THIRD DIVISION

[G.R. No. 114398. October 24, 1997]

CARMEN LIWANAG, petitioner, vs. THE HON. COURT OF APPEALS and THE PEOPLE
OF THE PHILIPPINES, represented by the Solicitor General, respondents.
DECISION
ROMERO, J.:
Petitioner was charged with the crime of estafa before the Regional Trial Court (RTC), Branch
93, Quezon City, in an information which reads as follows:
That on or between the month of May 19, 1988 and August, 1988 in Quezon City, Philippines
and within the jurisdiction of this Honorable Court, the said accused, with intent of gain, with
unfaithfulness, and abuse of confidence, did then and there, willfully, unlawfully and feloniously
defraud one ISIDORA ROSALES, in the following manner, to wit: on the date and in the place
aforementioned, said accused received in trust from the offended party cash money amounting to
P536,650.00, Philippine Currency, with the express obligation involving the duty to act as
complainants agent in purchasing local cigarettes (Philip Morris and Marlboro cigarettes), to
resell them to several stores, to give her commission corresponding to 40% of the profits; and to
return the aforesaid amount of offended party, but said accused, far from complying her
aforesaid obligation, and once in possession thereof, misapplied, misappropriated and converted
the same to her personal use and benefit, despite repeated demands made upon her, accused
failed and refused and still fails and refuses to deliver and/or return the same to the damage and
prejudice of the said ISIDORA ROSALES, in the aforementioned amount and in such other
amount as may be awarded under the provision of the Civil Code.
CONTRARY TO LAW.
The antecedent facts are as follows:
Petitioner Carmen Liwanag (Liwanag) and a certain Thelma Tabligan went to the house of
complainant Isidora Rosales (Rosales) and asked her to join them in the business of buying and
selling cigarettes. Convinced of the feasibility of the venture, Rosales readily agreed. Under
their agreement, Rosales would give the money needed to buy the cigarettes while Liwanag and
Tabligan would act as her agents, with a corresponding 40% commission to her if the goods are
sold; otherwise the money would be returned to Rosales. Consequently, Rosales gave several
cash advances to Liwanag and Tabligan amounting to P633,650.00.
During the first two months, Liwanag and Tabligan made periodic visits to Rosales to report on
the progress of the transactions. The visits, however, suddenly stopped, and all efforts by
Rosales to obtain information regarding their business proved futile.

Alarmed by this development and believing that the amounts she advanced were being
misappropriated, Rosales filed a case of estafa against Liwanag.
After trial on the merits, the trial court rendered a decision dated January 9, 1991, finding
Liwanag guilty as charged. The dispositive portion of the decision reads thus:
WHEREFORE, the Court holds, that the prosecution has established the guilt of the accused,
beyond reasonable doubt, and therefore, imposes upon the accused, Carmen Liwanag, an
Indeterminate Penalty of SIX (6) YEARS, EIGHT (8) MONTHS AND TWENTY ONE (21)
DAYS OF PRISION CORRECCIONAL TO FOURTEEN (14) YEARS AND EIGHT (8)
MONTHS OF PRISION MAYOR AS MAXIMUM, AND TO PAY THE COSTS.
The accused is likewise ordered to reimburse the private complainant the sum of P526,650.00,
without subsidiary imprisonment, in case of insolvency.
SO ORDERED.
Said decision was affirmed with modification by the Court of Appeals in a decision dated
November 29, 1993, the decretal portion of which reads:
WHEREFORE, in view of the foregoing, the judgment appealed from is hereby affirmed with
the correction of the nomenclature of the penalty which should be: SIX (6) YEARS, EIGHT (8)
MONTHS and TWENTY ONE (21) DAYS of prision mayor, as minimum, to FOURTEEN (14)
YEARS and EIGHT (8) MONTHS of reclusion temporal, as maximum. In all other respects, the
decision is AFFIRMED.
SO ORDERED.
Her motion for reconsideration having been denied in the resolution of March 16, 1994, Liwanag
filed the instant petition, submitting the following assignment of errors:
1. RESPONDENT APPELLATE COURT GRAVELY ERRED IN AFFIRMING THE
CONVICTION OF THE ACCUSED-PETITIONER FOR THE CRIME OF ESTAFA, WHEN
CLEARLY THE CONTRACT THAT EXIST (sic) BETWEEN THE ACCUSED-PETITIONER
AND COMPLAINANT IS EITHER THAT OF A SIMPLE LOAN OR THAT OF A
PARTNERSHIP OR JOINT VENTURE HENCE THE NON RETURN OF THE MONEY OF
THE COMPLAINANT IS PURELY CIVIL IN NATURE AND NOT CRIMINAL.
2. RESPONDENT APPELLATE COURT GRAVELY ERRED IN NOT ACQUITTING THE
ACCUSED-PETITIONER ON GROUNDS OF REASONABLE DOUBT BY APPLYING THE
EQUIPOISE RULE.
Liwanag advances the theory that the intention of the parties was to enter into a contract of
partnership, wherein Rosales would contribute the funds while she would buy and sell the
cigarettes, and later divide the profits between them.i[1] She also argues that the transaction can

also be interpreted as a simple loan, with Rosales lending to her the amount stated on an
installment basis.ii[2]
The Court of Appeals correctly rejected these pretenses.
While factual findings of the Court of Appeals are conclusive on the parties and not reviewable
by the Supreme Court, and carry more weight when these affirm the factual findings of the trial
court,iii[3] we deem it more expedient to resolve the instant petition on its merits.
Estafa is a crime committed by a person who defrauds another causing him to suffer damages, by
means of unfaithfulness or abuse of confidence, or of false pretenses of fraudulent acts.iv[4]
From the foregoing, the elements of estafa are present, as follows: (1) that the accused defrauded
another by abuse of confidence or deceit; and (2) that damage or prejudice capable of pecuniary
estimation is caused to the offended party or third party,v[5] and it is essential that there be a
fiduciary relation between them either in the form of a trust, commission or administration.vi[6]
The receipt signed by Liwanag states thus:
May 19, 1988

Quezon City

Received from Mrs. Isidora P. Rosales the sum of FIVE HUNDRED TWENTY SIX
THOUSAND AND SIX HUNDRED FIFTY PESOS (P526,650.00) Philippine Currency, to
purchase cigarrets (sic) (Philip & Marlboro) to be sold to customers. In the event the said
cigarrets (sic) are not sold, the proceeds of the sale or the said products (shall) be returned to said
Mrs. Isidora P. Rosales the said amount of P526,650.00 or the said items on or before August 30,
1988.
(SGD & Thumbedmarked) (sic)
CARMEN LIWANAG
26 H. Kaliraya St.
Quezon City
Signed in the presence of:
(Sgd) Illegible

(Sgd)

Doming Z. Baligad

The language of the receipt could not be any clearer. It indicates that the money delivered to
Liwanag was for a specific purpose, that is, for the purchase of cigarettes, and in the event the
cigarettes cannot be sold, the money must be returned to Rosales.
Thus, even assuming that a contract of partnership was indeed entered into by and between the
parties, we have ruled that when money or property have been received by a partner for a
specific purpose (such as that obtaining in the instant case) and he later misappropriated it, such
partner is guilty of estafa.vii[7]

Neither can the transaction be considered a loan, since in a contract of loan once the money is
received by the debtor, ownership over the same is transferred.viii[8] Being the owner, the
borrower can dispose of it for whatever purpose he may deem proper.
In the instant petition, however, it is evident that Liwanag could not dispose of the money as she
pleased because it was only delivered to her for a single purpose, namely, for the purchase of
cigarettes, and if this was not possible then to return the money to Rosales. Since in this case
there was no transfer of ownership of the money delivered, Liwanag is liable for conversion
under Art. 315, par. 1(b) of the Revised Penal Code.
WHEREFORE, in view of the foregoing, the appealed decision of the Court of Appeals dated
November 29, 1993, is AFFIRMED. Costs against petitioner.
SO ORDERED.

scionable and iniquitous.

In a Resolution dated July 13, 1994, the appellate court denied the petitioners motion for
reconsideration of the said decision.
Hence, this petition anchored on the following assigned errors:
I
THE HONORABLE COURT OF APPEALS COMMITTED A MISTAKE IN GIVING ITS
IMPRIMATUR TO THE DECISION OF THE TRIAL COURT WHICH COMPOUNDED
INTEREST ON SURCHARGES.
II
THE HONORABLE COURT OF APPEALS ERRED IN NOT SUSPENDING IMPOSITION
OF INTEREST FOR THE PERIOD OF TIME THAT PRIVATE RESPONDENT HAS FAILED
TO ASSIST PETITIONER IN APPLYING FOR RELIEF OF LIABILITY THROUGH THE
COMMISSION ON AUDIT AND THE OFFICE OF THE PRESIDENT.
III
THE HONORABLE COURT OF APPEALS ERRED IN NOT DELETING AWARD OF
ATTORNEYS FEES AND IN REDUCING PENALTIES.
Significantly, the petitioner does not question his liability for his restructured loan under the
promissory note marked Exhibit A. The first question to be resolved in the case at bar is
whether there are contractual and legal bases for the imposition of the penalty, interest on the
penalty and attorneys fees.
The petitioner imputes error on the part of the appellate court in not totally eliminating the award
of attorneys fees and in not reducing the penalties considering that the petitioner, contrary to the
appellate courts findings, has allegedly made partial payments on the loan. And if penalty is to
be awarded, the petitioner is asking for the non-imposition of interest on the surcharges
inasmuch as the compounding of interest on surcharges is not provided in the promissory note
marked Exhibit A. The petitioner takes exception to the computation of the private respondent
whereby the interest, surcharge and the principal were added together and that on the total sum
interest was imposed. Petitioner also claims that there is no basis in law for the charging of
interest on the surcharges for the reason that the New Civil Code is devoid of any provision
allowing the imposition of interest on surcharges.
We find no merit in the petitioners contention. Article 1226 of the New Civil Code provides
that:
In obligations with a penal clause, the penalty shall substitute the indemnity for damages and the
payment of interests in case of non-compliance, if there is no stipulation to the contrary.

Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or is guilty of fraud
in the fulfillment of the obligation.
The penalty may be enforced only when it is demandable in accordance with the provisions of
this Code.
In the case at bar, the promissory note (Exhibit A) expressly provides for the imposition of
both interest and penalties in case of default on the part of the petitioner in the payment of the
subject restructured loan. The pertinentix[6] portion of the promissory note (Exhibit A)
imposing interest and penalties provides that:
For value received, I/We jointly and severally promise to pay to the CULTURAL CENTER OF
THE PHILIPPINES at its office in Manila, the sum of THREE MILLION FOUR HUNDRED
ELEVEN THOUSAND FOUR HUNDRED + PESOS (P3,411,421.32) Philippine Currency,
xxx.
xxx

xxx

xxx

With interest at the rate of FOURTEEN per cent (14%) per annum from the date hereof until
paid. PLUS THREE PERCENT (3%) SERVICE CHARGE.
In case of non-payment of this note at maturity/on demand or upon default of payment of any
portion of it when due, I/We jointly and severally agree to pay additional penalty charges at the
rate of TWO per cent (2%) per month on the total amount due until paid, payable and computed
monthly. Default of payment of this note or any portion thereof when due shall render all other
installments and all existing promissory notes made by us in favor of the CULTURAL CENTER
OF THE PHILIPPINES immediately due and demandable. (Underscoring supplied)
xxx

xxx

xxx

The stipulated fourteen percent (14%) per annum interest charge until full payment of the loan
constitutes the monetary interest on the note and is allowed under Article 1956 of the New Civil
Code.x[7] On the other hand, the stipulated two percent (2%) per month penalty is in the form of
penalty charge which is separate and distinct from the monetary interest on the principal of the
loan.
Penalty on delinquent loans may take different forms. In Government Service Insurance System
v. Court of Appeals,xi[8] this Court has ruled that the New Civil Code permits an agreement
upon a penalty apart from the monetary interest. If the parties stipulate this kind of agreement,
the penalty does not include the monetary interest, and as such the two are different and distinct
from each other and may be demanded separately. Quoting Equitable Banking Corp. v.
Liwanag,xii[9] the GSIS case went on to state that such a stipulation about payment of an
additional interest rate partakes of the nature of a penalty clause which is sanctioned by law,
more particularly under Article 2209 of the New Civil Code which provides that:

If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the
indemnity for damages, there being no stipulation to the contrary, shall be the payment of the
interest agreed upon, and in the absence of stipulation, the legal interest, which is six per cent per
annum.
The penalty charge of two percent (2%) per month in the case at bar began to accrue from the
time of default by the petitioner. There is no doubt that the petitioner is liable for both the
stipulated monetary interest and the stipulated penalty charge. The penalty charge is also called
penalty or compensatory interest. Having clarified the same, the next issue to be resolved is
whether interest may accrue on the penalty or compensatory interest without violating the
provisions of Article 1959 of the New Civil Code, which provides that:
Without prejudice to the provisions of Article 2212, interest due and unpaid shall not earn
interest. However, the contracting parties may by stipulation capitalize the interest due and
unpaid, which as added principal, shall earn new interest.
According to the petitioner, there is no legal basis for the imposition of interest on the penalty
charge for the reason that the law only allows imposition of interest on monetary interest but not
the charging of interest on penalty. He claims that since there is no law that allows imposition of
interest on penalties, the penalties should not earn interest. But as we have already explained,
penalty clauses can be in the form of penalty or compensatory interest. Thus, the compounding
of the penalty or compensatory interest is sanctioned by and allowed pursuant to the abovequoted provision of Article 1959 of the New Civil Code considering that:
First, there is an express stipulation in the promissory note (Exhibit A) permitting the
compounding of interest. The fifth paragraph of the said promissory note provides that: Any
interest which may be due if not paid shall be added to the total amount when due and shall
become part thereof, the whole amount to bear interest at the maximum rate allowed by
law.xiii[10] Therefore, any penalty interest not paid, when due, shall earn the legal interest of
twelve percent (12%) per annum,xiv[11] in the absence of express stipulation on the specific rate
of interest, as in the case at bar.
Second, Article 2212 of the New Civil Code provides that Interest due shall earn legal interest
from the time it is judicially demanded, although the obligation may be silent upon this point. In
the instant case, interest likewise began to run on the penalty interest upon the filing of the
complaint in court by respondent CCP on August 29, 1984. Hence, the courts a quo did not err
in ruling that the petitioner is bound to pay the interest on the total amount of the principal, the
monetary interest and the penalty interest.
The petitioner seeks the elimination of the compounded interest imposed on the total amount
based allegedly on the case of National Power Corporation v. National Merchandising
Corporation,xv[12] wherein we ruled that the imposition of interest on the damages from the
filing of the complaint is unjust where the litigation was prolonged for twenty-five (25) years
through no fault of the defendant. However, the ruling in the said National Power Corporation
(NPC) case is not applicable to the case at bar inasmuch as our ruling on the issue of interest in
that NPC case was based on equitable considerations and on the fact that the said case lasted for

twenty-five (25) years through no fault of the defendant. In the case at bar, however, equity
cannot be considered inasmuch as there is a contractual stipulation in the promissory note
whereby the petitioner expressly agreed to the compounding of interest in case of failure on his
part to pay the loan at maturity. Inasmuch as the said stipulation on the compounding of interest
has the force of law between the parties and does not appear to be inequitable or unjust, the said
written stipulation should be respected.
The private respondents Statement of Account (marked Exhibits C to C-2)xvi[13] shows
the following breakdown of the petitioners indebtedness as of August 28, 1986:
Principal
Interest
Surcharge

P2,838,454.68
P 576,167.89
P4,581,692.10
P7,996,314.67

The said statement of account also shows that the above amounts stated therein are net of the
partial payments amounting to a total of Four Hundred Fifty-Two Thousand Five Hundred SixtyOne Pesos and Forty-Three Centavos (P452,561.43) which were made during the period from
May 13, 1983 to September 30, 1983.xvii[14] The petitioner now seeks the reduction of the
penalty due to the said partial payments. The principal amount of the promissory note (Exhibit
A) was Three Million Four Hundred Eleven Thousand Four Hundred Twenty-One Pesos and
Thirty-Two Centavos (P3,411,421.32) when the loan was restructured on August 31, 1979. As
of August 28, 1986, the principal amount of the said restructured loan has been reduced to Two
Million Eight Hundred Thirty-Eight Thousand Four Hundred Fifty-Four Pesos and Sixty-Eight
Centavos (P2,838,454.68). Thus, petitioner contends that reduction of the penalty is justifiable
pursuant to Article 1229 of the New Civil Code which provides that: The judge shall equitably
reduce the penalty when the principal obligation has been partly or irregularly complied with by
the debtor. Even if there has been no performance, the penalty may also be reduced by the
courts if it is iniquitous or unconscionable. Petitioner insists that the penalty should be reduced
to ten percent (10%) of the unpaid debt in accordance with Bachrach Motor Company v.
Espiritu.xviii[15]
There appears to be a justification for a reduction of the penalty charge but not necessarily to ten
percent (10%) of the unpaid balance of the loan as suggested by petitioner. Inasmuch as
petitioner has made partial payments which showed his good faith, a reduction of the penalty
charge from two percent (2%) per month on the total amount due, compounded monthly, until
paid can indeed be justified under the said provision of Article 1229 of the New Civil Code.
In other words, we find the continued monthly accrual of the two percent (2%) penalty charge on
the total amount due to be unconscionable inasmuch as the same appeared to have been
compounded monthly.

Considering petitioners several partial payments and the fact he is liable under the note for the
two percent (2%) penalty charge per month on the total amount due, compounded monthly, for
twenty-one (21) years since his default in 1980, we find it fair and equitable to reduce the penalty
charge to a straight twelve percent (12%) per annum on the total amount due starting August 28,
1986, the date of the last Statement of Account (Exhibits C to C-2). We also took into
consideration the offers of the petitioner to enter into a compromise for the settlement of his debt
by presenting proposed payment schemes to respondent CCP. The said offers at compromise
also showed his good faith despite difficulty in complying with his loan obligation due to his
financial problems. However, we are not unmindful of the respondents long overdue
deprivation of the use of its money collectible from the petitioner.
The petitioner also imputes error on the part of the appellate court for not declaring the
suspension of the running of the interest during that period when the respondent allegedly failed
to assist the petitioner in applying for relief from liability. In this connection, the petitioner
referred to the private respondents letterxix[16] dated September 28, 1988 addressed to
petitioner which partially reads:
Dear Mr. Tan:
xxx

xxx

xxx

With reference to your appeal for condonation of interest and surcharge, we wish to inform you
that the center will assist you in applying for relief of liability through the Commission on Audit
and Office of the President xxx.
While your application is being processed and awaiting approval, the center will be accepting
your proposed payment scheme with the downpayment of P160,000.00 and monthly remittances
of P60,000.00 xxx.
xxx

xxx

xxx

The petitioner alleges that his obligation to pay the interest and surcharge should have been
suspended because the obligation to pay such interest and surcharge has become conditional, that
is dependent on a future and uncertain event which consists of whether the petitioners request
for condonation of interest and surcharge would be recommended by the Commission on Audit
and the Office of the President to the House of Representatives for approval as required under
Section 36 of Presidential Decree No. 1445. Since the condition has not happened allegedly due
to the private respondents reneging on its promise, his liability to pay the interest and surcharge
on the loan has not arisen. This is the petitioners contention.
It is our view, however, that the running of the interest and surcharge was not suspended by the
private respondents promise to assist the petitioners in applying for relief therefrom through the
Commission on Audit and the Office of the President.
First, the letter dated September 28, 1988 alleged to have been sent by the respondent CCP to the
petitioner is not part of the formally offered documentary evidence of either party in the trial

