ARTICLES 1193 to 1206

Chaves v. Gonzales 32 SCRA 547

Lim v. People 133 SCRA 333
Victoria Planters v. Victoria Milling

ARTICLES 1207 to 1222

ARTICLES 1223 to 1230

ARTICLES 1231 to 1261

Saure v. Pentecostes 104 SCRA 647

Rural Bank of Caloocan v. CA 104 SCRA 151
McLaughlin c. CA 144 SCRA 693
Equitable PCI Bank v. Ng Sheung Nigor, G.R. No. 171545 December 19, 2007
G.R. No. L-34338 November 21, 1984

LOURDES VALERIO LIM, petitioner,

vs.
PEOPLE OF THE PHILIPPINES, respondent.

RELOVA, J.:

Petitioner Lourdes Valerio Lim was found guilty of the crime of estafa and was sentenced "to suffer an
imprisonment of four (4) months and one (1) day as minimum to two (2) years and four (4) months as maximum,
to indemnify the offended party in the amount of P559.50, with subsidize imprisonment in case of insolvency, and
to pay the costs." (p. 14, Rollo)

From this judgment, appeal was taken to the then Court of Appeals which affirmed the decision of the lower court
but modified the penalty imposed by sentencing her "to suffer an indeterminate penalty of one (1) month and one
(1) day of arresto mayor as minimum to one (1) year and one (1) day of prision correccional as maximum, to
indemnify the complainant in the amount of P550.50 without subsidiary imprisonment, and to pay the costs of
suit." (p. 24, Rollo)

The question involved in this case is whether the receipt, Exhibit "A", is a contract of agency to sell or a contract
of sale of the subject tobacco between petitioner and the complainant, Maria de Guzman Vda. de Ayroso,
thereby precluding criminal liability of petitioner for the crime charged.

The findings of facts of the appellate court are as follows:

... The appellant is a businesswoman. On January 10, 1966, the appellant went to the house of
Maria Ayroso and proposed to sell Ayroso's tobacco. Ayroso agreed to the proposition of the
appellant to sell her tobacco consisting of 615 kilos at P1.30 a kilo. The appellant was to
receive the overprice for which she could sell the tobacco. This agreement was made in the
presence of plaintiff's sister, Salud G. Bantug. Salvador Bantug drew the document, Exh. A,
dated January 10, 1966, which reads:

To Whom It May Concern:

This is to certify that I have received from Mrs. Maria de Guzman Vda. de
Ayroso. of Gapan, Nueva Ecija, six hundred fifteen kilos of leaf tobacco to be
sold at Pl.30 per kilo. The proceed in the amount of Seven Hundred Ninety
Nine Pesos and 50/100 (P 799.50) will be given to her as soon as it was
sold.

This was signed by the appellant and witnessed by the complainant's sister, Salud Bantug, and
the latter's maid, Genoveva Ruiz. The appellant at that time was bringing a jeep, and the
tobacco was loaded in the jeep and brought by the appellant. Of the total value of P799.50, the
appellant had paid to Ayroso only P240.00, and this was paid on three different times.
Demands for the payment of the balance of the value of the tobacco were made upon the
appellant by Ayroso, and particularly by her sister, Salud Bantug. Salud Bantug further testified
that she had gone to the house of the appellant several times, but the appellant often eluded
her; and that the "camarin" the appellant was empty. Although the appellant denied that
demands for payment were made upon her, it is a fact that on October 19, 1966, she wrote a
letter to Salud Bantug which reads as follows:

Dear Salud,

Hindi ako nakapunta dian noon a 17 nitong nakaraan, dahil kokonte pa ang
nasisingil kong pera, magintay ka hanggang dito sa linggo ito at tiak na ako
ay magdadala sa iyo. Gosto ko Salud ay makapagbigay man lang ako ng
marami para hindi masiadong kahiyahiya sa iyo. Ngayon kung gosto mo ay
kahit konte muna ay bibigyan kita. Pupunta lang kami ni Mina sa Maynila
ngayon. Salud kung talagang kailangan mo ay bukas ay dadalhan kita ng
pera.
 Medio mahirap ang maningil sa palengke ng Cabanatuan dahil nagsisilipat
ang mga suki ko ng puesto. Huwag kang mabahala at tiyak na babayaran
kita.

Patnubayan tayo ng mahal na panginoon Dios. (Exh. B).

Pursuant to this letter, the appellant sent a money order for P100.00 on October 24, 1967, Exh.
4, and another for P50.00 on March 8, 1967; and she paid P90.00 on April 18, 1967 as
evidenced by the receipt Exh. 2, dated April 18, 1967, or a total of P240.00. As no further
amount was paid, the complainant filed a complaint against the appellant for estafa. (pp. 14,
15, 16, Rollo)

In this petition for review by certiorari, Lourdes Valerio Lim poses the following questions of law, to wit:

1. Whether or not the Honorable Court of Appeals was legally right in holding that the foregoing
document (Exhibit "A") "fixed a period" and "the obligation was therefore, immediately
demandable as soon as the tobacco was sold" (Decision, p. 6) as against the theory of the
petitioner that the obligation does not fix a period, but from its nature and the circumstances it
can be inferred that a period was intended in which case the only action that can be maintained
is a petition to ask the court to fix the duration thereof;

2. Whether or not the Honorable Court of Appeals was legally right in holding that "Art. 1197 of
the New Civil Code does not apply" as against the alternative theory of the petitioner that the
fore. going receipt (Exhibit "A") gives rise to an obligation wherein the duration of the period
depends upon the will of the debtor in which case the only action that can be maintained is a
petition to ask the court to fix the duration of the period; and

3. Whether or not the honorable Court of Appeals was legally right in holding that the foregoing
receipt is a contract of agency to sell as against the theory of the petitioner that it is a contract
of sale. (pp. 3-4, Rollo)

It is clear in the agreement, Exhibit "A", that the proceeds of the sale of the tobacco should be turned over to the
complainant as soon as the same was sold, or, that the obligation was immediately demandable as soon as the
tobacco was disposed of. Hence, Article 1197 of the New Civil Code, which provides that the courts may fix the
duration of the obligation if it does not fix a period, does not apply.

Anent the argument that petitioner was not an agent because Exhibit "A" does not say that she would be paid the
commission if the goods were sold, the Court of Appeals correctly resolved the matter as follows:

... Aside from the fact that Maria Ayroso testified that the appellant asked her to be her agent in
selling Ayroso's tobacco, the appellant herself admitted that there was an agreement that upon
the sale of the tobacco she would be given something. The appellant is a businesswoman, and
it is unbelievable that she would go to the extent of going to Ayroso's house and take the
tobacco with a jeep which she had brought if she did not intend to make a profit out of the
transaction. Certainly, if she was doing a favor to Maria Ayroso and it was Ayroso who had
requested her to sell her tobacco, it would not have been the appellant who would have gone
to the house of Ayroso, but it would have been Ayroso who would have gone to the house of
the appellant and deliver the tobacco to the appellant. (p. 19, Rollo)

The fact that appellant received the tobacco to be sold at P1.30 per kilo and the proceeds to be given to
complainant as soon as it was sold, strongly negates transfer of ownership of the goods to the petitioner. The
agreement (Exhibit "A') constituted her as an agent with the obligation to return the tobacco if the same was not
sold.

ACCORDINGLY, the petition for review on certiorari is dismissed for lack of merit. With costs.

SO ORDERED.

Teehankee (Chairman), Melencio-Herrera, Plana, Gutierrez, Jr. and De la Fuente, JJ., concur.
G.R. No. L-6648 July 25, 1955

VICTORIAS PLANTERS ASSOCIATION, INC., NORTH NEGROS PLANTERS

ASSOCIATION, INC., FERNANDO GONZAGA, JOSE GASTON and CESAR L. LOPEZ,
on their own behalf and on behalf of other sugar cane planters in Manapla, Cadiz and
Victorias Districts, petitioners-appellees,
vs.
VICTORIAS MILLING CO., INC., respondent-appellant.

Ross, Selph, Carrascoso and Janda for appellant.

Tañada, Pelaez and Teehankee for appellees.

PADILLA, J.:

This is an action for declaratory judgment under Rule 66. The relief prayed for calls for an interpretation of
contracts entered into by and between the sugar cane planters in the districts of Manapla, Cadiz and Victorias,
Occidental Negros, and the Victorias Milling Company, Inc. After issues had been joined the parties submitted
the case for judgment upon the testimony of Jesus Jose Ossorio and the following stipulation of facts:

1. That petitioners Victorias Planters Association, Inc. and North Negros Planters Association, Inc. are
non-stock corporations duly established and existing under and by virtue of the laws of the Philippines,
with main offices at Victorias, Negros Occidental, and Manapla, Negros Occidental, respectively, and
were organized by, and are composed of, sugar cane planters in the districts of Victorias, Manapla and
Cadiz, respectively, having been established principally as the representative entities of the numerous
sugar cane planters in said districts whose sugar cane productions are milled by the respondent
corporation, with the main object of safeguarding their interests and of taking up with the latter problems
and questions which from time to time, may come up between the said respondent corporation the said
sugar cane planters; the other petitioners are Filipinos, of legal age, and together with numerous other
sugar cane planters who own sugar cane producing properties at Victorias, Manapla, and Cadiz
Districts, Negros Occidental, are bona fide officials and members of either one of the two petitioner
associations; that petitioner Fernando Gonzaga is a resident of Victorias, Negros Occidental, petitioner
Jose Gaston is a resident of Victorias, Negros Occidental, and petitioner Cesar L. Lopez is a resident of
Bacolod City, Negros Occidental; and that said petitioners bring this action for the benefit and on behalf
of all their fellow sugar cane planters, owners of sugar cane producing lands in the said districts of
Victorias, Manapla, and Cadiz, whose sugar cane productions are milled by respondent corporation, and
who are so numerous that it would be impractical to include them all as parties herein;

2. That respondent Victorias Milling Co., Inc. is a corporation likewise duly organized and established
under and by virtue of the laws of the Philippines, with main offices at Ayala Building Manila, where it
may be served with summons;

3. That at various dates, from the year 1917 to 1934, the sugar cane planters pertaining to the districts
of Manapla and Cadiz, Negros Occidental, executed identical milling contracts, setting forth the terms
and conditions under which the sugar central "North Negros Sugar Co. Inc." would mill the sugar
produced by the sugar cane planters of the Manapla and Cadiz districts;

A copy of the standard form of said milling contracts with North Negros Sugar Co., Inc. is hereto
attached and made an integral part hereof as Annex "A.

As may be seen from the said standard form of milling contract, Annex "A," the sugar cane planters of
Manapla and Cadiz, Negros Occidental had executed on November 17, 1916 with Miguel J. Ossorio, a
contract entitled "Contrato de la Central Azucarrera de 300 Toneladas," whereby said Miguel J. Ossorio
was given a period up to December 31, 1916 within which to make a study of and decide whether he
would construct a sugar central or mill with a capacity of milling 300 tons of sugar cane every 24 hours
and setting forth the mutual obligations and undertakings of such central and the planters and the terms
and conditions under which the sugar cane produced by said sugar can planters would be milled in the
event of the construction of such sugar central by said Miguel J. Ossorio. Such central was in fact
constructed by said Miguel J. Ossorio in Manapla, Negros Occidental, through the North Negros Sugar
Co., Inc., where after the standard form of milling contracts (Annex "A") were executed, as above stated.

