Rollo, pp. 21-29. Penned by Associate Justice Rosmari D. Carandang with Associate
Justices Ramon R. Garcia and Samuel H. Gaerlan concurring.
3

Id. at 39-40.

Id. at 50-54. Penned by Presiding Judge J. Cedrick O. Ruiz.

Records, pp. 8-9.

Id. at 47-48. In the letter dated 17 August 2007, BPIs counsel demanded the
payment ofP502,431.69, allegedly the amount due from Ledda as of the period 9
August 2007 to 9 September 2007.
7

Rollo, p. 54.

G.R. No. 175490, 17 September 2009, 600 SCRA 67.

Rollo, p. 28.

10

529 Phil. 77 (2006).

11

Rollo, pp. 44-45. The pertinent portions of the Complaint are as follows:

Paragraph 5 states:
5. Defendant Anita was issued a BPI Credit Card under customer No. 020100 900
3041167, upon her acceptance of the terms and conditions governing the issuance
and use of the BPI Credit Card.

Paragraph 7 states:
7. Defendant availed herself of such credit accommodation by using the said BPI
card.
Paragraph 8 states:
8. Through the use of her aforesaid credit card, defendant incurred credit charges,
with Total Outstanding Balance (TOB) of P548,143.73 per Statement of Account
(SOA) dated 09 September 2007, x x x.
Paragraph 10 states:
10. The plaintiff made several verbal and written demands on the defendant for the
payment of her credit availments through the use of the subject credit card, by
sending the defendant demand letters and also the pertinent statements of account
showing the amount owed and the date of the required payment is due from her.
Notwithstanding the defendants receipt of these demands, she unjustifiably refused
and failed, as she unjustifiably continues to refuse and fail to pay her plain, just,
valid, outstanding and overdue obligation to the plaintiff.
12

Id. at 4. Paragraphs 6 and 8 of the Petition.

13

Supra note 10.

14

Supra note 8.

15

Supra note 10.

16

See BPIs Formal Offer of Evidence, records, pp. 197-199.

17

Alcaraz v. Court of Appeals, supra note 10 at 88.

18

Supra note 8.

19

Supra note 8 at 75.

20

Relevantly, Ledda states in paragraph 28 of her petition that: "Assuming,

arguendo, that respondent was able to establish a cause of action against
petitioner, the same will only be limited to the principal obligation of P322,138.58.
Given the illegality of the finance charges unilaterally imposed by respondent in the
amount of P226,005.15 should be deleted and deducted from the P548,143.73,
leaving an unpaid principal balance of only P322,138.58 as of September 2007."
(Rollo, p. 15)
21

Alcaraz, supra note 10 at 88, citing Eastern Shipping Lines, Inc. v. Court of
Appeals, G.R. No. 97412, 12 July 1994, 234 SCRA 78, 95.
22

G.R. No. 97412, 12 July 1994, 234 SCRA 78, 95.

23

Art. 2209. If the obligation consists in the payment of a sum of money, and the
debtor incurs in delay, the indemnity for damages, there being no stipulation to the
contrary, shall be the payment of the interest agreed upon, and in the absence of
stipulation, the legal interest, which is six per cent per annum. (Emphasis supplied)
24

G.R. No. 164401, 25 June 2008, 555 SCRA 275, 288.

25

Rollo, p. 74.

26

Sent by registered mail.

27

Philippine Airlines, Inc. v. Court of Appeals, G.R. No. 123238, 22 September 2008,
566 SCRA 124, 137; Tomimbang v. Tomimbang, G.R. No. 165116, 4 August 2009,
595 SCRA 135, 146, citing Delos Santos v. Papa, G.R. No. 154427, 8 May 2009, 587
SCRA 385; Siga-an v. Villanueva, G.R. No. 173227, 20 January 2009, 576 SCRA 696.
28

Buing v. Santos, 533 Phil. 610, 617 (2006); Serrano v. Spouses Gutierrez, 537
Phil. 187, 198 (2006), citing Legaspi v. Spouses Ong, 498 Phil. 167 (2005).
29

Buing v. Santos, 533 Phil. 610, 617 (2006).

30

G.R. No. 155223, 3 April 2007, 520 SCRA 244, 259-260.

Republic of the Philippines

SUPREME COURT
SECOND DIVISION
G.R. Nos. 150773 & 153599 September 30, 2005

SPOUSES DAVID B. CARPO & and RECHILDA S. CARPO, Petitioners,

vs.
ELEANOR CHUA and ELMA DY NG, Respondent.
DECISION
Tinga, J.:
Before this Court are two consolidated petitions for review. The first, docketed as
G.R. No. 150773, assails theDecision1 of the Regional Trial Court (RTC), Branch 26 of
Naga City dated 26 October 2001 in Civil Case No. 99-4376. RTC Judge Filemon B.
Montenegro dismissed the complaint2 for annulment of real estate mortgage and
consequent foreclosure proceedings filed by the spouses David B. Carpo and
Rechilda S. Carpo (petitioners).
The second, docketed as G.R. No. 153599, seeks to annul the Court of
Appeals Decision3 dated 30 April 2002 in CA-G.R. SP No. 57297. The Court of
Appeals Third Division annulled and set aside the orders of Judge Corazon A. Tordilla
to suspend the sheriffs enforcement of the writ of possession.
The cases stemmed from a loan contracted by petitioners. On 18 July 1995, they
borrowed from Eleanor Chua and Elma Dy Ng (respondents) the amount of One
Hundred Seventy-Five Thousand Pesos (P175,000.00), payable within six (6) months
with an interest rate of six percent (6%) per month. To secure the payment of the
loan, petitioners mortgaged their residential house and lot situated at San
Francisco, Magarao, Camarines Sur, which lot is covered by Transfer Certificate of
Title (TCT) No. 23180. Petitioners failed to pay the loan upon demand.
Consequently, the real estate mortgage was extrajudicially foreclosed and the
mortgaged property sold at a public auction on 8 July 1996. The house and lot was
awarded to respondents, who were the only bidders, for the amount of Three
Hundred Sixty-Seven Thousand Four Hundred Fifty-Seven Pesos and Eighty
Centavos (P367,457.80).
Upon failure of petitioners to exercise their right of redemption, a certificate of sale
was issued on 5 September 1997 by Sheriff Rolando A. Borja. TCT No. 23180 was
cancelled and in its stead, TCT No. 29338 was issued in the name of respondents.
Despite the issuance of the TCT, petitioners continued to occupy the said house and
lot, prompting respondents to file a petition for writ of possession with the RTC
docketed as Special Proceedings (SP) No. 98-1665. On 23 March 1999, RTC Judge
Ernesto A. Miguel issued an Order4 for the issuance of a writ of possession.
On 23 July 1999, petitioners filed a complaint for annulment of real estate mortgage
and the consequent foreclosure proceedings, docketed as Civil Case No. 99-4376 of
the RTC. Petitioners consigned the amount of Two Hundred Fifty-Seven Thousand

One Hundred Ninety-Seven Pesos and Twenty-Six Centavos (P257,197.26) with the
RTC.
Meanwhile, in SP No. 98-1665, a temporary restraining order was issued upon
motion on 3 August 1999, enjoining the enforcement of the writ of possession. In
an Order5 dated 6 January 2000, the RTC suspended the enforcement of the writ of
possession pending the final disposition of Civil Case No. 99-4376. Against
this Order, respondents filed a petition for certiorari and mandamus before the
Court of Appeals, docketed as CA-G.R. SP No. 57297.
During the pendency of the case before the Court of Appeals, RTC Judge Filemon B.
Montenegro dismissed the complaint in Civil Case No. 99-4376 on the ground that it
was filed out of time and barred by laches. The RTC proceeded from the premise
that the complaint was one for annulment of a voidable contract and thus barred by
the four-year prescriptive period. Hence, the first petition for review now under
consideration was filed with this Court, assailing the dismissal of the complaint.
The second petition for review was filed with the Court after the Court of Appeals on
30 April 2002 annulled and set aside the RTC orders in SP No. 98-1665 on the
ground that it was the ministerial duty of the lower court to issue the writ of
possession when title over the mortgaged property had been consolidated in the
mortgagee.
This Court ordered the consolidation of the two cases, on motion of petitioners.
In G.R. No. 150773, petitioners claim that following the Courts ruling in Medel v.
Court of Appeals6 the rate of interest stipulated in the principal loan agreement is
clearly null and void. Consequently, they also argue that the nullity of the agreed
interest rate affects the validity of the real estate mortgage. Notably, while
petitioners were silent in their petition on the issues of prescription and laches on
which the RTC grounded the dismissal of the complaint, they belatedly raised the
matters in their Memorandum. Nonetheless, these points warrant brief comment.
On the other hand, petitioners argue in G.R. No. 153599 that the RTC did not
commit any grave abuse of discretion when it issued the orders dated 3 August
1999 and 6 January 2000, and that these orders could not have been "the proper
subjects of a petition for certiorari and mandamus". More accurately, the justiciable
issues before us are whether the Court of Appeals could properly entertain the
petition for certiorari from the timeliness aspect, and whether the appellate court
correctly concluded that the writ of possession could no longer be stayed.
We first resolve the petition in G.R. No. 150773.
Petitioners contend that the agreed rate of interest of 6% per month or 72% per
annum is so excessive, iniquitous, unconscionable and exorbitant that it should
have been declared null and void. Instead of dismissing their complaint, they aver

