Contents

Verdejo v. CA.............................................................................................................. 1
Philippine Rabbit Bus Lines v. Cruz.............................................................................5
GSIS v CA.................................................................................................................... 9
UCPB v Beluso.......................................................................................................... 18
A.C Ent. Inc. v. CIAC 244 s 55................................................................................... 50
New Sampaguita v PNB............................................................................................ 52

Verdejo v. CA
G.R. No. 77735

January 29, 1988

WILFREDO VERDEJO, petitioner,

vs.
THE HON. COURT OF APPEALS, HON. SOFRONIO G. SAYO, Presiding Judge, RTC, Br.
III, Pasay City, and HERMINIA PATINIO, ET AL., respondents.

RESOLUTION

PADILLA, J.:

Petition for review on certiorari of the decision * rendered by the respondent

appellate court, dated 28 November 1986, in CA-G.R. No. SP-10429 entitled:
"Wilfredo Verdejo, petitioner, versus Hon. Sofronio Sayo, etc., et al., respondents",
which dismissed the petition to annul and set aside the order, dated 8 October
1986, directing the issuance of a writ of execution in Civil Case No. 2546-P of the
Regional Trial Court of Pasay City, as well as the Resolution, dated 5 March 1987,
1

which denied the petitioner's motion for reconsideration of said decision of 28

November 1986.

The pertinent facts of the case are as follows:

On 20 December 1984, the herein petitioner filed a complaint against the private
respondent Herminia Patinio and one John Doe before the Regional Trial Court of
Pasay City, docketed therein as Civil Case No. 2546-P, for collection of a sum of
money amounting to P60,500.00, which said Herminia Patinio had allegedly
borrowed from him but failed to pay when it became due, notwithstanding
demands. 1

Answering, Herminia Patinio admitted having obtained loans from the petitioner but
claimed that the amount borrowed by her was very much less than the amount
demanded in the complaint, which amount she had already paid or settled, and that
the petitioner had exacted or charged interest on the loan ranging from 10% to 12%
per month, which is exorbitant and in gross violation of the Usury Law. Wherefore
she prayed that she be reimbursed the usurious interests charged and paid. She
also asked for damages, attorney's fees and costs of suit. 2

After trial court on 3 September 1986, the trial court rendered Judgment, as follows:

WHEREFORE, judgment is hereby rendered dismissing plaintiff's complaint for lack

of merit.

On defendants' counterclaim plaintiff is hereby ordered to refund to defendants the

amount of P13,890.00 and to further pay to defendants the amount of P5,000.00 as
attorney's fees and the costs of this suit. 3

Counsel for the petitioner received a copy of the trial court's decision on 5
September 1986, and on 19 September 1986, he sent a notice of appeal to the
court by special delivery. The notice of appeal was received by the court on 26
September 1986. On that same day the court also received the motion for execution
filed by the private respondent, Herminia Patinio. 4
2

The petitioner opposed the motion claiming that he had already filed a notice of
appeal through the mail so that the motion for execution was improper. 5

The private respondent, however, replied that the petitioner's notice of appeal was
filed beyond the reglementary period and reiterated her prayer for the issuance of a
writ of execution. 6

Resolving the matter, the trial court issued an Order on 8 October 1986, the
dispositive part of which reads as follows:

WHEREFORE, as plaintiff's Notice of appeal was filed beyond the reglementary

period, the same is hereby DENIED.

As the judgment rendered herein has become final and executory, let the
corresponding Writ of Execution issue to enforce the same. 7

Thereafter, the petitioner filed a petition for certiorari before the Court of Appeals,
docketed therein as CA-G.R. No. SP-10429, to annul said Order of 8 October 1986. 8
The appellate court, however, as aforestated, dismissed the petition in a Decision
dated 28 November 1986. 9 The petitioner filed a motion for reconsideration of the
decision, but his motion was denied in a Resolution dated 5 March 1987. 10

Hence, the petitioner's present recourse.

The only issue in this petition is whether or not the Court should allow an appeal
where the notice of appeal was sent by special delivery mail within the period for
perfection of appeals, but received in court after the expiration of said period.

For the proper exercise of the right to appeal, the petitioner should have complied
with Section 1, Rule 13 of the Rules of Court which reads as follows:

Section 1. Filing with the court, defined.-The Filing of pleadings, appearances,

motions, notice orders and other papers with the court as required by these rules
shall be made by filing them personally with the clerk of the court or by sending
them by registered mail. In the first case, the clerk shall endorse on the pleading
the date and hour of filing. In the second case, the date of mailing of motions,
pleadings, or any other papers or payments or deposits, as shown by the post office
stamp on the envelope or the registry reciept shall be considered as the date of
their filing, payment, or deposit in court. The envelope shall be attached to the
record of the case.

In justifying his failure to comply strictly with the requirements for perfecting an
appeal, as aforestated, the petitioner alleges that his counsel was sick at the time,
and in order to beat the deadline for the filing of the appeal, he mailed the notice of
appeal by special delivery mail, not knowing that it should be sent by registered
mail. 11

We find merit in the petition. The Rules of Court expressly provide that the rules
should be liberally construed in order to promote their object and to assist the
parties in obtaining just, speedy, and inexpensive determination of every action and
proceeding, 12 and in the absence of a clear lack of merit or intention to delay, a
case should not be allowed to go off on procedural points or technicality. As much as
possible, failure of' justice should be avoided. 13

In the instant case, the notice of appeal was sent by special delivery, instead of
registered mail. Considering that said notice of appeal was sent within the period for
perfection of appeals by the petitioner who, not being a lawyer, is not well versed in
the finer points of the law, and, hence, committed an honest mistake; and that the
petitioner appears to have a good and valid cause of action, we find that there was
substantial compliance with the rules.

The case involves an alleged violation of the Usury Law, where the petitioner was
found by the trial court to have charged and collected usurious interests from the
private respondent on loans which were first obtained on 15 February 1982, later
renewed, and finally culminated with the execution by private respondent of the
Deed of Sale with Right of Repurchase on 17 November 1983. This Court has ruled
in one case 14 that with the promulgation of Central Bank Circular No. 905, series of
1982, usury has become "legally inexistent" as the lender and the borrower can
4

agree on any interest that may be charged on the loan. This Circular was also given
retroactive effect. But, whether or not this Circular should also be given retroactive
effect and applied in this case is yet to be determined by the appellate court at the
proper time.

Moreover, it appears that the computation of the amount considered as usurious

interest is incorrect. The trial court merely added the amounts paid by the private
respondent to the petitioner and, thereafter, deducted therefrom the amounts given
as loan to the private respondent and considered the excess amount usurious,
without apparently considering the lawful interest that may be collected on said
loans. Only usurious interests may be reimbursed.

To prevent a miscarriage of justice, the petitioner should be allowed to prosecute his

appeal.

ACCORDINGLY, the petition is GRANTED. The questioned Decision and Resolution

issued by the respondent Court of Appeals on 28 November 1986 and 5 March
1987, respectively, in CA-G.R. No. SP-10429, as well as the Order issued by the
Regional Trial Court of Pasay City in Civil Case No. 2546-P on 8 October 1986, are
hereby ANNULLED and SET ASIDE and another one entered approving the notice of
appeal filed by the petitioner. Without costs.

SO ORDERED.

Philippine Rabbit Bus Lines v. Cruz

G.R. No. 71017

July 28, 1986

PHILIPPINE RABBIT BUS LINES, INC., petitioner,

vs.
HON. LEONARDO I. CRUZ, Presiding Judge, Branch LVI, RTC, Third Judicial Region &
PEDRO MANABAT, respondents.

RESOLUTION
5

NARVASA, J.:

In Civil Case No. 2244 of the Court of First Instance (now Regional Trial Court,
Branch LVI) of Angeles City, Pedro Manabat, (the private respondent) obtained
judgment against Philippine Rabbit Bus Lines, Inc. (petitioner) the dispositive portion
of which reads:

WHEREFORE, in view of the above findings, this Court renders judgment in favor of
the plaintiff Pedro Manabat, and against the defendant, the Philippine Rabbit Bus
Lines, Incorporated, sentencing the latter to pay the former, Pedro Manabat as
actual and compensatory damages the amount of P72,500 with legal interest
thereon from the filing of the complaint until fully paid, and the costs of this suit. 1

The judgment having become final and executory following its affirmance by the
Intermediate Appellate Court, Manabat sought its execution and, at his instance, the
deputy sheriff of Angeles City garnished funds of Philippine Rabbit on deposit with
Manila Bank in said City to the extent of P155,150.00. This amount was released by
the Bank's manager by means of a check drawn in favor of the sheriff and was
thereafter paid to the private respondent. 2 The amount of P155,150.00 included
interest at the rate of twelve (12%) percent per annum on the award of P72,500.00
computed from the date of the filing of the complaint, as prescribed in the
judgment.

Philippine Rabbit moved to dissolve the garnishment, asserting that while it was
willing to pay the award, the interest chargeable should be only six (6%) percent,
not twelve (12%) percent, per annum and upon being rebuffed, has come to this
Court for relief.

The issue raised:

Whether or not Circular No. 416 of the Central Bank of the Philippines, issued
pursuant to authority granted under Act No. 2655, as amended (The Usury Law),
and prescribing that:

... the rate of interest for the loan, or forbearance of any money, goods, or credits
and the rate allowed in judgments, in the absence of express contract as to such
rate of interest, shall be twelve (12 %) percent per annum

is applicable to judgments that do not involve loans or forbearances of money, etc.,

is not one of first impression.

In Reformina vs. Tomol, Jr. 3 decided October 11, 1985, essentially the same factual
premises obtained, the only difference being that in said case, which concerned also
a judgment awarding damages for loss or injury to person or property, the interest
appeared to have been computed at six (6%) percent, and it was the judgment
creditors who came to this Court on their contention that the rate should be twelve
(12%) percent instead. The Court en banc unanimously rejected that contention, the
majority opinion holding, inter alia, that:

Central Bank Circular No. 416 which took effect on July 29, 1974 was issued and
promulgated by the Monetary Board pursuant to the authority granted to the
Central Bank by P.D. No. 116, which amended Act No. 2655, otherwise known as the
Usury Law. The amendment from said authority emanates reads as follows-

Section 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 credit, and to change such rate or rates whenever warranted by
prevailing economic and social conditions. Provided, That such changes shall not be
made oftener than once every twelve months.

In the exercise of the authority herein granted, the Monetary Board may prescribe
higher maximum rates for 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.' (Emphasis supplied)

Acting pursuant to this grant of authority, the Monetary Board increased the rate of
legal interest from that of the six (6%) percent per annum originally allowed under
Section 1 of Act No. 2655 to twelve (12%) percent per annum.

It will be noted that Act No. 2655 deals with interest on (1) loans: (2) forbearances
of any money, goods, or credits, and (3) rate allowed in judgments. The issue now is
what-kind of judgment is referred to under the said law. Petitioners maintain that it
covers all kinds of monetary judgment.

The contention is devoid of merit.

The judgments spoken of and referred to are judgments in litigations involving loans
or forbearance of any money, goods or credits. Any other kind of monetary
judgment which has nothing to do with, nor involving loans or forbearance of any
money, goods or credits does not fall within the coverage of the said law for it is not
within the ambit of the authority granted to the Central Bank. The Monetary Board
may not tread on forbidden grounds. It cannot rewrite other laws. That function is
vested solely with the legislative authority. It is axiomatic in legal hermeneutics that
statutes should be construed as a whole and not as a series of disconnected articles
and phrases. In the absence of a clear contrary intention, words and phrases in
statutes should not be interpreted in isolation from one another. A word or phrase in
a statute is always used in association with other words or phrases and its meaning
may thus be modified or restricted by the latter.

xxx

xxx

xxx

Coming to the case at bar, the decision herein sought to be executed is one
rendered in an Action for Damages for injury to persons and loss of property and
does not involve any loan, much less forbearances of any money, goods or credits.
As correctly argued by private respondents, the law applicable to the said case is
Article 2209 of the New Civil Code which reads

Art. 2209. If the obligation consists in the payment of a sum of money, and the
debtor incurs in delay, the indemnify for damages, there being no stipulation to the
contrary, shall be the payment of interest agreed upon, and in the absence of
stipulation, the legal interest which is six percent per annum.
8

The above provisions remains untouched despite the grant of authority to the
Central Bank by Act No. 2655, as amended. To make Central Bank Circular No. 416
applicable to any case other than those specifically provided for by the Usury Law
well make the same of doubtful constitutionality since the Monetary Board will be
exercising legislative functions which was beyond the intendment of P.D. No. 116.

There is no reason to depart or deviate from that ruling here. It seems quite clear
that Section 1-a of Act No. 2655, as amended-which, as distinguished from sec.1 of
the same law, appears to be the actual and operative grant of authority to the
Monetary Board of the Central Bank to prescribe maximum rates of interest where
the parties have not stipulated thereon in excluding mention of rates allowed in
judgments, should, at the least, be construed as limiting the authority thus granted
only to loans or forbearances of money, etc., and to judgments involving such loans
or forbearances.

WHEREFORE, the petition is granted. It being obvious, as pointed out by the

petitioner, 4 that of the amount of P155,150.00 garnished and turned over to the
private respondent, the sum of P 82,650.00 represents interest computed at the
rate of twelve (12%) percent per annum, one-half of the last-stated sum, or
P41,325.00, represents interest in excess of the applicable rate of six (6%) percent
per annum, the order of the respondent Court complained of is vacated and set
aside, and the private respondent is ordered to refund to petitioner said excess of
P41,325.00. No pronouncement as to costs in this instance.

SO ORDERED.

GSIS v CA
G.R. No. L-52478

October 30, 1986

THE GOVERNMENT SERVICE INSURANCE SYSTEM, petitioner-appellant,

vs.
HONORABLE COURT OF APPEALS, NEMENCIO R. MEDINA and JOSEFINA G. MEDINA,
respondents-appellants.

Coronel Law Office for private respondents.

Alberto C. Lerma collaborating counsel for private respondents

PARAS, J.:

This is a petition for review on certiorari of the decision of the Court of Appeals in
CA-G.R. No. 62541-R (Nemencio R. Medina and Josefina G. Medina, PlaintiffsAppellants vs. The Government Service Insurance System, Defendant-Appellant)
affirming the January 21, 1977 Decision of the trial court, and at the same time
ordering the GSIS to reimburse the amount of P9,580.00 as over-payment and to
pay the spouses Nemencio R. Medina and Josefina G. Medina P3,000.00 and
P1,000.00 as attorney's fees and litigation expenses.

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

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

On July 6, 1962, the Medinas executed in favor of the GSIS an Amendment of Real
Estate Mortgage, the pertinent portion of which reads:
10

WHEREAS, on the 4th day of April, 1962, the Mortgagor executed signed and
delivered a real estate mortgage to and in favor of the Mortgagee on real estate
properties located in the City of Manila, ... to secure payment to the mortgages of a
loan of Two Hundred Ninety Five Thousand Pesos (P295,000.00) Philippine Currency,
granted by the mortgagee to the Mortgagors, ...;

WHEREAS, the parties herein have agreed as they hereby agree to increase the
aforementioned loan from Two Hundred Ninety Five Thousand Pesos (P295,000.00)
to Three Hundred Fifty Thousand Pesos (P350,000.00), Philippine Currency;

NOW, THEREFORE, for and in consideration of the foregoing premises, the

aforementioned parties have amended and by these presents do hereby amend the
said mortgage dated April 4, 1962, mentioned in the second paragraph hereof by
increasing the loan from Two Hundred Ninety Five Thousand Pesos (P295,000.00) to
Three Hundred Fifty Thousand Pesos (P350,000.00) subject to this additional
condition.

(1)
That the mortgagor shall pay to the system P4,433.65 monthly including
principal and interest.

It is hereby expressly understood that with the foregoing amendment, all other
terms and conditions of the said real estate mortgage dated April 4, 1962 insofar as
they are not inconsistent herewith, are hereby confirmed, ratified and continued in
full force and effect and that the parties thereto agree that this amendment be an
integral part of said real estate mortgage. (Rollo, p. 153-154).

Upon application by the Medinas, the GSIS Board of Trustees adopted Resolution No.
121 on January 18, 1963, as amended by Resolution No. 348 dated February 25,
1963, approving an additional loan of P230,000.00 in favor of the Medinas on the
security of the same mortgaged properties and the additional properties covered by
TCT Nos. 49234, 49235 and 49236, to bear interest at 9% per annum compounded
monthly and repayable in ten years. This additional loan of P230,000.00 was
denominated by the GSIS as Account No. 31442.

11

On March 18, 1963, the Economic Coordinator thru the Auditor General interposed
no objection thereto, subject to the conditions of Resolution No. 121 as amended by
Resolution No. 348 of the GSIS.