The parties cannot stipulate as to the milling contracts executed by the planters by Victorias, Negros
Occidental, other than as follows; a number of them executed such milling contracts with the North
 Negros Sugar Co., Inc., as per the standard forms hereto attached and made an integral part as
Annexes "B" and "B-1," while a number of them executed milling contracts with the Victorias Milling Co.,
Inc., which was likewise organized by Miguel J. Ossorio and which had constructed another Central at
Victorias, Negros Occidental, as per the standard form hereto attached and made an integral part hereof
as Annex "C".

4. The North Negros Sugar Co., Inc. had its first molienda or milling during the 1918-1919 crop year,
and the Victorias Milling Co., had its first molienda or milling during the 1921-1922 crop year.

Subsequent moliendas or millings took place every successive crop year thereafter, except the 6-year
period, comprising 4 years of the last World War II and 2 years of post-war reconstruction of
respondent's central at Victorias, Negros Occidental.

5. That after the liberation, the North Negros Sugar Co., Inc. did not reconstruct its destroyed central at
Manapla, Negros Occidental, and in 1946, it advised the North Negros Planters Association, Inc. that it
had made arrangements with the respondent Victorias Milling Co., Inc. for said respondent corporation
to mill the sugar cane produced by the planters of Manapla and Cadiz holding milling contracts with it.
Thus, after the war, all the sugar cane produced by the planters of petitioner associations, in Manapla,
Cadiz, as well as in Victorias, who held milling contracts, were milled in only one central, that of the
respondent corporation at Victorias;

6. Beginning with the year 1948, and in the following years, when the planters-members of the North
Negros Planters Association, Inc. considered that the stipulated 30-year period of their milling contracts
executed in the year 1918 had already expired and terminated in the crop year 1947-1948, and the
planters-members of the Victorias Planters Association, Inc. likewise considered the stipulated 30-year
period of their milling contracts, as having likewise expired and terminated in the crop year 1948-1949,
under the pertinent provisions of the standard milling contract (Annex "A") on the duration thereof, which
provided in Par. 21 thereof as follows:

(a) Que entregaran a la Central de la `North Negros Sugar Co., Inc.' o a la que se construya en
Victorias por Don Miguel J. Ossorio o sus cesionarios por espacio de treinta (30) años desde la
primera molienda, la caña que produzcan sus respectivas haciendas, obligandose ademas a sembrar
anualmente con cañadulce por lo menos en tres quintas partes de su extension total apropiado para
caña, incluyendo en esta denominacion tanto la siembra con puntas nuevas como el cultivo del retoño o
cala-anan y sujetando la siembra a las epocas convenientes designadas por el comite de hacenderos a
fin de poder proporcionar caña a la Central de conformidad con las clausulas 17 y 18 de esta escritura.

xxx xxx xxx

(i) Los hacenderos' imponen sobre sus haciendas mencionadas y citadas en esta escritura
servidumbres voluntarias a favor de Don Miguel J. Ossorio de sembrar caña por lo menos en tres
quintas partes (3/5) de su extension superficial y entregar la caña que produzcan a Don Miguel J.
Ossorio, de acuerdo con este contrato, por espacio de treinta (30) años, a contar un (1) año desde la
fecha de la primera molienda. repeated representation were made with respondent corporation for
negotiations regarding the execution of new milling contracts which would take into consideration the
charged circumstances presently prevailing in the sugar industry as compared with those prevailing over
30 years ago and would provide for an increased participation in the milled sugar for the benefit of the
planters and their workers.

7. That notwithstanding these repeated representations made by the herein petitioners with the
respondent corporation for the negotiation and execution of new milling contracts, the herein respondent
has refused and still refuses to accede to the same, contending that under the provisions of the mining
contract (Annex "A".) "It is the view of the majority of the stockholder-investors, that our contracts with
the planters call for 30 years of milling — not 30 years in time" and that "as there was no milling during 4
years of the recent war and two years of reconstruction, when these six years are added on to the
earliest of our contracts in Manapla, the contracts by this view terminate in the autumn of 1952," and the
"the contracts for the Victorias Planters would terminate in 1957, and still later for those in the Cadiz
districts," and that "apart from the contractual agreements, the Company believes these war and
reconstruction years accrue to it in equity.

The trial court rendered judgment the dispositive part of which is —

 Wherefore, the Court renders judgment in favor of the petitioners and against the respondent and
declares that the milling contracts executed between the sugar cane planters of Victorias, Manapla and
Cadiz, Negros Occidental, and the respondent corporation or its predecessors-in-interest, the North
Negros Sugar Co., Inc., expired and terminated upon the lapse of the therein stipulated 30-year period,
and that respondent corporation is not entitled to claim any extension of or addition to the said 30-year
term or period of said milling contracts by virtue of an equivalent to 6 years of the last war and
reconstruction of its central, during which there was no planting and/or milling.

From this judgment the respondent corporation has appealed.

The appellant contends that the term stipulated in the contracts is thirty milling years and not thirty calendar years
and postulates that the planters fulfill their obligation — the six installments of their indebtedness--which they
failed to perform during the six milling years from 1941-42 to 1946-47. The reason the planters failed to deliver
the sugar cane was the war or a fortuitious event. The appellant ceased to run its mill due to the same cause.

Fortuitious event relieves the obligor from fulfilling a contractual obligation. 1 The fact that the contracts make
reference to "first milling" does not make the period of thirty years one of thirty milling years. The term "first
milling" used in the contracts under consideration was for the purpose of reckoning the thirty-year period
stipulated therein. Even if the thirty-year period provided for in the contracts be construed as milling years, the
deduction or extension of six years would not be justified. At most on the last year of the thirty-year period
stipulated in the contracts the delivery of sugar cane could be extended up to a time when all the amount of sugar
cane raised and harvested should have been delivered to the appellant's mill as agreed upon. The seventh
paragraph of Annex "C", not found in the earlier contracts (Annexes "A", "B", and "B-1"), quoted by the appellant
in its brief, where the parties stipulated that in the event of flood, typhoon, earthquake, or other force majeure,
war, insurrection, civil commotion, organized strike, etc., the contract shall be deemed suspended during said
period, does not mean that the happening of any of those events stops the running of the period agreed upon. It
only relieves the parties from the fulfillment of their respective obligations during that time — the planters from
delivering sugar cane and the central from milling it. In order that the central, the herein appellant, may be entitled
to demand from the other parties the fulfillment of their part in the contracts, the latter must have been able to
perform it but failed or refused to do so and not when they were prevented by force majeure such as war. To
require the planters to deliver the sugar cane which they failed to deliver during the four years of the Japanese
occupation and the two years after liberation when the mill was being rebuilt is to demand from the obligors the
fulfillment of an obligation which was impossible of performance at the time it became due. Nemo tenetur ad
impossibilia. The obligee not being entitled to demand from the obligors the performance of the latters' part of the
contracts under those circumstances cannot later on demand its fulfillment. The performance of what the law has
written off cannot be demanded and required. The prayer that the plaintiffs be compelled to deliver sugar cane to
the appellant for six more years to make up for what they failed to deliver during those trying years, the fulfillment
of which was impossible, if granted, would in effect be an extension of the term of the contracts entered into by
and between the parties.

In accord with the rule laid down in the case of Lacson vs. Diaz, 47 Off. Gaz., Supp. No. 12, p. 337, where
despite the fact that the lease contract stipulated seven sugar crops and not seven crop years as the term
thereof, we held that such stipulation contemplated seven consecutive agricultural years and affirmed the
judgment which declared that the leasee was not entitled to an extension of the term of the lease for the number
of years the country was occupied by the Japanese Army during which no sugar cane was planted 2 we are of the
opinion and so hold that the thirty-year period stipulated in the contracts expired on the thirtieth agricultural year.
The period of six years — four during the Japanese occupation when the appellant did not operate its mill and the
last two during which the appellant reconstructed its mill — cannot be deducted from the thirty-year period
stipulated in the contracts.

The judgment appealed from is affirmed, with costs against the appellant.

Bengzon, Acting C. J., Montemayor, Reyes, A., Jugo, Bautista Angelo, Labrador, Concepcion, and Reyes, J. B.
L., JJ., concur.
G.R. No. L-46468 May 27, 1981

FRANCISCO SAURE, petitioner,

vs.
HON. PRUDENCIO S. PENTECOSTES, Municipal Judge of Camiling, Tarlac, DEPUTY
SHERIFF VIVENCIO PALANCIO, SPOUSES TELESFORO GALANG and NIEVES
GALANG, respondents.

FERNANDO, C.J.

It is readily discernible from the records of this certiorari and prohibition proceeding why the Citizens Legal
Assistance Office of the Ministry of Justice took such pains to nullify and set aside a decision of respondent
Municipal Judge Prudencio S. Pentecostes of Camiling, Tarlac 1 ejecting petitioner as lessee from the building
owned by private respondents, the spouses Telesforo and Nieves Galang, 2 as well as his order denying a
motion for relief from judgment. 3 The point stressed, and rightly so, is that respondent Judge disregarded the
plain command of Presidential Decree No. 20 which suspended indefinitely the filing of ejectment cases except
when the lease is for a definite period and which prohibited the increase in rentals of dwelling units where the
monthly rentals do not exceed P300.00 a month. There is no evidence whatsoever that disproves the allegation
that petitioner Saure is occupying the premises in question as his residence. The fact that he has a small
photography shop undoubtedly to supplement his income does not transform it into a commercial establishment.
Moreover, no period had been fixed for the duration of his occupancy. As a matter of fact, it could not be denied
that the only reason of private respondents for seeking his ejectment was his refusal to submit to an increase in
rentals from P50.00 to P180.00, the Presidential Decree notwithstanding. In the light of the undisputed facts, the
jurisdictional infirmity of the actuation of respondent Judge is quite obvious. It is surprising how he could have
decided the matter the way he did. The explanation, but not the justification, apparently lies in the fact that the
building in question, a unit of which is the residence of petitioner, is located in the commercial district of Camiling
Tarlac. That does not suffice.

There is merit to the petition.

1. The ruling in the recent case of Salaria v. Buenviaje, 4 the opinion being penned by Justice Guerrero, is quite
categorical. Where Presidential Decree No. 20 calls for application, the fact that the lessor needed the premises
for his personal use could not defeat its application. Accordingly, it was categorically held that the lessee "cannot
be ordered to vacate the premises of the land in question" pursuant to the applicable law. 5 Private respondents
could not even allege such purpose. All they were interested in was that the rentals be increased, contrary to
what is ordained by Presidential Decree No. 20. The case for petitioner is thus much stronger.