court. That letter cannot be considered evidence pursuant to Rule 132, Section 34 of the Rules of
Court which provides that: The court shall consider no evidence which has not been formally
offered xxx. Besides, the said letter does not contain any categorical agreement on the part of
respondent CCP that the payment of the interest and surcharge on the loan is deemed suspended
while his appeal for condonation of the interest and surcharge was being processed.
Second, the private respondent correctly asserted that it was the primary responsibility of
petitioner to inform the Commission on Audit and the Office of the President of his application
for condonation of interest and surcharge. It was incumbent upon the petitioner to bring his
administrative appeal for condonation of interest and penalty charges to the attention of the said
government offices.
On the issue of attorneys fees, the appellate court ruled correctly and justly in reducing the trial
courts award of twenty-five percent (25%) attorneys fees to five percent (5%) of the total
amount due.
WHEREFORE, the assailed Decision of the Court of Appeals is hereby AFFIRMED with
MODIFICATION in that the penalty charge of two percent (2%) per month on the total amount
due, compounded monthly, is hereby reduced to a straight twelve percent (12%) per annum
starting from August 28, 1986. With costs against the petitioner.
SO ORDERED.

4.
FIRST DIVISION
[G.R. No. 114286. April 19, 2001]
THE CONSOLIDATED BANK AND TRUST CORPORATION (SOLIDBANK), petitioner, vs.
THE COURT OF APPEALS, CONTINENTAL CEMENT CORPORATION, GREGORY T.
LIM and SPOUSE, respondents.
DECISION
YNARES-SANTIAGO, J.:
The instant petition for review seeks to partially set aside the July 26, 1993 Decisionxx[1] of
respondent Court of Appeals in CA-G.R. CV No. 29950, insofar as it orders petitioner to
reimburse respondent Continental Cement Corporation the amount of P490,228.90 with interest
thereon at the legal rate from July 26, 1988 until fully paid. The petition also seeks to set aside
the March 8, 1994 Resolutionxxi[2] of respondent Court of Appeals denying its Motion for
Reconsideration.
The facts are as follows:
On July 13, 1982, respondents Continental Cement Corporation (hereinafter, respondent
Corporation) and Gregory T. Lim (hereinafter, respondent Lim) obtained from petitioner
Consolidated Bank and Trust Corporation Letter of Credit No. DOM-23277 in the amount of
P1,068,150.00 On the same date, respondent Corporation paid a marginal deposit of
P320,445.00 to petitioner. The letter of credit was used to purchase around five hundred
thousand liters of bunker fuel oil from Petrophil Corporation, which the latter delivered directly
to respondent Corporation in its Bulacan plant. In relation to the same transaction, a trust receipt
for the amount of P1,001,520.93 was executed by respondent Corporation, with respondent Lim
as signatory.
Claiming that respondents failed to turn over the goods covered by the trust receipt or the
proceeds thereof, petitioner filed a complaint for sum of money with application for preliminary
attachmentxxii[3] before the Regional Trial Court of Manila. In answer to the complaint,
respondents averred that the transaction between them was a simple loan and not a trust receipt
transaction, and that the amount claimed by petitioner did not take into account payments already
made by them. Respondent Lim also denied any personal liability in the subject transactions. In
a Supplemental Answer, respondents prayed for reimbursement of alleged overpayment to
petitioner of the amount of P490,228.90.
At the pre-trial conference, the parties agreed on the following issues:
1)

Whether or not the transaction involved is a loan transaction or a trust receipt transaction;

2)
Whether or not the interest rates charged against the defendants by the plaintiff are proper
under the letter of credit, trust receipt and under existing rules or regulations of the Central Bank;
3)
Whether or not the plaintiff properly applied the previous payment of P300,456.27 by the
defendant corporation on July 13, 1982 as payment for the latters account; and
4)
Whether or not the defendants are personally liable under the transaction sued for in this
case.xxiii[4]
On September 17, 1990, the trial court rendered its Decision,xxiv[5] dismissing the Complaint
and ordering petitioner to pay respondents the following amounts under their counterclaim:
P490,228.90 representing overpayment of respondent Corporation, with interest thereon at the
legal rate from July 26, 1988 until fully paid; P10,000.00 as attorneys fees; and costs.
Both parties appealed to the Court of Appeals, which partially modified the Decision by deleting
the award of attorneys fees in favor of respondents and, instead, ordering respondent
Corporation to pay petitioner P37,469.22 as and for attorneys fees and litigation expenses.
Hence, the instant petition raising the following issues:
1.
WHETHER OR NOT THE RESPONDENT APPELLATE COURT ACTED
INCORRECTLY OR COMMITTED REVERSIBLE ERROR IN HOLDING THAT THERE
WAS OVERPAYMENT BY PRIVATE RESPONDENTS TO THE PETITIONER IN THE
AMOUNT OF P490,228.90 DESPITE THE ABSENCE OF ANY COMPUTATION MADE IN
THE DECISION AND THE ERRONEOUS APPLICATION OF PAYMENTS WHICH IS IN
VIOLATION OF THE NEW CIVIL CODE.
2.
WHETHER OR NOT THE MANNER OF COMPUTATION OF THE MARGINAL
DEPOSIT BY THE RESPONDENT APPELLATE COURT IS IN ACCORDANCE WITH
BANKING PRACTICE.
3.
WHETHER OR NOT THE AGREEMENT AMONG THE PARTIES AS TO THE
FLOATING OF INTEREST RATE IS VALID UNDER APPLICABLE JURISPRUDENCE
AND THE RULES AND REGULATIONS OF THE CENTRAL BANK.
4.
WHETHER OR NOT THE RESPONDENT APPELLATE COURT GRIEVOUSLY
ERRED IN NOT CONSIDERING THE TRANSACTION AT BAR AS A TRUST RECEIPT
TRANSACTION ON THE BASIS OF THE JUDICIAL ADMISSIONS OF THE PRIVATE
RESPONDENTS AND FOR WHICH RESPONDENTS ARE LIABLE THEREFOR.
5.
WHETHER OR NOT THE RESPONDENT APPELLATE COURT GRIEVOUSLY
ERRED IN NOT HOLDING PRIVATE RESPONDENT SPOUSES LIABLE UNDER THE
TRUST RECEIPT TRANSACTION.xxv[6]
The petition must be denied.

On the first issue respecting the fact of overpayment found by both the lower court and
respondent Court of Appeals, we stress the time-honored rule that findings of fact by the Court
of Appeals especially if they affirm factual findings of the trial court will not be disturbed by this
Court, unless these findings are not supported by evidence.xxvi[7]
Petitioner decries the lack of computation by the lower court as basis for its ruling that there was
an overpayment made. While such a computation may not have appeared in the Decision itself,
we note that the trial courts finding of overpayment is supported by evidence presented before
it. At any rate, we painstakingly reviewed and computed the payments together with the interest
and penalty charges due thereon and found that the amount of overpayment made by respondent
Bank to petitioner, i.e., P563,070.13, was more than what was ordered reimbursed by the lower
court. However, since respondents did not file an appeal in this case, the amount ordered
reimbursed by the lower court should stand.
Moreover, petitioners contention that the marginal deposit made by respondent Corporation
should not be deducted outright from the amount of the letter of credit is untenable. Petitioner
argues that the marginal deposit should be considered only after computing the principal plus
accrued interests and other charges. However, to sustain petitioner on this score would be to
countenance a clear case of unjust enrichment, for while a marginal deposit earns no interest in
favor of the debtor-depositor, the bank is not only able to use the same for its own purposes,
interest-free, but is also able to earn interest on the money loaned to respondent Corporation.
Indeed, it would be onerous to compute interest and other charges on the face value of the letter
of credit which the petitioner issued, without first crediting or setting off the marginal deposit
which the respondent Corporation paid to it. Compensation is proper and should take effect by
operation of law because the requisites in Article 1279 of the Civil Code are present and should
extinguish both debts to the concurrent amount.xxvii[8]
Hence, the interests and other charges on the subject letter of credit should be computed only on
the balance of P681,075.93, which was the portion actually loaned by the bank to respondent
Corporation.
Neither do we find error when the lower court and the Court of Appeals set aside as invalid the
floating rate of interest exhorted by petitioner to be applicable. The pertinent provision in the
trust receipt agreement of the parties fixing the interest rate states:
I, WE jointly and severally agree to any increase or decrease in the interest rate which may occur
after July 1, 1981, when the Central Bank floated the interest rate, and to pay additionally the
penalty of 1% per month until the amount/s or installment/s due and unpaid under the trust
receipt on the reverse side hereof is/are fully paid.xxviii[9]
We agree with respondent Court of Appeals that the foregoing stipulation is invalid, there being
no reference rate set either by it or by the Central Bank, leaving the determination thereof at the
sole will and control of petitioner.
While it may be acceptable, for practical reasons given the fluctuating economic conditions, for
banks to stipulate that interest rates on a loan not be fixed and instead be made dependent upon