that the lower court should have declared them liable to respondents for the original
amount of the loan plus 12% interest per annum and 1% monthly penalty charge as
liquidated damages,7 in view of the ruling in Medel v. Court of Appeals.8
In Medel, the Court found that the interest stipulated at 5.5% per month or 66% per
annum was so iniquitous or unconscionable as to render the stipulation void.
Nevertheless, we find the interest at 5.5% per month, or 66% per annum, stipulated
upon by the parties in the promissory note iniquitous or unconscionable, and,
hence, contrary to morals ("contra bonos mores"), if not against the law. The
stipulation is void. The Court shall reduce equitably liquidated damages, whether
intended as an indemnity or a penalty if they are iniquitous or unconscionable. 9
In a long line of cases, this Court has invalidated similar stipulations on interest
rates for being excessive, iniquitous, unconscionable and exorbitant. In Solangon v.
Salazar,10 we annulled the stipulation of 6% per month or 72% per annum interest
on a P60,000.00 loan. In Imperial v. Jaucian,11 we reduced the interest rate from
16% to 1.167% per month or 14% per annum. In Ruiz v. Court of Appeals,12 we
equitably reduced the agreed 3% per month or 36% per annum interest to 1% per
month or 12% per annum interest. The 10% and 8% interest rates per month on
a P1,000,000.00 loan were reduced to 12% per annum in Cuaton v.
Salud.13 Recently, this Court, in Arrofo v. Quino,14 reduced the 7% interest per month
on a P15,000.00 loan amounting to 84% interest per annum to 18% per annum.
There is no need to unsettle the principle affirmed in Medel and like cases. From
that perspective, it is apparent that the stipulated interest in the subject loan is
excessive, iniquitous, unconscionable and exorbitant. Pursuant to the freedom of
contract principle embodied in Article 1306 of the Civil Code, contracting parties
may establish such stipulations, clauses, terms and conditions as they may deem
convenient, provided they are not contrary to law, morals, good customs, public
order, or public policy. In the ordinary course, the codal provision may be invoked to
annul the excessive stipulated interest.
In the case at bar, the stipulated interest rate is 6% per month, or 72% per annum.
By the standards set in the above-cited cases, this stipulation is similarly invalid.
However, the RTC refused to apply the principle cited and employed in Medel on the
ground that Medel did not pertain to the annulment of a real estate mortgage, 15 as it
was a case for annulment of the loan contract itself. The question thus sensibly
arises whether the invalidity of the stipulation on interest carries with it the
invalidity of the principal obligation.
The question is crucial to the present petition even if the subject thereof is not the
annulment of the loan contract but that of the mortgage contract. The consideration
of the mortgage contract is the same as that of the principal contract from which it
receives life, and without which it cannot exist as an independent contract. Being a

mere accessory contract, the validity of the mortgage contract would depend on the
validity of the loan secured by it.16
Notably in Medel, the Court did not invalidate the entire loan obligation despite the
inequitability of the stipulated interest, but instead reduced the rate of interest to
the more reasonable rate of 12% per annum. The same remedial approach to the
wrongful interest rates involved was employed or affirmed by the Court
in Solangon,Imperial, Ruiz, Cuaton, and Arrofo.
The Courts ultimate affirmation in the cases cited of the validity of the principal
loan obligation side by side with the invalidation of the interest rates thereupon is
congruent with the rule that a usurious loan transaction is not a complete nullity but
defective only with respect to the agreed interest.
We are aware that the Court of Appeals, on certain occasions, had ruled that a
usurious loan is wholly null and void both as to the loan and as to the usurious
interest.17 However, this Court adopted the contrary rule,
as comprehensively discussed in Briones v. Cammayo:18
In Gui Jong & Co. vs. Rivera, et al., 45 Phil. 778, this Court likewise declared that, in
any event, the debtor in a usurious contract of loan should pay the creditor the
amount which he justly owes him, citing in support of this ruling its previous
decisions in Go Chioco, Supra, Aguilar vs. Rubiato, et al., 40 Phil. 570, and Delgado
vs. Duque Valgona, 44 Phil. 739.
....
Then in Lopez and Javelona vs. El Hogar Filipino, 47 Phil. 249, We also held that the
standing jurisprudence of this Court on the question under consideration was clearly
to the effect that the Usury Law, by its letter and spirit, did not deprive the lender of
his right to recover from the borrower the money actually loaned to and enjoyed by
the latter. This Court went further to say that the Usury Law did not provide for the
forfeiture of the capital in favor of the debtor in usurious contracts, and that while
the forfeiture might appear to be convenient as a drastic measure to eradicate the
evil of usury, the legal question involved should not be resolved on the basis of
convenience.
Other cases upholding the same principle are Palileo vs. Cosio, 97 Phil. 919 and
Pascua vs. Perez, L-19554, January 31, 1964, 10 SCRA 199, 200-202. In the latter We
expressly held that when a contract is found to be tainted with usury "the only right
of the respondent (creditor) . . . was merely to collect the amount of the loan, plus
interest due thereon."
The view has been expressed, however, that the ruling thus consistently adhered to
should now be abandoned because Article 1957 of the new Civil Code a
subsequent law provides that contracts and stipulations, under any cloak or

device whatever, intended to circumvent the laws against usury, shall be void, and
that in such cases "the borrower may recover in accordance with the laws on usury."
From this the conclusion is drawn that the whole contract is void and that, therefore,
the creditor has no right to recover not even his capital.
The meaning and scope of our ruling in the cases mentioned heretofore is clearly
stated, and the view referred to in the preceding paragraph is adequately answered,
in Angel Jose, etc. vs. Chelda Enterprises, et al. (L-25704, April 24, 1968). On the
question of whether a creditor in a usurious contract may or may not recover the
principal of the loan, and, in the affirmative, whether or not he may also recover
interest thereon at the legal rate, We said the following:
". . . .
Appealing directly to Us, defendants raise two questions of law: (1) In a loan with
usurious interest, may the creditor recover the principal of the loan? (2) Should
attorney's fees be awarded in plaintiff's favor?"
Great reliance is made by appellants on Art. 1411 of the New Civil Code . . . .
Since, according to the appellants, a usurious loan is void due to illegality of cause
or object, the rule of pari delicto expressed in Article 1411, supra, applies, so that
neither party can bring action against each other. Said rule, however, appellants
add, is modified as to the borrower, by express provision of the law (Art. 1413, New
Civil Code), allowing the borrower to recover interest paid in excess of the interest
allowed by the Usury Law. As to the lender, no exception is made to the rule; hence,
he cannot recover on the contract. So they continue the New Civil Code
provisions must be upheld as against the Usury Law, under which a loan with
usurious interest is not totally void, because of Article 1961 of the New Civil Code,
that: "Usurious contracts shall be governed by the Usury Law and other special
laws, so far as they are not inconsistent with this Code."
We do not agree with such reasoning. Article 1411 of the New Civil Code is not new;
it is the same as Article 1305 of the Old Civil Code. Therefore, said provision is no
warrant for departing from previous interpretation that, as provided in the Usury
Law (Act No. 2655, as amended), a loan with usurious interest is not totally void
only as to the interest.
. . . [a]ppellants fail to consider that a contract of loan with usurious
interest consists of principal and accessory stipulations; the principal one
is to pay the debt; the accessory stipulation is to pay interest thereon.
And said two stipulations are divisible in the sense that the former can
still stand without the latter. Article 1273, Civil Code, attests to this: "The
renunciation of the principal debt shall extinguish the accessory
obligations; but the waiver of the latter shall leave the former in force."