Beginning 1965, the Medinas having defaulted in the payment of the monthly
amortization on their loan, the GSIS imposed 9%/12% interest on an installments
due and unpaid. In 1967, the Medinas began defaulting in the payment of fire
insurance premiums.

On May 3, 1974, the GSIS notified the Medinas that they had arrearages in the
aggregate amount of P575,652.42 as of April 18, 1974 (Exhibit 9, p. 149, Joint
Record on Appeal, Rollo, p. 79), and demanded payment within seven (7) days from
notice thereof, otherwise, it would foreclose the mortgage.

On April 21, 1975, the GSIS filed an Application for Foreclosure of Mortgage with the
Sheriff of the City of Manila (Exhibit "22," pp. 63 and 149; Rollo, p. 79). On June 30,
1975, the Medinas filed with the Court of First Instance of Manila a complaint,
praying, among other things, that a restraining order or writ of preliminary
injunction be issued to prevent the GSIS and the Sheriff of the City of Manila from
proceeding with the extra-judicial foreclosure of their mortgaged properties (CFI
Decision, p. 121; Rollo, p. 79). However, in view of Section 2 of Presidential Decree
No. 385, no restraining order or writ of preliminary injunction was issued by the trial
court (CFI Decision, p. 212; Rollo, p. 79). On April 25, 1975, the Medinas made a last
partial payment in the amount of P209,662.80.

Under a Notice of Sale on Extra-Judicial Foreclosure dated June 18, 1975, the real
properties of the Medinas covered by Transfer Certificates of Title Nos. 32231,
43527, 51394, 58626, 60534, 63304, 67550, 67551 and 67552 of the Registry of
Property of the City of Manila were sold at public auction to the GSIS as the highest
bidder for the total amount of P440,080.00 on January 12, 1976, and the
corresponding Certificate of Sale was executed by the Sheriff of Manila on January
27, 1976 (CFI Decision, pp. 212-213; Rollo, p. 79).

On January 30, 1976, the Medinas filed an Amended Complaint with the trial court,
praying for (a) the declaration of nullity of their two real estate mortgage contracts
with the GSIS as well as of the extra-judicial foreclosure proceedings; and (b) the

12

refund of excess payments, plus damages and attorney's fees (CFI Decision, p. 213;
Rollo, p. 79).

On March 19, 1976, the GSIS filed its Amended Answer (Joint Record on Appeal, pp.
99-105; Rollo, p. 79). After trial, the trial court rendered a Decision dated January
21, 1977 (Joint Record on Appeal, pp. 210-232), the pertinent dispositive portion of
which reads:

WHEREFORE, judgment is hereby rendered declaring the extra-judicial foreclosure

conducted by the Sheriff of Manila of real estate mortgage contracts executed by
plaintiffs on April 4, 1962, as amended on July 6, 1962, and February 17, 1963, null
and void and the Sheriff's Certificate of Sale dated January 27, 1976, in favor of the
GSIS of no legal force and effect; and directing plaintiffs to pay the GSIS the sum of
P1,611.12 in full payment of their obligation to the latter with interest of 9% per
annum from December 11, 1975, until fully paid.

Dissatisfied with the said judgment, both parties appealed with the Court of
Appeals.

The Court of Appeals, in a Decision promulgated on January 18, 1980 (Record, pp.
72-77), ruled in favor of the Medinas

WHEREFORE, the defendant GSIS is ordered to reimburse the amount of P9,580.00

as overpayment and to pay plaintiffs P3,000.00 and Pl,000.00 as attorney's fees and
litigation expenses, respectively. With these modifications, the judgment appealed
from is AFFIRMED in all other respects, with costs against defendant GSIS."

Hence this petition.

The Second Division of this Court, in a Resolution dated April 25, 1980 (Rollo, p..
88), resolved to deny the petition for lack of merit.

13

Petitioner filed on June 26, 1980 a Motion for Reconsideration dated June 17, 1980
(Rollo, pp. 95-103), of the above-stated Resolution and respondents in a Resolution
dated July 9, 1980 (Rollo, p. 105), were required to comment thereon which
comment they filed on August 6, 1980. (Rollo, pp. 106-116).

The petition was given due course in the Resolution dated July 6, 1981 (Rollo, p.
128). Petitioner filed its brief on November 26, 1981 (Rollo, pp. 147-177); while
private respondents filed their brief on January 27, 1982 (Rollo, pp. 181-224), and
the case was considered submitted for decision in the Resolution of July 19, 1982
(Rollo, p. 229).

The issues in this case are:

1.
WHETHER OR NOT THE COURT OF APPEALS ERRED IN HOLDING THAT THE
AMENDMENT OF REAL ESTATE MORTGAGE DATED JULY 6, 1962 SUPERSEDED THE
MORTGAGE CONTRACT DATED APRIL 4, 1962, PARTICULARLY WITH RESPECT TO
COMPOUNDING OF INTEREST;

2.
WHETHER OR NOT THE COURT OF APPEALS ERRED IN SUSTAINING THE
RESPONDENT-APPELLEE SPOUSES MEDINA'S CLAIM OR OVERPAYMENT, BY
CREDITING THE FIRE INSURANCE PROCEEDS IN THE SUM OF P11,152.02 TO THE
TOTAL PAYMENT MADE BY SAID SPOUSES AS OF DECEMBER 11, 1975;

3.
WHETHER OR NOT THE COURT OF APPEALS ERRED IN HOLDING THAT THE
INTEREST RATES ON THE LOAN ACCOUNTS OF RESPONDENT-APPELLEE SPOUSES
ARE USURIOUS;

4.
WHETHER OR NOT THE COURT OF APPEALS ERRED IN AFFIRMING THE
ANNULMENT OF THE SUBJECT EXTRAJUDICIAL FORECLOSURE AND SHERIFF'S
CERTIFICATE OF SALE; AND

5.
WHETHER OR NOT THE COURT OF APPEALS ERRED IN HOLDING THE GSIS
LIABLE FOR ATTORNEY'S FEES, EXPENSES OF LITIGATION AND COSTS.

14

The petition is impressed with merit.

There is no dispute as to the facts of the case. By agreement of the parties the
issues in this case are limited to the loan of P350,000.00 denominated as Account
No. 31055 (Rollo, p. 79; Joint Record on Appeal, p. 129) subject of the Amendment
of Real Mortgage dated July 6, 1962, the interpretation of which is the major issue in
this case.

GSIS claims that the amendment of the real estate mortgage did not supersede the
original mortgage contract dated April 4, 1962 which was being amended only with
respect to the amount secured thereby, and the amount of monthly amortizations.
All other provisions of aforesaid mortgage contract including that on compounding
of interest were deemed rewritten and thus binding on and enforceable against the
respondent spouses. (Rollo, pp. 162-166).

Accordingly, payments made by the Medinas in the total amount of P991,845.53

was applied as follows: the amount of P600,495.51 to Account No. 31055,
P466,965.31 of which to interest and P133,530.20 to principal and P390,845.66 to
Account No. 31442, P230,774.29 to interest and P159,971.37 to principal. (Joint
Record on Appeal, p. 216; Rollo, p. 79).

On the other hand the Medinas maintain that there is no express stipulation on
compounded interest in the amendment of mortgage contract of July 6, 1962 so
that the compounded interest stipulation in the original mortgage contract of April
4, 1962 which has been superseded cannot be enforced in the later mortgage.
(Rollo, p. 185).

Hence the Medinas claim an overpayment in Account No. 31055. The application of
their total payment in the amount of P991,845.53 as computed by the trial court
and by the Court of Appeals is as follows:

... It appearing and so the parties admit in their own exhibits that as of December
11, 1975, plaintiffs had paid a total of P991,241.17 excluding fire insurance,
P532,038.00 of said amount should have been applied to the full payment of Acct.
No. 31055 and the balance of P459,203.17 applied to the payment of Acct. No.
31442.
15

According to the computation of the GSIS (Exhibit C, also Exhibit 38) the total
amounts, collected on Acct. No. 31442 as of December 11, 1975 total P390,745.66
thus leaving an unpaid balance of P70,028.63. The total amount plaintiffs should
pay on said account should therefore be P460,774.29. Deduct this amount from
P459,163.17 which has been shown to be the difference between the total
payments made by plaintiffs to the G.S.I.S. as of December 11, 1975 and the
amount said plaintiffs should pay under their Acct. No. 31055, there remains an
outstanding balance of P1,611.12. This amount represents the balance of the
obligation of the plaintiffs to the G.S.I.S. on Acct. No. 31442 as of December 11,
1975." (Decision, Civil Case No. 98390; Joint Record on Appeal, pp. 227-228; Rollo,
p. 79).

To recapitulate, the difference in the computation lies in the inclusion of the

compounded interest as demanded by the GSIS on the one hand and the exclusion
thereof, as insisted by the Medinas on the other.

It is a basic and fundamental rule in the interpretation of contract that if the terms
thereof are clear and leave no doubt as to the intention of the contracting parties,
the literal meaning of the stipulations shall control but when the words appear
contrary to the evident intention of the parties, the latter shall prevail over, the
former. In order to judge the intention of the parties, their contemporaneous and
subsequent acts shall be principally considered. (Sy v. Court of Appeals, 131 SCRA
116; July 31, 1984).

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

amendment of the mortgage contract herein quoted earlier. On the contrary, an
opposite conclusion cannot be otherwise but absurd.

As correctly stated by the GSIS in its brief (Rollo, pp. 162166), a careful perusal of
the title, preamble and body of the Amendment of Real Estate Mortgage dated July
6, 1962, taking into account the prior, contemporaneous, and subsequent acts of
the parties, ineluctably shows that said Amendment was never intended to
completely supersede the mortgage contract dated April 4, 1962.

16

First, the title "Amendment of Real Estate Mortgage" recognizes the existence and
effectivity of the previous mortgage contract. Second, nowhere in the aforesaid
Amendment did the parties manifest their intention to supersede the original
contract. On the contrary in the WHEREAS clauses, the existence of the previous
mortgage contract was fully recognized and the fact that the same was just being
amended as to amount and amortization is fully established as to obviate any
doubt. Third, the Amendment of Real Estate Mortgage dated July 6, 1962 does not
embody the act of conveyancing the subject properties by way of mortgage. In fact
the intention of the parties to be bound by the unaffected provisions of the
mortgage contract of April 4, 1962 expressed in unmistakable language is clearly
evident in the last provision of the Amendment of Real Estate Mortgage dated July
6, 1962 which reads:

It is hereby expressly understood that with the foregoing amendment, all other
terms and conditions of the said real estate mortgage dated April 4, 1962, insofar as
they are not inconsistent herewith, are hereby confirmed, ratified and continued to
be in full force and effect, and that the parties hereto agree that the amendment be
an integral part of said real estate mortgage. (Emphasis supplied).

A review of prior, contemporaneous, and subsequent acts supports the conclusion

that both contracts are fully subsisting insofar as the latter is not inconsistent with
the former. The fact is the GSIS, as a matter of policy, imposes uniform terms and
conditions for all its real estate loans, particularly with respect to compounding of
interest. As shown in the case at bar, the original mortgage contract embodies the
same terms and conditions as in the additional loan denominated as Account No.
31442 while the amendment carries the provision that it shall be subject to the
same terms and conditions as the real estate mortgage of April 4, 1962 except as to
amount and amortization.

Furthermore, it would be contrary to human experience and to ordinary practice for

the mortgagee to impose less onerous conditions on an increased loan by the
deletion of compound interest exacted on a lesser loan.

II

There is an obvious error in the ruling of the Court of Appeals in its Decision dated
January 18, 1980, which reads:
17

... We agree that plaintiff should be credited with P11,152.02 of the fire insurance
proceeds as the same is admitted in paragraph (4) of its Answer and should be
added to their payments. (par. 13).

Contrary thereto, paragraph 4 of the Answer of the GSIS states:

That they (GSIS) specifically deny the allegations in Paragraph 11, the truth being
that plaintiffs are not entitled to a credit of P19,381.07 as fire insurance proceeds
since they were only entitled to, and were credited with, the amount of P11,152.02
as proceeds of their fire insurance policy. (par. 4, Amended Answer).

As can be gleaned from the foregoing, petitioner-appellant GSIS had already

credited the amount of P11,152.02. Thus, when the Court of Appeals made the
aforequoted ruling, it was actually doubly crediting the amount of P11,152.02 which
had been previously credited by petitioner-appellant GSIS (Rollo, pp. 170-171).

III.

As to whether or not the interest rates on the loan accounts of the Medinas are
usurious, it has already been settled that the Usury Law applies only to interest by
way of compensation for the use or forbearance of money (Lopez v. Hernaez, 32
Phil. 631; Bachrach Motor Co. v. Espiritu, 52 Phil. 346; Equitable Banking
Corporation v. Liwanag, 32 SCRA 293, March 30, 1970). Interest by way of damages
is governed by Article 2209 of the Civil Code of the Philippines which provides:

Art. 2209.
If the obligation consists in the payment of a sum of money, and the
debtor incurs in delay, the indemnity for damages, there being no stipulation to the
contrary, shall be the payment of the interest agreed upon,...

In the Bachrach case (supra) the Supreme Court ruled that the Civil Code permits
the agreement upon a penalty apart from the interest. Should there be such an
agreement, the penalty does not include the interest, and as such the two are
different and distinct things which may be demanded separately. Reiterating the
18

same principle in the later case of Equitable Banking Corp. (supra), where this Court
held that the stipulation about payment of such additional rate partakes of the
nature of a penalty clause, which is sanctioned by law.

IV.

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

In the same manner, there is obvious error in invalidating the extra-judicial

foreclosure on the basis of a typographical error in the Sheriff's Certificate of Sale
which stated that the mortgage was foreclosed on May 17, 1963 instead of February
17, 1963.

There is merit in GSIS' contention that the Sheriff's Certificate of Sale is merely
provisional in character and is not intended to operate as an absolute transfer of the
subject property, but merely to Identify the property, to show the price paid and the
date when the right of redemption expires (Section 27, Rule 39, Rules of Court,
Francisco, The Revised Rules of Court, 1972 Vol., IV-B, Part I, p. 681). Hence the date
of the foreclosed mortgage is not even a material content of the said Certificate.
(Rollo, p. 174).

V.

PREMISES CONSIDERED, the decision of the Court of Appeals, in CA-G.R. No. 62541R Medina, et al. v. Government Service Insurance System et al., is hereby
REVERSED and SET ASIDE, and a new one is hereby RENDERED, affirming the
validity of the extra-judicial foreclosure of the real estate mortgages of the
respondent-appellee spouses Medina dated April 4, 1962, as amended on July 6,
1962, and February 17, 1963.

19

SO ORDERED.

UCPB v Beluso
UNITED
COCONUT
PLANTERS BANK,

G.R. No. 159912

Petitioner,
Present:

YNARES-SANTIAGO, J.,
Chairperson,

- versus -

AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
NACHURA, and
REYES, JJ.
SPOUSES SAMUEL
ODETTE BELUSO,

and
Promulgated:

Respondents.

August 17, 2007

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION
20

CHICO-NAZARIO, J.:

This is a Petition for Review on Certiorari under Rule 45 of the

Rules of Court, which seeks to annul the Court of Appeals
Decision[1] dated 21 January 2003 and its Resolution[2] dated 9
September 2003 in CA-G.R. CV No. 67318. The assailed Court of
Appeals Decision and Resolution affirmed in turn the
Decision[3] dated 23 March 2000 and Order[4] dated 8 May 2000 of
the Regional Trial Court (RTC), Branch 65 of Makati City, in Civil
Case No. 99-314, declaring void the interest rate provided in the
promissory notes executed by the respondents Spouses Samuel
and Odette Beluso (spouses Beluso) in favor of petitioner United
Coconut Planters Bank (UCPB).

The procedural and factual antecedents of this case are as

follows:

On 16 April 1996, UCPB granted the spouses Beluso a

Promissory Notes Line under a Credit Agreement whereby the
latter could avail from the former credit of up to a maximum
amount of P1.2 Million pesos for a term ending on 30 April
1997.The spouses Beluso constituted, other than their promissory
notes, a real estate mortgage over parcels of land in Roxas City,
covered by Transfer Certificates of Title No. T-31539 and T-27828,
as additional security for the obligation. The Credit Agreement
was subsequently amended to increase the amount of the
Promissory Notes Line to a maximum of P2.35 Million pesos and to
extend the term thereof to 28 February 1998.

21

The spouses Beluso availed themselves of the credit line

under the following Promissory Notes:

PN #

Date of PN

Maturity Date

Amount
Secured

8314-96-000833

29 April 1996

27
1996

August P 700,000

8314-96-000850

2 May 1996

30
1996

August P 500,000

8314-96000292-2

20
November 20
1996
1997

March P 800,000

The three promissory notes were renewed several

times. On 30 April 1997, the payment of the principal and interest
of the latter two promissory notes were debited from the spouses
Belusos account with UCPB; yet, a consolidated loan for P1.3
Million was again released to the spouses Beluso under one
promissory note with a due date of 28 February 1998.