prevailing market conditions, there should always be a reference rate upon which to peg such
variable interest rates. An example of such a valid variable interest rate was found in Polotan,
Sr. v. Court of Appeals.xxix[10] In that case, the contractual provision stating that if there
occurs any change in the prevailing market rates, the new interest rate shall be the guiding
rate in computing the interest due on the outstanding obligation without need of serving notice
to the Cardholder other than the required posting on the monthly statement served to the
Cardholderxxx[11] was considered valid. The aforequoted provision was upheld
notwithstanding that it may partake of the nature of an escalation clause, because at the same
time it provides for the decrease in the interest rate in case the prevailing market rates dictate its
reduction. In other words, unlike the stipulation subject of the instant case, the interest rate
involved in the Polotan case is designed to be based on the prevailing market rate. On the other
hand, a stipulation ostensibly signifying an agreement to any increase or decrease in the interest
rate, without more, cannot be accepted by this Court as valid for it leaves solely to the creditor
the determination of what interest rate to charge against an outstanding loan.
Petitioner has also failed to convince us that its transaction with respondent Corporation is really
a trust receipt transaction instead of merely a simple loan, as found by the lower court and the
Court of Appeals.
The recent case of Colinares v. Court of Appealsxxxi[12] appears to be foursquare with the facts
obtaining in the case at bar. There, we found that inasmuch as the debtor received the goods
subject of the trust receipt before the trust receipt itself was entered into, the transaction in
question was a simple loan and not a trust receipt agreement. Prior to the date of execution of
the trust receipt, ownership over the goods was already transferred to the debtor. This situation
is inconsistent with what normally obtains in a pure trust receipt transaction, wherein the goods
belong in ownership to the bank and are only released to the importer in trust after the loan is
granted.
In the case at bar, as in Colinares, the delivery to respondent Corporation of the goods subject of
the trust receipt occurred long before the trust receipt itself was executed. More specifically,
delivery of the bunker fuel oil to respondent Corporations Bulacan plant commenced on July 7,
1982 and was completed by July 19, 1982.xxxii[13] Further, the oil was used up by respondent
Corporation in its normal operations by August, 1982.xxxiii[14] On the other hand, the subject
trust receipt was only executed nearly two months after full delivery of the oil was made to
respondent Corporation, or on September 2, 1982.
The danger in characterizing a simple loan as a trust receipt transaction was explained in
Colinares, to wit:
The Trust Receipts Law does not seek to enforce payment of the loan, rather it punishes the
dishonesty and abuse of confidence in the handling of money or goods to the prejudice of
another regardless of whether the latter is the owner. Here, it is crystal clear that on the part of
Petitioners there was neither dishonesty nor abuse of confidence in the handling of money to the
prejudice of PBC. Petitioners continually endeavored to meet their obligations, as shown by
several receipts issued by PBC acknowledging payment of the loan.

The Information charges Petitioners with intent to defraud and misappropriating the money for
their personal use. The mala prohibita nature of the alleged offense notwithstanding, intent as a
state of mind was not proved to be present in Petitioners situation. Petitioners employed no
artifice in dealing with PBC and never did they evade payment of their obligation nor attempt to
abscond. Instead, Petitioners sought favorable terms precisely to meet their obligation.
Also noteworthy is the fact that Petitioners are not importers acquiring the goods for re-sale,
contrary to the express provision embodied in the trust receipt. They are contractors who
obtained the fungible goods for their construction project. At no time did title over the
construction materials pass to the bank, but directly to the Petitioners from CM Builders Centre.
This impresses upon the trust receipt in question vagueness and ambiguity, which should not be
the basis for criminal prosecution in the event of violation of its provisions.
The practice of banks of making borrowers sign trust receipts to facilitate collection of loans and
place them under the threats of criminal prosecution should they be unable to pay it may be
unjust and inequitable, if not reprehensible. Such agreements are contracts of adhesion which
borrowers have no option but to sign lest their loan be disapproved. The resort to this scheme
leaves poor and hapless borrowers at the mercy of banks, and is prone to misinterpretation, as
had happened in this case. Eventually, PBC showed its true colors and admitted that it was only
after collection of the money, as manifested by its Affidavit of Desistance.
Similarly, respondent Corporation cannot be said to have been dishonest in its dealings with
petitioner. Neither has it been shown that it has evaded payment of its obligations. Indeed, it
continually endeavored to meet the same, as shown by the various receipts issued by petitioner
acknowledging payment on the loan. Certainly, the payment of the sum of P1,832,158.38 on a
loan with a principal amount of only P681,075.93 negates any badge of dishonesty, abuse of
confidence or mishandling of funds on the part of respondent Corporation, which are the
gravamen of a trust receipt violation. Furthermore, respondent Corporation is not an importer
which acquired the bunker fuel oil for re-sale; it needed the oil for its own operations. More
importantly, at no time did title over the oil pass to petitioner, but directly to respondent
Corporation to which the oil was directly delivered long before the trust receipt was executed.
The fact that ownership of the oil belonged to respondent Corporation, through its President,
Gregory Lim, was acknowledged by petitioners own account officer on the witness stand, to
wit:
QAfter the bank opened a letter of credit in favor of Petrophil Corp. for the account of the
defendants thereby paying the value of the bunker fuel oil what transpired next after that?
AUpon purchase of the bunker fuel oil and upon the requests of the defendant possession
of the bunker fuel oil were transferred to them.
Q-

You mentioned them to whom are you referring to?

ATo the Continental Cement Corp. upon the execution of the trust receipt acknowledging
the ownership of the bunker fuel oil this should be acceptable for whatever disposition he may
make.

QYou mentioned about acknowledging ownership of the bunker fuel oil to whom by
whom?
A-

By the Continental Cement Corp.

Q-

So by your statement who really owns the bunker fuel oil?

ATTY. RACHON:
Objection already answered.
COURT:
Give time to the other counsel to object.
ATTY. RACHON:
He has testified that ownership was acknowledged in favor of Continental Cement Corp.
so that question has already been answered.
ATTY. BAAGA:
That is why I made a follow up question asking ownership of the bunker fuel oil.
COURT:
Proceed.
ATTY. BAAGA:
Q-

Who owns the bunker fuel oil after purchase from Petrophil Corp.?

A-

Gregory Lim.xxxiv[15]

By all indications, then, it is apparent that there was really no trust receipt transaction that took
place. Evidently, respondent Corporation was required to sign the trust receipt simply to
facilitate collection by petitioner of the loan it had extended to the former.
Finally, we are not convinced that respondent Gregory T. Lim and his spouse should be
personally liable under the subject trust receipt. Petitioners argument that respondent
Corporation and respondent Lim and his spouse are one and the same cannot be sustained. The
transactions sued upon were clearly entered into by respondent Lim in his capacity as Executive
Vice President of respondent Corporation. We stress the hornbook law that corporate personality
is a shield against personal liability of its officers. Thus, we agree that respondents Gregory T.
Lim and his spouse cannot be made personally liable since respondent Lim entered into and

signed the contract clearly in his official capacity as Executive Vice President. The personality
of the corporation is separate and distinct from the persons composing it.xxxv[16]
WHEREFORE, in view of all the foregoing, the instant Petition for Review is DENIED. The
Decision of the Court of Appeals dated July 26, 1993 in CA-G.R. CV No. 29950 is AFFIRMED.
SO ORDERED.

5.
SECOND DIVISION
[G.R. No. 141811. November 15, 2001]
FIRST METRO INVESTMENT CORPORATION, petitioner, vs. ESTE DEL SOL
MOUNTAIN RESERVE, INC., VALENTIN S. DAEZ, JR., MANUEL Q. SALIENTES, MA.
ROCIO A. DE VEGA, ALEXANDER G. ASUNCION, ALBERTO* M. LADORES, VICENTE
M. DE VERA, JR., and FELIPE B. SESE, respondents.
DECISION
DE LEON, JR., J.:
Before us is a petition for review on certiorari of the Decisionxxxvi[1] of the Court of
Appealsxxxvii[2] dated November 8, 1999 in CA-G.R. CV No. 53328 reversing the
Decisionxxxviii[3] of the Regional Trial Court of Pasig City, Branch 159 dated June 2, 1994 in
Civil Case No. 39224. Essentially, the Court of Appeals found and declared that the fees
provided for in the Underwriting and Consultancy Agreements executed by and between
petitioner First Metro Investment Corp. (FMIC) and respondent Este del Sol Mountain Reserve,
Inc. (Este del Sol) simultaneously with the Loan Agreement dated January 31, 1978 were mere
subterfuges to camouflage the usurious interest charged by petitioner FMIC.
The facts of the case are as follows:
It appears that on January 31, 1978, petitioner FMIC granted respondent Este del Sol a loan of
Seven Million Three Hundred Eighty-Five Thousand Five Hundred Pesos (P7,385,500.00) to
finance the construction and development of the Este del Sol Mountain Reserve, a sports/resort
complex project located at Barrio Puray, Montalban, Rizal.xxxix[4]
Under the terms of the Loan Agreement, the proceeds of the loan were to be released on
staggered basis. Interest on the loan was pegged at sixteen (16%) percent per annum based on
the diminishing balance. The loan was payable in thirty-six (36) equal and consecutive monthly
amortizations to commence at the beginning of the thirteenth month from the date of the first
release in accordance with the Schedule of Amortization.xl[5] In case of default, an acceleration
clause was, among others, provided and the amount due was made subject to a twenty (20%)
percent one-time penalty on the amount due and such amount shall bear interest at the highest
rate permitted by law from the date of default until full payment thereof plus liquidated damages
at the rate of two (2%) percent per month compounded quarterly on the unpaid balance and
accrued interests together with all the penalties, fees, expenses or charges thereon until the
unpaid balance is fully paid, plus attorneys fees equivalent to twenty-five (25%) percent of the
sum sought to be recovered, which in no case shall be less than Twenty Thousand Pesos
(P20,000.00) if the services of a lawyer were hired.xli[6]