The question therefore to resolve is whether the illegal terms as to

payment of interest likewise renders a nullity the legal terms as to
payments of the principal debt. Article 1420 of the New Civil Code
provides in this regard: "In case of a divisible contract, if the illegal terms
can be separated from the legal ones, the latter may be enforced."
In simple loan with stipulation of usurious interest, the prestation of the
debtor to pay the principal debt, which is the cause of the contract (Article
1350, Civil Code), is not illegal. The illegality lies only as to the prestation
to pay the stipulated interest; hence, being separable, the latter only
should be deemed void, since it is the only one that is illegal.
....
The principal debt remaining without stipulation for payment of interest can thus be
recovered by judicial action. And in case of such demand, and the debtor incurs in
delay, the debt earns interest from the date of the demand (in this case from the
filing of the complaint). Such interest is not due to stipulation, for there was none,
the same being void. Rather, it is due to the general provision of law that in
obligations to pay money, where the debtor incurs in delay, he has to pay interest
by way of damages (Art. 2209, Civil Code). The court a quo therefore, did not err in
ordering defendants to pay the principal debt with interest thereon at the legal rate,
from the date of filing of the complaint." 19
The Courts wholehearted affirmation of the rule that the principal obligation
subsists despite the nullity of the stipulated interest is evinced by its subsequent
rulings, cited above, in all of which the main obligation was upheld and the
offending interest rate merely corrected. Hence, it is clear and settled that the
principal loan obligation still stands and remains valid. By the same token, since the
mortgage contract derives its vitality from the validity of the principal obligation,
the invalid stipulation on interest rate is similarly insufficient to render void the
ancillary mortgage contract.
It should be noted that had the Court declared the loan and mortgage agreements
void for being contrary to public policy, no prescriptive period could have
run.20 Such benefit is obviously not available to petitioners.
Yet the RTC pronounced that the complaint was barred by the four-year prescriptive
period provided in Article 1391 of the Civil Code, which governs voidable contracts.
This conclusion was derived from the allegation in the complaint that the consent of
petitioners was vitiated through undue influence. While the RTC correctly
acknowledged the rule of prescription for voidable contracts, it erred in applying the
rule in this case. We are hard put to conclude in this case that there was any undue
influence in the first place.

There is ultimately no showing that petitioners consent to the loan and mortgage
agreements was vitiated by undue influence. The financial condition of petitioners
may have motivated them to contract with respondents, but undue influence cannot
be attributed to respondents simply because they had lent money. Article 1391, in
relation to Article 1390 of the Civil Code, grants the aggrieved party the right to
obtain the annulment of contract on account of factors which vitiate consent. Article
1337 defines the concept of undue influence, as follows:
There is undue influence when a person takes improper advantage of his power
over the will of another, depriving the latter of a reasonable freedom of choice. The
following circumstances shall be considered: the confidential, family, spiritual and
other relations between the parties or the fact that the person alleged to have been
unduly influenced was suffering from mental weakness, or was ignorant or in
financial distress.
While petitioners were allegedly financially distressed, it must be proven that there
is deprivation of their free agency. In other words, for undue influence to be present,
the influence exerted must have so overpowered or subjugated the mind of a
contracting party as to destroy his free agency, making him express the will of
another rather than his own.21 The alleged lingering financial woes of petitioners per
se cannot be equated with the presence of undue influence.
The RTC had likewise concluded that petitioners were barred by laches from
assailing the validity of the real estate mortgage. We wholeheartedly agree. If
indeed petitioners unwillingly gave their consent to the agreement, they should
have raised this issue as early as in the foreclosure proceedings. It was only when
the writ of possession was issued did petitioners challenge the stipulations in the
loan contract in their action for annulment of mortgage. Evidently, petitioners slept
on their rights. The Court of Appeals succinctly made the following observations:
In all these proceedings starting from the foreclosure, followed by the issuance of a
provisional certificate of sale; then the definite certificate of sale; then the issuance
of TCT No. 29338 in favor of the defendants and finally the petition for the issuance
of the writ of possession in favor of the defendants, there is no showing that
plaintiffs questioned the validity of these proceedings. It was only after the issuance
of the writ of possession in favor of the defendants, that plaintiffs allegedly
tendered to the defendants the amount of P260,000.00 which the defendants
refused. In all these proceedings, why did plaintiffs sleep on their rights? 22
Clearly then, with the absence of undue influence, petitioners have no cause of
action. Even assuming undue influence vitiated their consent to the loan contract,
their action would already be barred by prescription when they filed it. Moreover,
petitioners had clearly slept on their rights as they failed to timely assail the validity
of the mortgage agreement. The denial of the petition in G.R. No. 150773 is
warranted.

We now resolve the petition in G.R. No. 153599.

Petitioners claim that the assailed RTC orders dated 3 August 1999 and 6 January
2000 could no longer be questioned in a special civil action for certiorari and
mandamus as the reglementary period for such action had already elapsed.
It must be noted that the Order dated 3 August 1999 suspending the enforcement
of the writ of possession had a period of effectivity of only twenty (20) days from 3
August 1999, or until 23 August 1999. Thus, upon the expiration of the twenty (20)day period, the said Order became functus officio. Thus, there is really no sense in
assailing the validity of this Order, mooted as it was. For the same reason, the
validity of the order need not have been assailed by respondents in their special
civil action before the Court of Appeals.
On the other hand, the Order dated 6 January 2000 is in the nature of a writ of
injunction whose period of efficacy is indefinite. It may be properly assailed by way
of the special civil action for certiorari, as it is interlocutory in nature.
As a rule, the special civil action for certiorari under Rule 65 must be filed not later
than sixty (60) days from notice of the judgment or order. 23 Petitioners argue that
the 3 August 1999 Order could no longer be assailed by respondents in a special
civil action for certiorari before the Court of Appeals, as the petition was filed
beyond sixty (60) days following respondents receipt of the Order. Considering that
the 3 August 1999 Order had become functus officio in the first place, this argument
deserves scant consideration.
Petitioners further claim that the 6 January 2000 Order could not have likewise been
the subject of a special civil action for certiorari, as it is according to them a final
order, as opposed to an interlocutory order. That the 6 January 2000 Order is
interlocutory in nature should be beyond doubt. An order is interlocutory if its
effects would only be provisional in character and would still leave substantial
proceedings to be further had by the issuing court in order to put the controversy to
rest.24 The injunctive relief granted by the order is definitely final, but merely
provisional, its effectivity hinging on the ultimate outcome of the then pending
action for annulment of real estate mortgage. Indeed, an interlocutory order hardly
puts to a close, or disposes of, a case or a disputed issue leaving nothing else to be
done by the court in respect thereto, as is characteristic of a final order.
Since the 6 January 2000 Order is not a final order, but rather interlocutory in
nature, we cannot agree with petitioners who insist that it may be assailed only
through an appeal perfected within fifteen (15) days from receipt thereof by
respondents. It is axiomatic that an interlocutory order cannot be challenged by an
appeal,

but is susceptible to review only through the special civil action of certiorari. 25 The
sixty (60)-day reglementary period for special civil actions under Rule 65 applies,
and respondents petition was filed with the Court of Appeals well within the period.
Accordingly, no error can be attributed to the Court of Appeals in granting the
petition for certiorari and mandamus. As pointed out by respondents, the remedy of
mandamus lies to compel the performance of a ministerial duty. The issuance of a
writ of possession to a purchaser in an extrajudicial foreclosure is merely a
ministerial function.26
Thus, we also affirm the Court of Appeals ruling to set aside the RTC orders
enjoining the enforcement of the writ of possession. 27 The purchaser in a foreclosure
sale is entitled as a matter of right to a writ of possession, regardless of whether or
not there is a pending suit for annulment of the mortgage or the foreclosure
proceedings. An injunction to prohibit the issuance or enforcement of the writ is
entirely out of place.28
One final note. The issue on the validity of the stipulated interest rates, regrettably
for petitioners, was not raised at the earliest possible opportunity. It should be
pointed out though that since an excessive stipulated interest rate may be void for
being contrary to public policy, an action to annul said interest rate does not
prescribe. Such indeed is the remedy; it is not the action for annulment of the
ancillary real estate mortgage. Despite the nullity of the stipulated interest rate, the
principal loan obligation subsists, and along with it the mortgage that serves as
collateral security for it.
WHEREFORE, in view of all the foregoing, the petitions are DENIED. Costs against
petitioners.
SO ORDERED.
DANTE O. TINGA Associate Justice
WE CONCUR:
REYNATO S. PUNO
Associate Justice
Chairman
MA. ALICIA AUSTRIA-MARTINEZ, ROMEO J. CALLEJO, SR.
Associate Justice Associate Justice
MINITA V. CHICO-NAZARIO
Associate Justice

ATTESTATION
I attest that the conclusions in the above Decision had been in consultation before
the case was assigned to the writer of the opinion of the Courts Division.
REYNATO S. PUNO
Associate Justice
Chairman, Second Division
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, and the Division Chairmans
Attestation, it is hereby certified that the conclusions in the above Decision had
been reached in consultation before the case was assigned to the writer of the
opinion of the Courts Division.
HILARIO G. DAVIDE, JR.
Chief Justice

Footnotes
1

G.R. No. 150773, Rollo, pp. 15-21.

Id. at 22-25. Elevated directly to this Court, it raising pure questions of law, in
accordance with Section 1, Rule 45, Rules of Court.
3

Penned by Associate Justice Eubolo G. Verzola and concurred in by Associate

Justices Bernardo P. Abesamis and Josefina Guevara-Salonga. G.R. No. 153599, Rollo,
pp. 22-26.
4

G.R. No. 153599, Rollo, p.30.