2. In a still later decision of this Court, Gutierrez v. Cantada, 6 the same approach was followed. In that case, the
decision of the then respondent Judge Santiago O. Tanada was upheld, a suit for certiorari against him filed by
the lessor being dismissed. Such special civil action was filed in this Court as a suit for ejectment against the
tenant did not prosper. It was pointed out in the opinion that Presidential Decree No. 20 as well as the previous
act regulating rentals 7 which it amended "had a common objective to remedy the plight of the lessees,
Presidential Decree No. 20, moreover, having a constitutional sanction in that it is specifically referred to in the
fundamental law as part of 'the law of the land.' Under the former statute, actions for ejectment were 'suspended
from two years from the effectivity' thereof. ...Such a period was made indefinite by Presidential Decree No. 20
thus: 'Except when the lease is for a definite period, the provisions of paragraph (1) of Article 1673 of the Civil
Code of the Philippines insofar as they refer to dwelling unit or land on which another's dwelling is located shall
be suspended until otherwise provided; but other provisions of the Civil Code and the Rules of Court of the
Philippines on lease contracts, insofar as they are not in conflict with the provisions of this Act, shall apply.' Under
paragraph (1) of Article 1673 of the Civil Code, one of the grounds for judicially ejecting the lessee is the
expiration of the period fixed for the duration of the lease." 8 It bears repeating that the legislation or decree of the
above character is a police power measure intended to alleviate the plight of lessees occupying premises with a
monthly rental of less than P300.00. The construction that should be given to it therefore should be of a liberal
character. Otherwise, its beneficent purpose could be frustrated. Nor could any doubt be entertained that the
decree applied to leases entered into prior to its issuance. There is relevance to this excerpt from Gutierrez v.
Cantada: "The applicability thereof to existing contracts cannot be denied. From Pangasinan Transportation Co.
v. Public Service Commission, such a doctrine has been repeatedly adhered to by this Court. As was held
in Ongsiako v. Gamboa, decided in 1950, a police power measure being remedial in character covers existing
situations; otherwise, it would be self-defeating." 9
3. As was pointed out earlier, the only explanation for this failure to abide by Presidential Decree No. 20 must
have been the belief of respondent Judge that the premises in question, being located in a commercial section of
the town of Camiling was outside the operation of the Decree. Such a belief is unjustified. Petitioner was
occupying only one of the units in the building in question, all of which served as the dwelling places of the
lessees. They therefore fall within the explicit language of the Decree. It is not the location but the use of the
premises in question that is decisive. Nor is the application of the Decree defeated by the fact that there is a
small photo shop owned by petitioner. Again, what calls for the setting aside of a decision is the fact that
respondent Judge disregarded the evidence which showed that petitioner and his family had lived in such place
for the last ten years. Under the circumstances, to refuse to recognize that the case for petitioner comes within
the operation of the Decree is to disregard and ignore its command. Whatever doubt there may be on that score
is removed by this definition of a residential unit in Batas Pambansa Blg. 25: "A residential unit – refers to an
apartment, house and/or land on which another's dwelling is located used for residential purposes and shall
include not only buildings, parts or units thereof used solely as dwelling places, except motels, motel rooms,
hotels, hotel rooms, boarding houses, dormitories, rooms and bedspaces for rent, but also those used for home
industries, retail stores or other business purposes if the owner thereof and his family actually live therein and
use it principally for dwelling purposes: Provided, That in the case of a retail store, home industry or business, the
capitalization thereof shall not exceed five thousand pesos (P5,000.00): and Provided, further, That in the
operation of the store, industry or business, the owner thereof shall not require the services of any person other
than the immediate members of his family." 10 There is testimony, unrefuted that the capital of the photo shop was
in the amount of P2,500.00. Nor can there be any doubt that the services of a person other than the immediate
members of petitioner's family were not required.

4. There is, however, this matter to consider. Petitioner did not deposit during the pendency of this litigation the
monthly rental of P50.00 agreed upon. It could be argued that in Solaria, there was at least a deposit of P200.00
during the pendency of the litigation. Admittedly, 0such amount was not enough, as shown by the last sentence
of its dispositive portion: "The petitioner is, however, ordered to pay back rentals for the period of his stay on the
land at the rate of P10.00 a month, which is not covered by the deposit." 11 In this case, however, the failure of
petitioner to deposit the rental is mitigated by the fact that he did offer to pay the former rental, but private
respondents made it clear that they would not accept. Counsel for petitioner ought to have advised him to make
the necessary consignation. This is one instance however where the client should not be made to suffer for the
omission of counsel. At any rate, it can be stated legally that the action for ejectment not being allowable in law at
all, and a clear case of jurisdictional infirmity being apparent, such failure could be considered excusable.
Petitioner, however, must pay all the back rentals due and owing. In according him justice through law, no
injustice should be visited on private respondents.

5. Moreover, Batas Pambansa Blg. 25 affords private respondents some degree of relief. As therein set forth:
"Upon the effectivity of this Act and for a duration of five years thereafter the monthly rentals of all residential
units and exceeding three hundred pesos sha00ll not be increased, for any one year period, by more than ten
percent (10%) of the monthly rentals existing at the time of the approval of this Act. The yearly increases
authorized herein shall be cumulative." 12 The Act took effect on April 10, 1979.

WHEREFORE, the petition for certiorari is granted nullifying the decision of respondent Judge dated November
17, 1976 and the writ of execution issued on December 15, 11976 by virtue thereof. The order of March 10, 1977
of respondent Judge denying the petition for relief from the aforesaid decision is likewise declared of no force and
effect. The writ of prohibition is granted enjoining respondent Judge and respondent Deputy Sheriff Vivencio
Palancio or any person acting on their stead or behalf from taking any further action in connection with Civil Case
No. 3066 of the Municipal Court of Camiling between the spouses Telesforo and Nieves Galang, now private
respondents, as plaintiffs, and Francisco Saure, now petitioner, as one of the defendants. The restraining order
issued by this Court on July 18, 1977 is hereby made permanent. Petitioner Francisco Saure is granted a period
of ninety days within which to pay the back rentals. No costs.

Barredo, Aquino, Abad Santos and De Castro, JJ., concur.

Concepcion Jr., J., is on leave.

G.R. No. L-32116 April 2l, 1981

RURAL BANK OF CALOOCAN, INC. and JOSE O. DESIDERIO, JR., petitioners,

vs.
THE COURT OF APPEALS and MAXIMA CASTRO, respondents.

DE CASTRO, * J.:

This is a petition for review by way of certiorari of the decision 1 of the Court of Appeals in CA-G.R. No. 39760-R
entitled "Maxima Castro, plaintiff-appellee, versus Severino Valencia, et al., defendants; Rural Bank of Caloocan,
Inc., Jose Desiderio, Jr. and Arsenio Reyes, defendants-appellants," which affirmed in toto the decision of the
Court of First Instance of Manila in favor of plaintiff- appellee, the herein private respondent Maxima Castro.

On December 7, 1959, respondent Maxima Castro, accompanied by Severino Valencia, went to the Rural Bank
of Caloocan to apply for an industrial loan. It was Severino Valencia who arranged everything about the loan with
the bank and who supplied to the latter the personal data required for Castro's loan application. On December
11, 1959, after the bank approved the loan for the amount of P3,000.00, Castro, accompanied by the Valencia
spouses, signed a promissory note corresponding to her loan in favor of the bank.

On the same day, December 11, 1959, the Valencia spouses obtained from the bank an equal amount of loan for
P3,000.00. They signed a promissory note (Exhibit "2") corresponding to their loan in favor of the bank and had
Castro affixed thereon her signature as co-maker.

The two loans were secured by a real-estate mortgage (Exhibit "6") on Castro's house and lot of 150 square
meters, covered by Transfer Certificate of Title No. 7419 of the Office of the Register of Deeds of Manila.

On February 13, 1961, the sheriff of Manila, thru Acting Chief Deputy Sheriff Basilio Magsambol, sent a notice of
sheriff's sale addressed to Castro, announcing that her property covered by T.C.T. No. 7419 would be sold at
public auction on March 10, 1961 to satisfy the obligation covering the two promissory notes plus interest and
attorney's fees.

Upon request by Castro and the Valencias and with conformity of the bank, the auction sale that was scheduled
for March 10, 1961 was postponed for April 10, 1961. But when April 10, 1961 was subsequently declared a
special holiday, the sheriff of Manila sold the property covered by T.C.T. No. 7419 at a public auction sale that
was held on April 11, 1961, which was the next succeeding business day following the special holiday.

Castro alleged that it was only when she received the letter from the Acting Deputy Sheriff on February 13, 1961,
when she learned for the first time that the mortgage contract (Exhibit "6") which was an encumbrance on her
property was for P6.000.00 and not for P3,000.00 and that she was made to sign as co-maker of the promissory
note (Exhibit "2") without her being informed of this.

On April 4, 1961, Castro filed a suit denominated "Re: Sum of Money," against petitioners Bank and Desiderio,
the Spouses Valencia, Basilio Magsambol and Arsenio Reyes as defendants in Civil Case No. 46698 before the
Court of First Instance of Manila upon the charge, amongst others, that thru mistake on her part or fraud on the
part of Valencias she was induced to sign as co-maker of a promissory note (Exhibit "2") and to constitute a
mortgage on her house and lot to secure the questioned note. At the time of filing her complaint, respondent
Castro deposited the amount of P3,383.00 with the court a quo in full payment of her personal loan plus interest.

In her amended complaint, Castro prayed, amongst other, for the annulment as far as she is concerned of the
promissory note (Exhibit "2") and mortgage (Exhibit "6") insofar as it exceeds P3,000.00; for the discharge of her
personal obligation with the bank by reason of a deposit of P3,383.00 with the court a quo upon the filing of her
complaint; for the annulment of the foreclosure sale of her property covered by T.C.T. No. 7419 in favor of
Arsenio Reyes; and for the award in her favor of attorney's fees, damages and cost.

In their answers, petitioners interposed counterclaims and prayed for the dismissal of said complaint, with
damages, attorney's fees and costs. 2

The pertinent facts arrived from the stipulation of facts entered into by the parties as stated by respondent Court
of Appeals are as follows:
Spawning the present litigation are the facts contained in the following stipulation of facts
submitted by the parties themselves:

1. That the capacity and addresses of all the parties in this case are admitted .

2. That the plaintiff was the registered owner of a residential house and lot located at Nos.
1268-1270 Carola Street, Sampaloc, Manila, containing an area of one hundred fifty (150)
square meters, more or less, covered by T.C.T. No. 7419 of the Office of the Register of Deeds
of Manila;

3. That the signatures of the plaintiff appearing on the following documents are genuine:

a) Application for Industrial Loan with the Rural Bank of Caloocan, dated December 7, 1959 in
the amount of P3,000.00 attached as Annex A of this partial stipulation of facts;

b) Promissory Note dated December 11, 1959 signed by the plaintiff in favor of the Rural Bank
of Caloocan for the amount of P3,000.00 as per Annex B of this partial stipulation of facts;

c) Application for Industrial Loan with the Rural Bank of Caloocan, dated December 11, 1959,
signed only by the defendants, Severino Valencia and Catalina Valencia, attached as Annex C,
of this partial stipulation of facts;

d) Promissory note in favor of the Rural Bank of Caloocan, dated December 11, 1959 for the
amount of P3000.00, signed by the spouses Severino Valencia and Catalina Valencia as
borrowers, and plaintiff Maxima Castro, as a co-maker, attached as Annex D of this partial
stipulation of facts;

e) Real estate mortgage dated December 11, 1959 executed by plaintiff Maxima Castro, in
favor of the Rural Bank of Caloocan, to secure the obligation of P6,000.00 attached herein as
Annex E of this partial stipulation of facts;

All the parties herein expressly reserved their right to present any evidence they may desire on
the circumstances regarding the execution of the above-mentioned documents.