In accordance with the terms of the Loan Agreement, respondent Este del Sol executed several
documentsxlii[7] as security for payment, among them, (a) a Real Estate Mortgage dated January
31, 1978 over two (2) parcels of land being utilized as the site of its development project with an
area of approximately One Million Twenty-Eight Thousand and Twenty-Nine (1,028,029) square
meters and particularly described in TCT Nos. N-24332 and N-24356 of the Register of Deeds of
Rizal, inclusive of all improvements, as well as all the machineries, equipment, furnishings and
furnitures existing thereon; and (b) individual Continuing Suretyship agreements by corespondents Valentin S. Daez, Jr., Manuel Q. Salientes, Ma. Rocio A. De Vega, Alexander G.
Asuncion, Alberto M. Ladores, Vicente M. De Vera, Jr. and Felipe B. Sese, all dated February 2,
1978, to guarantee the payment of all the obligations of respondent Este del Sol up to the
aggregate sum of Seven Million Five Hundred Thousand Pesos (P7,500,000 00) each.xliii[8]
Respondent Este del Sol also executed, as provided for by the Loan Agreement, an Underwriting
Agreement on January 31, 1978 whereby petitioner FMIC shall underwrite on a best-efforts basis
the public offering of One Hundred Twenty Thousand (120,000) common shares of respondent
Este del Sols capital stock for a one-time underwriting fee of Two Hundred Thousand Pesos
(P200,000.00). In addition to the underwriting fee, the Underwriting Agreement provided that
for supervising the public offering of the shares, respondent Este del Sol shall pay petitioner
FMIC an annual supervision fee of Two Hundred Thousand Pesos (P200,000.00) per annum for
a period of four (4) consecutive years. The Underwriting Agreement also stipulated for the
payment by respondent Este del Sol to petitioner FMIC a consultancy fee of Three Hundred
Thirty-Two Thousand Five Hundred Pesos (P332,500.00) per annum for a period of four (4)
consecutive years. Simultaneous with the execution of and in accordance with the terms of the
Underwriting Agreement, a Consultancy Agreement was also executed on January 31, 1978
whereby respondent Este del Sol engaged the services of petitioner FMIC for a fee as consultant
to render general consultancy services.xliv[9]
In three (3) letters all dated February 22, 1978 petitioner billed respondent Este del Sol for the
amounts of [a] Two Hundred Thousand Pesos (P200,000.00) as the underwriting fee of petitioner
FMIC in connection with the public offering of the common shares of stock of respondent Este
del Sol; [b] One Million Three Hundred Thirty Thousand Pesos (P1,330,000.00) as consultancy
fee for a period of four (4) years; and [c] Two Hundred Thousand Pesos (P200,000.00) as
supervision fee for the year beginning February, 1978, in accordance to the Underwriting
Agreement.xlv[10] The said amounts of fees were deemed paid by respondent Este del Sol to
petitioner FMIC which deducted the same from the first release of the loan.
Since respondent Este del Sol failed to meet the schedule of repayment in accordance with a
revised Schedule of Amortization, it appeared to have incurred a total obligation of Twelve
Million Six Hundred Seventy-Nine Thousand Six Hundred Thirty Pesos and Ninety-Eight
Centavos (P12,679,630.98) per the petitioners Statement of Account dated June 23,
1980,xlvi[11] to wit:
STATEMENT OF ACCOUNT OF
ESTE DEL SOL MOUNTAIN RESERVE, INC.
AS OF JUNE 23, 1980

PARTICULARS
Total amount due as of 11-22-78 per
revised amortization schedule dated
1-3-78
Interest on P7,999,631.42 @ 16% p.a. from
11-22-78 to 2-22-79 (92 days)

AMOUNT

P7,999,631.42

327,096.04

Balance

8,326,727.46

One time penalty of 20% of the entire unpaid

obligations under Section 6.02 (ii) of
Loan Agreement

1,665,345.49

Past due interest under Section 6.02 (iii)

of loan Agreement:
@ 19% p.a. from 2-22-79 to 11-30-79
(281 days)
@ 21% p.a. from 11-30-79 to 6-23-80
(206 days)
Other charges publication of extra judicial
foreclosure of REM made on
5-23-80 & 6-6-80
Total Amount Due and Collectible as of
June 23, 1980

1,481,879.93
1,200,714.10

4,964.00

P12,679,630.98

Accordingly, petitioner FMIC caused the extrajudicial foreclosure of the real estate mortgage on
June 23, 1980.xlvii[12] At the public auction, petitioner FMIC was the highest bidder of the
mortgaged properties for Nine Million Pesos (P9,000,000.00). The total amount of Three
Million One Hundred Eighty-Eight Thousand Six Hundred Thirty Pesos and Seventy-Five
Centavos (P3,188,630.75) was deducted therefrom, that is, for the publication fee for the
publication of the Sheriffs Notice of Sale, Four Thousand Nine Hundred Sixty-Four Pesos
(P4,964.00); for Sheriffs fees for conducting the foreclosure proceedings, Fifteen Thousand
Pesos (P15,000.00); and for Attorneys fees, Three Million One Hundred Sixty-Eight Thousand
Six Hundred Sixty-Six Pesos and Seventy-Five Centavos (P3,168,666.75). The remaining
balance of Five Million Eight Hundred Eleven Thousand Three Hundred Sixty-Nine Pesos and
Twenty-Five Centavos (P5,811,369.25) was applied to interests and penalty charges and partly
against the principal, due as of June 23, 1980, thereby leaving a balance of Six Million Eight
Hundred Sixty-Three Thousand Two Hundred Ninety-Seven Pesos and Seventy-Three Centavos
(P6,863,297.73) on the principal amount of the loan as of June 23, 1980.xlviii[13]
Failing to secure from the individual respondents, as sureties of the loan of respondent Este del
Sol by virtue of their continuing surety agreements, the payment of the alleged deficiency

balance, despite individual demands sent to each of them,xlix[14] petitioner instituted on

November 11, 1980 the instant collection suitl[15]against the respondents to collect the alleged
deficiency balance of Six Million Eight Hundred Sixty-Three Thousand Two Hundred NinetySeven Pesos and Seventy-Three Centavos (P6,863,297.73) plus interest thereon at twenty-one
(21%) percent per annum from June 24, 1980 until fully paid, and twenty-five (25%) percent
thereof as and for attorneys fees and costs.
In their Answer, the respondents sought the dismissal of the case and set up several special and
affirmative defenses, foremost of which is that the Underwriting and Consultancy Agreements
executed simultaneously with and as integral parts of the Loan Agreement and which provided
for the payment of Underwriting, Consultancy and Supervision fees were in reality subterfuges
resorted to by petitioner FMIC and imposed upon respondent Este del Sol to camouflage the
usurious interest being charged by petitioner FMIC.li[16]
The petitioner FMIC presented as its witnesses during the trial: Cesar Valenzuela, its former
Senior Vice-President, Felipe Neri, its Vice-President for Marketing, and Dennis Aragon, an
Account Manager of its Account Management Group, as well as documentary evidence. On the
other hand, co-respondents Vicente M. De Vera, Jr. and Valentin S. Daez, Jr., and Perfecto
Doroja, former Senior Manager and Assistant Vice-President of FMIC, testified for the
respondents.
After the trial, the trial court rendered its decision in favor of petitioner FMIC, the dispositive
portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendants,
ordering defendants jointly and severally to pay to plaintiff the amount of P6,863,297.73 plus
21% interest per annum, from June 24, 1980, until the entire amount is fully paid, plus the
amount equivalent to 25% of the total amount due, as attorneys fees, plus costs of suit.
Defendants counterclaims are dismissed, for lack of merit.
Finding the decision of the trial court unacceptable, respondents interposed an appeal to the
Court of Appeals. On November 8, 1999, the appellate court reversed the challenged decision of
the trial court. The appellate court found and declared that the fees provided for in the
Underwriting and Consultancy Agreements were mere subterfuges to camouflage the excessively
usurious interest charged by the petitioner FMIC on the loan of respondent Este del Sol; and that
the stipulated penalties, liquidated damages and attorneys fees were excessive, iniquitous,
unconscionable and revolting to the conscience, and declared that in lieu thereof, the stipulated
one time twenty (20%) percent penalty on the amount due and ten (10%) percent of the amount
due as attorneys fees would be reasonable and suffice to compensate petitioner FMIC for those
items. Thus, the appellate court dismissed the complaint as against the individual respondents
sureties and ordered petitioner FMIC to pay or reimburse respondent Este del Sol the amount of
Nine Hundred Seventy-One Thousand Pesos (P971,000.00) representing the difference between
what is due to the petitioner and what is due to respondent Este del Sol, based on the following
computation:lii[17]

A: DUE TO THE [PETITIONER]

Principal of Loan
Add: 20% one-time
Penalty
Attorneys fees
Less: Proceeds of foreclosure
Sale
Deficiency

P7,382,500.00
1,476,500.00
900,000.00

P9,759,000.00

9,000,000.00
P 759,000.00

B. DUE TO [RESPONDENT ESTE DEL SOL]

Return of usurious interest in the form of:
Underwriting fee
P 200,000.00
Supervision fee
200,000.00
Consultancy fee
1,330,000.00
Total amount due Este
P 1,730,000.00
The appellee is, therefore, obliged to return to the appellant Este del Sol the difference of
P971,000.00 or (P1,730,000.00 less P759,000.00).
Petitioner moved for reconsideration of the appellate courts adverse decision. However, this
was denied in a Resolutionliii[18]dated February 9, 2000 of the appellate court.
Hence, the instant petition anchored on the following assigned errors:liv[19]
THE APPELLATE COURT HAS DECIDED QUESTIONS OF SUBSTANCE IN A WAY
NOT IN ACCORD WITH LAW AND WITH APPLICABLE DECISIONS OF THIS
HONORABLE COURT WHEN IT:
a]
HELD THAT ALLEGEDLY THE UNDERWRITING AND CONSULTANCY
AGREEMENTS SHOULD NOT BE CONSIDERED SEPARATE AND DISTINCT FROM
THE LOAN AGREEMENT, AND INSTEAD, THEY SHOULD BE CONSIDERED AS A
SINGLE CONTRACT.
b]
HELD THAT THE UNDERWRITING AND CONSULTANCY AGREEMENTS
ARE MERE SUBTERFUGES TO CAMOUFLAGE THE USURIOUS INTEREST
CHARGED BY THE PETITIONER.
c]
REFUSED TO CONSIDER THE TESTIMONIES OF PETITIONERS
WITNESSES ON THE SERVICES PERFORMED BY PETITIONER.
d]
REFUSED TO CONSIDER THE FACT [i] THAT RESPONDENTS HAD
WAIVED THEIR RIGHT TO SEEK RECOVERY OF THE AMOUNTS THEY PAID TO
PETITIONER, AND [ii] THAT RESPONDENTS HAD ADMITTED THE VALIDITY OF
THE UNDERWRITING AND CONSULTANCY AGREEMENTS.