Id. at 38-40.

359 Phil. 820 (1998).

G.R. No. 150773, Rollo, p.10.

Supra note 6.

Ibid. Citing Ibarra v. Averyro, 37 Phil. 274 (1917); Almeda v. Court of Appeals, 326
Phil. 309 (1998).
10

412 Phil. 816 (2001).

11

G.R. No. 149004, 14 April 2004, 427 SCRA 517.

12

G.R. No. 146942, 22 April 2003, 401 SCRA 410.

13

G.R. No. 158382, 27 January 2004, 421 SCRA 278.

14

G.R. No. 145794, 26 January 2005, 449 SCRA 284.

15

G.R. No. 150773, Rollo, p. 18.

16

Naguiat v. Court of Appeals, G.R. No. 118375, 3 October 2003, 412 SCRA
591, citing China Banking Corporation v. Lichauco, 46 Phil. 460 (1926) and Filipinas
Marble Corp. v. Intermediate Appellate Court, 226 Phil. 109, 119 (1986).
17

See H. De Leon, Comments and Cases on Credit Transactions (2002 ed.), at

95, citing Sebastian v. Bautista [CA] 58 O.G. No. 15, 3147; People v. Masangkay,
[CA] 58 O.G. No. 17, 3565; Torres v. Joco, [CA] 59 O.G. No. 10, 1580.
18

148-B Phil. 881 (1971).

19

Id. at 891-893. Emphasis supplied.

20

See Article 1410, Civil Code.

21

Coso v. Fernandez Deza, 42 Phil. 595 (1921).

22

G.R. No. 150773, Rollo, p. 20.

23

Section 4, Rule 65, Rules of Court.

24

Sto. Tomas Hospital v. Surla, 355 Phil. 804 (1998), citing Investments, Inc. vs.
Court of Appeals, L-60036, 27 January 1987, 147 SCRA 334; Denso Phils. Inc. v.
Intermediate Appellate Court, L-75000, 27 February 1987, 148 SCRA 280; Bairan v.
Tan Siu Lay, 125 Phil. 371 (1966).
25

Yamaoka v. Pescarich, 414 Phil. 211 (2001); Go v. Court of Appeals, 358 Phil. 214
(1998). "[T]he proper remedy in such cases is an ordinary appeal from an adverse
judgment on the merits, incorporating in said appeal the grounds for assailing the
interlocutory orders. Allowing appeals from interlocutory orders would result in the
sorry spectacle of a case being subject of a counterproductive ping-pong to and
from the appellate court as often as a trial court is perceived to have made an error
in any of its interlocutory rulings. However, where the assailed order is patently
erroneous and the remedy of appeal would not afford adequate and expeditious
relief, the Court may allow certiorari as a mode of redress."
26

F. David Enterprises v. Insular Bank of Asia and America, G.R. No. 78714, 21
November 1990, 191 SCRA 516; Primetown Property Group v. Juntilla, G.R. No.
157801, 8 June 2005; Santiago v. Merchants Rural Bank of Talavera, Inc., G.R. No.
147820, 18 March 2005; DBP v. Gatal, G.R. No. 138567, 4 March 2005; Mamerto

Maniquis Foundation v. Pizarro, A.M. No. RTJ-03-1750, 14 January 2005, 448 SCRA
140; De Vera v. Agloro, G.R. No. 155673, 14 January 2005, 448 SCRA
203, citing China Banking Corporation v. Ordinario, G.R. No. 121943, 24 March 2003,
399 SCRA 430; A.G. Development Corporation v. Court of Appeals, 346 Phil. 136
(1997); Suico Industrial Corporation v. Court of Appeals, 361 Phil. 160 (1999); Idolor
v. Court of Appeals, G.R. No. 161028, 31 January 2005, 450 SCRA
396, citing Samson, et al. v. Judge Rivera, et al., G.R. No. 154355, 20 May 2004, 428
SCRA 759.
27

Primetown Property Group v. Juntilla, G.R. No. 157801, 8 June 2005; Santiago v.
Merchants Rural Bank of Talavera, Inc., G.R. No. 147820, 18 March 2005; DBP v.
Gatal, G.R. No. 138567, 4 March 2005; Mamerto Maniquis Foundation v. Pizarro, A.M.
No. RTJ-03-1750, 14 January 2005, 448 SCRA 140; De Vera v. Agloro, G.R. No.
155673, 14 January 2005, 448 SCRA 203, citing China Banking Corporation v.
Ordinario, G.R. No. 121943, 24 March 2003, 399 SCRA 430; A.G. Development
Corporation v. Court of Appeals, 346 Phil. 136 (1997); Suico Industrial Corporation v.
Court of Appeals, 361 Phil. 160 (1999). Idolor v. Court of Appeals, G.R. No. 161028,
31 January 2005, 450 SCRA 396, citing Samson, et al. v. Judge Rivera, et al., G.R.
No. 154355, 20 May 2004, 428 SCRA 759.
28

Kho v. Court of Appeals, G.R. No. 83498, 22 October 1991, 203 SCRA 160; Veloso v.
Intermediate Appellate Court, G.R. No. 73338, 21 January 1992, 205 SCRA 227.

Republic of the Philippines

SUPREME COURT
Manila

FIRST DIVISION
G.R. No. 172139

December 8, 2010

JOCELYN M. TOLEDO, Petitioner,

vs.
MARILOU M. HYDEN, Respondent.
DECISION
DEL CASTILLO, J.:
It is true that the imposition of an unconscionable rate of interest on a money debt
is immoral and unjust and the court may come to the aid of the aggrieved party to
that contract. However, before doing so, courts have to consider the settled
principle that the law will not relieve a party from the effects of an unwise, foolish or
disastrous contract if such party had full awareness of what she was doing.
This Petition for Review on Certiorari1 assails the Decision2 dated August 24, 2005 of
the Court of Appeals (CA) in CA-G.R. CV No. 79805, which affirmed the Decision
dated March 10, 20033 of the Regional Trial Court (RTC), Branch 22, Cebu City in
Civil Case No. CEB-22867. Also assailed is the
Resolution dated March 8, 2006 denying the motion for reconsideration.
Factual Antecedents
Petitioner Jocelyn M. Toledo (Jocelyn), who was then the Vice-President of the
College Assurance Plan (CAP) Phils., Inc., obtained several loans from respondent
Marilou M. Hyden (Marilou). The transactions are briefly summarized below:
1) August 15, 1993

P 30,000.0
0

2) April 21, 1994

100,000.00

3) October 2, 1995

30,000.00

4) October 9, 1995

30,000.00

5) May 22, 1997

100,000.00 with 7% monthly interest

TOTAL AMOUNT OF LOAN

P 290,000.
00

with 6% monthly
interest

From August 15, 1993 up to December 31, 1997, Jocelyn had been religiously
paying Marilou the stipulated monthly interest by issuing checks and depositing
sums of money in the bank account of the latter. However, the total principal
amount of P290,000.00 remained unpaid. Thus, in April 1998, Marilou visited Jocelyn

in her office at CAP in Cebu City and asked Jocelyn and the other employees who
were likewise indebted to her to acknowledge their debts. A document entitled
"Acknowledgment of Debt"5 for the amount of P290,000.00 was signed by Jocelyn
with two of her subordinates as witnesses. The said amount represents the principal
consolidated amount of the aforementioned previous debts due on December 25,
1998. Also on said occasion, Jocelyn issued five checks to Marilou representing
renewal payment of her five previous loans, viz:
Check No. 0010761 dated September 2,
1998

. . . . . . . P 30,000.0
..
0

Check No. 0010762 dated September 9,

1998

. . . . . . . 30,000.00
..

Check No. 0010763 dated September 15, . . . . . . . 30,000.00

1998
..
Check No. 0010764 dated September 22, . . . . . . . 100,000.00
1998
..
Check No. 0010765 dated September 25, . . . . . . . 100,000.00
1998
..
TOTAL

P 290,000.
00

In June 1998, Jocelyn asked Marilou for the recall of Check No. 0010761 in the
amount of P30,000.00 and replaced the same with six checks, in staggered
amounts, namely:
Check No. 0010494 dated July 2, 1998

. . . . . . . P 6,625.00
..

Check No. 0010495 dated August 2,

1998

. . . . . . . 6,300.00
..

Check No. 0010496 dated September 2, . . . . . . . 5,975.00

1998
..
Check No. 0010497 dated October 2,
1998

. . . . . . . 6,500.00
..

Check No. 0010498 dated November 2, . . . . . . . 5,325.00

1998
..
Check No. 0010499 dated December 2, . . . . . . . 5,000.00
1998
..