To completely avail themselves of the P2.35 Million credit line

extended to them by UCPB, the spouses Beluso executed two
more promissory notes for a total of P350,000.00:

PN #

Date of PN

97-00363-1

11
1997

98-00002-4

2 January 1998

Maturity Date

Amount
Secured

December 28
February P 200,000
1998
28
February P 150,000
1998

22

However, the spouses Beluso alleged that the amounts covered

by these last two promissory notes were never released or
credited to their account and, thus, claimed that the principal
indebtedness was only P2 Million.

In any case, UCPB applied interest rates on the different

promissory notes ranging from 18% to 34%. From 1996 to
February 1998 the spouses Beluso were able to pay the total sum
of P763,692.03.

From 28 February 1998 to 10 June 1998, UCPB continued to

charge interest and penalty on the obligations of the spouses
Beluso, as follows:

PN #

Amount
Secured

Interest

Penalty

Total

97-00363-1

P 200,000

31%

36%

P 225,313.24

97-00366-6

P 700,000

30.17%

32.786%
(102
days)

P 795,294.72

(2 days)

30.41%
(102
days)

P 1,462,124.5
4

33%

36%

P 170,034.71

(7 days)
97-00368-2

98-00002-4

P 1,300,000

P 150,000

28%

(102
days)

23

The spouses Beluso, however, failed to make any payment of

the foregoing amounts.

On 2 September 1998, UCPB demanded that the spouses

Beluso pay their total obligation of P2,932,543.00 plus 25%
attorneys fees, but the spouses Beluso failed to comply
therewith. On 28 December 1998, UCPB foreclosed the properties
mortgaged by the spouses Beluso to secure their credit line,
which, by that time, already ballooned to P3,784,603.00.

On 9 February 1999, the spouses Beluso filed a Petition for

Annulment, Accounting and Damages against UCPB with the RTC
of Makati City.

On 23 March 2000, the RTC ruled in favor of the spouses

Beluso, disposing of the case as follows:

PREMISES CONSIDERED, judgment is hereby rendered declaring

the interest rate used by [UCPB] void and the foreclosure and Sheriffs
Certificate of Sale void. [UCPB] is hereby ordered to return to [the
spouses Beluso] the properties subject of the foreclosure; to pay [the
spouses Beluso] the amount of P50,000.00 by way of attorneys fees;
and to pay the costs of suit. [The spouses Beluso] are hereby ordered
to pay [UCPB] the sum of P1,560,308.00.[5]

On 8 May 2000, the RTC denied UCPBs Motion for

Reconsideration,[6] prompting UCPB to appeal the RTC Decision
with the Court of Appeals. The Court of Appeals affirmed the RTC
Decision, to wit:
WHEREFORE, premises considered, the decision dated March 23,
2000 of the Regional Trial Court, Branch 65, Makati City in Civil Case
No. 99-314 is hereby AFFIRMED subject to the modification that
24

defendant-appellant UCPB is not liable for attorneys fees or the costs

of suit.[7]

On 9 September 2003, the Court of Appeals denied UCPBs

Motion for Reconsideration for lack of merit. UCPB thus filed the
present petition, submitting the following issues for our
resolution:

WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED

SERIOUS AND REVERSIBLE ERROR WHEN IT AFFIRMED THE DECISION
OF THE TRIAL COURT WHICH DECLARED VOID THE PROVISION ON
INTEREST RATE AGREED UPON BETWEEN PETITIONER AND
RESPONDENTS

II

WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED

SERIOUS AND REVERSIBLE ERROR WHEN IT AFFIRMED THE
COMPUTATION BY THE TRIAL COURT OF RESPONDENTS INDEBTEDNESS
AND ORDERED RESPONDENTS TO PAY PETITIONER THE AMOUNT OF
ONLY ONE MILLION FIVE HUNDRED SIXTY THOUSAND THREE HUNDRED
EIGHT PESOS (P1,560,308.00)

III

WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED

SERIOUS AND REVERSIBLE ERROR WHEN IT AFFIRMED THE DECISION
OF THE TRIAL COURT WHICH ANNULLED THE FORECLOSURE BY
PETITIONER OF THE SUBJECT PROPERTIES DUE TO AN ALLEGED
INCORRECT COMPUTATION OF RESPONDENTS INDEBTEDNESS
25

IV

WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED

SERIOUS AND REVERSIBLE ERROR WHEN IT AFFIRMED THE DECISION
OF THE TRIAL COURT WHICH FOUND PETITIONER LIABLE FOR
VIOLATION OF THE TRUTH IN LENDING ACT

WHETHER OR NOT THE HONORABLE COURT OF APPEALS COMMITTED

SERIOUS AND REVERSIBLE ERROR WHEN IT FAILED TO ORDER THE
DISMISSAL OF THE CASE BECAUSE THE RESPONDENTS ARE GUILTY OF
FORUM SHOPPING[8]

Validity of the Interest Rates

The Court of Appeals held that the imposition of interest in

the following provision found in the promissory notes of the
spouses Beluso is void, as the interest rates and the bases
therefor were determined solely by petitioner UCPB:

FOR VALUE RECEIVED, I, and/or We, on or before due date, SPS.

SAMUEL AND ODETTE BELUSO (BORROWER), jointly and severally
promise to pay to UNITED COCONUT PLANTERS BANK (LENDER) or
order at UCPB Bldg., Makati Avenue, Makati City, Philippines, the sum
of ______________ PESOS, (P_____), Philippine Currency, with interest
thereon at the rate indicative of DBD retail rate or as determined by
the Branch Head.[9]

26

UCPB asserts that this is a reversible error, and claims that

while the interest rate was not numerically quantified in the face
of the promissory notes, it was nonetheless categorically fixed, at
the time of execution thereof, at the rate indicative of the DBD
retail rate. UCPB contends that said provision must be read with
another stipulation in the promissory notes subjecting to review
the interest rate as fixed:
The interest rate shall be subject to review and may be
increased or decreased by the LENDER considering among others the
prevailing financial and monetary conditions; or the rate of interest and
charges which other banks or financial institutions charge or offer to
charge for similar accommodations; and/or the resulting profitability to
the LENDER after due consideration of all dealings with the
BORROWER.[10]

In this regard, UCPB avers that these are valid reference

rates akin to a prevailing rate or prime rate allowed by this Court
in Polotan v. Court of Appeals. [11] Furthermore, UCPB argues that
even if the proviso as determined by the branch head is
considered void, such a declaration would not ipso facto render
the connecting clause indicative of DBD retail rate void in view of
the separability clause of the Credit Agreement, which reads:

Section 9.08 Separability Clause. If any one or more of the

provisions contained in this AGREEMENT, or documents executed in
connection herewith shall be declared invalid, illegal or unenforceable
in any respect, the validity, legality and enforceability of the remaining
provisions hereof shall not in any way be affected or impaired. [12]

According to UCPB, the imposition of the questioned interest

rates did not infringe on the principle of mutuality of contracts,
because the spouses Beluso had the liberty to choose whether or
not to renew their credit line at the new interest rates pegged by
petitioner.[13] UCPB also claims that assuming there was any
defect in the mutuality of the contract at the time of its inception,
such defect was cured by the subsequent conduct of the spouses
27

Beluso in availing themselves of the credit line from April 1996 to

February 1998 without airing any protest with respect to the
interest rates imposed by UCPB. According to UCPB, therefore, the
spouses Beluso are in estoppel.[14]

We agree with the Court of Appeals, and find no merit in the

contentions of UCPB.

Article 1308 of the Civil Code provides:

Art. 1308. The contract must bind both contracting parties; its
validity or compliance cannot be left to the will of one of them.

We applied this provision in Philippine National Bank v. Court

of Appeals,[15] where we held:

In order that obligations arising from contracts may have the

force of law between the parties, there must be mutuality between the
parties based on their essential equality. A contract containing a
condition which makes its fulfillment dependent exclusively upon the
uncontrolled will of one of the contracting parties, is void (Garcia vs.
Rita Legarda, Inc., 21 SCRA 555). Hence, even assuming that the P1.8
million loan agreement between the PNB and the private respondent
gave the PNB a license (although in fact there was none) to increase
the interest rate at will during the term of the loan, that license would
have been null and void for being violative of the principle of mutuality
essential in contracts. It would have invested the loan agreement with
the character of a contract of adhesion, where the parties do not
bargain on equal footing, the weaker party's (the debtor) participation
being reduced to the alternative "to take it or leave it" (Qua vs. Law
Union & Rock Insurance Co., 95 Phil. 85). Such a contract is a veritable
trap for the weaker party whom the courts of justice must protect
against abuse and imposition.

28

The provision stating that the interest shall be at the rate

indicative of DBD retail rate or as determined by the Branch Head
is indeed dependent solely on the will of petitioner UCPB. Under
such provision, petitioner UCPB has two choices on what the
interest rate shall be: (1) a rate indicative of the DBD retail rate;
or (2) a rate as determined by the Branch Head. As UCPB is given
this choice, the rate should be categorically determinable
in both choices. If either of these two choices presents an
opportunity for UCPB to fix the rate at will, the bank can easily
choose such an option, thus making the entire interest rate
provision violative of the principle of mutuality of contracts.

Not just one, but rather both, of these choices are

dependent solely on the will of UCPB. Clearly, a rate as
determined by the Branch Head gives the latter unfettered
discretion on what the rate may be. The Branch Head may choose
any rate he or she desires. As regards the rate indicative of the
DBD retail rate, the same cannot be considered as valid for being
akin to a prevailing rate or prime rate allowed by this Court
in Polotan. The interest rate in Polotan reads:
The Cardholder agrees to pay interest per annum at 3% plus the prime
rate of Security Bank and Trust Company. x x x.[16]

In this provision in Polotan, there is a fixed margin over the

reference rate: 3%. Thus, the parties can easily determine the
interest rate by applying simple arithmetic. On the other hand,
the provision in the case at bar does not specify any margin
above or below the DBD retail rate. UCPB can peg the interest at
any percentage above or below the DBD retail rate, again giving it
unfettered discretion in determining the interest rate.

29

The stipulation in the promissory notes subjecting the interest

rate to review does not render the imposition by UCPB of interest
rates on the obligations of the spouses Beluso valid. According to
said stipulation:

The interest rate shall be subject to review and may be

increased or decreased by the LENDER considering among others the
prevailing financial and monetary conditions; or the rate of interest and
charges which other banks or financial institutions charge or offer to
charge for similar accommodations; and/or the resulting profitability to
the LENDER after due consideration of all dealings with the
BORROWER.[17]

It should be pointed out that the authority to review the interest

rate was given UCPB alone as the lender. Moreover, UCPB may
apply the considerations enumerated in this provision as it
wishes. As worded in the above provision, UCPB may give as
much weight as it desires to each of the following considerations:
(1) the prevailing financial and monetary condition; (2) the rate of
interest and charges which other banks or financial institutions
charge or offer to charge for similar accommodations; and/or (3)
the resulting profitability to the LENDER (UCPB) after due
consideration of all dealings with the BORROWER (the spouses
Beluso). Again, as in the case of the interest rate provision, there
is no fixed margin above or below these considerations.

In view of the foregoing, the Separability Clause cannot save

either of the two options of UCPB as to the interest to be imposed,
as both options violate the principle of mutuality of contracts.

UCPB likewise failed to convince us that the spouses Beluso

were in estoppel.

30

Estoppel cannot be predicated on an illegal act. As between

the parties to a contract, validity cannot be given to it by estoppel
if it is prohibited by law or is against public policy. [18]

The interest rate provisions in the case at bar are illegal not
only because of the provisions of the Civil Code on mutuality of
contracts, but also, as shall be discussed later, because they
violate the Truth in Lending Act. Not disclosing the true finance
charges in connection with the extensions of credit is,
furthermore, a form of deception which we cannot countenance. It
is against the policy of the State as stated in the Truth in Lending
Act:

Sec. 2. Declaration of Policy. It is hereby declared to be the

policy of the State to protect its citizens from a lack of awareness of
the true cost of credit to the user by assuring a full disclosure of such
cost with a view of preventing the uninformed use of credit to the
detriment of the national economy.[19]

Moreover, while the spouses Beluso indeed agreed to renew

the credit line, the offending provisions are found in the
promissory notes themselves, not in the credit line. In fixing the
interest rates in the promissory notes to cover the renewed credit
line, UCPB still reserved to itself the same two options (1) a rate
indicative of the DBD retail rate; or (2) a rate as determined by
the Branch Head.

Error in Computation
UCPB asserts that while both the RTC and the Court of
Appeals voided the interest rates imposed by UCPB, both failed to
include in their computation of the outstanding obligation of the
spouses Beluso the legal rate of interest of 12% per
annum. Furthermore, the penalty charges were also deleted in the
31

decisions of the RTC and the Court of Appeals. Section 2.04,

Article II on Interest and other Bank Charges of the subject Credit
Agreement, provides:

Section 2.04 Penalty Charges. In addition to the interest provided

for in Section 2.01 of this ARTICLE, any principal obligation of the
CLIENT hereunder which is not paid when due shall be subject to a
penalty charge of one percent (1%) of the amount of such obligation
per month computed from due date until the obligation is paid in full. If
the bank accelerates teh (sic) payment of availments hereunder
pursuant to ARTICLE VIII hereof, the penalty charge shall be used on
the total principal amount outstanding and unpaid computed from the
date of acceleration until the obligation is paid in full. [20]

Paragraph 4 of the promissory notes also states:

In case of non-payment of this Promissory Note (Note) at

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

Petitioner further claims that it is likewise entitled to

attorneys fees, pursuant to Section 9.06 of the Credit Agreement,
thus:

If the BANK shall require the services of counsel for the

enforcement of its rights under this AGREEMENT, the Note(s), the
collaterals and other related documents, the BANK shall be entitled to
recover attorneys fees equivalent to not less than twenty-five percent
32

(25%) of the total amounts due and outstanding exclusive of costs and
other expenses.[22]

Another alleged computational error pointed out by UCPB is

the negation of the Compounding Interest agreed upon by the
parties under Section 2.02 of the Credit Agreement:

Section 2.02 Compounding Interest. Interest not paid when due shall
form part of the principal and shall be subject to the same interest rate
as herein stipulated.[23]

and paragraph 3 of the subject promissory notes:

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

UCPB lastly avers that the application of the spouses Belusos

payments in the disputed computation does not reflect the parties
agreement. The RTC deducted the payment made by the spouses
Beluso
amounting
to P763,693.00
from
the
principal
of P2,350,000.00. This was allegedly inconsistent with the Credit
Agreement, as well as with the agreement of the parties as to the
facts of the case. In paragraph 7 of the spouses Belusos
Manifestation and Motion on Proposed Stipulation of Facts and
Issues vis--vis UCPBs Manifestation, the parties agreed that the
amount of P763,693.00 was applied to the interest and not to the
principal, in accord with Section 3.03, Article II of the Credit
Agreement on Order of the Application of Payments, which
provides:

33

Section 3.03 Application of Payment. Payments made by the

CLIENT shall be applied in accordance with the following order of
preference:

1.
2.

Accounts receivable and other out-of-pocket expenses

Front-end Fee, Origination Fee, Attorneys Fee and other
expenses of collection;

3.

Penalty charges;

4.

Past due interest;

5.

Principal amortization/Payment in arrears;

6.

Advance interest;

7.

Outstanding balance; and

8.

All other obligations of CLIENT to the BANK, if any. [25]

Thus, according to UCPB, the interest charges, penalty

charges, and attorneys fees had been erroneously excluded by
the RTC and the Court of Appeals from the computation of the
total amount due and demandable from spouses Beluso.

The spouses Belusos defense as to all these issues is that

the demand made by UCPB is for a considerably bigger amount
and, therefore, the demand should be considered void. There
being no valid demand, according to the spouses Beluso, there
would be no default, and therefore the interests and penalties
would not commence to run. As it was likewise improper to
foreclose the mortgaged properties or file a case against the
spouses Beluso, attorneys fees were not warranted.

We agree with UCPB on this score. Default commences upon

judicial or extrajudicial demand.[26] The excess amount in such a
34

demand does not nullify the demand itself, which is valid with
respect to the proper amount. A contrary ruling would put
commercial transactions in disarray, as validity of demands would
be dependent on the exactness of the computations thereof,
which are too often contested.

There being a valid demand on the part of UCPB, albeit

excessive, the spouses Beluso are considered in default with
respect to the proper amount and, therefore, the interests and the
penalties began to run at that point.