e]
MADE AN ERRONEOUS COMPUTATION ON SUPPOSEDLY WHAT IS DUE
TO EACH PARTY AFTER THE FORECLOSURE SALE, AS SHOWN IN PP. 34-35 OF
THE ASSAILED DECISION, EVEN GRANTING JUST FOR THE SAKE OF
ARGUMENT THAT THE APPELLATE COURT WAS CORRECT IN STIGMATIZING
[i] THE PROVISIONS OF THE LOAN AGREEMENT THAT REFER TO STIPULATED
PENALTIES, LIQUIDATED DAMAGES AND ATTORNEYS FEES AS SUPPOSEDLY
EXCESSIVE, INIQUITOUS AND UNCONSCIONABLE AND REVOLTING TO THE
CONSCIENCE AND [ii] THE UNDERWRITING, SUPERVISION AND
CONSULTANCY SERVICES AGREEMENT AS SUPPOSEDLY MERE
SUBTERFUGES TO CAMOUFLAGE THE USURIOUS INTEREST CHARGED UPON
THE RESPONDENT ESTE BY PETITIONER.
f]
REFUSED TO CONSIDER THE FACT THAT RESPONDENT ESTE, AND THUS
THE INDIVIDUAL RESPONDENTS, ARE STILL OBLIGATED TO THE
PETITIONER.
Petitioner essentially assails the factual findings and conclusion of the appellate court that the
Underwriting and Consultancy Agreements were executed to conceal a usurious loan. Inquiry
upon the veracity of the appellate courts factual findings and conclusion is not the function of
this Court for the Supreme Court is not a trier of facts. Only when the factual findings of the
trial court and the appellate court are opposed to each other does this Court exercise its discretion
to re-examine the factual findings of both courts and weigh which, after considering the record of
the case, is more in accord with law and justice.
After a careful and thorough review of the record including the evidence adduced, we find no
reason to depart from the findings of the appellate court.
First, there is no merit to petitioner FMICs contention that Central Bank Circular No. 905 which
took effect on January 1, 1983 and removed the ceiling on interest rates for secured and
unsecured loans, regardless of maturity, should be applied retroactively to a contract executed on
January 31, 1978, as in the case at bar, that is, while the Usury Law was in full force and effect.
It is an elementary rule of contracts that the laws, in force at the time the contract was made and
entered into, govern it.lv[20] More significantly, Central Bank Circular No. 905 did not repeal
nor in any way amend the Usury Law but simply suspended the latters effectivity.lvi[21] The
illegality of usury is wholly the creature of legislation. A Central Bank Circular cannot repeal a
law. Only a law can repeal another law.lvii[22] Thus, retroactive application of a Central Bank
Circular cannot, and should not, be presumed.lviii[23]
Second, when a contract between two (2) parties is evidenced by a written instrument, such
document is ordinarily the best evidence of the terms of the contract. Courts only need to rely on
the face of written contracts to determine the intention of the parties. However, this rule is not
without exception.lix[24] The form of the contract is not conclusive for the law will not permit a
usurious loan to hide itself behind a legal form. Parol evidence is admissible to show that a
written document though legal in form was in fact a device to cover usury. If from a
construction of the whole transaction it becomes apparent that there exists a corrupt intention to

violate the Usury Law, the courts should and will permit no scheme, however ingenious, to
becloud the crime of usury.lx[25]
In the instant case, several facts and circumstances taken altogether show that the Underwriting
and Consultancy Agreements were simply cloaks or devices to cover an illegal scheme employed
by petitioner FMIC to conceal and collect excessively usurious interest, and these are:
a)
The Underwriting and Consultancy Agreements are both dated January 31, 1978 which is
the same date of the Loan Agreement.lxi[26] Furthermore, under the Underwriting Agreement
payment of the supervision and consultancy fees was set for a period of four (4) yearslxii[27] to
coincide ultimately with the term of the Loan Agreement.lxiii[28] This fact means that all the
said agreements which were executed simultaneously were set to mature or shall remain
effective during the same period of time.
b)
The Loan Agreement dated January 31, 1978 stipulated for the execution and delivery of
an underwriting agreementlxiv[29]and specifically mentioned that such underwriting agreement
is a condition precedentlxv[30]for petitioner FMIC to extend the loan to respondent Este del Sol,
indicating and as admitted by petitioner FMICs employees,lxvi[31] that such Underwriting
Agreement is part and parcel of the Loan Agreement.lxvii[32]
c)
Respondent Este del Sol was billed by petitioner on February 28, 1978 One Million
Three Hundred Thirty Thousand Pesos (P1,330,000.00)lxviii[33] as consultancy fee despite the
clear provision in the Consultancy Agreement that the said agreement is for Three Hundred
Thirty-Two Thousand Five Hundred Pesos (P332,500.00) per annum for four (4) years and that
only the first year consultancy fee shall be due upon signing of the said consultancy
agreement.lxix[34]
d)
The Underwriting, Supervision and Consultancy fees in the amounts of Two Hundred
Thousand Pesos (P200,000.00), Two Hundred Thousand Pesos (P200,000.00) and One Million
Three Hundred Thirty Thousand Pesos (P1,330,000.00), respectively, were billed by petitioner to
respondent Este del Sol on February 22, 1978,lxx[35] that is, on the same occasion of the first
partial release of the loan in the amount of Two Million Three Hundred Eighty-Two Thousand
Five Hundred Pesos (P2,382,500.00).lxxi[36] It is from this first partial release of the loan that
the said corresponding bills for Underwriting, Supervision and Consultancy fees were deducted
and apparently paid, thus, reverting back to petitioner FMIC the total amount of One Million
Seven Hundred Thirty Thousand Pesos (P1,730,000.00) as part of the amount loaned to
respondent Este del Sol.lxxii[37]
e)
Petitioner FMIC was in fact unable to organize an underwriting/selling syndicate to sell
any share of stock of respondent Este del Sol and much less to supervise such a syndicate, thus
failing to comply with its obligation under the Underwriting Agreement.lxxiii[38] Besides, there
was really no need for an Underwriting Agreement since respondent Este del Sol had its own
licensed marketing arm to sell its shares and all its shares have been sold through its marketing
arm.lxxiv[39]

f)
Petitioner FMIC failed to comply with its obligation under the Consultancy
Agreement,lxxv[40] aside from the fact that there was no need for a Consultancy Agreement,
since respondent Este del Sols officers appeared to be more competent to be consultants in the
development of the projected sports/resort complex.lxxvi[41]
All the foregoing established facts and circumstances clearly belie the contention of petitioner
FMIC that the Loan, Underwriting and Consultancy Agreements are separate and independent
transactions. The Underwriting and Consultancy Agreements which were executed and
delivered contemporaneously with the Loan Agreement on January 31, 1978 were exacted by
petitioner FMIC as essential conditions for the grant of the loan. An apparently lawful loan is
usurious when it is intended that additional compensation for the loan be disguised by an
ostensibly unrelated contract providing for payment by the borrower for the lenders services
which are of little value or which are not in fact to be rendered, such as in the instant
case.lxxvii[42] In this connection, Article 1957 of the New Civil Code clearly provides that:
Art. 1957. Contracts and stipulations, under any cloak or device whatever, intended to
circumvent the laws against usury shall be void. The borrower may recover in accordance with
the laws on usury.
In usurious loans, the entire obligation does not become void because of an agreement for
usurious interest; the unpaid principal debt still stands and remains valid but the
stipulation as to the usurious interest is void, consequently, the debt is to be considered
without stipulation as to the interest.lxxviii[43] The reason for this rule was adequately
explained in the case of Angel Jose Warehousing Co., Inc. v. Child Enterpriseslxxix[44]where
this Court held:
In simple loan with stipulation of usurious interest, the prestation of the debtor to pay the
principal debt, which is the cause of the contract (Article 1350, Civil Code), is not illegal. The
illegality lies only as to the prestation to pay the stipulated interest; hence, being separable, the
latter only should be deemed void, since it is the only one that is illegal.
Thus, the nullity of the stipulation on the usurious interest does not affect the lenders right to
receive back the principal amount of the loan. With respect to the debtor, the amount paid as
interest under a usurious agreement is recoverable by him, since the payment is deemed to have
been made under restraint, rather than voluntarily.lxxx[45]
This Court agrees with the factual findings and conclusion of the appellate court, to wit:
We find the stipulated penalties, liquidated damages and attorneys fees, excessive, iniquitous
and unconscionable and revolting to the conscience as they hardly allow the borrower any
chance of survival in case of default. And true enough, ESTE folded up when the appellee
extrajudicially foreclosed on its (ESTEs) development project and literally closed its offices as
both the appellee and ESTE were at the time holding office in the same building. Accordingly,
we hold that 20% penalty on the amount due and 10% of the proceeds of the foreclosure sale as
attorneys fees would suffice to compensate the appellee, especially so because there is no clear