TOTAL

P 35,725.
00

After honoring Check Nos. 0010494, 0010495 and 0010496, Jocelyn ordered the
stop payment on the remaining checks and on October 27, 1998, filed with the RTC
of Cebu City a complaint6 against Marilou for Declaration of Nullity and Payment,
Annulment, Sum of Money, Injunction and Damages.
Jocelyn averred that Marilou forced, threatened and intimidated her into signing the
"Acknowledgment of Debt" and at the same time forced her to issue the seven
postdated checks. She claimed that Marilou even threatened to sue her for violation
of Batas Pambansa (BP) Blg. 22 or the Bouncing Checks Law if she will not sign the
said document and draw the above-mentioned checks. Jocelyn further claimed that
the application of her total payment of P528,550.00 to interest alone is illegal,
unfounded, unjust, oppressive and contrary to law because there was no written
agreement to pay interest.
On November 23, 1998, Marilou filed an Answer 7 with Special Affirmative Defenses
and Counterclaim alleging that Jocelyn voluntarily obtained the said loans knowing
fully well that the interest rate was at 6% to 7% per month. In fact, a 6% to 7%
advance interest was already deducted from the loan amount given to Jocelyn.
Ruling of the Regional Trial Court
The court a quo did not find any showing that Jocelyn was forced, threatened, or
intimidated in signing the document referred to as "Acknowledgment of Debt" and
in issuing the postdated checks. Thus, in its March 10, 2003 Decision the trial court
ruled in favor of Marilou, viz:
WHEREFORE, premised on the foregoing, the Court hereby declares the document
"Acknowledgment of Debt" valid and binding. PLAINTIFF is indebted to DEFENDANT
[for] the amount of TWO HUNDRED NINETY THOUSAND (P290,000.00) PESOS since
December 25, 1998 less the amount of EIGHTEEN THOUSAND NINE HUNDRED
(P18,900.00) PESOS, equivalent to the three checks made good (P6,625.00 dated
07-02-1998;P6,300.00 dated 08-02-1998; and P5,975.00 dated 09-02-1998).
Consequently, PLAINTIFF is hereby ordered to pay DEFENDANT the amount of TWO
HUNDRED SEVENTY ONE THOUSAND ONE HUNDRED (P271,100.00) PESOS due on
December 25, 1998 with a 12% interest per annum or 1% interest per month until
such time that the said amount shall have been fully paid.
No pronouncement as to costs.
SO ORDERED.8

On March 26, 2003, Jocelyn filed an Earnest Motion for Reconsideration, 9 which was
denied by the trial court in its Order10 dated April 29, 2003 stating that it finds no
sufficient reason to disturb its March 10, 2003 Decision.
Ruling of the Court of Appeals
On appeal, Jocelyn asserts that she had made payments in the total amount
of P778,000.00 for a principal amount of loan of only P290,000.00. What is
appalling, according to Jocelyn, was that such payments covered only the interest
because of the excessive, iniquitous, unconscionable and exorbitant imposition of
the 6% to 7% monthly interest.
On August 24, 2005, the CA issued its Decision which provides:
WHEREFORE, premises considered, the Decision dated March 10, 2003 and the
Order dated April 29, 2003, of the Regional Trial Court, 7th Judicial Region, Branch
22, Cebu City, in Civil Case No. CEB-22867 are herebyAFFIRMED. No
pronouncement as to costs.
SO ORDERED.11
The Motion for Reconsideration12 filed by Jocelyn was denied by the CA through its
Resolution13 dated March 8, 2006.
Issues
Hence, this petition raising the following issues:
I.
Whether the CA gravely erred when it held that the imposition of interest at the rate
of six percent (6%) to seven percent (7%) is not contrary to law, morals, good
customs, public order or public policy.
II.
Whether the CA gravely erred when it failed to declare that the "Acknowledgment of
Debt" is an inexistent contract that is void from the very beginning pursuant to
Article 1409 of the New Civil Code.
Petitioners Arguments
Jocelyn posits that the CA erred when it held that the imposition of interest at the
rates of 6% to 7% per month is not contrary to law, not unconscionable and not
contrary to morals. She likewise contends that the CA erred in ruling that the
"Acknowledgment of Debt" is valid and binding. According to Jocelyn, even
assuming that the execution of said document was not attended with force, threat
and intimidation, the same must nevertheless be declared null and void for being

contrary to law and public policy. This is borne out by the fact that the payments in
the total amount of P778,000.00 was applied to interest payment alone. This only
proves that the transaction was iniquitous, excessive, oppressive and
unconscionable.
Respondents Arguments
On the other hand, Marilou would like this Court to consider the fact that the
document referred to as "Acknowledgment of Debt" was executed in the safe
surroundings of the office of Jocelyn and it was witnessed by two of her staff. If at all
there had been coercion, then Jocelyn could have easily prevented her staff from
affixing their signatures to said document. In fact, petitioner had admitted that she
was the one who went to the tables of her staff to let them sign the said document.
Our Ruling
The petition is without merit.
The 6% to 7% interest per month paid by Jocelyn is not excessive under the
circumstances of this case.
In view of Central Bank Circular No. 905 s. 1982, which suspended the Usury Law
ceiling on interest effective January 1, 1983, parties to a loan agreement have wide
latitude to stipulate interest rates. Nevertheless, such stipulated interest rates may
be declared as illegal if the same is unconscionable. 14 There is certainly nothing in
said circular which grants lenders carte blanche authority to raise interest rates to
levels which will either enslave their borrowers or lead to a hemorrhaging of their
assets.15 In fact, in Medel v. Court of Appeals,16 we annulled a stipulated 5.5% per
month or 66% per annum interest with additional service charge of 2% per annum
and penalty charge of 1% per month on a P500,000.00 loan for being excessive,
iniquitous, unconscionable and exorbitant.
In this case, however, we cannot consider the disputed 6% to 7% monthly interest
rate to be iniquitous or unconscionable vis--vis the principle laid down
in Medel. Noteworthy is the fact that in Medel, the defendant-spouses were never
able to pay their indebtedness from the very beginning and when their obligations
ballooned into a staggering sum, the creditors filed a collection case against them.
In this case, there was no urgency of the need for money on the part of Jocelyn, the
debtor, which compelled her to enter into said loan transactions. She used the
money from the loans to make advance payments for prospective clients of
educational plans offered by her employer. In this way, her sales production would
increase, thereby entitling her to 50% rebate on her sales. This is the reason why
she did not mind the 6% to 7% monthly interest. Notably too, a business transaction
of this nature between Jocelyn and Marilou continued for more than five years.
Jocelyn religiously paid the agreed amount of interest until she ordered for stop
payment on some of the checks issued to Marilou. The checks were in fact

sufficiently funded when she ordered the stop payment and then filed a case
questioning the imposition of a 6% to 7% interest rate for being allegedly iniquitous
or unconscionable and, hence, contrary to morals.
It was clearly shown that before Jocelyn availed of said loans, she knew fully well
that the same carried with it an interest rate of 6% to 7% per month, yet she did not
complain. In fact, when she availed of said loans, an advance interest of 6% to 7%
was already deducted from the loan amount, yet she never uttered a word of
protest.
After years of benefiting from the proceeds of the loans bearing an interest rate of
6% to 7% per month and paying for the same, Jocelyn cannot now go to court to
have the said interest rate annulled on the ground that it is excessive, iniquitous,
unconscionable, exorbitant, and absolutely revolting to the conscience of man. "This
is so because among the maxims of equity are (1) he who seeks equity must do
equity, and (2) he who comes into equity must come with clean hands. The latter is
a frequently stated maxim which is also expressed in the principle that he who has
done inequity shall not have equity. It signifies that a litigant may be denied relief
by a court of equity on the ground that his conduct has been inequitable, unfair and
dishonest, or fraudulent, or deceitful as to the controversy in issue." 17
We are convinced that Jocelyn did not come to court for equitable relief with equity
or with clean hands. It is patently clear from the above summary of the facts that
the conduct of Jocelyn can by no means be characterized as nobly fair, just, and
reasonable. This Court likewise notes certain acts of Jocelyn before filing the case
with the RTC. In September 1998, she requested Marilou not to deposit her checks
as she can cover the checks only the following month. On the next month, Jocelyn
again requested for another extension of one month. It turned out that she was only
sweet-talking Marilou into believing that she had no money at that time. But as
testified by Serapio Romarate,18 an employee of the Bank of Commerce where
Jocelyn is one of their clients, there was an available balance of P276,203.03 in the
latters account and yet she ordered for the stop payments of the seven checks
which can actually be covered by the available funds in said account. She then
caught Marilou by surprise when she surreptitiously filed a case for declaration of
nullity of the document and for damages.
The document "Acknowledgment of Debt" is valid and binding.
Jocelyn seeks for the nullification of the document entitled "Acknowledgment of
Debt" and wants this Court to declare that she is no longer indebted to Marilou in
the amount of P290,000.00 as she had already paid a total amount of P778,000.00.
She claims that said document is an inexistent contract that is void from the very
beginning as clearly provided for by Article 1409 19 of the New Civil Code.
Jocelyn further claims that she signed the said document and issued the seven
postdated checks because Marilou threatened to sue her for violation of BP Blg. 22.