As regards the award of 12% legal interest in favor of

petitioner, the RTC actually recognized that said legal interest
should be imposed, thus: There being no valid stipulation as to
interest, the legal rate of interest shall be charged. [27] It seems
that the RTC inadvertently overlooked its non-inclusion in its
computation.

The spouses Beluso had even originally asked for the RTC to
impose this legal rate of interest in both the body and the prayer
of its petition with the RTC:

12. Since the provision on the fixing of the rate of interest by the
sole will of the respondent Bank is null and void, only the legal rate of
interest which is 12% per annum can be legally charged and imposed
by the bank, which would amount to only about P599,000.00 since
1996 up to August 31, 1998.

xxxx

WHEREFORE, in view of the foregoing, petiitoners pray for

judgment or order:

35

xxxx

2. By way of example for the public good against the Banks

taking unfair advantage of the weaker party to their contract, declaring
the legal rate of 12% per annum, as the imposable rate of interest up
to February 28, 1999 on the loan of 2.350 million.[28]

All these show that the spouses Beluso had acknowledged before
the RTC their obligation to pay a 12% legal interest on their
loans. When the RTC failed to include the 12% legal interest in its
computation, however, the spouses Beluso merely defended in
the appellate courts this non-inclusion, as the same was beneficial
to them. We see, however, sufficient basis to impose a 12% legal
interest in favor of petitioner in the case at bar, as what we have
voided is merely the stipulated rate of interest and not the
stipulation that the loan shall earn interest.

We must likewise uphold the contract stipulation providing

the compounding of interest. The provisions in the Credit
Agreement and in the promissory notes providing for the
compounding of interest were neither nullified by the RTC or the
Court of Appeals, nor assailed by the spouses Beluso in their
petition with the RTC. The compounding of interests has
furthermore been declared by this Court to be legal. We have held
in Tan v. Court of Appeals,[29] that:

Without prejudice to the provisions of Article 2212, interest due

and unpaid shall not earn interest. However, the contracting
parties may by stipulation capitalize the interest due and
unpaid, which as added principal, shall earn new interest.

36

As regards the imposition of penalties, however, although we

are likewise upholding the imposition thereof in the contract, we
find the rate iniquitous. Like in the case of grossly excessive
interests, the penalty stipulated in the contract may also be
reduced by the courts if it is iniquitous or unconscionable. [30]

We find the penalty imposed by UCPB, ranging from 30.41%

to 36%, to be iniquitous considering the fact that this penalty is
already over and above the compounded interest likewise
imposed in the contract. If a 36% interest in itself has been
declared unconscionable by this Court, [31] what more a 30.41% to
36% penalty, over and above the payment of compounded
interest? UCPB itself must have realized this, as it gave us a
sample computation of the spouses Belusos obligation if both the
interest and the penalty charge are reduced to 12%.

As regards the
actually be liable
demand. Filing a case
Article 1169[32] of the
delay.

attorneys fees, the spouses Beluso can

therefor even if there had been no
in court is the judicial demand referred to in
Civil Code, which would put the obligor in

The RTC, however, also held UCPB liable for attorneys fees in
this case, as the spouses Beluso were forced to litigate the issue
on the illegality of the interest rate provision of the promissory
notes. The award of attorneys fees, it must be recalled, falls under
the sound discretion of the court.[33] Since both parties were
forced to litigate to protect their respective rights, and both are
entitled to the award of attorneys fees from the other, practical
reasons dictate that we set off or compensate both parties
liabilities for attorneys fees. Therefore, instead of awarding
attorneys fees in favor of petitioner, we shall merely affirm the
deletion of the award of attorneys fees to the spouses Beluso.

37

In sum, we hold that spouses Beluso should still be held

liable for a compounded legal interest of 12% per annum and a
penalty charge of 12% per annum. We also hold that, instead of
awarding attorneys fees in favor of petitioner, we shall merely
affirm the deletion of the award of attorneys fees to the spouses
Beluso.

Annulment of the Foreclosure Sale

Properties of spouses Beluso had been foreclosed, titles to

which had already been consolidated on 19 February 2001 and 20
March 2001 in the name of UCPB, as the spouses Beluso failed to
exercise their right of redemption which expired on25 March
2000. The RTC, however, annulled the foreclosure of mortgage
based on an alleged incorrect computation of the spouses Belusos
indebtedness.

UCPB alleges that none of the grounds for the annulment of a

foreclosure sale are present in the case at bar. Furthermore, the
annulment of the foreclosure proceedings and the certificates of
sale were mooted by the subsequent issuance of new certificates
of title in the name of said bank. UCPB claims that the spouses
Belusos action for annulment of foreclosure constitutes a collateral
attack on its certificates of title, an act proscribed by Section 48 of
Presidential Decree No. 1529, otherwise known as the Property
Registration Decree, which provides:

Section 48. Certificate not subject to collateral attack. A

certificate of title shall not be subject to collateral attack. It cannot be
altered, modified or cancelled except in a direct proceeding in
accordance with law.

38

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

We agree with UCPB and affirm the validity of the foreclosure

proceedings. Since we already found that a valid demand was
made by UCPB upon the spouses Beluso, despite being excessive,
the spouses Beluso are considered in default with respect to the
proper amount of their obligation to UCPB and, thus, the property
they
mortgaged
to
secure
such
amounts
may
be
foreclosed. Consequently, proceeds of the foreclosure sale should
be applied to the extent of the amounts to which UCPB is
rightfully entitled.

As argued by UCPB, none of the grounds for the annulment of

a foreclosure sale are present in this case. The grounds for the
proper annulment of the foreclosure sale are the following: (1) that
there was fraud, collusion, accident, mutual mistake, breach of
trust or misconduct by the purchaser; (2) that the sale had not
been fairly and regularly conducted; or (3) that the price was
inadequate and the inadequacy was so great as to shock the
conscience of the court.[34]

Liability for Violation of Truth in Lending Act

The RTC, affirmed by the Court of Appeals, imposed a fine

of P26,000.00 for UCPBs alleged violation of Republic Act No.
3765, otherwise known as the Truth in Lending Act.
39

UCPB challenges this imposition, on the argument that

Section 6(a) of the Truth in Lending Act which mandates the filing
of an action to recover such penalty must be made under the
following circumstances:

Section 6. (a) Any creditor who in connection with any credit

transaction fails to disclose to any person any information in violation
of this Act or any regulation issued thereunder shall be liable to such
person in the amount of P100 or in an amount equal to twice the
finance charge required by such creditor in connection with such
transaction, whichever is greater, except that such liability shall not
exceed P2,000 on any credit transaction. Action to recover such
penalty may be brought by such person within one year from
the date of the occurrence of the violation, in any court of
competent jurisdiction. x x x (Emphasis ours.)

According to UCPB, the Court of Appeals even stated that

[a]dmittedly the original complaint did not explicitly allege a
violation of the Truth in Lending Act and no action to formally
admit the amended petition [which expressly alleges violation of
the Truth in Lending Act] was made either by [respondents]
spouses Beluso and the lower court. x x x.[35]

UCPB further claims that the action to recover the penalty

for the violation of the Truth in Lending Act had been barred by
the one-year prescriptive period provided for in the Act. UCPB
asserts that per the records of the case, the latest of the subject
promissory notes had been executed on 2 January 1998, but the
original petition of the spouses Beluso was filed before the RTC
on 9 February 1999, which was after the expiration of the period
to file the same on 2 January 1999.

On the matter of allegation of the violation of the Truth in

Lending Act, the Court of Appeals ruled:
40

Admittedly the original complaint did not explicitly allege a violation of

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

We agree with the Court of Appeals. The allegations in the

complaint, much more than the title thereof, are controlling. Other
than that stated by the Court of Appeals, we find that the
allegation of violation of the Truth in Lending Act can also be
inferred from the same allegation in the complaint we discussed
earlier:

b.) In unilaterally imposing an increased interest rates (sic)

respondent bank has relied on the provision of their promissory note
granting respondent bank the power to unilaterally fix the interest
rates, which rate was not determined in the promissory note but was
left solely to the will of the Branch Head of the respondent Bank, x x x.
[37]

The allegation that the promissory notes grant UCPB the

power to unilaterally fix the interest rates certainly also means
that the promissory notes do not contain a clear statement in
writing of (6) the finance charge expressed in terms of pesos and
centavos; and (7) the percentage that the finance charge bears to
the amount to be financed expressed as a simple annual rate on
41

the outstanding unpaid balance of the obligation. [38] Furthermore,

the spouses Belusos prayer for such other reliefs just and
equitable in the premises should be deemed to include the civil
penalty provided for in Section 6(a) of the Truth in Lending Act.

UCPBs contention that this action to recover the penalty for

the violation of the Truth in Lending Act has already prescribed is
likewise without merit. The penalty for the violation of the act
is P100 or an amount equal to twice the finance charge required
by such creditor in connection with such transaction, whichever is
greater, except that such liability shall not exceed P2,000.00 on
any credit transaction.[39] As this penalty depends on the finance
charge required of the borrower, the borrowers cause of action
would only accrue when such finance charge is required. In the
case at bar, the date of the demand for payment of the finance
charge is 2 September 1998, while the foreclosure was made
on 28 December 1998. The filing of the case on 9 February 1999 is
therefore within the one-year prescriptive period.

UCPB argues that a violation of the Truth in Lending Act,

being a criminal offense, cannot be inferred nor implied from the
allegations made in the complaint. [40] Pertinent provisions of the
Act read:

Sec. 6. (a) Any creditor who in connection with any credit

transaction fails to disclose to any person any information in violation
of this Act or any regulation issued thereunder shall be liable to such
person in the amount of P100 or in an amount equal to twice the
finance charge required by such creditor in connection with such
transaction, whichever is the greater, except that such liability shall
not exceed P2,000 on any credit transaction. Action to recover such
penalty may be brought by such person within one year from the date
of the occurrence of the violation, in any court of competent
jurisdiction. In any action under this subsection in which any person is
entitled to a recovery, the creditor shall be liable for reasonable
attorneys fees and court costs as determined by the court.

42

xxxx

(c)
Any person who willfully violates any provision of this
Act or any regulation issued thereunder shall be fined by not less
than P1,000 or more than P5,000 or imprisonment for not less than 6
months, nor more than one year or both.

As can be gleaned from Section 6(a) and (c) of the Truth in

Lending Act, the violation of the said Act gives rise to both
criminal and civil liabilities. Section 6(c) considers a criminal
offense the willful violation of the Act, imposing the penalty
therefor of fine, imprisonment or both. Section 6(a), on the other
hand, clearly provides for a civil cause of action for failure
to disclose any information of the required information to any
person in violation of the Act. The penalty therefor is an amount
of P100 or in an amount equal to twice the finance charge
required by the creditor in connection with such transaction,
whichever is greater, except that the liability shall not
exceed P2,000.00 on any credit transaction. The action to recover
such penalty may be instituted by the aggrieved private person
separately and independently from the criminal case for the same
offense.

In the case at bar, therefore, the civil action to recover the

penalty under Section 6(a) of the Truth in Lending Act had been
jointly instituted with (1) the action to declare the interests in the
promissory notes void, and (2) the action to declare the
foreclosure void. This joinder is allowed under Rule 2, Section 5 of
the Rules of Court, which provides:

SEC. 5. Joinder of causes of action.A party may in one pleading

assert, in the alternative or otherwise, as many causes of action as he
43

may have against an opposing party, subject to the following

conditions:
(a) The party joining the causes of action shall comply with the
rules on joinder of parties;
(b) The joinder shall not include special civil actions or actions
governed by special rules;
(c) Where the causes of action are between the same parties but
pertain to different venues or jurisdictions, the joinder may be allowed
in the Regional Trial Court provided one of the causes of action falls
within the jurisdiction of said court and the venue lies therein; and
(d) Where the claims in all the causes of action are principally for
recovery of money, the aggregate amount claimed shall be the test of
jurisdiction.

In attacking the RTCs disposition on the violation of the Truth

in Lending Act since the same was not alleged in the complaint,
UCPB is actually asserting a violation of due process. Indeed, due
process mandates that a defendant should be sufficiently
apprised of the matters he or she would be defending himself or
herself against. However, in the 1 July 1999 pre-trial brief filed by
the spouses Beluso before the RTC, the claim for civil sanctions for
violation of the Truth in Lending Act was expressly alleged, thus:

Moreover, since from the start, respondent bank violated the Truth in
Lending Act in not informing the borrower in writing before the
execution of the Promissory Notes of the interest rate expressed as a
percentage of the total loan, the respondent bank instead is liable to
pay petitioners double the amount the bank is charging petitioners by
way of sanction for its violation.[41]

In the same pre-trial brief, the spouses Beluso also expressly

raised the following issue:
44

b.) Does the expression indicative rate of DBD retail (sic) comply
with the Truth in Lending Act provision to express the interest rate as a
simple annual percentage of the loan? [42]

These assertions are so clear and unequivocal that any

attempt of UCPB to feign ignorance of the assertion of this issue
in this case as to prevent it from putting up a defense thereto is
plainly hogwash.

Petitioner further posits that it is the Metropolitan Trial Court

which has jurisdiction to try and adjudicate the alleged violation
of the Truth in Lending Act, considering that the present action
allegedly involved a single credit transaction as there was only
one Promissory Note Line.

We disagree. We have already ruled that the action to

recover the penalty under Section 6(a) of the Truth in Lending Act
had been jointly instituted with (1) the action to declare the
interests in the promissory notes void, and (2) the action to
declare the foreclosure void. There had been no question that the
above actions belong to the jurisdiction of the RTC. Subsection (c)
of the above-quoted Section 5 of the Rules of Court on Joinder of
Causes of Action provides:
(c) Where the causes of action are between the same parties but
pertain to different venues or jurisdictions, the joinder may be allowed
in the Regional Trial Court provided one of the causes of action falls
within the jurisdiction of said court and the venue lies therein.

Furthermore, opening a credit line does not create a credit

transaction of loan or mutuum, since the former is merely a
45

preparatory contract to the contract of loan or mutuum. Under

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

UCPB further argues that since the spouses Beluso were duly
given copies of the subject promissory notes after their execution,
then they were duly notified of the terms thereof, in substantial
compliance with the Truth in Lending Act.

Once more, we disagree. Section 4 of the Truth in Lending

Act clearly provides that the disclosure statement must be
furnished prior to the consummation of the transaction:

SEC. 4. Any creditor shall furnish to each person to whom credit

is extended, prior to the consummation of the transaction, a
clear statement in writing setting forth, to the extent applicable and in
accordance with rules and regulations prescribed by the Board, the
following information:

(1) the cash price or delivered price of the property or service to

be acquired;

(2) the amounts, if any, to be credited as down payment and/or

trade-in;

46

(3) the difference between the amounts set forth under clauses
(1) and (2)

(4) the charges, individually itemized, which are paid or to be

paid by such person in connection with the transaction but
which are not incident to the extension of credit;

(5) the total amount to be financed;

(6) the finance charge expressed in terms of pesos and

centavos; and

(7) the percentage that the finance bears to the total amount to
be financed expressed as a simple annual rate on the
outstanding unpaid balance of the obligation.

The rationale of this provision is to protect users of credit

from a lack of awareness of the true cost thereof, proceeding from
the experience that banks are able to conceal such true cost by
hidden charges, uncertainty of interest rates, deduction of
interests from the loaned amount, and the like. The law thereby
seeks to protect debtors by permitting them to fully appreciate
the true cost of their loan, to enable them to give full consent to
the contract, and to properly evaluate their options in arriving at
business decisions. Upholding UCPBs claim of substantial
compliance would defeat these purposes of the Truth in Lending
Act. The belated discovery of the true cost of credit will too often
not be able to reverse the ill effects of an already consummated
business decision.

In addition, the promissory notes, the copies of which were

presented to the spouses Beluso after execution, are not sufficient
47

notification from UCPB. As earlier discussed, the interest rate

provision therein does not sufficiently indicate with particularity
the interest rate to be applied to the loan covered by said
promissory notes.

Forum Shopping

UCPB had earlier moved to dismiss the petition (originally

Case No. 99-314 in RTC, Makati City) on the ground that the
spouses Beluso instituted another case (Civil Case No. V-7227)
before the RTC of Roxas City, involving the same parties and
issues. UCPB claims that while Civil Case No. V-7227 initially
appears to be a different action, as it prayed for the issuance of a
temporary restraining order and/or injunction to stop foreclosure
of spouses Belusos properties, it poses issues which are similar to
those of the present case. [43] To prove its point, UCPB cited the
spouses Belusos Amended Petition in Civil Case No. V-7227, which
contains similar allegations as those in the present case. The RTC
of Makati denied UCPBs Motion to Dismiss Case No. 99-314 for
lack of merit. Petitioner UCPB raised the same issue with the
Court of Appeals, and is raising the same issue with us now.