4. That the sheriff of Manila, thru Acting Chief Deputy Sheriff, Basilio Magsambol, sent a notice
of sheriff's sale, address to the plaintiff, dated February 13, 1961, announcing that plaintiff's
property covered by TCT No. 7419 of the Register of Deeds of the City of Manila, would be
sold at public auction on March 10, 1961 to satisfy the total obligation of P5,728.50, plus
interest, attorney's fees, etc., as evidenced by the Notice of Sheriff's Sale and Notice of
Extrajudicial Auction Sale of the Mortgaged property, attached herewith as Annexes F and F-1,
respectively, of this stipulation of facts;

5. That upon the request of the plaintiff and defendants-spouses Severino Valencia and
Catalina Valencia, and with the conformity of the Rural Bank of Caloocan, the Sheriff of Manila
postponed the auction sale scheduled for March 10, 1961 for thirty (30) days and the sheriff re-
set the auction sale for April 10, 1961;

6. That April 10, 1961 was declared a special public holiday; (Note: No. 7 is omitted upon
agreement of the parties.)

8. That on April 11, 1961, the Sheriff of Manila, sold at public auction plaintiff's property
covered by T.C.T. No. 7419 and defendant, Arsenio Reyes, was the highest bidder and the
corresponding certificate of sale was issued to him as per Annex G of this partial stipulation of
facts;

9. That on April 16, 1962, the defendant Arsenio Reyes, executed an Affidavit of Consolidation
of Ownership, a copy of which is hereto attached as Annex H of this partial stipulation of facts;

10. That on May 9, 1962, the Rural Bank of Caloocan Incorporated executed the final deed of
sale in favor of the defendant, Arsenio Reyes, in the amount of P7,000.00, a copy of which is
attached as Annex I of this partial stipulation of facts;
 11. That the Register of Deeds of the City of Manila issued the Transfer Certificate of Title No.
67297 in favor of the defendant, Arsenio Reyes, in lieu of Transfer Certificate of Title No. 7419
which was in the name of plaintiff, Maxima Castro, which was cancelled;

12. That after defendant, Arsenio Reyes, had consolidated his title to the property as per T.C.T.
No. 67299, plaintiff filed a notice of lis pendens with the Register of Deeds of Manila and the
same was annotated in the back of T.C.T. No. 67299 as per Annex J of this partial stipulation
of facts; and

13. That the parties hereby reserved their rights to present additional evidence on matters not
covered by this partial stipulation of facts.

WHEREFORE, it is respectfully prayed that the foregoing partial stipulation of facts be

approved and admitted by this Honorable Court.

As for the evidence presented during the trial, We quote from the decision of the Court of Appeals the statement
thereof, as follows:

In addition to the foregoing stipulation of facts, plaintiff claims she is a 70-year old widow who
cannot read and write the English language; that she can speak the Pampango dialect only;
that she has only finished second grade (t.s.n., p. 4, December 11, 1964); that in December
1959, she needed money in the amount of P3,000.00 to invest in the business of the defendant
spouses Valencia, who accompanied her to the defendant bank for the purpose of securing a
loan of P3,000.00; that while at the defendant bank, an employee handed to her several forms
already prepared which she was asked to sign on the places indicated, with no one explaining
to her the nature and contents of the documents; that she did not even receive a copy thereof;
that she was given a check in the amount of P2,882.85 which she delivered to defendant
spouses; that sometime in February 1961, she received a letter from the Acting Deputy Sheriff
of Manila, regarding the extrajudicial foreclosure sale of her property; that it was then when she
learned for the first time that the mortgage indebtedness secured by the mortgage on her
property was P6,000.00 and not P3,000.00; that upon investigation of her lawyer, it was found
that the papers she was made to sign were:

(a) Application for a loan of P3,000.00 dated December 7, 1959 (Exh. B-1 and Exh. 1);

(b) Promissory note dated December 11, 1959 for the said loan of P3,000.00 (Exh- B-2);

(c) Promissory note dated December 11, 1959 for P3,000.00 with the defendants Valencia
spouses as borrowers and appellee as co-maker (Exh. B-4 or Exh. 2).

The auction sale set for March 10, 1961 was postponed co April 10, 1961 upon the request of
defendant spouses Valencia who needed more time within which to pay their loan of P3,000.00
with the defendant bank; plaintiff claims that when she filed the complaint she deposited with
the Clerk of Court the sum of P3,383.00 in full payment of her loan of P3,000.00 with the
defendant bank, plus interest at the rate of 12% per annum up to April 3, 1961 (Exh. D).

As additional evidence for the defendant bank, its manager declared that sometime in
December, 1959, plaintiff was brought to the Office of the Bank by an employee- (t.s.n., p 4,
January 27, 1966). She wept, there to inquire if she could get a loan from the bank. The claims
he asked the amount and the purpose of the loan and the security to he given and plaintiff said
she would need P3.000.00 to be invested in a drugstore in which she was a partner (t.s.n., p.
811. She offered as security for the loan her lot and house at Carola St., Sampaloc, Manila,
which was promptly investigated by the defendant bank's inspector. Then a few days later,
plaintiff came back to the bank with the wife of defendant Valencia A date was allegedly set for
plaintiff and the defendant spouses for the processing of their application, but on the day fixed,
plaintiff came without the defendant spouses. She signed the application and the other papers
pertinent to the loan after she was interviewed by the manager of the defendant. After the
application of plaintiff was made, defendant spouses had their application for a loan also
prepared and signed (see Exh. 13). In his interview of plaintiff and defendant spouses, the
manager of the bank was able to gather that plaintiff was in joint venture with the defendant
spouses wherein she agreed to invest P3,000.00 as additional capital in the laboratory owned
by said spouses (t.s.n., pp. 16-17) 3
The Court of Appeals, upon evaluation of the evidence, affirmed in toto the decision of the Court of First Instance
of Manila, the dispositive portion of which reads:

FOR ALL THE FOREGOING CONSIDERATIONS, the Court renders judgment and:

(1) Declares that the promissory note, Exhibit '2', is invalid as against plaintiff herein;

(2) Declares that the contract of mortgage, Exhibit '6', is null and void, in so far as the amount
thereof exceeds the sum of P3,000.00 representing the principal obligation of plaintiff, plus the
interest thereon at 12% per annum;

(3) Annuls the extrajudicial foreclosure sale at public auction of the mortgaged property held on
April 11, 1961, as well as all the process and actuations made in pursuance of or in
implementation thereto;

(4) Holds that the total unpaid obligation of plaintiff to defendant Rural Bank of Caloocan, Inc.,
is only the amount of P3,000.00, plus the interest thereon at 12% per annum, as of April 3,
1961, and orders that plaintiff's deposit of P3,383.00 in the Office of the Clerk of Court be
applied to the payment thereof;

(5) Orders defendant Rural Bank of Caloocan, Inc. to return to defendant Arsenio Reyes the
purchase price the latter paid for the mortgaged property at the public auction, as well as
reimburse him of all the expenses he has incurred relative to the sale thereof;

(6) Orders defendants spouses Severino D. Valencia and Catalina Valencia to pay defendant
Rural Bank of Caloocan, Inc. the amount of P3,000.00 plus the corresponding 12% interest
thereon per annum from December 11, 1960 until fully paid; and

Orders defendants Rural Bank of Caloocan, Inc., Jose Desiderio, Jr. and spouses Severino D.
Valencia and Catalina Valencia to pay plaintiff, jointly and severally, the sum of P600.00 by
way of attorney's fees, as well as costs.

In view of the conclusion that the court has thus reached, the counterclaims of defendant Rural
Bank of Caloocan, Inc., Jose Desiderio, Jr. and Arsenio Reyes are hereby dismissed, as a
corollary

The Court further denies the motion of defendant Arsenio Reyes for an Order requiring Maxima
Castro to deposit rentals filed on November 16, 1963, resolution of which was held in abeyance
pending final determination of the case on the merits, also as a consequence of the conclusion
aforesaid. 4

Petitioners Bank and Jose Desiderio moved for the reconsideration 5 of respondent court's decision. The motion
having been denied, 6 they now come before this Court in the instant petition, with the following Assignment of
Errors, to wit:

THE COURT OF APPEALS ERRED IN UPHOLDING THE PARTIAL ANNULMENT OF THE

PROMISSORY NOTE, EXHIBIT 2, AND THE MORTGAGE, EXHIBIT 6, INSOFAR AS THEY
AFFECT RESPONDENT MAXIMA CASTRO VIS-A-VIS PETITIONER BANK DESPITE THE
TOTAL ABSENCE OF EITHER ALLEGATION IN THE COMPLAINT OR COMPETENT
PROOF IN THE EVIDENCE OF ANY FRAUD OR OTHER UNLAWFUL CONDUCT
COMMITTED OR PARTICIPATED IN BY PETITIONERS IN PROCURING THE EXECUTION
OF SAID CONTRACTS FROM RESPONDENT CASTRO.

II

THE COURT OF APPEALS ERRED IN IMPUTING UPON AND CONSIDERING

PREJUDICIALLY AGAINST PETITIONERS, AS BASIS FOR THE PARTIAL ANNULMENT OF
THE CONTRACTS AFORESAID ITS FINDING OF FRAUD PERPETRATED BY THE
VALENCIA SPOUSES UPON RESPONDENT CASTRO IN UTTER VIOLATION OF THE RES
INTER ALIOS ACTA RULE.
 III

THE COURT OF APPEAL ERRED IN NOT HOLDING THAT, UNDER THE FACTS FOUND
BY IT, RESPONDENT CASTRO IS UNDER ESTOPPEL TO IMPUGN THE REGULARITY
AND VALIDITY OF HER QUESTIONED TRANSACTION WITH PETITIONER BANK.

IV

THE COURT OF APPEALS ERRED IN NOT FINDING THAT, BETWEEN PETITIONERS AND
RESPONDENT CASTRO, THE LATTER SHOULD SUFFER THE CONSEQUENCES OF THE
FRAUD PERPETRATED BY THE VALENCIA SPOUSES, IN AS MUCH AS IT WAS THRU
RESPONDENT CASTRO'S NEGLIGENCE OR ACQUIESCENSE IF NOT ACTUAL
CONNIVANCE THAT THE PERPETRATION OF SAID FRAUD WAS MADE POSSIBLE.

THE COURT OF APPEALS ERRED IN UPHOLDING THE VALIDITY OF THE DEPOSIT BY

RESPONDENT CASTRO OF P3,383.00 WITH THE COURT BELOW AS A TENDER AND
CONSIGNATION OF PAYMENT SUFFICIENT TO DISCHARGE SAID RESPONDENT FROM
HER OBLIGATION WITH PETITIONER BANK.

VI

THE COURT OF APPEALS ERRED IN NOT DECLARING AS VALID AND BINDING UPON
RESPONDENT CASTRO THE HOLDING OF THE SALE ON FORECLOSURE ON THE
BUSINESS DAY NEXT FOLLOWING THE ORIGINALLY SCHEDULED DATE THEREFOR
WHICH WAS DECLARED A HOLIDAY WITHOUT NECESSITY OF FURTHER NOTICE
THEREOF.

The issue raised in the first three (3) assignment of errors is whether or not respondent court correctly affirmed
the lower court in declaring the promissory note (Exhibit 2) invalid insofar as they affect respondent Castro vis-a-
vis petitioner bank, and the mortgage contract (Exhibit 6) valid up to the amount of P3,000.00 only.

Respondent court declared that the consent of Castro to the promissory note (Exhibit 2) where she signed as co-
maker with the Valencias as principal borrowers and her acquiescence to the mortgage contract (Exhibit 6) where
she encumbered her property to secure the amount of P6,000.00 was obtained by fraud perpetrated on her by
the Valencias who had abused her confidence, taking advantage of her old age and ignorance of her financial
need. Respondent court added that "the mandate of fair play decrees that she should be relieved of her
obligation under the contract" pursuant to Articles 24 7 and 1332 8 of the Civil Code.

The decision in effect relieved Castro of any liability to the promissory note (Exhibit 2) and the mortgage contract
(Exhibit 6) was deemed valid up to the amount of P3,000.00 only which was equivalent to her personal loan to
the bank.

Petitioners argued that since the Valencias were solely declared in the decision to be responsible for the fraud
against Castro, in the light of the res inter alios acta rule, a finding of fraud perpetrated by the spouses against
Castro cannot be taken to operate prejudicially against the bank. Petitioners concluded that respondent court
erred in not giving effect to the promissory note (Exhibit 2) insofar as they affect Castro and the bank and in
declaring that the mortgage contract (Exhibit 6) was valid only to the extent of Castro's personal loan of
P3,000.00.