Jocelyn is misguided. Even if there was indeed such threat made by Marilou, the
same is not considered as threat that would vitiate consent. Article 1335 of the New
Civil Code is very specific on this matter. It provides:
Art. 1335. There is violence when in order to wrest consent, serious or irresistible
force is employed.
xxxx
A threat to enforce ones claim through competent authority, if the claim
is just or legal, does not vitiate consent. (Emphasis supplied.)
Clearly, we cannot grant Jocelyn the relief she seeks.
As can be seen from the records of the case, Jocelyn has failed to prove her claim
that she was made to sign the document "Acknowledgment of Debt" and draw the
seven Bank of Commerce checks through force, threat and intimidation. As earlier
stressed, said document was signed in the office of Jocelyn, a high ranking
executive of CAP, and it was Jocelyn herself who went to the table of her two
subordinates to procure their signatures as witnesses to the execution of said
document. If indeed, she was forced to sign said document, then Jocelyn should
have immediately taken the proper legal remedy. But she did not. Furthermore, it
must be noted that after the execution of said document, Jocelyn honored the first
three checks before filing the complaint with the RTC. If indeed she was forced she
would never have made good on the first three checks.
It is provided, as one of the conclusive presumptions under Rule 131, Section 2(a),
of the Rules of Court that, "Whenever a party has, by his own declaration, act or
omission, intentionally and deliberately led another to believe a particular thing to
be true, and to act upon such belief, he cannot, in any litigation arising out of such
declaration, act or omission, be permitted to falsify it." This is known as the principle
of estoppel.
"The essential elements of estoppel are: (1) conduct amounting to false
representation or concealment of material facts or at least calculated to convey the
impression that the facts are otherwise than, and inconsistent with, those which the
party subsequently attempts to assert; (2) intent, or at least expectation, that this
conduct shall be acted upon by, or at least influence, the other party; and, (3)
knowledge, actual or constructive, of the real facts." 20
Here, it is uncontested that Jocelyn had in fact signed the "Acknowledgment of
Debt" in April 1998 and two of her subordinates served as witnesses to its
execution, knowing fully well the nature of the contract she was entering into. Next,
Jocelyn issued five checks in favor of Marilou representing renewal payment of her
loans amounting toP290,000.00. In June 1998, she asked to recall Check No.
0010761 in the amount of P30,000.00 and replaced the same with six checks, in

staggered amounts. All these are indicia that Jocelyn treated the "Acknowledgment
of Debt" as a valid and binding contract.1avvphi1
More significantly, Jocelyn already availed herself of the benefits of the
"Acknowledgment of Debt," the validity of which she now impugns. As aptly found
by the RTC and the CA, Jocelyn was making a business out of the loaned amounts.
She was actually using the money to make advance payments for her prospective
clients so that her sales production would increase. Accordingly, she did not mind
the 6% to 7% interest per month as she was getting a 50% rebate on her sales.
Clearly, by her own acts, Jocelyn is estopped from impugning the validity of the
"Acknowledgment of Debt." "[A] party to a contract cannot deny the validity thereof
after enjoying its benefits without outrage to ones sense of justice and
fairness."21 "It is a long established doctrine that the law does not relieve a party
from the effects of an unwise, foolish or disastrous contract, entered into with all the
required formalities and with full awareness of what she was doing. Courts have no
power to relieve parties from obligations voluntarily assumed, simply because their
contracts turned out to be disastrous or unwise investments." 22
WHEREFORE, the instant petition for review on certiorari is DENIED. The Decision
of the Court of Appeals in CA-G.R. CV No. 79805 dated August 24, 2005 affirming
the Decision dated March 10, 2003 of the Regional Trial Court, Branch 22, Cebu City,
in Civil Case No. CEB-22867 is AFFIRMED.
SO ORDERED.
MARIANO C. DEL CASTILLO
Associate Justice
WE CONCUR:
RENATO C. CORONA
Chief Justice
Chairperson
TERESITA J. LEONARDO-DE
CASTRO
Associate Justice

ROBERTO A. ABAD*
Associate Justice

JOSE PORTUGAL PEREZ

Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the
conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Courts Division.

RENATO C. CORONA
Chief Justice

Footnotes
*

In lieu of Associate Justice Presbitero J. Velasco, Jr., per Special Order No. 917 dated
November 24, 2010.
1

Rollo, pp. 3-26.

CA rollo, pp. 65-75; penned by Associate Justice Mercedes Gozo-Dadole and

concurred in by Associate Justices Isaias P. Dicdican and Ramon M. Bato, Jr.
3

Records, pp. 341-349; penned by Judge Pampio A. Abarintos.

Id. at 342.

Id. at 8.

Id. at 1-9.

Id. at 12-24.

Id. at 349.

Id. at 350-354.

10

Id. at 364-365.

11

CA rollo, p.75.

12

Id. at 76-90.

13

Id. at 113-114.

14

Ruiz v. Court of Appeals, 449 Phil. 419, 434 (2003).

15

Spouses Almeda v. Court of Appeals, 326 Phil. 309, 319 (1996).

16

359 Phil. 820 (1998).

17

University of the Philippines v. Catungal, Jr., 338 Phil. 728, 743-744 (1997).

18

TSN, January 15, 2002, p. 8.

19

Art. 1409. The following contracts are inexistent and void from the beginning:

(1) Those whose cause, object or purpose is contrary to law, morals, good customs,
public order or public policy;
xxxx
20

Philippine National Bank v. Court of Appeals, 367 Phil. 508, 516 (1999).

21

Lim v. Queensland Tokyo Commodities, Inc., 424 Phil. 35, 45 (2002).

22

Esguerra v. Court of Appeals, 335 Phil. 58, 69 (1997).

Republic of the Philippines

SUPREME COURT
Manila
SECOND DIVISION

G.R. No. 183360

September 8, 2014

ROLANDO C. DE LA PAZ,* Petitioner,

vs.
L & J DEVELOPMENT COMPANY, Respondent.
DECISION
DEL CASTILLO, J.:
"No interest shall be due unless it has been expressly stipulated in writing." 1
This is a Petition for Review on Certiorari 2 assailing the February 27, 2008
Decision3 of the Court of Appeals (CA) in CA-G.R. SP No. 100094, which reversed and
set aside the Decision4 dated April 19, 2007 of the Regional Trial Court (RTC), Branch
192, Marikina City in Civil Case No. 06-1145-MK. The said RTC Decision affirmed in
all respects the Decision5 dated June 30, 2006 of the Metropolitan Trial Court
(MeTC), Branch 75, Marikina City in Civil Case No. 05-7755, which ordered
respondent L & J Development Company (L&J) to pay petitioner Architect Rolando C.
De La Paz (Rolando) its principal obligation of P350,000.00, plus 12% interest per
annumreckoned from the filing of the Complaint until full payment of the obligation.
Likewise assailed is the CAs June 6, 2008 Resolution 6 which denied Rolandos
Motion for Reconsideration.
Factual Antecedents
On December 27, 2000, Rolando lent P350,000.00 without any security to L&J, a
property developer with Atty. Esteban Salonga (Atty. Salonga) as its President and
General Manager. The loan, with no specified maturity date, carried a 6% monthly
interest, i.e., P21,000.00. From December 2000 to August 2003, L&J paid Rolando a
total ofP576,000.007 representing interest charges.
As L&J failed to pay despite repeated demands, Rolando filed a Complaint 8 for
Collection of Sum of Money with Damages against L&J and Atty. Salonga in his
personal capacity before the MeTC, docketed as Civil Case No. 05-7755. Rolando
alleged, amongothers, that L&Js debtas of January 2005, inclusive of the monthly
interest, stood at P772,000.00; that the 6% monthly interest was upon Atty.
Salongas suggestion; and, that the latter tricked him into parting with his money
without the loan transaction being reduced into writing.
In their Answer,9 L&J and Atty. Salonga denied Rolandos allegations. While they
acknowledged the loan as a corporate debt, they claimed that the failure to pay the
same was due to a fortuitous event, that is, the financial difficulties brought about
by the economic crisis. They further argued that Rolando cannot enforce the 6%
monthly interest for being unconscionable and shocking to the morals. Hence, the
payments already made should be applied to the P350,000.00 principal loan.