The spouses Beluso claim that the issue in Civil Case No. V7227 before the RTC of Roxas City, a Petition for Injunction Against
Foreclosure, is the propriety of the foreclosure before the true
account of spouses Beluso is determined. On the other hand, the
issue in Case No. 99-314 before the RTC of Makati City is the
validity of the interest rate provision. The spouses Beluso claim
that Civil Case No. V-7227 has become moot because, before the
RTC of Roxas City could act on the restraining order, UCPB
proceeded with the foreclosure and auction sale. As the act
sought to be restrained by Civil Case No. V-7227 has already been
accomplished, the spouses Beluso had to file a different action,
that of Annulment of the Foreclosure Sale, Case No. 99-314 with
the RTC, Makati City.
48

Even if we assume for the sake of argument, however, that

only one cause of action is involved in the two civil actions,
namely, the violation of the right of the spouses Beluso not to
have their property foreclosed for an amount they do not owe, the
Rules of Court nevertheless allows the filing of the second
action. Civil Case No. V-7227 was dismissed by the RTC of Roxas
City before the filing of Case No. 99-314 with the RTC of Makati
City, since the venue of litigation as provided for in the Credit
Agreement is in Makati City.

Rule 16, Section 5 bars the refiling of an action previously

dismissed only in the following instances:

SEC. 5. Effect of dismissal.Subject to the right of appeal, an

order granting a motion to dismiss based on paragraphs (f), (h) and (i)
of section 1 hereof shall bar the refiling of the same action or claim.
(n)

Improper venue as a ground for the dismissal of an action is

found in paragraph (c) of Section 1, not in paragraphs (f), (h) and
(i):

SECTION 1. Grounds.Within the time for but before filing the

answer to the complaint or pleading asserting a claim, a motion to
dismiss may be made on any of the following grounds:

(a) That the court has no jurisdiction over the person of the
defending party;

(b) That the court has no jurisdiction over the subject matter of
the claim;

(c) That venue is improperly laid;

49

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

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

parties for the same cause;

(f) That the cause of action is barred by a prior judgment

or by the statute of limitations;

(g) That the pleading asserting the claim states no cause of

action;

(h) That the claim or demand set forth in the plaintiffs

pleading has been paid, waived, abandoned, or otherwise
extinguished;

(i) That the claim on which the action is founded is

unenforceable under the provisions of the statute of
frauds; and

(j) That a condition precedent for filing the claim has not been
complied with.[44] (Emphases supplied.)

When an action is dismissed on the motion of the other

party, it is only when the ground for the dismissal of an action is
found in paragraphs (f), (h) and (i) that the action cannot be
refiled. As regards all the other grounds, the complainant is
allowed to file same action, but should take care that, this time, it
is filed with the proper court or after the accomplishment of the
erstwhile absent condition precedent, as the case may be.
50

UCPB, however, brings to the attention of this Court a Motion

for Reconsideration filed by the spouses Beluso on 15 January
1999 with the RTC of Roxas City, which Motion had not yet been
ruled upon when the spouses Beluso filed Civil Case No. 99-314
with the RTC of Makati. Hence, there were allegedly two pending
actions between the same parties on the same issue at the time
of the filing of Civil Case No. 99-314 on 9 February 1999 with the
RTC of Makati. This will still not change our findings. It is indeed
the general rule that in cases where there are two pending
actions between the same parties on the same issue, it should be
the later case that should be dismissed. However, this rule is not
absolute. According to this Court inAllied Banking Corporation v.
Court of Appeals[45]:

In these cases, it is evident that the first action was filed in

anticipation of the filing of the later action and the purpose is to
preempt the later suit or provide a basis for seeking the dismissal of
the second action.

Even if this is not the purpose for the filing of the first
action, it may nevertheless be dismissed if the later action is
the more appropriate vehicle for the ventilation of the issues
between the parties. Thus, in Ramos v. Peralta, it was held:

[T]he rule on litis pendentia does not require that

the later case should yield to the earlier case. What is
required merely is that there be another pending action,
not a prior pending action. Considering the broader scope
of inquiry involved in Civil Case No. 4102 and the location
of the property involved, no error was committed by the
lower court in deferring to the Bataan court's jurisdiction.

Given, therefore, the pendency of two actions, the following are

the relevant considerations in determining which action should be
dismissed: (1) the date of filing, with preference generally given to the
51

first action filed to be retained; (2) whether the action sought to be

dismissed was filed merely to preempt the later action or to anticipate
its filing and lay the basis for its dismissal; and (3) whether the action
is the appropriate vehicle for litigating the issues between the parties.

In the case at bar, Civil Case No. V-7227 before the RTC of
Roxas City was an action for injunction against a foreclosure sale
that has already been held, while Civil Case No. 99-314 before the
RTC of Makati City includes an action for the annulment of said
foreclosure, an action certainly more proper in view of the
execution of the foreclosure sale. The former case was improperly
filed in Roxas City, while the latter was filed in Makati City, the
proper venue of the action as mandated by the Credit
Agreement. It is evident, therefore, that Civil Case No. 99-314 is
the more appropriate vehicle for litigating the issues between the
parties, as compared to Civil Case No. V-7227. Thus, we rule that
the RTC of Makati City was not in error in not dismissing Civil Case
No. 99-314.

WHEREFORE, the Decision of the Court of Appeals is

hereby AFFIRMED with the following MODIFICATIONS:

1.

In addition to the sum of P2,350,000.00 as

determined by the courts a quo, respondent spouses
Samuel and Odette Beluso are also liable for the
following amounts:
a. Penalty of 12% per annum on the amount due [46] from
the date of demand; and
b. Compounded legal interest of 12% per annum on the
amount due[47] from date of demand;

2.

The following amounts shall be deducted from the

liability of the spouses Samuel and Odette Beluso:
52

a. Payments made by the spouses in the amount

of P763,692.00. These payments shall be applied to
the date of actual payment of the following in the
order that they are listed, to wit:
i. penalty charges due and demandable
as of the time of payment;
ii. interest due and demandable as of the
time of payment;
iii. principal
amortization/payment
arrears as of the time of payment;

in

iv. outstanding balance.

b. Penalty under Republic Act No. 3765 in the amount
of P26,000.00. This amount shall be deducted from
the liability of the spouses Samuel and Odette Beluso
on 9 February 1999 to the following in the order
that they are listed, to wit:
i. penalty charges due and demandable
as of time of payment;
ii. interest due and demandable as of the
time of payment;
iii. principal
amortization/payment
arrears as of the time of payment;

in

iv. outstanding balance.

3.

The foreclosure of mortgage is hereby declared

VALID. Consequently, the amounts which the Regional
Trial Court and the Court of Appeals ordered
respondents to pay, as modified in this Decision, shall
be deducted from the proceeds of the foreclosure sale.

SO ORDERED.
53

A.C Ent. Inc. v. CIAC 244 s 55

EN
[G.R.

BANC
No.

101444.

May

9,

1995.]

A.C. ENTERPRISES, INC., Petitioner, v. CONSTRUCTION INDUSTRY ARBITRATION COMMISSION

and DEE CONSTRUCTION CORPORATION, Respondents.

SYLLABUS

1. REMEDIAL LAW; CIVIL PROCEDURE; JUDGMENT; "FINAL AND INAPPEALABLE" JUDGMENT;

DISTINGUISHED FROM "FINAL AND EXECUTORY" JUDGMENT. A "final and inappealable (sic)" judgment is
not the same as a "final and executory" one. The former becomes executory only as in the case of an award
by the CIAC after the lapse of 30 days from receipt of notice thereof and no petition for review to the
Supreme Court is made (Rules of Procedure Governing Construction Arbitration, Art. XVI, Sec. 1). While the
petition for review does not automatically suspend the execution of the award of the CIAC, the Supreme
Court may direct a stay of execution. In case at bench, the Court issued a temporary restraining order to
stay the execution of the award.
The CIAC award did not come "final and executory" until after service of
a copy of the Resolution dated April 8, 1992 of this Court, denying the motion for reconsideration. The award
was fully paid to private respondent on May 6, 1992. We consider the interest that accrued from April 8 to
May 6, 1992, a period of less than a month, as de minimis as to warrant its charging against the award.
chanroble s law library

RESOLUTION

QUIASON, J.:

In their Second Motion For Partial Reconsideration, private respondent insists that it is entitled to interests at
the rate of 12 per annum on the monetary award given them by the Construction Industry Arbitration
Commission (CIAC). It contends that under Executive Order No. 1008 dated February 4, 1985 and the Rules
of Procedure Governing Construction Arbitration, arbitral awards are final and "inappealable (sic)" and
pursuant to our ruling in Eastern Shipping Lines, Inc. v. Court of Appeals, 234 SCRA 78 (1994), monetary
awards in all judgments that became final and executory, regardless of the nature of the obligation, shall
bear
legal
interest
of
12
per
annum.
The obligation that was breached in the arbitration case at bench was not based on a loan or forbearance of
money,
and
therefore
was
not
covered
by
Central
Bank
Circular
No.
416.
In Reformina v. Tomol, Jr., 139 SCRA 260 (1985), we made clear that the award of legal interest at 12 per
annum under said Central Bank Circular shall be adjudged only in cases involving the loan or forbearance of
money (See also Pilipinas Bank v. Court of Appeals, 225 SCRA 268 [1993]). However, in Eastern Shipping
Lines, Inc., we held that when the judgment awarding a sum of money becomes final and executory, the
monetary award shall earn interest at 12% per annum from the date of such finality until its satisfaction,
regardless of whether the case involves a loan or forbearance of money. The reason is that this interim
period is deemed to be by then equivalent to a forbearance of credit. We quote from Eastern Shipping Lines,
Inc.,
supra.,
at
pp.
95-97:

jgc:chanrobles.com .ph

"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:

jgc:chanroble s.com.ph

"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

54

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"
(Emphasis
supplied).
It appears that private respondent equated, and wrongly at that, the term "final and inappealable (sic)" as
used in E.O. No. 1008 and the Rules of Procedure Governing Construction Arbitration with the term "final
and
executory"
as
used
in
Eastern
Shipping
Lines,
Inc.
Section

19

of

E.O.

No.

1008

dated

February

4,

1985

provides

as

follows:

jgc:chanrobles.com .ph

"Finality of Awards The arbitral award shall be binding upon the parties. It shall be final and inappealable
(sic) except on questions of law which shall be appealable to the Supreme Court" (Emphasis Supplied).
Section 2 of Article XVI of the Rules of Procedure Governing Construction Arbitration provides as follows:

jgc:chanroble s.com.ph

"Appeals Pursuant to Section 19 of Executive Order No. 1008 dated 4 February 1985, arbitral awards are
final and inappealable (sic) except on questions of law which shall be appealable to the Supreme Court
before the award becomes final. An appeal shall not stay the award unless the Supreme Court shall direct
otherwise upon such terms as it may deem just. An appeal from an arbitral award or an order/decision of
the CIAC shall be perfected by filing with the CIAC a notice of appeal with the Supreme Court twelve (12)
copies of a petition for review of the award, order, or decision" (Emphasis supplied).
A "final and inappealable (sic)" judgment is not the same as a "final and executory" one. The former
becomes executory only as in the case of an award by the CIAC after the lapse of 30 days from receipt of
notice thereof and no petition for review to the Supreme Court is made (Rules of Procedure Governing
Construction
Arbitration,
Art.
XVI,
Sec.
1).
While the petition for review does not automatically suspend the execution of the award of the CIAC, the
Supreme Court may direct a stay of execution. In case at bench, the Court issued a temporary restraining
order
to
stay
the
execution
of
the
award
(Resolution,
October
14,
1991).
chanrobles

law

library

The CIAC award did not come "final and executory" until after service of a copy of the Resolution dated April
8, 1992 of this Court, denying the motion for reconsideration. The award was fully paid to private
respondent on May 6, 1992 (Rollo, p. 456). We consider the interest that accrued from April 8 to May 6,
1992, a period of less than a month, as de minimis as to warrant its charging against the award.
IN

VIEW

OF

THE

FOREGOING,

the

Court

RESOLVED:

chanrob1es

virtual

1aw

library

(1) to GRANT private respondents Motion for Leave to File and Admit Attached Second Motion for Partial
Reconsideration;
and
(2)

to

DENY

the

Second

Motion

for

Partial

Reconsideration.

Narvasa, C.J., Padilla, Regalado, Davide, Jr., Romero, Bellosillo, Melo, Puno, Vitug, Kapunan, Mendoza and
Francisco, JJ.,
concur.
Feliciano, J., took no part.

55

New Sampaguita v PNB

THIRD DIVISION

NEW SAMPAGUITA BUILDERS G.R. No. 148753

CONSTRUCTION, INC. (NSBCI)
and Spouses EDUARDO R. DEE Present:
and ARCELITA M. DEE,
Petitioners, Panganiban, J,
Chairman,
Sandoval-Gutierrez,
Corona,* and

- versus - Carpio Morales, JJ

PHILIPPINE NATIONAL BANK, Promulgated:

Respondent.
July 30, 2004

x -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --- -- -- -- x

56

DECISION

PANGANIBAN, J.:

C
ourts have the authority to strike down or to modify
provisions in promissory notes that grant the lenders
unrestrained power to increase interest rates, penalties
and

other

charges at the latters sole

discretion

and

without giving prior notice to and securing the consent

of the borrowers. This unilateral
__________________
* On leave.
authority is anathema to the mutuality of contracts and
enable

lenders

to

take

undue

advantage

of

borrowers. Although the Usury Law has been effectively

repealed,

courts

may

still
57

reduce

iniquitous

or

unconscionable

rates

charged

for

the

use

of

money. Furthermore, excessive interests, penalties and

other charges not revealed in disclosure statements issued
by banks, even if stipulated in the promissory notes,
cannot be given effect under the Truth in Lending Act.

The Case

Before us is a Petition for Review[1] under Rule 45 of

the Rules of Court, seeking to nullify the June 20, 2001
Decision[2] of the Court of Appeals[3] (CA) in CA-GR CV
No. 55231. The decretal portion of the assailed Decision
reads as follows:

WHEREFORE, the decision of the Regional Trial Court of

Dagupan City, Branch 40 dated December 28, 1995
is REVERSED and SET ASIDE. The foreclosure proceedings of the
mortgaged properties of defendants-appellees[4] and the February
26, 1992 auction sale are declared legal and valid and said
defendants-appellees are ordered to pay plaintiff-appellant PNB,
[5]
jointly and severally[,] the amount of deficiency that will be
computed by the trial court based on the original penalty of 6% per
annum as explicitly stated in the loan documents and to pay
58

attorneys fees in an amount equivalent to x x x 1% of the total

amount due and the costs of suit and expenses of litigation.[6]

The Facts

The facts are narrated by the CA as follows:

On February 11, 1989, Board Resolution No. 05, Series of

1989 was approved by [Petitioner] NSBCI [1)] authorizing the
company to x x x apply for or secure a commercial loan with the
PNB in an aggregate amount of P8.0M, under such terms agreed by
the Bank and the NSBCI, using or mortgaging the real estate
properties registered in the name of its President and Chairman of
the Board [Petitioner] Eduardo R. Dee as collateral; [and] 2)
authorizing [petitioner-spouses] to secure the loan and to sign any
[and all] documents which may be required by [Respondent] PNB[,]
and that [petitioner-spouses] shall act as sureties or co-obligors who
shall be jointly and severally liable with [Petitioner] NSBCI for the
payment of any [and all] obligations.

On August 15, 1989, Resolution No. 77 was approved by

granting the request of [Respondent] PNB thru its Board NSBCI for
an P8 Million loan broken down into a revolving credit line of P7.7M
and an unadvised line of P0.3M for additional operating and working
capital[7] to mobilize its various construction projects, namely:

59

1) MWSS Watermain;
2) NEA-Liberty farm;
3) Olongapo City Pag-Asa Public Market;
4) Renovation of COA-NCR Buildings 1, 2 and 9;
5) Dupels, Inc., Extensive prawn farm development project;
6) Banawe Hotel Phase II;
7) Clark Air Base -- Barracks and Buildings; and
8) Others: EDSA Lighting, Roxas Blvd. Painting NEA Sapang
Palay and Angeles City.

The loan of [Petitioner] NSBCI was secured by a first

mortgage on the following: a) three (3) parcels of residential land
located at Mangaldan, Pangasinan with total land area of 1,214
square meters[,] including improvements thereon and registered
under TCT Nos. 128449, 126071, and 126072 of the Registry of
Deeds of Pangasinan; b) six (6) parcels of residential land situated
at San Fabian, Pangasinan with total area of 1,767 square meters[,]
including improvements thereon and covered by TCT Nos. 144006,
144005, 120458, 120890, 144161[,] and 121127 of the Registry of
Deeds of Pangasinan; and c) a residential lot and improvements
thereon located at Mangaldan, Pangasinan with an area of 4,437
square meters and covered by TCT No. 140378 of the Registry of
Deeds of Pangasinan.