The records of the case reveal that respondent court's findings of fraud against the Valencias is well supported
by evidence. Moreover, the findings of fact by respondent court in the matter is deemed final. 9 The decision
declared the Valencias solely responsible for the defraudation of Castro. Petitioners' contention that the decision
was silent regarding the participation of the bank in the fraud is, therefore, correct.

We cannot agree with the contention of petitioners that the bank was defrauded by the Valencias. For one, no
claim was made on this in the lower court. For another, petitioners did not submit proof to support its contention.

At any rate, We observe that while the Valencias defrauded Castro by making her sign the promissory note
(Exhibit 2) and the mortgage contract (Exhibit 6), they also misrepresented to the bank Castro's personal
qualifications in order to secure its consent to the loan. This must be the reason which prompted the bank to
contend that it was defrauded by the Valencias. But to reiterate, We cannot agree with the contention for reasons
above-mentioned. However, if the contention deserves any consideration at all, it is in indicating the admission of
petitioners that the bank committed mistake in giving its consent to the contracts.

Thus, as a result of the fraud upon Castro and the misrepresentation to the bank inflicted by the Valencias both
Castro and the bank committed mistake in giving their consents to the contracts. In other words, substantial
mistake vitiated their consents given. For if Castro had been aware of what she signed and the bank of the true
qualifications of the loan applicants, it is evident that they would not have given their consents to the contracts.

Pursuant to Article 1342 of the Civil Code which provides:

Art. 1342. Misrepresentation by a third person does not vitiate consent, unless such
misrepresentation has created substantial mistake and the same is mutual.

We cannot declare the promissory note (Exhibit 2) valid between the bank and Castro and the mortgage contract
(Exhibit 6) binding on Castro beyond the amount of P3,000.00, for while the contracts may not be invalidated
insofar as they affect the bank and Castro on the ground of fraud because the bank was not a participant thereto,
such may however be invalidated on the ground of substantial mistake mutually committed by them as a
consequence of the fraud and misrepresentation inflicted by the Valencias. Thus, in the case of Hill vs.
Veloso, 10 this Court declared that a contract may be annulled on the ground of vitiated consent if deceit by a
third person, even without connivance or complicity with one of the contracting parties, resulted in mutual error on
the part of the parties to the contract.

Petitioners argued that the amended complaint fails to contain even a general averment of fraud or mistake, and
its mention in the prayer is definitely not a substantial compliance with the requirement of Section 5, Rule 8 of the
Rules of Court. The records of the case, however, will show that the amended complaint contained a particular
averment of fraud against the Valencias in full compliance with the provision of the Rules of Court. Although, the
amended complaint made no mention of mistake being incurred in by the bank and Castro, such mention is not
essential in order that the promissory note (Exhibit 2) may be declared of no binding effect between them and the
mortgage (Exhibit 6) valid up to the amount of P3,000.00 only. The reason is that the mistake they mutually
suffered was a mere consequence of the fraud perpetrated by the Valencias against them. Thus, the fraud
particularly averred in the complaint, having been proven, is deemed sufficient basis for the declaration of the
promissory note (Exhibit 2) invalid insofar as it affects Castro vis-a-vis the bank, and the mortgage contract
(Exhibit 6) valid only up to the amount of P3,000.00.

The second issue raised in the fourth assignment of errors is who between Castro and the bank should suffer the
consequences of the fraud perpetrated by the Valencias.

In attributing to Castro an consequences of the loss, petitioners argue that it was her negligence or acquiescence
if not her actual connivance that made the fraud possible.

Petitioners' argument utterly disregards the findings of respondent Court of Appeals wherein petitioners'
negligence in the contracts has been aptly demonstrated, to wit:

A witness for the defendant bank, Rodolfo Desiderio claims he had subjected the plaintiff-
appellee to several interviews. If this were true why is it that her age was placed at 61 instead
of 70; why was she described in the application (Exh. B-1-9) as drug manufacturer when in fact
she was not; why was it placed in the application that she has income of P20,000.00 when
according to plaintiff-appellee, she his not even given such kind of information -the true fact
being that she was being paid P1.20 per picul of the sugarcane production in her hacienda and
500 cavans on the palay production. 11

From the foregoing, it is evident that the bank was as much , guilty as Castro was, of negligence in giving its
consent to the contracts. It apparently relied on representations made by the Valencia spouses when it should
have directly obtained the needed data from Castro who was the acknowledged owner of the property offered as
collateral. Moreover, considering Castro's personal circumstances – her lack of education, ignorance and old age
– she cannot be considered utterly neglectful for having been defrauded. On the contrary, it is demanded of
petitioners to exercise the highest order of care and prudence in its business dealings with the Valencias
considering that it is engaged in a banking business –a business affected with public interest. It should have
ascertained Castro's awareness of what she was signing or made her understand what obligations she was
assuming, considering that she was giving accommodation to, without any consideration from the Valencia
spouses.
Petitioners further argue that Castro's act of holding the Valencias as her agent led the bank to believe that they
were authorized to speak and bind her. She cannot now be permitted to deny the authority of the Valencias to act
as her agent for one who clothes another with apparent authority as her agent is not permitted to deny such
authority.

The authority of the Valencias was only to follow-up Castro's loan application with the bank. They were not
authorized to borrow for her. This is apparent from the fact that Castro went to the Bank to sign the promissory
note for her loan of P3,000.00. If her act had been understood by the Bank to be a grant of an authority to the
Valencia to borrow in her behalf, it should have required a special power of attorney executed by Castro in their
favor. Since the bank did not, We can rightly assume that it did not entertain the notion, that the Valencia
spouses were in any manner acting as an agent of Castro.

When the Valencias borrowed from the Bank a personal loan of P3,000.00 evidenced by a promissory note
(Exhibit 2) and mortgaged (Exhibit 6) Castro's property to secure said loan, the Valencias acted for their own
behalf. Considering however that for the loan in which the Valencias appeared as principal borrowers, it was the
property of Castro that was being mortgaged to secure said loan, the Bank should have exercised due care and
prudence by making proper inquiry if Castro's consent to the mortgage was without any taint or defect. The
possibility of her not knowing that she signed the promissory note (Exhibit 2) as co-maker with the Valencias and
that her property was mortgaged to secure the two loans instead of her own personal loan only, in view of her
personal circumstances – ignorance, lack of education and old age – should have placed the Bank on prudent
inquiry to protect its interest and that of the public it serves. With the recent occurrence of events that have
supposedly affected adversely our banking system, attributable to laxity in the conduct of bank business by its
officials, the need of extreme caution and prudence by said officials and employees in the discharge of their
functions cannot be over-emphasized.

Question is, likewise, raised as to the propriety of respondent court's decision which declared that Castro's
consignation in court of the amount of P3,383.00 was validly made. It is contended that the consignation was
made without prior offer or tender of payment to the Bank, and it therefore, not valid. In holding that there is a
substantial compliance with the provision of Article 1256 of the Civil Code, respondent court considered the fact
that the Bank was holding Castro liable for the sum of P6,000.00 plus 12% interest per annum, while the amount
consigned was only P3,000.00 plus 12% interest; that at the time of consignation, the Bank had long foreclosed
the mortgage extrajudicially and the sale of the mortgage property had already been scheduled for April 10, 1961
for non-payment of the obligation, and that despite the fact that the Bank already knew of the deposit made by
Castro because the receipt of the deposit was attached to the record of the case, said Bank had not made any
claim of such deposit, and that therefore, Castro was right in thinking that it was futile and useless for her to make
previous offer and tender of payment directly to the Bank only in the aforesaid amount of P3,000.00 plus 12%
interest. Under the foregoing circumstances, the consignation made by Castro was valid. if not under the strict
provision of the law, under the more liberal considerations of equity.

The final issue raised is the validity or invalidity of the extrajudicial foreclosure sale at public auction of the
mortgaged property that was held on April 11, 1961.

Petitioners contended that the public auction sale that was held on April 11, 1961 which was the next business
day after the scheduled date of the sale on April 10, 1961, a special public holiday, was permissible and valid
pursuant to the provisions of Section 31 of the Revised Administrative Code which ordains:

Pretermission of holiday. – Where the day, or the last day, for doing any act required or
permitted by law falls on a holiday, the act may be done on the next succeeding business day.

Respondent court ruled that the aforesaid sale is null and void, it not having been carried out in accordance with
Section 9 of Act No. 3135, which provides:

Section 9. – Notice shall be given by posting notices of the sale for not less than twenty days in
at least three public places of the municipality or city where the property is situated, and if such
property is worth more than four hundred pesos, such notice shall also be published once a
week for at least three consecutive weeks in a newspaper of general circulation in the
municipality or city.

We agree with respondent court. The pretermission of a holiday applies only "where the day, or the last day for
doing any act required or permitted by law falls on a holiday," or when the last day of a given period for doing an
act falls on a holiday. It does not apply to a day fixed by an office or officer of the government for an act to be
done, as distinguished from a period of time within which an act should be done, which may be on any day within
that specified period. For example, if a party is required by law to file his answer to a complaint within fifteen (15)
days from receipt of the summons and the last day falls on a holiday, the last day is deemed moved to the next
succeeding business day. But, if the court fixes the trial of a case on a certain day but the said date is
subsequently declared a public holiday, the trial thereof is not automatically transferred to the next succeeding
business day. Since April 10, 1961 was not the day or the last day set by law for the extrajudicial foreclosure
sale, nor the last day of a given period but a date fixed by the deputy sheriff, the aforesaid sale cannot legally be
made on the next succeeding business day without the notices of the sale on that day being posted as prescribed
in Section 9, Act No. 3135.

WHEREFORE, finding no reversible error in the judgment under review, We affirm the same in toto. No
pronouncement as to cost.

SO ORDERED.

Teehankee (Acting, C.J.) Makasiar, Fernandez, Guerrero and Melencio-Herrera, JJ., concur.
G.R. No. L-57552 October 10, 1986

LUISA F. MCLAUGHLIN, petitioner,

vs.
THE COURT OF APPEALS AND RAMON FLORES, respondents.

R.C. Domingo Jr. & Associates for private respondent.

FERIA, Actg. C.J.

This is an appeal by certiorari from the decision of the Court of Appeals, the dispositive part of which reads as
follows:

IN VIEW OF THE FOREGOING PREMISES, the petition for certiorari and mandamus is
hereby GRANTED and the Orders of respondent court dated November 21 and 27 both 1980
are hereby nullified and set aside and respondent Judge is ordered to order private respondent
to accept petitioner's Pacific Banking Corporation certified manager's Check No. MC-A-000311
dated November 17, 1980 in the amount of P76,059.71 in full settlement of petitioner's
obligation, or another check of equivalent kind and value, the earlier check having become
stale.

On February 28, 1977, petitioner Luisa F. McLaughlin and private respondent Ramon Flores entered into a
contract of conditional sale of real property. Paragraph one of the deed of conditional sale fixed the total
purchase price of P140,000.00 payable as follows: a) P26,550.00 upon the execution of the deed; and b) the
balance of P113,450.00 to be paid not later than May 31, 1977. The parties also agreed that the balance shall
bear interest at the rate of 1% per month to commence from December 1, 1976, until the full purchase price was
paid.

On June 19, 1979, petitioner filed a complaint in the then Court of First Instance of Rizal (Civil Case No. 33573)
for the rescission of the deed of conditional sale due to the failure of private respondent to pay the balance due
on May 31, 1977.