During trial, Rolando testified that he had no communication with Atty. Salonga prior
to the loan transaction but knew him as a lawyer, a son of a former Senator, and the
owner of L&J which developed Brentwood Subdivision in Antipolo where his
associate Nilo Velasco (Nilo) lives. When Nilo told him that Atty. Salonga and L&J
needed money to finish their projects, heagreed to lend them money. He personally
met withAtty. Salonga and their meeting was cordial.
He narrated that when L&J was in the process of borrowing the P350,000.00 from
him, it was Arlene San Juan (Arlene), the secretary/treasurer of L&J, who negotiated
the terms and conditions thereof.She said that the money was to finance L&Js
housing project. Rolando claimed that it was not he who demanded for the 6%
monthly interest. It was L&J and Atty. Salonga, through Arlene, who insisted on
paying the said interest as they asserted that the loan was only a short-term one.
Ruling of the Metropolitan Trial Court
The MeTC, in its Decision10 of June 30, 2006, upheld the 6% monthly interest. In so
ruling, it ratiocinated that since L&J agreed thereto and voluntarily paid the interest
at suchrate from 2000 to 2003, it isalready estopped from impugning the same.
Nonetheless, for reasons of equity, the saidcourt reduced the interest rate to 12%
per annumon the remaining principal obligation of P350,000.00. With regard to
Rolandos prayer for moral damages, the MeTC denied the same as it found no
malice or bad faith on the part ofL&J in not paying the obligation. It likewise relieved
Atty. Salonga of any liability as it found that he merely acted in his official capacity
in obtaining the loan. The MeTC disposed of the case as follows:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the
plaintiff, Arch. Rolando C. Dela Paz, and against the defendant, L & J Development
Co., Inc., as follows:
a) ordering the defendant L & J Development Co., Inc. to pay plaintiff the amount of
Three Hundred Fifty Thousand Pesos (P350,000.00) representing the principal
obligation, plus interest at the legal rate of 12% per annum to be computed from
January 20, 2005, the date of the filing of the complaint, until the whole obligation is
fully paid;
b) ordering the defendant L & J Development Co., Inc. to pay plaintiff the amount of
Five Thousand Pesos (P5,000.00) as and for attorneys fees; and
c) to pay the costs of this suit.
SO ORDERED.11
Ruling of the Regional Trial Court
L&J appealed to the RTC. It asserted in its appeal memorandum 12 that from
December 2000 to March 2003, it paid monthly interest of P21,000.00 based on the

agreed-upon interest rate of 6%monthly and from April 2003 to August 2003,
interest paymentsin various amounts. 13 The total of interest payments made
amounts toP576,000.00 an amount which is even more than the principal
obligation of P350,000.00
L&J insisted that the 6% monthly interest rate is unconscionable and immoral.
Hence, the 12% per annumlegal interest should have been applied from the time of
the constitution of the obligation. At 12% per annum interest rate, it asserted that
the amount of interestit ought to pay from December 2000 to March 2003 and from
April 2003 to August 2003, only amounts to P105,000.00. If this amount is deducted
from the total interest paymentsalready made, which is P576,000.00, the amount
of P471,000.00 appears to have beenpaid over and above what is due. Applying the
rule on compensation, the principal loan of P350,000.00 should be set-off against
the P471,000.00, resulting in the complete payment of the principal loan.
Unconvinced, the RTC, inits April 19, 2007 Decision, 14 affirmed the MeTC Decision,
viz: WHEREFORE, premises considered, the Decision appealed from is hereby
AFFIRMED in all respects, with costs against the appellant.
SO ORDERED.15
Ruling of the Court of Appeals
Undaunted, L&J went to the CA and echoed its arguments and proposed
computation as proffered before the RTC.
In a Decision16 dated February 27, 2008, the CAreversed and set aside the RTC
Decision. The CA stressed that the parties failedto stipulate in writing the imposition
of interest on the loan. Hence, no interest shall be due thereon pursuant to Article
1956 of the Civil Code.17 And even if payment of interest has been stipulated in
writing, the 6% monthly interest is still outrightly illegal and unconscionable
because it is contrary to morals, if not against the law. Being void, this cannot be
ratified and may be set up by the debtor as defense. For these reasons, Rolando
cannot collect any interest even if L&J offered to pay interest. Consequently, he has
to return all the interest payments of P576,000.00 to L&J.
Considering further that Rolando and L&J thereby became creditor and debtor of
each other, the CA applied the principle of legal compensation under Article 1279 of
the Civil Code.18 Accordingly, it set off the principal loan ofP350,000.00 against
the P576,000.00 total interest payments made, leaving an excess of P226,000.00,
which the CA ordered Rolando to pay L&J plus interest. Thus:
WHEREFORE, the DECISION DATED APRIL 19, 2007 is REVERSED and SET ASIDE.
CONSEQUENT TO THE FOREGOING, respondent Rolando C. Dela Paz is ordered to
pay to the petitioner the amount of P226,000.00,plus interest of 12% per
annumfrom the finality of this decision.

Costs of suit to be paid by respondent Dela Paz.

SO ORDERED.19
In his Motion for Reconsideration,20 Rolando argued thatthe circumstances exempt
both the application of Article 1956 and of jurisprudence holding that a 6% monthly
interest is unconscionable, unreasonable, and exorbitant. He alleged that Atty.
Salonga, a lawyer, should have taken it upon himself to have the loan and the
stipulated rate of interest documented but, by way of legal maneuver, Atty. Salonga,
whom he fully trusted and relied upon, tricked him into believing that the
undocumented and uncollateralized loan was withinlegal bounds. Had Atty. Salonga
told him that the stipulated interest should be in writing, he would have readily
assented. Furthermore, Rolando insisted that the 6% monthly interest ratecould not
be unconscionable as in the first place, the interest was not imposed by the creditor
but was in fact offered by the borrower, who also dictated all the terms of the loan.
He stressed that in cases where interest rates were declared unconscionable, those
meant to be protected by such declaration are helpless borrowers which is not the
case here.
Still, the CA denied Rolandos motion in its Resolution 21 of June 6, 2008.
Hence, this Petition.
The Parties Arguments
Rolando argues that the 6%monthly interest rateshould not have been invalidated
because Atty. Salonga took advantage of his legal knowledge to hoodwink him into
believing that no document was necessaryto reflect the interest rate. Moreover, the
cases anent unconscionable interest rates that the CA relied upon involve lenders
who imposed the excessive rates,which are totally different from the case at bench
where it is the borrower who decided on the high interest rate. This case does not
fall under a scenariothat enslaves the borrower or that leads to the hemorrhaging
of his assets that the courts seek to prevent.
L&J, in controverting Rolandos arguments, contends that the interest rate is subject
of negotiation and is agreedupon by both parties, not by the borrower alone.
Furthermore, jurisprudence has nullified interestrates on loans of 3% per month and
higher as these rates are contrary to moralsand public interest. And while Rolando
raises bad faithon Atty. Salongas part, L&J avers thatsuch issue is a question of fact,
a matter that cannot be raised under Rule 45.
Issue
The Courts determination of whether to uphold the judgment of the CA that the
principal loan is deemed paid isdependent on the validity of the monthly interest
rate imposed. And in determining such validity, the Court must necessarily delve

into matters regarding a) the form of the agreement of interest under the law and b)
the alleged unconscionability of the interest rate. Our Ruling
The Petition is devoid of merit.
The lack of a written stipulation to pay interest on the loaned amount disallows a
creditor from charging monetary interest.
Under Article 1956 of the Civil Code, no interest shall bedue unless it has been
expressly stipulated in writing. Jurisprudence on the matter also holds that for
interest to be due and payable, two conditions must concur: a) express stipulation
for the payment of interest; and b) the agreement to pay interest is reduced in
writing.
Here, it is undisputed that the parties did not put down in writing their agreement.
Thus, no interest is due. The collection of interest without any stipulation in writing
is prohibited by law.22
But Rolando asserts that his situation deserves an exception to the application of
Article 1956. He blames Atty. Salonga for the lack of a written document, claiming
that said lawyer used his legal knowledge to dupe him. Rolando thus imputes bad
faith on the part of L&J and Atty. Salonga. The Court, however, finds no deception on
the partof L&J and Atty. Salonga. For one, despite the lack of a document stipulating
the payment of interest, L&J nevertheless devotedly paid interests on the loan. It
only stopped when it suffered from financial difficulties that prevented it from
continuously paying the 6% monthly rate. For another,regardless of Atty. Salongas
profession, Rolando who is an architect and an educated man himself could have
been a more reasonably prudent person under the circumstances. To top it all, he
admitted that he had no prior communication with Atty. Salonga. Despite Atty.
Salonga being a complete stranger, he immediately trusted him and lent his
company P350,000.00, a significant amount. Moreover, as the creditor,he could
have requested or required that all the terms and conditions of the loan agreement,
which include the payment of interest, be put down in writing to ensure that he and
L&J are on the same page. Rolando had a choice of not acceding and to insist that
their contract be put in written form as this will favor and safeguard him as a lender.
Unfortunately, he did not. It must be stressed that "[c]ourts cannot follow one every
step of his life and extricate him from bad bargains, protect him from unwise
investments, relieve him from one-sided contracts,or annul the effects of foolish
acts. Courts cannotconstitute themselves guardians of persons who are not legally
incompetent."23
It may be raised that L&J is estopped from questioning the interest rate considering
that it has been paying Rolando interest at such ratefor more than two and a half
years. In fact, in its pleadings before the MeTCand the RTC, L&J merely prayed for
the reduction of interest from 6% monthly to 1% monthly or 12% per annum.
However, in Ching v. Nicdao, 24 the daily payments of the debtor to the lender were