showing that the appellee hired the services of counsel to effect the foreclosure; it engaged
counsel only when it was seeking the recovery of the alleged deficiency.
Attorneys fees as provided in penal clauses are in the nature of liquidated damages. So long as
such stipulation does not contravene any law, morals, or public order, it is binding upon the
parties. Nonetheless, courts are empowered to reduce the amount of attorneys fees if the same
is iniquitous or unconscionable.lxxxi[46] Articles 1229 and 2227 of the New Civil Code
provide that:
Art. 1229. The judge shall equitably reduce the penalty when the principal obligation has been
partly or irregularly complied with by the debtor. Even if there has been no performance, the
penalty may also be reduced by the courts if it is iniquitous or unconscionable.
Art. 2227. Liquidated damages, whether intended as an indemnity or a penalty, shall be
equitably reduced if they are iniquitous or unconscionable.
In the case at bar, the amount of Three Million One Hundred Eighty-Eight Thousand Six
Hundred Thirty Pesos and Seventy-Five Centavos (P3,188,630.75) for the stipulated attorneys
fees equivalent to twenty-five (25%) percent of the alleged amount due, as of the date of the
auction sale on June 23, 1980, is manifestly exorbitant and unconscionable. Accordingly, we
agree with the appellate court that a reduction of the attorneys fees to ten (10%) percent is
appropriate and reasonable under the facts and circumstances of this case.
Lastly, there is no merit to petitioner FMICs contention that the appellate court erred in
awarding an amount allegedly not asked nor prayed for by respondents. Whether the exact
amount of the relief was not expressly prayed for is of no moment for the reason that the relief
was plainly warranted by the allegations of the respondents as well as by the facts as found by
the appellate court. A party is entitled to as much relief as the facts may warrant.lxxxii[47]
In view of all the foregoing, the Court is convinced that the appellate court committed no
reversible error in its challenged Decision.
WHEREFORE, the instant petition is hereby DENIED, and the assailed Decision of the Court
of Appeals is AFFIRMED. Costs against petitioner.
SO ORDERED.
Bellosillo, (Chairman), Mendoza, Quisumbing, and Buena, JJ., concur.

6.
THIRD DIVISION
[G.R. No. 131622. November 27, 1998]
LETICIA Y. MEDEL DR. RAFAEL MEDEL and SERVANDO FRANCO, petitioners, vs.
COURT OF APPEALS, SPOUSES VERONICA R. GONZALES and DANILO G.
GONZALES, JR., doing lending business under the trade name and style "GONZALES
CREDIT ENTERPRISES", respondents.
DECISION
PARDO, J.:
The case before the Court is a petition for review on certiorari, under Rule 45 of the Revised
Rules of Court, seeking to set aside the decision of the Court of Appeals,lxxxiii[1] and its
resolution denying reconsideration,lxxxiv[2] the dispositive portion of which decision reads as
follows:
"WHEREFORE, the appealed judgment is hereby MODIFIED such that
defendants are hereby ordered to pay the plaintiff: the sum of P500,000.00, plus
5.5% per month interest and 2% service charge per annum effective July 23,
1986, plus 1% per month of the total amount due and demandable as penalty
charges effective August 23, 1986, until the entire amount is fully paid.
"The award to the plaintiff of P50,000.00 as attorney's fees is affirmed.
And so is the imposition of costs against the defendants.
SO ORDERED."lxxxv[3]
The Court required the respondents to comment on the petition,lxxxvi[4] which was filed on
April 3, 1998,lxxxvii[5] and the petitioners to reply thereto, which was filed on May 29,
1998.lxxxviii[6] We now resolve to give due course to the petition and decide the case.
The facts of the case, as found by the Court of Appeals in its decision, which are considered
binding and conclusive on the parties herein, as the appeal is limited to questions of law, are as
follows:
On November 7, 1985, Servando Franco and Leticia Medel (hereafter Servando and Leticia)
obtained a loan from Veronica R. Gonzales (hereafter Veronica), who was engaged in the money
lending business under the name "Gonzales Credit Enterprises", in the amount of P50,000.00,
payable in two months. Veronica gave only the amount of P47,000.00, to the borrowers, as she
retained P3,000.00, as advance interest for one month at 6% per month. Servado and Leticia
executed a promissory note for P50,000.00, to evidence the loan, payable on January 7, 1986.

On November 19, 1985, Servando and Leticia obtained from Veronica another loan in the
amount of P90,000.00, payable in two months, at 6% interest per month. They executed a
promissory note to evidence the loan, maturing on January 19, 1986. They received only
P84,000.00, out of the proceeds of the loan.
On maturity of the two promissory notes, the borrowers failed to pay the indebtedness.
On June 11, 1986, Servando and Leticia secured from Veronica still another loan in the amount
of P300,000.00, maturing in one month, secured by a real estate mortgage over a property
belonging to Leticia Makalintal Yaptinchay, who issued a special power of attorney in favor of
Leticia Medel, authorizing her to execute the mortgage. Servando and Leticia executed a
promissory note in favor of Veronica to pay the sum of P300,000.00, after a month, or on July
11, 1986. However, only the sum of P275,000.00, was given to them out of the proceeds of the
loan.
Like the previous loans, Servando and Medel failed to pay the third loan on maturity.
On July 23, 1986, Servando and Leticia with the latter's husband, Dr. Rafael Medel,
consolidated all their previous unpaid loans totaling P440,000.00, and sought from Veronica
another loan in the amount of P60,000.00, bringing their indebtedness to a total of P500,000.00,
payable on August 23, 1986. The executed a promissory note, reading as follows:
"Baliwag, Bulacan July 23, 1986
"Maturity Date August 23, 1986
"P500,000.00
"FOR VALUE RECEIVED, I/WE jointly and severally promise to pay to the order of
VERONICA R. GONZALES doing business in the business style of GONZALES
CREDIT ENTERPRISES, Filipino, of legal age, married to Danilo G. Gonzales, Jr., of
Baliwag Bulacan, the sum of PESOS ........ FIVE HUNDRED THOUSAND .....
(P500,000.00) Philippine Currency with interest thereon at the rate of 5.5 PER CENT
per month plus 2% service charge per annum from date hereof until fully paid according
to the amortization schedule contained herein. (Underscoring supplied)
"Payment will be made in full at the maturity date.
"Should I/WE fail to pay any amortization or portion hereof when due, all the other
installments together with all interest accrued shall immediately be due and payable and
I/WE hereby agree to pay an additional amount equivalent to one per cent (1%) per
month of the amount due and demandable as penalty charges in the form of liquidated
damages until fully paid; and the further sum of TWENTY FIVE PER CENT (25%)
thereon in full, without deductions as Attorney's Fee whether actually incurred or not, of
the total amount due and demandable, exclusive of costs and judicial or extra judicial
expenses. (Underscoring supplied)
"I, WE further agree that in the event the present rate of interest on loan is increased by
law or the Central Bank of the Philippines, the holder shall have the option to apply and

collect the increased interest charges without notice although the original interest have
already been collected wholly or partially unless the contrary is required by law.
"It is also a special condition of this contract that the parties herein agree that the
amount of peso-obligation under this agreement is based on the present value of peso,
and if there be any change in the value thereof, due to extraordinary inflation or
deflation, or any other cause or reason, then the peso-obligation herein contracted shall
be adjusted in accordance with the value of the peso then prevailing at the time of the
complete fulfillment of obligation.
"Demand and notice of dishonor waived. Holder may accept partial payments and grant
renewals of this note or extension of payments, reserving rights against each and all
indorsers and all parties to this note.
"IN CASE OF JUDICIAL Execution of this obligation, or any part of it, the debtors
waive all his/their rights under the provisions of Section 12, Rule 39, of the Revised
Rules of Court."
On maturity of the loan, the borrowers failed to pay the indebtedness of P500,000.00, plus
interests and penalties, evidenced by the above-quoted promissory note.
On February 20, 1990, Veronica R. Gonzales, joined by her husband Danilo G. Gonzales, filed
with the Regional Trial Court of Bulacan, Branch 16, at Malolos, Bulacan, a complaint for
collection of the full amount of the loan including interests and other charges.
In his answer to the complaint filed with the trial court on April 5, 1990, defendant Servando
alleged that he did not obtain any loan from the plaintiffs; that it was defendants Leticia and Dr.
Rafael Medel who borrowed from the plaintiffs the sum of P500,000.00, and actually received
the amount and benefited therefrom; that the loan was secured by a real estate mortgage executed
in favor of the plaintiffs, and that he (Servando Franco) signed the promissory note only as a
witness.
In their separate answer filed on April 10,1990, defendants Leticia and Rafael Medel alleged that
the loan was the transaction of Leticia Yaptinchay, who executed a mortgage in favor of the
plaintiffs over a parcel of real estate situated in San Juan, Batangas; that the interest rate is
excessive at 5.5% per month with additional service charge of 2% per annum, and penalty charge
of 1% per month; that the stipulation for attorney's fees of 25% ofthe amount due is
unconscionable, illegal and excessive, and that substantial payments made were applied to
interest, penalties and other charges.
After due trial, the lower court declared that the due execution and genuineness of the four
promissory notes had been duly proved, and ruled that although the Usury Law had been
repealed, the interest charged by the plaintiffs on the loans was unconscionable and "revolting to
the conscience". Hence, the trial court applied "the provision of the New [Civil] Code" that the
"legal rate of interest for loan or forbearance of money, goods or credit is 12% per
annum."lxxxix[7]