On December 27, 1979, the parties submitted a Compromise Agreement on the basis of which the court
rendered a decision on January 22, 1980. In said compromise agreement, private respondent acknowledged his
indebtedness to petitioner under the deed of conditional sale in the amount of P119,050.71, and the parties
agreed that said amount would be payable as follows: a) P50,000.00 upon signing of the agreement; and b) the
balance of P69,059.71 in two equal installments on June 30, 1980 and December 31, 1980.

As agreed upon, private respondent paid P50,000.00 upon the signing of the agreement and in addition he also
paid an "escalation cost" of P25,000.00.

Under paragraph 3 of the Compromise Agreement, private respondent agreed to pay one thousand (P l,000.00)
pesos monthly rental beginning December 5, 1979 until the obligation is duly paid, for the use of the property
subject matter of the deed of conditional sale.

Paragraphs 6 and 7 of the Compromise Agreement further state:

That the parties are agreed that in the event the defendant (private respondent) fails to comply
with his obligations herein provided, the plaintiff (petitioner) will be entitled to the issuance of a
writ of execution rescinding the Deed of Conditional Sale of Real Property. In such eventuality,
defendant (private respondent) hereby waives his right to appeal to (from) the Order of
Rescission and the Writ of Execution which the Court shall render in accordance with the
stipulations herein provided for.

That in the event of execution all payments made by defendant (private respondent) will be
forfeited in favor of the plaintiff (petitioner) as liquidated damages.
On October 15, 1980, petitioner wrote to private respondent demanding that the latter pay the balance of
P69,059.71 on or before October 31, 1980. This demand included not only the installment due on June 30, 1980
but also the installment due on December 31, 1980.

On October 30, 1980, private respondent sent a letter to petitioner signifying his willingness and intention to pay
the full balance of P69,059.71, and at the same time demanding to see the certificate of title of the property and
the tax payment receipts.

Private respondent states on page 14 of his brief that on November 3, 1980, the first working day of said month,
he tendered payment to petitioner but this was refused acceptance by petitioner. However, this does not appear
in the decision of the Court of Appeals.

On November 7, 1980, petitioner filed a Motion for Writ of Execution alleging that private respondent failed to pay
the installment due on June 1980 and that since June 1980 he had failed to pay the monthly rental of P l,000.00.
Petitioner prayed that a) the deed of conditional sale of real property be declared rescinded with forfeiture of all
payments as liquidated damages; and b) the court order the payment of Pl,000.00 back rentals since June 1980
and the eviction of private respondent.

On November 14, 1980, the trial court granted the motion for writ of execution.

On November 17, 1980, private respondent filed a motion for reconsideration tendering at the same time a
Pacific Banking Corporation certified manager's check in the amount of P76,059.71, payable to the order of
petitioner and covering the entire obligation including the installment due on December 31, 1980. However, the
trial court denied the motion for reconsideration in an order dated November 21, 1980 and issued the writ of
execution on November 25, 1980.

In an order dated November 27, 1980, the trial court granted petitioner's ex-parte motion for clarification of the
order of execution rescinding the deed of conditional sale of real property.

On November 28, 1980, private respondent filed with the Court of Appeals a petition for certiorari and prohibition
assailing the orders dated November 21 and 27, 1980.

As initially stated above, the appellate court nullified and set aside the disputed orders of the lower court. In its
decision, the appellate court ruled in part as follows:

The issue here is whether respondent court committed a grave abuse of discretion in issuing
the orders dated November 21, 1980 and November 27,1980.

The general rule is that rescission will not be permitted for a slight or casual breach of the
contract, but only for such breaches as are substantial and fundamental as to defeat the object
of the parties in making the agreement. (Song Fo & Co. vs. Hawaiian-Philippine Co., 47 Phil.
821)

In aforesaid case, it was held that a delay in payment for a small quantity of molasses, for
some twenty days is not such a violation of an essential condition of the contract as warrants
rescission for non-performance.

In Universal Food Corp. vs. Court of Appeals, 33 SCRA 1, the Song Fo ruling was reaffirmed.

In the case at bar, McLaughlin wrote Flores on October 15, 1980 demanding that Flores pay
the balance of P69,059.71 on or before October 31, 1980. Thus it is undeniable that despite
Flores' failure to make the payment which was due on June 1980, McLaughlin waived
whatever right she had under the compromise agreement as incorporated in the decision of
respondent court, to demand rescission.

xxx xxx xxx

It is significant to note that on November 17, 1980, or just seventeen (17) days after October
31, 1980, the deadline set by McLaughlin, Flores tendered the certified manager's check. We
hold that the Song Fo ruling is applicable herein considering that in the latter case, there was a
20-day delay in the payment of the obligation as compared to a 17-day delay in the instant
case.
 Furthermore, as held in the recent case of New Pacific Timber & Supply Co., Inc. vs. Hon.
Alberto Seneris, L-41764, December 19, 1980, it is the accepted practice in business to
consider a cashier's or manager's check as cash and that upon certification of a check, it is
equivalent to its acceptance (Section 187, Negotiable Instrument Law) and the funds are
thereby transferred to the credit of the creditor (Araneta v. Tuason, 49 O.G. p. 59).

In the New Pacific Timber & Supply Co., Inc. case, the Supreme Court further held that the
object of certifying a check is to enable the holder thereof to use it as money, citing the ruling
in PNB vs. National City Bank of New York, 63 Phil. 711.

In the New Pacific Timber case, it was also ruled that the exception in Section 63 of the Central
Bank Act that the clearing of a check and the subsequent crediting of the amount thereof to the
account of the creditor is equivalent to delivery of cash, is applicable to a payment through a
certified check.

Considering that Flores had already paid P101,550.00 under the contract to sell, excluding the
monthly rentals paid, certainly it would be the height of inequity to have this amount forfeited in
favor McLaughlin. Under the questioned orders, McLaughlin would get back the property and
still keep P101,550.00.

Petitioner contends that the appellate court erred in not observing the provisions of Article No. 1306 of the Civil
Code of the Philippines and in having arbitrarily abused its judicial discretion by disregarding the penal clause
stipulated by the parties in the compromise agreement which was the basis of the decision of the lower court.

We agree with the appellate court that it would be inequitable to cancel the contract of conditional sale and to
have the amount of P101,550.00 (P l48,126.97 according to private respondent in his brief) already paid by him
under said contract, excluding the monthly rentals paid, forfeited in favor of petitioner, particularly after private
respondent had tendered the amount of P76,059.71 in full payment of his obligation.

In the analogous case of De Guzman vs. Court of Appeals, this Court sustained the order of the respondent
judge denying the petitioners' motion for execution on the ground that the private respondent had substantially
complied with the terms and conditions of the compromise agreement, and directing the petitioners to
immediately execute the necessary documents transferring to the private respondent the title to the properties
(July 23, 1985, 137 SCRA 730). In the case at bar, there was also substantial compliance with the compromise
agreement.

Petitioner invokes the ruling of the Court in its Resolution of November 16, 1978 in the case of Luzon Brokerage
Co., Inc. vs. Maritime Building Co., Inc., to the effect that Republic Act 6552 (the Maceda Law) "recognizes and
reaffirms the vendor's right to cancel the contract to sell upon breach and non-payment of the stipulated
installments but requires a grace period after at least two years of regular installment payments ... . " (86 SCRA
305, 329)

On the other hand, private respondent also invokes said law as an expression of public policy to protect buyers of
real estate on installments against onerous and oppressive conditions (Section 2 of Republic Act No. 6552).

Section 4 of Republic Act No. 6552 which took effect on September 14, 1972 provides as follows:

In case where less than two years of installments were paid, the seller shall give the buyer a
grace period of not less than sixty days from the date the installment became due. If the buyer
fails to pay the installments due at the expiration of the grace period, the seller may cancel the
contract after thirty days from receipt by the buyer of the notice of the cancellation or the
demand for rescission of the contract by a notarial act.

Section 7 of said law provides as follows:

Any stipulation in any contract hereafter entered into contrary to the provisions of Sections 3, 4,
5 and 6, shall be null and void.

The spirit of these provisions further supports the decision of the appellate court. The record does not contain the
complete text of the compromise agreement dated December 20, 1979 and the decision approving it. However,
assuming that under the terms of said agreement the December 31, 1980 installment was due and payable when
on October 15, 1980, petitioner demanded payment of the balance of P69,059.71 on or before October 31, 1980,
petitioner could cancel the contract after thirty days from receipt by private respondent of the notice of
cancellation. Considering petitioner's motion for execution filed on November 7, 1980 as a notice of cancellation,
petitioner could cancel the contract of conditional sale after thirty days from receipt by private respondent of said
motion. Private respondent's tender of payment of the amount of P76,059.71 together with his motion for
reconsideration on November 17, 1980 was, therefore, well within the thirty-day period grants by law..

The tender made by private respondent of a certified bank manager's check payable to petitioner was a valid
tender of payment. The certified check covered not only the balance of the purchase price in the amount of
P69,059.71, but also the arrears in the rental payments from June to December, 1980 in the amount of
P7,000.00, or a total of P76,059.71. On this point the appellate court correctly applied the ruling in the case of
New Pacific Timber & Supply Co., Inc. vs. Seneris (101 SCRA 686, 692-694) to the case at bar.

Moreover, Section 49, Rule 130 of the Revised Rules of Court provides that:

An offer in writing to pay a particular sum of money or to deliver a written instrument or specific
property is, if rejected, equivalent to the actual production and tender of the money, instrument,
or property.

However, although private respondent had made a valid tender of payment which preserved his rights as a
vendee in the contract of conditional sale of real property, he did not follow it with a consignation or deposit of the
sum due with the court. As this Court has held:

The rule regarding payment of redemption prices is invoked. True that consignation of the
redemption price is not necessary in order that the vendor may compel the vendee to allow the
repurchase within the time provided by law or by contract. (Rosales vs. Reyes and Ordoveza,
25 Phil. 495.) We have held that in such cases a mere tender of payment is enough, if made on
time, as a basis for action against the vendee to compel him to resell. But that tender does not
in itself relieve the vendor from his obligation to pay the price when redemption is allowed by
the court. In other words, tender of payment is sufficient to compel redemption but is not in
itself a payment that relieves the vendor from his liability to pay the redemption price. " (Paez
vs. Magno, 83 Phil. 403, 405)

On September 1, 1986, the Court issued the following resolution

Considering the allegation in petitioner's reply brief that the Manager's Check tendered by
private respondent on November 17, 1980 was subsequently cancelled and converted into
cash, the Court RESOLVED to REQUIRE the parties within ten (10) days from notice to inform
the Court whether or not the amount thereof was deposited in court and whether or not private
respondent continued paying the monthly rental of P1,000.00 stipulated in the Compromise
Agreement.

In compliance with this resolution, both parties submitted their respective manifestations which confirm that the
Manager's Check in question was subsequently withdrawn and replaced by cash, but the cash was not deposited
with the court.

According to Article 1256 of the Civil Code of the Philippines, if the creditor to whom tender of payment has been
made refuses without just cause to accept it, the debtor shall be released from responsibility by the consignation
of the thing or sum due, and that consignation alone shall produce the same effect in the five cases enumerated
therein; Article 1257 provides that in order that the consignation of the thing (or sum) due may release the
obligor, it must first be announced to the persons interested in the fulfillment of the obligation; and Article 1258
provides that consignation shall be made by depositing the thing (or sum) due at the disposal of the judicial
authority and that the interested parties shall also be notified thereof.