The loan was further secured by the joint and several

signatures of [Petitioners] Eduardo Dee and Arcelita Marquez Dee,
who signed as accommodation-mortgagors since all the collaterals
were owned by them and registered in their names.

Moreover [Petitioner] NSBCI executed the following

documents, viz: a) promissory note dated June 29, 1989 in the
60

amount of P5,000,000.00 with due date on October 27, 1989; [b)]

promissory note dated September 1, 1989 in the amount
of P2,700,000.00 with due date on December 30, 1989; and c)
promissory note dated September 6, 1989 in the amount
of P300,000.00 with maturity date on January 4, 1990.

In addition, [petitioner] corporation also signed the Credit

Agreement dated August 31, 1989 relating to the revolving credit line
of P7.7 Million x x x and the Credit Agreement dated September 5,
1989 to support the unadvised line of P300,000.00.

On August 31, 1989, [petitioner-spouses] executed a Joint and

Solidary Agreement (JSA) in favor of [Respondent] PNB
unconditionally and irrevocably binding themselves to be jointly and
severally liable with the borrower for the payment of all sums due
and payable to the Bank under the Credit Document.

Later on, [Petitioner] NSBCI failed to comply with its

obligations under the promissory notes.

On June 18, 1991, [Petitioner] Eduardo R. Dee on behalf of

[Petitioner] NSBCI sent a letter to the Branch Manager of the PNB
Dagupan Branch requesting for a 90-day extension for the payment
of interests and restructuring of its loan for another term.

Subsequently, NSBCI tendered payment to [Respondent] PNB

[of] three (3) checks aggregating P1,000,000.00, namely 1) check
no. 316004 dated August 8, 1991 in the amount of P200,000.00; 2)
check no. 03499997 dated August 8, 1991 in the amount
of P650,000.00; and 3) check no. 03499998 dated August 15, 1991
in the amount of P150,000.00.[8]
61

In a meeting held on August 12, 1991, [Respondent] PNBs

representative[,] Mr. Rolly Cruzabra, was informed by [Petitioner]
Eduardo Dee of his intention to remit to [Respondent] PNB postdated checks covering interests, penalties and part of the loan
principals of his due account.

On August 22, 1991, [Respondent] banks Crispin Carcamo

wrote [Petitioner] Eduardo Dee[,] informing him that [Petitioner]
NSBCIs proposal [was] acceptable[,] provided the total payment
should be P4,128,968.29 that [would] cover the amount
of P1,019,231.33 as principal, P3,056,058.03 as interests and
penalties[,] and P53,678.93 for insurance[,] with the issuance of
post-dated checks to be dated not later than November 29, 1991.

On September 6, 1991, [Petitioner] Eduardo Dee wrote the

PNB Branch Manager reiterating his proposals for the settlement of
[Petitioner] NSBCIs past due loan account amounting
to P7,019,231.33.

[Petitioner] Eduardo Dee later tendered four (4) post-dated

Interbank checks aggregating P1,111,306.67 in favor of
[Respondent] PNB, viz:

Check No. Date Amount

03500087 Sept. 29, 1991 P277,826.70

03500088 Oct. 29, 1991 P277,826.70
03500089 Nov. 29, 1991 P277,826.70
03500090 Dec. 20, 1991 P277,826.57
62

Upon presentment[,] however, x x x check nos. 03500087 and

03500088 dated September 29 and October 29, 1991 were
dishonored by the drawee bank and returned due [to] a stop
payment order from [petitioners].

On November 12, 1991, PNBs Mr. Carcamo wrote [Petitioner]

Eduardo Dee informing him that unless the dishonored checks
[were] made good, said PNB branch shall recall its recommendation
to the Head Office for the restructuring of the loan account and refer
the matter to its legal counsel for legal action.[] [Petitioners] did not
heed [respondents] warning and as a result[,] the PNB Dagupan
Branch sent demand letters to [Petitioner] NSBCI at its office
address at 1611 ERDC Building, E. Rodriguez Sr. Avenue, Quezon
City[,] asking it to settle its past due loan account.

[Petitioners] nevertheless failed to pay their loan obligations

within the [timeframe] given them and as a result, [Respondent]
PNB filed with the Provincial Sheriff of Pangasinan at Lingayen a
Petition for Sale under Act 3135, as amended[,] and Presidential
Decree No. 385 dated January 30, 1992.

The notice of extra-judicial sale of the mortgaged properties

relating to said PNBs [P]etition for [S]ale was published in the
February 8, 15 and 22, 1992 issues of the Weekly Guardian,
allegedly a newspaper of general circulation in the Province of
Pangasinan, including the cities of Dagupan and San Carlos. In
addition[,] copies of the notice were posted in three (3) public
places[,] and copies thereof furnished [Petitioner] NSBCI at 1611
[ERDC Building,] E. Rodriguez Sr. Avenue, Quezon City, [and at] 555
Shaw Blvd., Mandaluyong[, Metro Manila;] and [Petitioner] Sps.
Eduardo and Arcelita Dee at 213 Wilson St., San Juan, Metro
Manila.
63

On February 26, 1992, the Provincial Deputy Sheriff Cresencio

F. Ferrer of Lingayen, Pangasinan foreclosed the real estate
mortgage and sold at public auction the mortgaged properties of
[petitioner-spouses,] with [Respondent] PNB being declared the
highest bidder for the amount of P10,334,000.00.

On March 2, 1992, copies of the Sheriffs Certificate of Sale

were sent by registered mail to [petitioner] corporations address at
1611 [ERDC Building,] E. Rodriguez Sr. Avenue, Quezon City and
[petitioner-spouses] address at 213 Wilson St., San Juan, Metro
Manila.

On April 6, 1992, the PNB Dagupan Branch Manager sent a

letter to [petitioners] at their address at 1611 [ERDC Building,] E.
Rodriguez Sr. Avenue, Quezon City[,] informing them that the
properties securing their loan account [had] been sold at public
auction, that the Sheriffs Certificate of Sale had been registered with
the Registry of Deeds of Pangasinan on March 13, 1992[,] and that a
period of one (1) year therefrom [was] granted to them within which
to redeem their properties.

[Petitioners] failed to redeem their properties within the oneyear redemption period[,] and so [Respondent] PNB executed a
[D]eed of [A]bsolute [S]ale consolidating title to the properties in its
name. TCT Nos. 189935 to 189944 were later issued to [Petitioner]
PNB by the Registry of Deeds of Pangasinan.

On August 4, 1992, [Respondent] PNB informed [Petitioner]

NSBCI that the proceeds of the sale conducted on February 26,
1992 were not sufficient to cover its total claim amounting
to P12,506,476.43[,] and thus demanded from the latter the
64

deficiency of P2,172,476.43 plus interest and other charges[,] until

the amount [was] fully paid.

[Petitioners] refused to pay the above deficiency claim which

compelled [Respondent] PNB to institute the instant [C]omplaint for
the collection of its deficiency claim.

Finding that the PNB debt relief package automatically

[granted] to [Petitioner] NSBCI the benefits under the program, the
court a quo ruled in favor of [petitioners] in its Decision dated
December 28, 1995, the fallo of which reads:

In view of the foregoing, the Court believes and so holds

that the [respondent] has no cause of action against the
[petitioners]. WHEREFORE, the case is hereby DISMISSED,
without costs.[9]

On appeal, respondent assailed the trial courts

Decision dismissing its deficiency claim on the mortgage
debt. It also challenged the ruling of the lower court that
Petitioner NSBCIs loan account was bloated, and that
the inadequacy of the bid price was sufficient to set aside
the auction sale.

Ruling of the Court of Appeals

65

Reversing the trial court, the CA held that Petitioner

NSBCI did not avail itself of respondents debt relief
package (DRP) or take steps to comply with the
conditions

for

qualifying

under

the

program. The

appellate court also ruled that entitlement to the

program was not a matter of right, because such
entitlement was still subject to the approval of higher
bank authorities, based on their assessment of the
borrowers repayment capability and satisfaction of other
requirements.

As to the misapplication of loan payments, the CA

held that the subsidiary ledgers of NSBCIs loan accounts
with respondent reflected all the loan proceeds as well
as the partial payments that had been applied either to
the principal or to the interests, penalties and other
charges. Having been made in the ordinary and usual
course of the banking business of respondent, its entries
were presumed accurate, regular and fair under Section
66

5(q) of Rule 131 of the Rules of Court. Petitioners failed

to rebut this presumption.

The increases in the interest rates on NSBCIs loan

were also held to be authorized by law and the Monetary
Board and -- like the increases in penalty rates -voluntarily and freely agreed upon by the parties in the
Credit Agreements they executed. Thus, these increases
were binding upon petitioners.

However, after considering that two to three of

Petitioner NSBCIs projects covered by the loan were
affected by the economic slowdown in the areas near the
military bases in the cities of Angeles and Olongapo, the
appellate court annulled and deleted the adjustment in
penalty from 6 percent to 36 percent per annum. Not
only did respondent fail to demonstrate the existence of
market forces and economic conditions that would justify
such increases; it could also have treated petitioners
67

request for restructuring as a request for availment of

the DRP. Consequently, the original penalty rate of 6
percent per annum was used to compute the deficiency
claim.

The auction sale could not be set aside on the basis

of the inadequacy of the auction price, because in sales
made at public auction, the owner is given the right to
redeem the mortgaged properties; the lower the bid
price, the easier it is to effect redemption or to sell such
right. The

bid

price

of P10,334,000.00

vis--vis

respondents claim of P12,506,476.43 was found to be

neither shocking nor unconscionable.

The attorneys fees were also reduced by the

appellate court from 10 percent to 1 percent of the total
indebtedness. First, there was no extreme difficulty in an
extrajudicial foreclosure of a real estate mortgage, as
this proceeding was merely administrative in nature and
68

did

not

involve

court

litigation

contesting

the

proceedings prior to the auction sale. Second, the

attorneys fees were exclusive of all stipulated costs and
fees. Third, such fees were in the nature of liquidated
damages that did not inure to respondents salaried
counsel.
Respondent
unquestioned

was

right

also
to

declared

foreclose

the

to

have

Real

the

Estate

Mortgage. It was allowed to recover any deficiency in

the mortgage account not realized in the foreclosure
sale, since petitioner-spouses had agreed to be solidarily
liable for all sums due and payable to respondent.

Finally, the appellate court concluded that the

extrajudicial foreclosure proceedings and auction sale
were valid for the following reasons: (1) personal notice
to the mortgagors, although unnecessary, was actually
made; (2) the notice of extrajudicial sale was duly
published and posted; (3) the extrajudicial sale was
69

conducted

through

the

deputy

sheriff,

under

the

direction of the clerk of court who was concurrently the

ex-oficio provincial sheriff and acting as agent of
respondent; (4) the sale was conducted within the
province where the mortgaged properties were located;
and (5) such sale was not shown to have been attended
by fraud.

Hence this Petition.[10]

Issues

Petitioners submit the following issues for our

consideration:

Whether or not the Honorable Court of Appeals correctly ruled that

petitioners did not avail of PNBs debt relief package and were not
entitled thereto as a matter of right.
70

II

Whether or not petitioners have adduced sufficient and convincing

evidence to overthrow the presumption of regularity and correctness
of the PNB entries in the subsidiary ledgers of the loan accounts of
petitioners.

III

Whether or not the Honorable Court of Appeals seriously erred in not

holding that the Respondent PNB bloated the loan account of
petitioner corporation by imposing interests, penalties and attorneys
fees without legal, valid and equitable justification.

IV

Whether or not the auction price at which the mortgaged properties

was sold was disproportionate to their actual fair mortgage value.

71

Whether or not Respondent PNB is not entitled to recover the

deficiency in the mortgage account not realized in the foreclosure
sale, considering that:

A. Petitioners are merely guarantors of the mortgage debt

of petitioner corporation which has a separate personality
from the [petitioner-spouses].

B. The joint and solidary agreement executed by

[petitioner- spouses] are contracts of adhesion not
binding on them;

C. The NSBCI Board Resolution is not valid and binding on

[petitioner-spouses] because they were compelled to
execute the said Resolution[;] otherwise[,] Respondent
PNB would not grant petitioner corporation the loan;

D. The Respondent PNB had already in its possession the

properties of the [petitioner-spouses] which served as a
collateral to the loan obligation of petitioner corporation[,]
and to still allow Respondent PNB to recover the
deficiency claim amounting to a very substantial amount
of P2.1 million would constitute unjust enrichment on the
part of Respondent PNB.

VI

Whether or not the extrajudicial foreclosure proceedings and auction

sale, including all subsequent proceedings[,] are null and void for
72

non-compliance with jurisdictional and other mandatory

requirements; whether or not the petition for extrajudicial foreclosure
of mortgage was filed prematurely; and whether or not the finding of
fraud by the trial court is amply supported by the evidence on record.
[11]

The foregoing may be summed up into two main

issues: first, whether the loan accounts are bloated;
and second, whether the extrajudicial foreclosure and
subsequent claim for deficiency are valid and proper.

The Courts Ruling

The Petition is partly meritorious.

First Main Issue:

Bloated Loan Accounts

73

At the outset, it must be stressed that only questions of

law[12] may be raised in a petition for review on certiorari
under Rule 45 of the Rules of Court. As a rule, questions
of fact cannot be the subject of this mode of appeal,[13]for
[t]he Supreme Court is not a trier of facts.[14] As
exceptions to this rule, however, factual findings of the
CA may be reviewed on appeal [15] when, inter alia, the
factual

inferences

are

manifestly

mistaken;[16] the

judgment is based on a misapprehension of facts; [17] or

the CA manifestly overlooked certain relevant and
undisputed facts that, if properly considered, would
justify a different legal conclusion.[18] In the present case,
these

exceptions

exist

in

various

instances,

thus

prompting us to take cognizance of factual issues and to

decide upon them in the interest of justice and in the
exercise of our sound discretion.[19]

Indeed,

Petitioner

NSBCIs

loan

accounts

with

respondent appear to be bloated with some iniquitous

74

imposition of interests, penalties, other charges and

attorneys fees. To demonstrate this point, the Court shall
take up one by one the promissory notes, the credit
agreements and the disclosure statements. Increases in
Interest Baseless

Promissory Notes. In each drawdown, the Promissory

Notes specified the interest rate to be charged: 19.5
percent in the first, and 21.5 percent in the second and
again in the third. However, a uniform clause therein
permitted respondent to increase the rate within the
limits allowed by law at any time depending on whatever
policy it may adopt in the future x x x,[20] without even
giving prior notice to petitioners. The Court holds that
petitioners accessory duty to pay interest [21] did not give
respondent unrestrained freedom to charge any rate
other than that which was agreed upon. No interest shall
be due, unless expressly stipulated in writing. [22] It would
be the zenith of farcicality to specify and agree upon
75

rates that could be subsequently upgraded at whim by

only one party to the agreement.

The

unilateral

determination

and

imposition[23] of

increased rates is violative of the principle of mutuality

of contracts ordained in Article 1308[24] of the Civil Code.
[25]

One-sided impositions do not have the force of law

between the parties, because such impositions are not

based on the parties essential equality.

Although

escalation

clauses[26] are

valid

in

maintaining fiscal stability and retaining the value of

money on long-term contracts,[27] giving respondent an
unbridled right to adjust the interest independently and
upwardly would completely take away from petitioners
the right to assent to an important modification in their
agreement[28] and would also negate the element of
mutuality in their contracts. The clause cited earlier
76

made

the

fulfillment

of

the

contracts

dependent

exclusively upon the uncontrolled will[29] of respondent

and

was

therefore

void. Besides,

the

pro

forma

promissory notes have the character of a contract

dadhsion,[30] where the parties do not bargain on equal
footing, the weaker partys [the debtors] participation
being reduced to the alternative to take it or leave it. [31]

77

While the Usury Law[32] ceiling on interest rates was

lifted by [Central Bank] Circular No. 905,[33] 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.[34] In fact, we have declared nearly ten years ago
that neither this Circular nor PD 1684, which further
amended the Usury Law, authorized either party to
unilaterally raise the interest rate without the others
consent.[35]

Moreover, a similar case eight years ago pointed out

to the same respondent (PNB) that borrowing signified a
capital

transfusion

from

lending

institutions

to

businesses and industries and was done for the purpose

of stimulating their growth; yet respondents continued
unilateral and lopsided policy[36] of increasing interest
rates without the prior assent[37] of the borrower not only

78

defeats this purpose,

but

pronouncement. Although
usurious,

since

the

also

such

Usury

deviates from
increases

Law

is

are

now

this
not

legally

inexistent[38] -- the interest ranging from 26 percent to 35

percent in the statements of account[39] -- must be
equitably reduced for being iniquitous, unconscionable
and

exorbitant.[40] Rates

found

to

be iniquitous

or

unconscionable are void, as if it there were no express

contract thereon.[41] Above all, it is undoubtedly against
public policy to charge excessively for the use of money.
[42]

It cannot be argued that assent to the increases can be

implied either from the June 18, 1991 request of
petitioners for loan restructuring or from their lack of
response

to

the

respondent. Such

statements
request

of

does

account
not

sent

indicate

by
any

agreement to an interest increase; there can be no

implied waiver of a right when there is no clear,
79

unequivocal and decisive act showing such purpose.