considered as payment of the principal amount of the loan because Article 1956
was not complied with. This was notwithstanding the debtors admission that the
payments made were for the interests due. The Court categorically stated therein
that "[e]stoppel cannot give validity to an act that is prohibited by law or one thatis
against public policy."
Even if the payment of interest has been reduced in writing, a 6% monthly interest
rate on a loan is unconscionable, regardless of who between the parties proposed
the rate.
Indeed at present, usury has been legally non-existent in view of the suspension of
the Usury Law25 by Central Bank Circular No. 905 s. 1982.26 Even so, not all interest
rates levied upon loans are permitted by the courts as they have the power to
equitably reduce unreasonable interest rates. In Trade & Investment Development
Corporation of the Philippines v. Roblett Industrial Construction Corporation, 27 we
said:
While the Court recognizes the right of the parties to enter into contracts and who
are expectedto comply with their terms and obligations, this rule is not absolute.
Stipulated interest rates are illegal if they are unconscionable and the Court is
allowed to temper interest rates when necessary. In exercising this vested power to
determine what is iniquitous and unconscionable, the Court must consider the
circumstances of each case. What may be iniquitous and unconscionable in
onecase, may be just in another. x x x28
Time and again, it has been ruled in a plethora of cases that stipulated interest
rates of 3% per month and higher, are excessive, iniquitous, unconscionable and
exorbitant. Such stipulations are void for being contrary to morals, if not against the
law.29 The Court, however, stresses that these rates shall be invalidated and shall be
reduced only in cases where the terms of the loans are open-ended, and where the
interest rates are applied for an indefinite period. Hence, the imposition of a specific
sum of P40,000.00 a month for six months on aP1,000,000.00 loan is not considered
unconscionable.30
In the case at bench, there is no specified period as to the payment of the loan.
Hence, levying 6% monthly or 72% interest per annumis "definitely outrageous and
inordinate."31 The situation that it was the debtor who insisted on the interest rate
will not exempt Rolando from a ruling that the rate is void. As this Court cited in
Asian Cathay Finance and Leasing Corporation v. Gravador, 32 "[t]he imposition of an
unconscionable rate of interest on a money debt, even if knowingly and voluntarily
assumed, is immoral and unjust. It is tantamount to a repugnant spoliation and an
iniquitous deprivation of property, repulsive to the common sense of
man."33 Indeed, "voluntariness does notmake the stipulation on [an unconscionable]
interest valid."34

As exhaustibly discussed,no monetary interest isdue Rolando pursuant to Article

1956.1wphi1 The CA thus correctly adjudged that the excess interest payments
made by L&J should be applied to its principal loan. As computed by the CA, Rolando
is bound to return the excess payment of P226,000.00 to L&J following the principle
of solutio indebiti.35
However, pursuant to Central Bank Circular No. 799 s. 2013 which took effect on
July 1, 2013,36 the interest imposed by the CA must be accordingly modified.
The P226,000.00 which Rolando is ordered to pay L&J shall earn an interest of 6%
per annumfrom the finality of this Decision.
WHEREFORE, the Decision dated February 27, 2008 of the Court of Appeals in CAG.R. SP No. 100094 is hereby AFFIRMED with modification that petitioner Rolando C.
De La Paz is ordered to pay respondent L&J Development Company the amount of
,P226,000.00, plus interest of 6o/o per annum from the finality of this Decision until
fully paid.
SO ORDERED.
MARIANO C. DEL CASTILLO
Associate Justice
WE CONCUR:
ANTONIO T. CARPIO**
Associate Justice
ARTURO D. BRION
Associate Justice

MARTIN S. VILLARAMA, JR.***

Associate Justice

MARVIC MARIO VICTOR F. LEONEN

Associate Justice
CERTIFICATION
Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions
in the above Decision had been reached in consultation before the case was
assigned to the writer of the opinion of the Court's Division.
ANTONIO T. CARPIO
Associate Justice
Acting Chief Justice

Footnotes

* Also spelled as "Dela Paz" in some parts of the records.

** Per Special Order No. 1770 dated August 28, 2014.
*** Per Special Order No. 1767 dated August 27, 2014.
1

CIVIL CODE, Article 1956.

Rollo, pp. 10-18

CA rollo, pp. 82-89; penned by Associate Justice Lucas P. Bersamin (now a member
of this Court) and concurred in by Associate Justices Portia Alifio Hormachuelos and
Estela M. Perlas-Bernabe (now also a member of this Court).
4

Id. at 18-26; penned by Judge Geraldine C. Fiel-Macaraig.

Id. at 39-43; penned by Judge Alex E. Ruiz.

Id. at 106.

Id. at 45-46. A total of 30 payments, L & J paid the following:

Date

Check No.

Amount

12/27/2000

SB 302190

P 21,000.00

1/29/2001

MBTC 435175

21,000.00

3/01/2001

SB 302232

21,000.00

4/30/2001

SB 302296

21,000.00

5/29/2001

SB 302341

21,000.00

6/30/2001

SB 302369

21,000.00

7/30/2001

MBTC 3160280305

21,000.00

8/29/2001

MBTC 3160280332

21,000.00

9/27/2001

MBTC 3160280349

21,000.00

10/29/2001

MBTC 3160280387

21,000.00

11/29/2001

MBTC 3160280421

21,000.00

12/18/2001

MBTC 3160280430

21,000.00

1/29/2002

MBTC 3160280474

21,000.00

2/28/2002

MBTC 3160280501

21,000.00

3/25/2002

MBTC 3160280517

21,000.00

4/29/2002

MBTC 3160280552

21,000.00

5/31/2002

MBTC 3160280588

21,000.00

7/02/2002

MBTC 3160280600

21,000.00

8/06/2002

MBTC 3160280627

21,000.00

8/29/2002

MBTC 3160280648

21,000.00

10/02/2002

MBTC 3160280666

21,000.00

11/12/2002

MBTC 3160280683

21,000.00

1/06/03

21,000.00

1/31/03

21,000.00

3/06/2003

21,000.00

4/15/2003

16,000.00

5/14/2003

5,000.00

7/04/2003

ATB 435323

MBTC 435345

5,000.00

8/04/2003

10,000.00

8/14/2003

15,000.00

Total

P576,000.00

Id. at 28-34.

Id. at 35-38.

10

Id. at 39-43.

11

Id. at 43.

12

Id. at 44-53.

13

See note 7.

14

CA rollo, pp. 18-26.

15

Id. at 26.

16

Id. at 82-89.

17

Article 1956. No interest shall be due unless it has been expressly stipulated in
writing.
18

Article 1279. In order that compensation may be proper, it is necessary:

(1) That each one of the obligors be bound principally, and that he be at the same
time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due are consumable,
they be of the same kind, and also of the same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced by
third persons and communicated in due time to the debtor.
19

CA rollo, p. 88.

20

Id. at 93-99.

21

Id. at 106.

22

Siga-an v. Villanueva, 596 Phil. 760, 769 (2009).

23

Vales v. Villa, 35 Phil. 769, 788 (1916).

24

G.R. No. 141181, April 27, 2007, 522 SCRA 316, 361.

25

ACT NO. 2655 as amended by Presidential Decree 116.

26

Section 1 states: The rate of interest, including commissions, premiums, fees and
other charges, on a loan or forbearance of any money, goods, or credits,
regardlessof maturity and whether secured or unsecured, that may be charged or

collected by any person, whether natural or juridical, shall not be subject to any
ceiling prescribed under or pursuant to the Usury Law, as amended.
27

523 Phil. 360 (2006).

28

Id. at 366.

29

Macalinao v. Bank of the Philippine Islands, G.R. No. 175490, September 17, 2009,
600 SCRA 67, 77, citing Chua v. Timan, G.R. No. 170452, August 13, 2008, 562 SCRA
146, 149-150.
30

Prisma Construction & Development Corporation v. Menchavez, G.R. No. 160545,

March 9, 2010, 614 SCRA 590, 599.
31

Spouses Solangon v. Salazar, 412 Phil. 816, 823 (2001).

32

G.R. No. 186550, July 5, 2010, 623 SCRA 517.

33

Id. at 524.

34

Menchavez v. Bermudez, G.R. No. 185368, October 11, 2012, 684 SCRA 168, 178.

35

CIVIL CODE, Article 2154. If something is received when there is no right to

demand it, and it was unduly delivered through mistake, the obligation to return it
arises.
36

Issued on June 21, 2013; It provides that the rate ofinterest for the loan or
forbearance of any money, goods or credits and the rate allowed in judgments, in
the absence of an express contract as to such rate of interest, shall be six percent
(6%) per annum.