As the Court held in the case of Soco vs. Militante, promulgated on June 28, 1983, after examining the above-
cited provisions of the law and the jurisprudence on the matter:

Tender of payment must be distinguished from consignation. Tender is the antecedent of

consignation, that is, an act preparatory to the consignation, which is the principal, and from
which are derived the immediate consequences which the debtor desires or seeks to obtain.
Tender of payment may be extrajudicial, while consignation is necessarily judicial, and the
priority of the first is the attempt to make a private settlement before proceeding to the
solemnities of consignation. (8 Manresa 325). (123 SCRA 160,173)
In the above-cited case of De Guzman vs. Court of Appeals (137 SCRA 730), the vendee was released from
responsibility because he had deposited with the court the balance of the purchase price. Similarly, in the above-
cited case of New Pacific Timber & Supply Co., Inc. vs. Seneris (101 SCRA 686), the judgment debtor was
released from responsibility by depositing with the court the amount of the judgment obligation.

In the case at bar, although as above stated private respondent had preserved his rights as a vendee in the
contract of conditional sale of real property by a timely valid tender of payment of the balance of his obligation
which was not accepted by petitioner, he remains liable for the payment of his obligation because of his failure to
deposit the amount due with the court.

In his manifestation dated September 19, 1986, private respondent states that on September 16, 1980, he
purchased a Metrobank Cashier's Check No. CC 004233 in favor of petitioner Luisa F. McLaughlin in the amount
of P76,059.71, a photocopy of which was enclosed and marked as Annex "A- 1;" but that he did not continue
paying the monthly rental of Pl,000.00 because, pursuant to the decision of the appellate court, petitioner herein
was ordered to accept the aforesaid amount in full payment of herein respondent's obligation under the contract
subject matter thereof.

However, inasmuch as petitioner did not accept the aforesaid amount, it was incumbent on private respondent to
deposit the same with the court in order to be released from responsibility. Since private respondent did not
deposit said amount with the court, his obligation was not paid and he is liable in addition for the payment of the
monthly rental of Pl,000.00 from January 1, 1981 until said obligation is duly paid, in accordance with paragraph
3 of the Compromise Agreement. Upon full payment of the amount of P76,059.71 and the rentals in arrears,
private respondent shall be entitled to a deed of absolute sale in his favor of the real property in question.

WHEREFORE, the decision of the Court of Appeals is AFFIRMED with the following modifications:

(a) Petitioner is ordered to accept from private respondent the Metrobank Cashier's Check No. CC 004233 in her
favor in the amount of P76,059.71 or another certified check of a reputable bank drawn in her favor in the same
amount;

(b) Private respondent is ordered to pay petitioner, within sixty (60) days from the finality of this decision, the
rentals in arrears of P l,000.00 a month from January 1, 1981 until full payment thereof; and

(c) Petitioner is ordered to execute a deed of absolute sale in favor of private respondent over the real property in
question upon full payment of the amounts as provided in paragraphs (a) and (b) above. No costs.

SO ORDERED.

Fernan, Alampay, Gutierrez, Jr. and Paras, JJ., concur.

G.R. No. 171545 December 19, 2007

EQUITABLE PCI BANK,* AIMEE YU and BEJAN LIONEL APAS, Petitioners,

vs.
NG SHEUNG NGOR** doing business under the name and style "KEN MARKETING,"
KEN APPLIANCE DIVISION, INC. and BENJAMIN E. GO, Respondents.

DECISION

CORONA, J.:

This petition for review on certiorari1 seeks to set aside the decision2 of the Court of Appeals (CA) in CA-G.R. SP
No. 83112 and its resolution3 denying reconsideration.

On October 7, 2001, respondents Ng Sheung Ngor,4 Ken Appliance Division, Inc. and Benjamin E. Go filed an
action for annulment and/or reformation of documents and contracts5 against petitioner Equitable PCI Bank
(Equitable) and its employees, Aimee Yu and Bejan Lionel Apas, in the Regional Trial Court (RTC), Branch 16 of
Cebu City.6 They claimed that Equitable induced them to avail of its peso and dollar credit facilities by offering
low interest rates7 so they accepted Equitable's proposal and signed the bank's pre-printed promissory notes on
various dates beginning 1996. They, however, were unaware that the documents contained identical escalation
clauses granting Equitable authority to increase interest rates without their consent. 8

Equitable, in its answer, asserted that respondents knowingly accepted all the terms and conditions contained in
the promissory notes.9 In fact, they continuously availed of and benefited from Equitable's credit facilities for five
years.10

After trial, the RTC upheld the validity of the promissory notes. It found that, in 2001 alone, Equitable restructured
respondents' loans amounting to US$228,200 and ₱1,000,000.11 The trial court, however, invalidated the
escalation clause contained therein because it violated the principle of mutuality of contracts.12 Nevertheless, it
took judicial notice of the steep depreciation of the peso during the intervening period 13 and declared the
existence of extraordinary deflation.14 Consequently, the RTC ordered the use of the 1996 dollar exchange rate
in computing respondents' dollar-denominated loans.15 Lastly, because the business reputation of
respondents was (allegedly) severely damaged when Equitable froze their accounts, 16 the trial court awarded
moral and exemplary damages to them.17

The dispositive portion of the February 5, 2004 RTC decision 18 provided:

WHEREFORE, premises considered, judgment is hereby rendered:

A) Ordering [Equitable] to reinstate and return the amount of [respondents'] deposit placed on hold
status;

B) Ordering [Equitable] to pay [respondents] the sum of ₱12 [m]illion [p]esos as moral damages;

C) Ordering [Equitable] to pay [respondents] the sum of ₱10 [m]illion [p]esos as exemplary damages;

D) Ordering defendants Aimee Yu and Bejan [Lionel] Apas to pay [respondents], jointly and severally,
the sum of [t]wo [m]illion [p]esos as moral and exemplary damages;

E) Ordering [Equitable, Aimee Yu and Bejan Lionel Apas], jointly and severally, to pay [respondents']
attorney's fees in the sum of ₱300,000; litigation expenses in the sum of ₱50,000 and the cost of suit;

F) Directing plaintiffs Ng Sheung Ngor and Ken Marketing to pay [Equitable] the unpaid principal
obligation for the peso loan as well as the unpaid obligation for the dollar denominated loan;

G) Directing plaintiff Ng Sheung Ngor and Ken Marketing to pay [Equitable] interest as follows:

1) 12% per annum for the peso loans;

 2) 8% per annum for the dollar loans. The basis for the payment of the dollar obligation is the
conversion rate of P26.50 per dollar availed of at the time of incurring of the obligation in
accordance with Article 1250 of the Civil Code of the Philippines;

H) Dismissing [Equitable's] counterclaim except the payment of the aforestated unpaid principal loan
obligations and interest.

SO ORDERED.19

Equitable and respondents filed their respective notices of appeal.20

In the March 1, 2004 order of the RTC, both notices were denied due course because Equitable and respondents
"failed to submit proof that they paid their respective appeal fees." 21

WHEREFORE, premises considered, the appeal interposed by defendants from the Decision in the above-
entitled case is DENIED due course. As of February 27, 2004, the Decision dated February 5, 2004, is
considered final and executory in so far as [Equitable, Aimee Yu and Bejan Lionel Apas] are
concerned.22 (emphasis supplied)

Equitable moved for the reconsideration of the March 1, 2004 order of the RTC 23 on the ground that it did in fact
pay the appeal fees. Respondents, on the other hand, prayed for the issuance of a writ of execution. 24

On March 24, 2004, the RTC issued an omnibus order denying Equitable's motion for reconsideration for lack of
merit25 and ordered the issuance of a writ of execution in favor of respondents.26 According to the RTC, because
respondents did not move for the reconsideration of the previous order (denying due course to the parties’
notices of appeal),27 the February 5, 2004 decision became final and executory as to both parties and a writ of
execution against Equitable was in order.28

A writ of execution was thereafter issued29 and three real properties of Equitable were levied upon.30

On March 26, 2004, Equitable filed a petition for relief in the RTC from the March 1, 2004 order. 31 It, however,
withdrew that petition on March 30, 200432 and instead filed a petition for certiorari with an application for an
injunction in the CA to enjoin the implementation and execution of the March 24, 2004 omnibus order. 33

On June 16, 2004, the CA granted Equitable's application for injunction. A writ of preliminary injunction was
correspondingly issued.34

Notwithstanding the writ of injunction, the properties of Equitable previously levied upon were sold in a public
auction on July 1, 2004. Respondents were the highest bidders and certificates of sale were issued to them. 35

On August 10, 2004, Equitable moved to annul the July 1, 2004 auction sale and to cite the sheriffs who
conducted the sale in contempt for proceeding with the auction despite the injunction order of the CA. 36

On October 28, 2005, the CA dismissed the petition for certiorari. 37 It found Equitable guilty of forum shopping
because the bank filed its petition for certiorari in the CA several hours before withdrawing its petition for relief in
the RTC.38 Moreover, Equitable failed to disclose, both in the statement of material dates and certificate of non-
forum shopping (attached to its petition for certiorari in the CA), that it had a pending petition for relief in the
RTC.39

Equitable moved for reconsideration40 but it was denied.41 Thus, this petition.

Equitable asserts that it was not guilty of forum shopping because the petition for relief was withdrawn on
the same day the petition for certiorari was filed.42 It likewise avers that its petition for certiorari was meritorious
because the RTC committed grave abuse of discretion in issuing the March 24, 2004 omnibus order which was
based on an erroneous assumption. The March 1, 2004 order denying its notice of appeal for non payment of
appeal fees was erroneous because it had in fact paid the required fees. 43 Thus, the RTC, by issuing its March
24, 2004 omnibus order, effectively prevented Equitable from appealing the patently wrong February 5, 2004
decision.44

This petition is meritorious.

Equitable Was Not Guilty Of Forum shopping

Forum shopping exists when two or more actions involving the same transactions, essential facts and
circumstances are filed and those actions raise identical issues, subject matter and causes of action. 45 The test is
whether, in two or more pending cases, there is identity of parties, rights or causes of actions and reliefs. 46

Equitable's petition for relief in the RTC and its petition for certiorari in the CA did not have identical causes of
action. The petition for relief from the denial of its notice of appeal was based on the RTC’s judgment or final
order preventing it from taking an appeal by "fraud, accident, mistake or excusable negligence." 47 On the other
hand, its petition for certiorari in the CA, a special civil action, sought to correct the grave abuse of discretion
amounting to lack of jurisdiction committed by the RTC.48

In a petition for relief, the judgment or final order is rendered by a court with competent jurisdiction. In a petition
for certiorari, the order is rendered by a court without or in excess of its jurisdiction.

Moreover, Equitable substantially complied with the rule on non-forum shopping when it moved to withdraw its
petition for relief in the RTC on the same day (in fact just four hours and forty minutes after) it filed the petition for
certiorari in the CA. Even if Equitable failed to disclose that it had a pending petition for relief in the RTC, it
rectified what was doubtlessly a careless oversight by withdrawing the petition for relief just a few hours after it
filed its petition for certiorari in the CA ― a clear indication that it had no intention of maintaining the two actions
at the same time.

The Trial Court Committed Grave Abuse of Discretion In Issuing Its March 1, 2004 and March 24, 2004
Orders

Section 1, Rule 65 of the Rules of Court provides:

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

The petition shall be accompanied by a certified true copy of the judgment, order or resolution subject thereof,
copies of all pleadings and documents relevant and pertinent thereto, and a sworn certificate of non-forum
shopping as provided in the third paragraph of Section 3, Rule 46.