[43]

Besides,

the

statements

were

not

letters

of

information sent to secure their conformity; and even if

we were to presume these as an offer, there was no
acceptance. No one receiving a proposal to modify a loan
contract, especially interest -- a vital component -- is
obliged

to

respondent

answer
did

not

the

proposal.[44]

follow

the

Furthermore,

stipulation

in

the

Promissory Notes providing for the automatic conversion

of the portion that remained unpaid after 730 days -- or
two years from date of original release -- into a mediumterm loan, subject to the applicable interest rate to be
applied from the dates of original release.[45]

In the first,[46] second[47] and third[48] Promissory Notes,

the amount that remained unpaid as of October 27,
1989, December 1989 and January 4, 1990 -- their
respective due dates -- should have been automatically
converted by respondent into medium-term loans on
80

June 30, 1991, September 2, 1991, and September 7,

1991, respectively. And on this unpaid amount should
have been imposed the same interest rate charged by
respondent on other medium-term loans; and the rate
applied from June 29, 1989, September 1, 1989 and
September 6, 1989 -- their respective original release -until paid. But these steps were not taken. Aside from
sending demand letters, respondent did not at all
exercise its option to enforce collection as of these Notes
due dates. Neither did it renew or extend the account.

In these three Promissory Notes, evidently, no complaint

for collection was filed with the courts. It was not until
January 30, 1992 that a Petition for Sale of the
mortgaged properties was filed -- with the provincial
sheriff, instead.[49] Moreover, respondent did not supply
the interest rate to be charged on medium-term loans
granted

by

automatic

conversion. Because

of

this

deficiency, we shall use the legal rate of 12 percent per

81

annum on loans and forbearance of money, as provided

for by CB Circular 416.[50]

Credit Agreements. Aside from the promissory notes,

another

main

document

involved

in

the

principal

obligation is the set of credit agreements executed and

their annexes.
The first Credit Agreement[51] dated June 19, 1989 -although offered and admitted in evidence, and even
referred to in the first Promissory Note -- cannot be
given weight.

First, it was not signed by respondent through its branch

manager.[52] Apparently
acknowledged

before

it

was

respondents

surreptitiously
counsel,

who

unflinchingly declared that it had been signed by the

parties on every page, although respondents signature
does not appear thereon.[53]
82

Second, it was objected to by petitioners,[54] contrary to

the trial courts findings.[55] However, it was not the
Agreement,

but

the

revolving

credit

line[56] of P5,000,000, that expired one year from the

Agreements date of implementation.[57]

Third, there was no attached annex that contained the

General Conditions.[58] Even the Acknowledgment did not
allude to its existence.[59] Thus, no terms or conditions
could be added to the Agreement other than those
already stated therein.

Since the first Credit Agreement cannot be given weight,

the interest rate on the first availment pegged at 3
percent over and above respondents prime rate[60] on the
date of such availment[61] has no bearing at all on the
loan. After the first Notes due date, the rate of 19
83

percent agreed upon should continue to be applied on

the availment, until its automatic conversion to a
medium-term loan.

The second Credit Agreement[62] dated August 31, 1989,

provided for interest -- respondents prime rate, plus the
applicable spread[63] in effect as of the date of each
availment,[64] on a revolving credit line of P7,700,000[65] -but did not state any provision on its increase or
decrease.[66] Consequently, petitioners could not be made
to bear interest more than such prime rate plus
spread. The Court gives weight to this second Credit
Agreement for the following reasons.

First, this document submitted by respondent was

admitted

by

petitioners.[67] Again,

contrary

to

their

assertion, it was not the Agreement -- but the credit line

-- that expired one year from the Agreements date of
84

implementation.[68] Thus,

the

terms

and

conditions

continued to apply, even if drawdowns could no longer

be made.

Second,

there

evidence

that

[70]

was

no

7-page

contained

the

annex[69] offered
General

in

Conditions,

notwithstanding the Acknowledgment of its existence

by respondents counsel. Thus, no terms or conditions

could be appended to the Agreement other than those
specified therein.

Third, the 12-page General Conditions[71] offered and

admitted in evidence had no probative value. There was
no reference to it in the Acknowledgment of the
Agreement; neither was respondents signature on any of
the

pages

thereof. Thus,

the

General

Conditions

stipulations on interest adjustment,[72] whether on a fixed

or a floating scheme, had no effect whatsoever on the
85

Agreement. Contrary to the trial courts findings, [73] the

General

Condition

were

correctly

objected

to

by

petitioners.[74] The rate of 21.5 percent agreed upon in

the second Note thus continued to apply to the second
availment, until its automatic conversion into a mediumterm loan.

The third Credit Agreement[75] dated September 5, 1989,

provided for the same rate of interest as that in the
second Agreement. This rate was to be applied to
availments of an unadvised line of P300,000. Since there
was no mention in the third Agreement, either, of any
stipulation on increases or decreases[76] in interest, there
would be no basis for imposing amounts higher than the
prime rate plus spread. Again, the 21.5 percent rate
agreed upon would continue to apply to the third
availment indicated in the third Note, until such amount
was automatically converted into a medium-term loan.

86

The Court also finds that, first, although this document

was admitted by petitioners,[77] it was the credit line that
expired one year from the implementation of the
Agreement.[78] The

terms

and

conditions

therein

continued to apply, even if availments could no longer be

drawn after expiry.

Second, there was again no 7-page annex[79] offered that

contained the General Conditions,[80] regardless of the
Acknowledgment by the same respondents counsel
affirming its existence. Thus, the terms and conditions in
this Agreement relating to interest cannot be expanded
beyond that which was already laid down by the parties.

Disclosure

Statements. In

the

present

case,

the

Disclosure Statements[81] furnished by respondent set

forth the same interest rates as those respectively
87

indicated in the Promissory Notes. Although no method

of computation was provided showing how such rates
were arrived at, we will nevertheless take up the
Statements seriatim in order to determine the applicable
rates clearly.

As to the first Disclosure Statement on Loan/Credit

Transaction[82] dated June 13, 1989, we hold that the 19.5
percent

effective

interest

indeed apply to the

rate

per

annum[83] would

first availment or drawdown

evidenced by the first Promissory Note. Not only was this

Statement issued prior to the consummation of such
availment or drawdown, but the rate shown therein can
also be considered equivalent to 3 percent over and
above

respondents

prime

rate

in

effect. Besides,

respondent mentioned no other rate that it considered to

be the prime rate chargeable to petitioners. Even if we
disregarded the related Credit Agreement, we assume
that this private transaction between the parties was fair
88

and regular,[84] and that the ordinary course of business

was followed.[85]

As to the second Disclosure Statement on Loan/Credit

Transaction[86] dated September 2, 1989, we hold that
the

21.5

percent

effective

interest

rate

per

annum[87] would definitely apply to the second availment

or drawdown evidenced by the second Promissory
Note. Incidentally, this Statement was issued only after
the consummation of its related availment or drawdown,
yet such rate can be deemed equivalent to the prime rate
plus spread, as stipulated in the corresponding Credit
Agreement. Again,

we

presume

that

this

private

transaction was fair and regular, and that the ordinary

course

of

business

was

followed. That

the

related

Promissory Note was pre-signed would also bolster

petitioners claim although, under cross-examination
Efren Pozon -- Assistant Department Manager I[88] of

89

PNB, Dagupan Branch -- testified that the Disclosure

Statements were the basis for preparing the Notes.[89]

As to the third Disclosure Statement on Loan/Credit

Transaction[90] dated September 6, 1989, we hold that
the same 21.5 percent effective interest rate per
annum[91] would

apply

to

the

third availment

or

drawdown evidenced by the third Promissory Note. This

Statement was made available to petitioner-spouses,
only after the related Credit Agreement had been
executed, but simultaneously with the consummation of
the

Statements

related

availment

or

drawdown. Nonetheless, the rate herein should still be

regarded as equivalent to the prime rate plus spread,
under

the

similar

presumption

that

this

private

transaction was fair and regular and that the ordinary

course of business was followed.

90

In sum, the three disclosure statements, as well as the

two credit agreements considered by this Court, did not
provide for any increase in the specified interest
rates. Thus, none would now be permitted. When crossexamined, Julia Ang-Lopez, Finance Account Analyst II of
PNB, Dagupan Branch, even testified that the bases for
computing such rates were those sent by the head office
from time to time, and not those indicated in the notes or
disclosure statements.[92]

In addition to the preceding discussion, it is then

useless to labor the point that the increase in rates
violates the impairment[93] clause of the Constitution,
[94]

because the sole purpose of this provision is to

safeguard the integrity of valid contractual agreements

against unwarranted interference by the State[95] in the
form of laws. Private individuals intrusions on interest
rates is governed by statutory enactments like the Civil
Code.
91

Penalty, or Increases
Thereof, Unjustified

No penalty charges or increases thereof appear either in

the Disclosure Statements[96] or in any of the clauses in
the second and the third Credit Agreements[97] earlier
discussed. While a standard penalty charge of 6 percent
per annum has been imposed on the amounts stated in
all three Promissory Notes still remaining unpaid or
unrenewed when they fell due,[98] there is no stipulation
therein

that

would

justify

any

increase

in

that

charges. The effect, therefore, when the borrower is not

clearly informed of the Disclosure Statements -- prior to
the consummation of the availment or drawdown -- is
that the lender will have no right to collect upon such
charge[99] or increases thereof, even if stipulated in the
Notes. The time is now ripe to give teeth to the often
ignored forty-one-year old Truth in Lending Act [100] and
92

thus transform it from a snivelling paper tiger to a

growling financial watchdog of hapless borrowers.

93

Besides, we have earlier said that the Notes are

contracts of adhesion; although not invalid per se, any
apparent ambiguity in the loan contracts -- taken as a
whole -- shall be strictly construed against respondent
who caused it.[101] Worse, in the statements of account,
the penalty rate has again been unilaterally increased by
respondent to 36 percent without petitioners consent. As
a result of its move, such liquidated damages intended as
a penalty shall be equitably reduced by the Court to
zilch[102] for being iniquitous or unconscionable.[103]

Although the first Disclosure Statement was furnished

Petitioner

NSBCI

prior

to

the

execution

of

the

transaction, it is not a contract that can be modified by

the related Promissory Note, but a mere statement in
writing that reflects the true and effective cost of loans
from respondent. Novation can never be presumed,
[104]

and the animus novandi must appear by express

94

agreement of the parties, or by their acts that are too

clear and unequivocal to be mistaken.[105] To allow
novation will surely flout the policy of the State to
protect its citizens from a lack of awareness of the true
cost of credit.[106]
With greater reason should such penalty charges be
indicated in the second and third Disclosure Statements,
yet none can be found therein. While the charges are
issued after the respective availment or drawdown, the
disclosure

statements

are

given

simultaneously

therewith. Obviously, novation still does not apply.

Other Charges Unwarranted

In like manner, the other charges imposed by respondent

are not warranted. No particular values or rates of
service charge are indicated in the Promissory Notes or
Credit Agreements, and no total value or even the
95

breakdown figures of such non-finance charge are

specified in the Disclosure Statements. Moreover, the
provision in the Mortgage that requires the payment of
insurance and other charges is neither made part of nor
reflected in such Notes, Agreements, or Statements.[107]

Attorneys Fees Equitably Reduced

We affirm the equitable reduction in attorneys fees.

[108]

These are not an integral part of the cost of

borrowing, but arise only when collecting upon the

Notes becomes necessary. The purpose of these fees is
not to give respondent a larger compensation for the
loan than the law already allows, but to protect it against
any future loss or damage by being compelled to retain
counsel

in-house

or

not

--

to

institute

judicial

proceedings for the collection of its credit. [109] Courts

have

has

the

power[110] to
96

determine

their

reasonableness[111] based on quantum meruit[112] and to

reduce[113] the amount thereof if excessive.[114]

In addition, the disqualification argument in the Affidavit

of Publication raised by petitioners no longer holds
water, inasmuch as Act 496[115] has repealed the Spanish
Notarial Law.[116] In the same vein, their engagement of
their counsel in another capacity concurrent with the
practice of law is not prohibited, so long as the roles
being assumed by such counsel is made clear to the
client.[117] The
requirement

only
is

that

reason
certain

for

this

ethical

clarification
considerations

operative in one profession may not be so in the other.[118]

Debt Relief Package

Not Availed Of

97

We also affirm the CAs disquisition on the debt relief

package (DRP).

Respondents Circular is not an outright grant of

assistance or extension of payment,[119] but a mere offer
subject to specific terms and conditions.
Petitioner NSBCI failed to establish satisfactorily that it
had been seriously and directly affected by the economic
slowdown in the peripheral areas of the then US military
bases. Its allegations, devoid of any verification, cannot
lead to a supportable conclusion. In fact, for short-term
loans, there is still a need to conduct a thorough review
of the borrowers repayment possibilities.[120]

Neither has Petitioner NSBCI shown enough margin of

equity,[121] based

on

the

latest

loan

value

of

hard

collaterals,[122] to be eligible for the package. Additional

accommodations on an unsecured basis may be granted
98

only when regular payment amortizations have been

established, or when the merits of the credit application
would so justify.[123]

The

branch

managers

recommendation

to

restructure or extend a total outstanding loan not

exceeding P8,000,000 is not final, but subject to the
approval of respondents Branches Department Credit
Committee, chaired by its executive vice-president.
[124]

Aside from being further conditioned on other

pertinent

policies

of

respondent,[125] such

approval

nevertheless needs to be reported to its Board of

Directors for confirmation.[126] In fact, under the General
Banking Law of 2000,[127] banks shall grant loans and
other credit accommodations only in amounts and for
periods of time essential to the effective completion of
operations to be financed, consistent with safe and sound
banking practices.[128] The Monetary Board -- then and
now -- still prescribes, by regulation, the conditions and
99

limitations under which banks may grant extensions or

renewals

of

their

loans

accommodations.[129]

100

and

other

credit

Entries in Subsidiary Ledgers

Regular and Correct

Contrary to petitioners assertions, the subsidiary ledgers

of respondent properly reflected all entries pertaining to
Petitioner NSBCIs loan accounts. In accordance with the
Generally Accepted Accounting Principles (GAAP) for the
Banking Industry,[130] all interests accrued or earned on
such loans, except those that were restructured and nonaccruing,[131] have been periodically taken into income.
[132]

Without a doubt, the subsidiary ledgers in a manual

accounting system are mere private documents[133] that

support and are controlled by the general ledger.
[134]

Such ledgers are neither foolproof nor standard in

format, but are periodically subject to audit. Besides, we

go by the presumption that the recording of private
transactions has been fair and regular, and that the
ordinary course of business has been followed.
101

Second Main Issue:

Extrajudicial Foreclosure Valid, But
Deficiency Claims Excessive

Respondent aptly exercised its option to foreclose the

mortgage,[135] after petitioners had failed to pay all the
Notes in full when they fell due.[136] The extrajudicial sale
and subsequent proceedings are therefore valid, but the
alleged deficiency claim cannot be recovered.
Auction Price Adequate

102

In the accessory contract[137] of real mortgage,[138] in

which immovable property or real rights thereto are
used as security[139] for the fulfillment of the principal
loan obligation,[140] the bid price may be lower than the
propertys fair market value.[141] In fact, the loan value
itself is only 70 percent of the appraised value.[142] As
correctly emphasized by the appellate court, a low bid
price will make it easier[143] for the owner to effect
redemption[144] by subsequently reacquiring the property
or by selling the right to redeem and thus recover
alleged losses. Besides, the public auction sale has been
regularly and fairly conducted,[145] there has been ample
authority to effect the sale,[146] and the Certificates of
Title can be relied upon. No personal notice[147] is even
required,[148] because an extrajudicial foreclosure is an
action in rem, requiring only notice by publication and
posting, in order to bind parties interested in the
foreclosed property.[149]

103

As no redemption[150] was exercised within one year after

the date of registration of the Certificate of Sale with the
Registry of Deeds,[151] respondent -- being the highest
bidder -- has the right to a writ of possession, the final
process

that

will

consummate

the

extrajudicial

foreclosure. On the other hand, petitioner-spouses, who

are mortgagors herein, shall lose all their rights to the
property.[152]

No Deficiency Claim Receivable

After the foreclosure and sale of the mortgaged property,

the Real Estate Mortgage is extinguished. Although the
mortgagors, being third persons, are not liable for any
deficiency in the absence of a contrary stipulation,[153] the
action for recovery of such amount -- being clearly
sureties to the principal obligation -- may still be
directed against them.[154] However, respondent may
impose only the stipulated interest rates of 19.5 percent
104

and 21.5 percent on the respective availments -- subject

to the 12 percent legal rate revision upon automatic
conversion into medium-term loans -- plus 1 percent
attorneys fees, without additional charges on penalty,
insurance or any increases thereof.

Accordingly, the excessive interest rates in the

Statements of Account sent to petitioners are reduced to
19.5 percent and 21.5 percent, as stipulated in the
Promissory Notes; upon loan conversion, these rates are
further reduced to the legal rate of 12 percent. Payments
made by petitioners are pro-rated, the charges on
penalty and insurance eliminated, and the resulting total
unpaid principal and interest of P6,582,077.70 as of the
date of public auction is then subjected to 1 percent
attorneys

fees. The

total

outstanding

obligation

is

compared to the bid price. On the basis of these rates

and

the

receivable

comparison
amounting

made,

the

deficiency

toP2,172,476.43
105

in

claim
fact

vanishes. Instead, there is an overpayment by more

than P3 million, as shown in the following Schedules:

SCHEDULE 1: PN (1) drawdown amount on 6/29/89

Less: Interest deducted in advance (per 6/13/89 Disclosure Statement)
Net proceeds
Principal
Add:
Interest at 19.5% p.a.
10/28/89-12/31/89 (5,000,000 x 19.5% x [65/365])

173,6

1/1/90-1/5/90 (5,000,000 x 19.5% x [5/365])

13,35

Amount due as of 1/5/90

Less: Payment on 1/5/90 (pro-rated upon interest)
Balance
Add:
Interest at 19.5% p.a.
1/6/90-3/30/90 ([5,000,000-356,821.30] x 19.5% x [84/365])
Amount due as of 3/30/90
Less: Payment on 3/30/90 (pro-rated upon interest)
Balance
Add:
Interest at 19.5% p.a.

106

3/31/90-5/31/90 ([5,000,000-356,821.30] x 19.5% x [62/365])

Amount due as of 5/31/90
Less: Payment on 5/31/90 (pro-rated upon interest)
Balance
Add:
Interest at 19.5% p.a.
6/1/90-6/29/90 ([5,000,000-(356,821.30+821.33)] x 19.5% x [29/365])
Amount due as of 6/29/90
Less: Payment on 6/29/90 (pro-rated upon interest)
Balance

Add:
Interest at 19.5% p.a.
6/30/90-12/31/90 ([5,000,000-(356,821.30+821.33+767,087.92)] x 19.5% x [185/365])

383,

1/1/91-6/29/91 ([5,000,000-(356,821.30+821.33+767,087.92)] x 19.5% x [180/365])

372,

Interest at 12% p.a. upon automatic conversion

6/30/91-8/8/91 ([5,000,000-(356,821.30+821.33+767,087.92)] x 12% x [40/365])
Amount due as of 8/8/91
Less: Payment on 8/8/91 (pro-rated upon interest)
Balance
Add:

107

50,9

Interest at 12% p.a.

8/9/91-8/15/91 ([5,000,000-(356,821.30+821.33+767,087.92)] x 12% x [7/365])
Amount due as of 8/15/91
Less: Payment on 8/15/91 (pro-rated upon interest)
Balance
Add:
Interest at 12% p.a.
8/16/91-11/29/91 ([5,000,000-(356,821.30+821.33+767,087.92)] x 12% x [106/365])
Amount due as of 11/29/91
Less: Payment on 11/29/91 (pro-rated upon interest)
Balance
Add:
Interest at 12% p.a.
11/30/91-12/20/91 ([5,000,000-(356,821.30+821.33+767,087.92)] x 12% x [21/365])
Amount due as of 12/20/91
Less: Payment on 12/20/91 (pro-rated upon interest)
Balance
Add:
Interest at 12% p.a.
12/21/91-12/31/91 ([5,000,000-(356,821.30+821.33+767,087.92)] x 12% x [11/365])

14,2

1/1/92-2/26/92 ([5,000,000-(356,821.30+821.33+767,087.92)] x 12% x [57/365])

74,0

Amount due on PN (1) as of 2/26/92

108

SCHEDULE 2: PN (2) drawdown amount on 9/1/89

Less: Interest deducted in advance (per 9/1/89 Disclosure Statement)
Net proceeds
Principal
Add:
Interest at 21.5% p.a.
12/31/89 (2,700,000 x 21.5% x [1/365])

1,590.

1/1/90-1/5/90 (2,700,000 x 21.5% x [5/365])

7,952.

Amount due as of 1/5/90

Less: Payment on 1/5/90 (pro-rated upon interest)
Balance
Add:
Interest at 21.5% p.a.
1/6/90-3/30/90 ([2,700,000-18,209.65] x 21.5% x [84/365])
Amount due as of 3/30/90
Less: Payment on 3/30/90 (pro-rated upon interest)
Balance
Add:
Interest at 21.5% p.a.
3/31/90-5/31/90 ([2,700,000-18,209.65] x 21.5% x [62/365])
Amount due as of 5/31/90

109

Less: Payment on 5/31/90 (pro-rated upon interest)

Balance
Add:
Interest at 21.5% p.a.
6/1/90-6/29/90 ([2,700,000-(18,209.65+523.04)] x 21.5% x [29/365])
Amount due as of 6/29/90
Less: Payment on 6/29/90 (pro-rated upon interest)
Balance
Add:
Interest at 21.5% p.a.
6/30/90-12/31/90 ([2,700,000-(18,209.65+523.04+488,484.22)] x 21.5% x [185/365])

238,95

1/1/91-8/8/91 ([2,700,000-(18,209.65+523.04+488,484.22)] x 21.5% x [220/365])

284,16

Amount due as of 8/8/91

Less: Payment on 8/8/91 (pro-rated upon interest)
Balance
Add:
Interest at 21.5% p.a.
8/9/91-8/15/91 ([2,700,000-(18,209.65+523.04+488,484.22)] x 21.5% x [7/365])
Amount due as of 8/15/91
Less: Payment on 8/15/91 (pro-rated upon interest)
Balance
Add:

110

Interest at 21.5% p.a.

8/16/91-9/1/91 ([2,700,000-(18,209.65+523.04+488,484.22)] x 21.5% x [17/365])

21,957

Interest at 12% p.a. upon automatic conversion

9/2/91-11/29/91 ([2,700,000-(18,209.65+523.04+488,484.22)] x 12% x [89/365])

64,161

Amount due as of 11/29/91

Less: Payment on 11/29/91 (pro-rated upon interest)
Balance
Add:
Interest at 12% p.a.
11/30/91-12/20/91
[21/365])

([2,700,000-(18,209.65+523.04+488,484.22)]

12%

12%

Amount due as of 12/20/91

Less: Payment on 12/20/91 (pro-rated upon interest)
Balance
Add:
Interest at 12% p.a.
12/21/91-12/31/91
[11/365])

([2,700,000-(18,209.65+523.04+488,484.22)]

7,930.

1/1/92-2/26/92 ([2,700,000-(18,209.65+523.04+488,484.22)] x 12% x [57/365])

Amount due on PN (2) as of 2/26/92

SCHEDULE 3: PN (3) drawdown amount on 9/6/89

Less: Interest deducted in advance (per 9/6/89 Disclosure Statement)

111

41,092

Net proceeds
Principal
Add:
Interest at 21.5% p.a.
1/5/90 (300,000 x 21.5% x [1/365])
Amount due as of 1/5/90
Less: Payment on 1/5/90 (pro-rated upon interest)
Balance
Add:
Interest at 21.5% p.a.
1/6/90-3/30/90 ([300,000-337.22] x 21.5% x [84/365])
Amount due as of 3/30/90
Less: Payment on 3/30/90 (pro-rated upon interest)
Balance
Add:
Interest at 21.5% p.a.
3/31/90-5/31/90 ([300,000-337.22] x 21.5% x [62/365])
Amount due as of 5/31/90
Less: Payment on 5/31/90 (pro-rated upon interest)
Balance
Add:

112

Interest at 21.5% p.a.

6/1/90-6/29/90 ([300,000-(337.22+58.44)] x 21.5% x [29/365])
Amount due as of 6/29/90
Less: Payment on 6/29/90 (pro-rated upon interest)
Balance

Add:
Interest at 21.5% p.a.
6/30/90-12/31/90 ([300,000-(337.22+58.44+54,583.14)] x 21.5% x [185/365])

26,700

1/1/91-8/8/91 ([300,000-(337.22+58.44+54,583.14)]] x 21.5% x [220/365])

31,752

Amount due as of 8/8/91

Less: Payment on 8/8/91 (pro-rated upon interest)
Balance
Add:
Interest at 21.5% p.a.
8/9/91-8/15/91 ([300,000-(337.22+58.44+54,583.14)]] x 21.5% x [7/365])
Amount due as of 8/15/91
Less: Payment on 8/15/91 (pro-rated upon interest)
Balance
Add:
Interest at 21.5% p.a.
8/16/91-9/6/91 ([300,000-(337.22+58.44+54,583.14)]] x 21.5% x [22/365])

113

3,175.

Interest at
conversion

12%

p.a.

upon

automatic

9/7/91-11/29/91 ([300,000-(337.22+58.44+54,583.14)]] x 12% x [84/365])

6,766.

Amount due as of 11/29/91

Less: Payment on 11/29/91 (pro-rated upon interest)
Balance
Add:
Interest at 12% p.a.
11/30/91-12/20/91 ([300,000-(337.22+58.44+54,583.14)]] x 12% x [21/365])
Amount due as of 12/20/91
Less: Payment
interest)

on

12/20/91

(pro-rated

upon

Balance
Add:
Interest at 12% p.a.
12/21/91-12/31/91 ([300,000-(337.22+58.44+54,583.14)]] x 12% x [11/365])

886.10

1/1/92-2/26/92 ([300,000-(337.22+58.44+54,583.14)]] x 12% x [57/365])

4,591.

Amount due on PN (3) as of 2/26/92

SCHEDULE 4: Application of Payments Upon Interest

Date

Interest

114

Payable

1/5/90

3/30/90

5/31/90

6/29/90

Pro-rated

PN (1) P

186,986.30

PN (2)

9,542.47

27,752.12

PN (3)

176.71

513.93

196,705.48

572,073.65

PN (1)

208,370.59

163,182.85

PN (2)

132,693.52

103,917.28

PN (3)

14,827.15

11,611.70

355,891.26

278,711.83

PN (1)

198,985.09

199,806.42

PN (2)

126,716.69

127,239.72

PN (3)

14,159.30

14,217.74

339,861.08

341,263.89

PN (1)

71,924.74

839,012.66

PN (2)

45,801.92

534,286.14

PN (3)

5,117.90

59,701.04

122,844.56

1,432,999.84

115

543,807.61

8/8/91

8/15/91

11/29/91

12/20/91

PN (1)

806,639.99

493,906.31

PN (2)

523,113.94

320,303.08

PN (3)

58,452.66

35,790.61

1,388,206.59

850,000.00

PN (1)

321,652.11

86,593.37

PN (2)

211,852.33

57,033.69

PN (3)

23,672.34

6,372.93

557,176.79

150,000.00

PN (1)

370,109.22

161,096.81

PN (2)

240,937.94

104,872.65

PN (3)

27,241.23

11,857.24

638,288.39

277,826.70

PN (1)

235,767.70

162,115.78

PN (2)

151,204.51

103,969.45

PN (3)

17,075.64

11,741.35

404,047.85

116

277,826.57

In the preparation of the above-mentioned schedules,

these basic legal principles were followed:

First, the payments were applied to debts that were

already due.[155] Thus, when the first payment was made
and applied on January 5, 1990, all Promissory Notes
were already due.

Second, payments of the principal were not made

until the interests had been covered.[156] For instance, the
first payment on January 15, 1990 had initially been
applied to all interests due on the notes, before
deductions were made from their respective principal
amounts. The resulting decrease in interest balances
served as the bases for subsequent pro-ratings.

Third, payments were proportionately applied to all

interests that were due and of the same nature and
117

burden.[157] This legal principle was the rationale for the

pro-rated computations shown on Schedule 4.

Fourth,

since

there

was

no

stipulation

on

capitalization, no interests due and unpaid were added

to the principal; hence, such interests did not earn any
additional interest.[158] The simple -- not compounded -method of interest calculation[159] was used on all Notes
until the date of public auction.

118

In fine, under solutio indebiti[160] or payment by mistake,

[161]

there is no deficiency receivable in favor of PNB, but

rather

an

excess

claim

or

surplus[162] payable

by

respondent; this excess should immediately be returned

to petitioner-spouses or their assigns -- not to mention
the buildings and improvements[163] on and the fruits of
the property -- to the end that no one may be unjustly
enriched or benefited at the expense of another.[164] Such
surplus is in the amount of P3,686,101.52, computed as
follows:

Total unpaid principal and interest on the

promissory notes as of February 26, 1992:
Drawdown on June 29, 1989
(Schedule 1) P 4,037,204.10
Drawdown on September 1, 1989
(Schedule 2) 2,289,040.38
Drawdown on September 6, 1989
(Schedule 3) 255,833.22
6,582,077.70
Add: 1% attorneys fees 65,820.78
Total outstanding obligation 6,647,898.48
119

Less: Bid price 10,334,000.00

Excess P 3,686,101.52

Joint

and

Solidary

Agreement. Contrary

to

the

contention of the petitioner-spouses, their Joint and

Solidary Agreement (JSA)[165] was indubitably a surety,
not a guaranty.[166] They consented to be jointly and
severally liable with Petitioner NSBCI -- the borrower -not only for the payment of all sums due and payable in
favor of respondent, but also for the faithful and prompt
performance of all the terms and conditions thereof.
[167]

Additionally, the corporate secretary of Petitioner

NSBCI certified as early as February 23, 1989, that the

spouses should act as such surety. [168] But, their solidary
liability should be carefully studied, not sweepingly
assumed to cover all availments instantly.

120

First, the JSA was executed on August 31, 1989. As

correctly adverted to by petitioners,[169] it covered only
the Promissory Notes of P2,700,000 and P300,000 made
after that date. The terms of a contract of suretyship
undeniably determine the suretys liability[170] and cannot
extend beyond what is stipulated therein.[171] Yet, the
total amount petitioner-spouses agreed to be held liable
for was P7,700,000; by the time the JSA was executed,
the first Promissory Note was still unpaid and was thus
brought within the JSAs ambit.[172]
Second, while the JSA included all costs, charges and
expenses that respondent might incur or sustain in
connection
interest

with

was

the

imposed

credit
under

documents,[173] only
the

pertinent

the

Credit

Agreements. Moreover, the relevant Promissory Notes

had to be resorted to for proper valuation of the interests
charged.

121

Third, although the JSA, as a contract of adhesion,

should be taken contra proferentum against the party
who may have caused any ambiguity therein, no such
ambiguity was found. Petitioner-spouses, who agreed to
be accommodation mortgagors,[174] can no longer be held
individually

liable

for

obligation[175] because,

as

the
it

entire

turned

out,

onerous
it

was

respondent that still owed them.

To summarize, to give full force to the Truth in Lending
Act, only the interest rates of 19.5 percent and 21.5
percent stipulated in the Promissory Notes may be
imposed

by

respondent

availments. After 730 days,

on
the

the

respective

portions remaining

unpaid are automatically converted into medium-term

loans at the legal rate of 12 percent. In all instances, the
simple

method

of

interest

computation

is

followed. Payments made by petitioners are applied and

pro-rated according to basic legal principles. Charges on
penalty and insurance are eliminated, and 1 percent

122

attorneys fees imposed upon the total unpaid balance of

the principal and interest as of the date of public
auction. The P2

million

deficiency

claim

therefore

vanishes, and a refund of P3,686,101.52 arises.

WHEREFORE,
GRANTED. The

Decision

is AFFIRMED, with
is ORDERED to

this

Petition
of

is

the

hereby PARTLY

Court

of

Appeals

the MODIFICATION that

refund

the

sum

PNB

of P3,686,101.52

representing the overcollection computed above, plus

interest thereon at the legal rate of six percent (6%) per
annum from the filing of the Complaint until the finality
of this Decision. After this Decision becomes final and
executory, the applicable rate shall be twelve percent
(12%) per annum until its satisfaction. No costs.

SO ORDERED.

123