There are two substantial requirements in a petition for certiorari. These are:

1. that the tribunal, board or officer exercising judicial or quasi-judicial functions acted without or in
excess of his or its jurisdiction or with grave abuse of discretion amounting to lack or excess of
jurisdiction; and

2. that there is no appeal or any plain, speedy and adequate remedy in the ordinary course of law.

For a petition for certiorari premised on grave abuse of discretion to prosper, petitioner must show that the public
respondent patently and grossly abused his discretion and that abuse amounted to an evasion of positive duty or
a virtual refusal to perform a duty enjoined by law or to act at all in contemplation of law, as where the power was
exercised in an arbitrary and despotic manner by reason of passion or hostility. 49

The March 1, 2004 order denied due course to the notices of appeal of both Equitable and respondents.
However, it declared that the February 5, 2004 decision was final and executory only with respect to
Equitable.50 As expected, the March 24, 2004 omnibus order denied Equitable's motion for reconsideration and
granted respondents' motion for the issuance of a writ of execution.51

The March 1, 2004 and March 24, 2004 orders of the RTC were obviously intended to prevent Equitable, et al.
from appealing the February 5, 2004 decision. Not only that. The execution of the decision was undertaken with
indecent haste, effectively obviating or defeating Equitable's right to avail of possible legal remedies. No matter
how we look at it, the RTC committed grave abuse of discretion in rendering those orders.
With regard to whether Equitable had a plain, speedy and adequate remedy in the ordinary course of law, we
hold that there was none. The RTC denied due course to its notice of appeal in the March 1, 2004 order. It
affirmed that denial in the March 24, 2004 omnibus order. Hence, there was no way Equitable could have
possibly appealed the February 5, 2004 decision.52

Although Equitable filed a petition for relief from the March 24, 2004 order, that petition was not a plain, speedy
and adequate remedy in the ordinary course of law.53 A petition for relief under Rule 38 is an equitable remedy
allowed only in exceptional circumstances or where there is no other available or adequate remedy. 54

Thus, we grant Equitable's petition for certiorari and consequently give due course to its appeal.

Equitable Raised Pure Questions of Law in Its Petition For Review

The jurisdiction of this Court in Rule 45 petitions is limited to questions of law. 55 There is a question of law "when
the doubt or controversy concerns the correct application of law or jurisprudence to a certain set of facts; or when
the issue does not call for the probative value of the evidence presented, the truth or falsehood of facts being
admitted."56

Equitable does not assail the factual findings of the trial court. Its arguments essentially focus on the nullity of the
RTC’s February 5, 2004 decision. Equitable points out that that decision was patently erroneous, specially the
exorbitant award of damages, as it was inconsistent with existing law and jurisprudence. 57

The Promissory Notes Were Valid

The RTC upheld the validity of the promissory notes despite respondents’ assertion that those documents were
contracts of adhesion.

A contract of adhesion is a contract whereby almost all of its provisions are drafted by one party.58 The
participation of the other party is limited to affixing his signature or his "adhesion" to the contract. 59 For this
reason, contracts of adhesion are strictly construed against the party who drafted it. 60

It is erroneous, however, to conclude that contracts of adhesion are invalid per se. They are, on the contrary, as
binding as ordinary contracts. A party is in reality free to accept or reject it. A contract of adhesion becomes void
only when the dominant party takes advantage of the weakness of the other party, completely depriving the latter
of the opportunity to bargain on equal footing.61

That was not the case here. As the trial court noted, if the terms and conditions offered by Equitable had been
truly prejudicial to respondents, they would have walked out and negotiated with another bank at the first
available instance. But they did not. Instead, they continuously availed of Equitable's credit facilities for five long
years.

While the RTC categorically found that respondents had outstanding dollar- and peso-denominated loans with
Equitable, it, however, failed to ascertain the total amount due (principal, interest and penalties, if any) as of July
9, 2001. The trial court did not explain how it arrived at the amounts of US$228,200 and ₱1,000,000. 62 In Metro
Manila Transit Corporation v. D.M. Consunji,63 we reiterated that this Court is not a trier of facts and it shall pass
upon them only for compelling reasons which unfortunately are not present in this case.64 Hence, we ordered the
partial remand of the case for the sole purpose of determining the amount of actual damages. 65

Escalation Clause Violated The Principle Of Mutuality Of Contracts

Escalation clauses are not void per se. However, one "which grants the creditor an unbridled right to adjust the
interest independently and upwardly, completely depriving the debtor of the right to assent to an important
modification in the agreement" is void. Clauses of that nature violate the principle of mutuality of
contracts.66 Article 130867 of the Civil Code holds that a contract must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them.68

For this reason, we have consistently held that a valid escalation clause provides:

1. that the rate of interest will only be increased if the applicable maximum rate of interest is increased by law or
by the Monetary Board; and
2. that the stipulated rate of interest will be reduced if the applicable maximum rate of interest is reduced by law
or by the Monetary Board (de-escalation clause).69

The RTC found that Equitable's promissory notes uniformly stated:

If subject promissory note is extended, the interest for subsequent extensions shall be at such rate as shall be
determined by the bank.70

Equitable dictated the interest rates if the term (or period for repayment) of the loan was extended. Respondents
had no choice but to accept them. This was a violation of Article 1308 of the Civil Code. Furthermore, the
assailed escalation clause did not contain the necessary provisions for validity, that is, it neither provided that the
rate of interest would be increased only if allowed by law or the Monetary Board, nor allowed de-escalation. For
these reasons, the escalation clause was void.

With regard to the proper rate of interest, in New Sampaguita Builders v. Philippine National Bank 71 we held that,
because the escalation clause was annulled, the principal amount of the loan was subject to the original or
stipulated rate of interest. Upon maturity, the amount due was subject to legal interest at the rate of 12% per
annum.72

Consequently, respondents should pay Equitable the interest rates of 12.66% p.a. for their dollar-denominated
loans and 20% p.a. for their peso-denominated loans from January 10, 2001 to July 9, 2001. Thereafter,
Equitable was entitled to legal interest of 12% p.a. on all amounts due.

There Was No Extraordinary Deflation

Extraordinary inflation exists when there is an unusual decrease in the purchasing power of currency (that is,
beyond the common fluctuation in the value of currency) and such decrease could not be reasonably foreseen or
was manifestly beyond the contemplation of the parties at the time of the obligation. Extraordinary deflation, on
the other hand, involves an inverse situation.73

Article 1250 of the Civil Code provides:

Article 1250. In case an extraordinary inflation or deflation of the currency stipulated should intervene, the value
of the currency at the time of the establishment of the obligation shall be the basis of payment, unless there is an
agreement to the contrary.

For extraordinary inflation (or deflation) to affect an obligation, the following requisites must be proven:

1. that there was an official declaration of extraordinary inflation or deflation from the Bangko Sentral ng
Pilipinas (BSP);74

2. that the obligation was contractual in nature;75 and

3. that the parties expressly agreed to consider the effects of the extraordinary inflation or deflation. 76

Despite the devaluation of the peso, the BSP never declared a situation of extraordinary inflation. Moreover,
although the obligation in this instance arose out of a contract, the parties did not agree to recognize the effects
of extraordinary inflation (or deflation).77 The RTC never mentioned that there was a such stipulation either in the
promissory note or loan agreement. Therefore, respondents should pay their dollar-denominated loans at the
exchange rate fixed by the BSP on the date of maturity. 78

The Award Of Moral And Exemplary Damages Lacked Basis

Moral damages are in the category of an award designed to compensate the claimant for actual injury suffered,
not to impose a penalty to the wrongdoer.79 To be entitled to moral damages, a claimant must prove:

1. That he or she suffered besmirched reputation, or physical, mental or psychological suffering

sustained by the claimant;

2. That the defendant committed a wrongful act or omission;

 3. That the wrongful act or omission was the proximate cause of the damages the claimant sustained;

4. The case is predicated on any of the instances expressed or envisioned by Article 2219 80 and
222081 . 82

In culpa contractual or breach of contract, moral damages are recoverable only if the defendant acted
fraudulently or in bad faith or in wanton disregard of his contractual obligations.83 The breach must be wanton,
reckless, malicious or in bad faith, and oppressive or abusive. 84

The RTC found that respondents did not pay Equitable the interest due on February 9, 2001 (or any month
thereafter prior to the maturity of the loan)85 or the amount due (principal plus interest) due on July 9,
2001.86 Consequently, Equitable applied respondents' deposits to their loans upon maturity.

The relationship between a bank and its depositor is that of creditor and debtor. 87 For this reason, a bank has the
right to set-off the deposits in its hands for the payment of a depositor's indebtedness.88

Respondents indeed defaulted on their obligation. For this reason, Equitable had the option to exercise its legal
right to set-off or compensation. However, the RTC mistakenly (or, as it now appears, deliberately) concluded
that Equitable acted "fraudulently or in bad faith or in wanton disregard" of its contractual obligations despite the
absence of proof. The undeniable fact was that, whatever damage respondents sustained was purely the
consequence of their failure to pay their loans. There was therefore absolutely no basis for the award of
moral damages to them.

Neither was there reason to award exemplary damages. Since respondents were not entitled to moral damages,
neither should they be awarded exemplary damages.89 And if respondents were not entitled to moral and
exemplary damages, neither could they be awarded attorney's fees and litigation expenses. 90

ACCORDINGLY, the petition is hereby GRANTED.

The October 28, 2005 decision and February 3, 2006 resolution of the Court of Appeals in CA-G.R. SP No.
83112 are hereby REVERSED and SET ASIDE.

The March 24, 2004 omnibus order of the Regional Trial Court, Branch 16, Cebu City in Civil Case No. CEB-
26983 is hereby ANNULLED for being rendered with grave abuse of discretion amounting to lack or excess of
jurisdiction. All proceedings undertaken pursuant thereto are likewise declared null and void.

The March 1, 2004 order of the Regional Trial Court, Branch 16 of Cebu City in Civil Case No. CEB-26983 is
hereby SET ASIDE. The appeal of petitioners Equitable PCI Bank, Aimee Yu and Bejan Lionel Apas is therefore
given due course.1avvphi1

The February 5, 2004 decision of the Regional Trial Court, Branch 16 of Cebu City in Civil Case No. CEB-26983
is accordingly SET ASIDE. New judgment is hereby entered:

1. ordering respondents Ng Sheung Ngor, doing business under the name and style of "Ken Marketing,"
Ken Appliance Division, Inc. and Benjamin E. Go to pay petitioner Equitable PCI Bank the principal
amount of their dollar- and peso-denominated loans;

2. ordering respondents Ng Sheung Ngor, doing business under the name and style of "Ken Marketing,"
Ken Appliance Division, Inc. and Benjamin E. Go to pay petitioner Equitable PCI Bank interest at:

a) 12.66% p.a. with respect to their dollar-denominated loans from January 10, 2001 to July 9,
2001;

b) 20% p.a. with respect to their peso-denominated loans from January 10, 2001 to July 9,
2001;91

c) pursuant to our ruling in Eastern Shipping Lines v. Court of Appeals,92 the total amount due
on July 9, 2001 shall earn legal interest at 12% p.a. from the time petitioner Equitable PCI Bank
demanded payment, whether judicially or extra-judicially; and
 d) after this Decision becomes final and executory, the applicable rate shall be 12% p.a. until
full satisfaction;

3. all other claims and counterclaims are dismissed.

As a starting point, the Regional Trial Court, Branch 16 of Cebu City shall compute the exact amounts due on the
respective dollar-denominated and peso-denominated loans, as of July 9, 2001, of respondents Ng Sheung Ngor,
doing business under the name and style of "Ken Marketing," Ken Appliance Division and Benjamin E. Go.

SO ORDERED.

RENATO C. CORONA
Associate Justice