Accordingly, on December 9, 1991, the trial court rendered judgment, the dispositive portion of
which reads as follows:
"WHEREFORE, premises considered, judgment is hereby rendered, as follows:
"1. Ordering the defendants Servando Franco and Leticia Medel, jointly and severally, to pay
plaintiffs the amount of P47,000.00 plus 12% interest per annum from November 7, 1985 and
1% per month as penalty, until the entire amount is paid in full.
"2. Ordering the defendants Servando Franco and Leticia Y. Medel to plaintiffs, jointly and
severally the amount of P84,000.00 with 12% interest per annum and 1% per cent per month as
penalty from November 19,1985 until the whole amount is fully paid;
"3. Ordering the defendants to pay the plaintiffs, jointly and severally, the amount of
P285,000.00 plus 12% interest per annum and 1% per month as penalty from July 11, 1986, until
the whole amount is fully paid;
"4. Ordering the defendants to pay plaintiffs, jointly and severally, the amount of P50,000.00 as
attorney's fees;
"5. All counterclaims are hereby dismissed.
"With costs against the defendants."xc[8]
In due time, both plaintiffs and defendants appealed to the Court of Appeals.
In their appeal, plaintiffs-appellants argued that the promissory note, which consolidated all the
unpaid loans of the defendants, is the law that governs the parties. They further argued that
Circular No. 416 of the Central Bank prescribing the rate of interest for loans or forbearance of
money, goods or credit at 12% per annum, applies only in the absence of a stipulation on interest
rate, but not when the parties agreed thereon.
The Court of Appeals sustained the plaintiffs-appellants' contention. It ruled that "the Usury
Law having become 'legally inexistent' with the promulgation by the Central Bank in 1982 of
Circular No. 905, the lender and borrower could agree on any interest that may be charged on the
loan".xci[9] The Court of Appeals further held that "the imposition of 'an additional amount
equivalent to 1% per month of the amount due and demandable as penalty charges in the form of
liquidated damages until fully paid' was allowed by law".xcii[10]
Accordingly, on March 21, 1997, the Court of Appeals promulgated it decision reversing that of
the Regional Trial Court, disposing as follows:
"WHEREFORE, the appealed judgment is hereby MODIFIED such that
defendants are hereby ordered to pay the plaintiffs the sum of P500,000.00, plus
5.5% per month interest and 2% service charge per annum effective July 23,

1986, plus 1% per month of the total amount due and demandable as penalty
charges effective August 24, 1986, until the entire amount is fully paid.
"The award to the plaintiffs of P50,000.00 as attorney's fees is affirmed.
And so is the imposition of costs against the defendants.
"SO OREDERED."xciii[11]
On April 15, 1997, defendants-appellants filed a motion for reconsideration of the said decision.
By resolution dated November 25, 1997, the Court of Appeals denied the motion.xciv[12]
Hence, defendants interposed the present recourse via petition for review on certiorari.xcv[13]
We find the petition meritorious.
Basically, the issue revolves on the validity of the interest rate stipulated upon. Thus, the
question presented is whether or not the stipulated rate of interest at 5.5% per month on the loan
in the sum of P500,000.00, that plaintiffs extended to the defendants is usurious. In other words,
is the Usury Law still effective, or has it been repealed by Central Bank Circular No. 905,
adopted on December 22, 1982, pursuant to its powers under P.D. No. 116, as amended by P.D.
No. 1684?
We agree with petitioners that the stipulated rate of interest at 5.5% per month on the
P500,000.00 loan is excessive, iniquitous, unconscionable and exorbitant.13 However, we can
not consider the rate "usurious" because this Court has consistently held that Circulr No. 905 of
the Central Bank, adopted on December 22, 1982, has expressly removed the interest ceilings
prescribed by the Usury Lawxcvi[14] and that the Usury Law is now "legally
inexistent".xcvii[15]
In Security Bank and Trust Company vs. Regional Trial Court of Makati, Branch 61xcviii[16]
the Court held that CB Circular No. 905 "did not repeal nor in anyway amend the Usury Law but
simply suspended the latter's effectivity." Indeed, we have held that "a Central Bank Circular
can not repeal a law. Only a law can repeal another law."xcix[17] In the recent case of Florendo
vs. Court of Appealsc[18], the Court reiterated the ruling that "by virtue of CB Circular 905, the
Usury Law has been rendered ineffective". "Usury has been legally non-existent in our
jurisdiction. Interest can now be charged as lender and borrower may agree upon."ci[19]
Nevertheless, we find the interest at 5.5% per month, or 66% per annum, stipulated upon by the
parties in the promissory note iniquitous or unconscionable, and, hence, contrary to morals
("contra bonos mores"), if not against the law.cii[20] The stipulation is void.ciii[21] The courts
shall reduce equitably liquidated damages, whether intended as an indemnity or a penalty if they
are iniquitous or unconscionable.civ[22]
Consequently, the Court of Appeals erred in upholding the stipulation of the parties. Rather, we
agree with the trial court that, under the circumstances, interest at 12% per annum, and an
additional 1% a month penalty charge as liquidated damages may be more reasonable.

WHEREFORE, the Court hereby REVERSES and SETS ASIDE the decision of the Court of
Appeals promulgated on March 21, 1997, and its resolution dated November 25, 1997. Instead,
we render judgment REVIVING and AFFIRMING the decision dated December 9, 1991, of the
Regional Trial Court of Bulacan, Branch 16, Malolos, Bulacan, in Civil Case No. 134-M-90,
involving the same parties.
No pronouncement as to costs in this instance
SO ORDERED.
Narvasa, C.J. (Chairman), Romero, Kapunan, and Purisima, JJ., concur.

7.
FIRST DIVISION
[G.R. No. 116847. March 16, 2001]
MANUFACTURERS BUILDING, INC., petitioner, vs. COURT OF APPEALS, PHILIPPINE
MERCHANT MARINE SCHOOL and JUAN NOLASCO III, respondents.
DECISION
PARDO, J.:
Petitioner appeals via certiorari from the decisioncv[1] of the Court of Appeals affirming in toto
that of the Regional Trial Court, Branch 46, Manilacvi[2] denying the petition for injunction
filed by petitioner and ordering the sheriff to proceed with the public auction sale of the property
levied upon to satisfy what was due respondent in the sum of P1,520,065.75.
The facts of the case are as follows:
In 1979 and 1980, Philippine Merchant Marine School (PMMS) leased from petitioner
Manufacturers Building, Inc. (Manufacturers) three (3) portions of Manufacturers Building,
located at Plaza Sta. Cruz, Manila: (1) 5th floor, leased on January 1979, at a monthly rental of
P20,000.00; (2) Room No. 406, leased on February 1979, at a monthly rental of P3,800.00; and
(3) basement, leased on June 19, 1980, at a monthly rental of P4,000.00.cvii[3]
Respondents later became delinquent in paying their monthly rentals. On April 12, 1984,
petitioner filed with the Metropolitan Trial Court, Manila a complaint for ejectmentcviii[4]
against respondents for non-payment of rentals.
On May 07, 1984, the parties executed a compromise agreement, which the trial court approved
on May 21, 1984.cix[5] The compromise agreement specifically provided:
1. That defendants admit all the allegations of the Complaint dated April 11, 1984, particularly
their rental indebtedness and other miscellaneous charges (par. 3, p. 2), as well as their
succeeding monthly rentals and other miscellaneous charges in the total sum of P510,200.03 as
of June 1984;
2. That defendants state that plaintiff is entitled to an Ejectment Decision and a Writ of
Execution for their failure to pay their aforesaid rental indebtedness and other miscellaneous
charges, but they have requested plaintiff to give them another chance to remain in the leased
commercial premises;
3. That pursuant to the above request, the defendants agree to pay to plaintiff a reasonable
monthly rental of P9,575.00, P40,320.00 and P13,630.00, beginning July, 1984 and every month
thereafter;

4. That likewise, as a consequence of the above request, the defendants agree and obligate
themselves to pay to plaintiff the above mentioned rental indebtedness and other miscellaneous
charges in the sum of P510,220.03 in the installment basis, itemized as follows:
(a) To be paid on or before May 18, 1984;
1st installment of arrears

P66,957.07

1 interest of remaining balance

TOTAL

6,648.64
P73,605.71

(b) To be paid on or before June 15, 1984;

2nd installment of arrears

P443,242.46
Electricity

3,129.00
P446,371.46

5. That defendants agree and obligate themselves to pay to plaintiff the succeeding monthly
rental and other miscellaneous charges beginning July, 1984 within the first five (5) days of the
month and every month thereafter;
6. That notwithstanding the above stipulations, should there be any increase of rental (per
square meter) and other miscellaneous charges of the adjacent and similarly situated office
premises within the Manufacturers Building, the defendants agree to pay such reasonable
charges equal to monthly rental and other charges to be paid by the adjacent and similarly
situated office premises within the said building;
7. That defendants further agree that their failure to comply with any of the aforementioned
stipulations shall entitle the plaintiff to the immediate Issuance of a Writ of Execution for the
ejectment of the defendants and others claiming under them from the premises (Rm. 406, 5th
Floor, and part of Basement Manufacturers Building, Plaza Sta. Cruz, Manila) involved in this
case.cx[6]
However, respondents failed to comply with the terms and conditions of the compromise
agreement.cxi[7]
Beginning July 1984, petitioner increased the monthly rental to P40,320.00, for the fifth floor;
P9,575.00, for Room 406; and P13,630.00, for the basement.cxii[8]
On April 23, 1985, petitioner filed with the trial court a motion for writ of executioncxiii[9],
which the trial court granted on May 3, 1985. Due to repeated requests of respondents and the
promise that they would settle the rental arrearages, petitioner did not enforce the writ of

execution.cxiv[10] On July 30, 1986, petitioner filed with the trial court an urgent motion for an
alias writ of execution,cxv[11] which the court granted on August 4, 1986.cxvi[12]
On January 23, 1986, respondents executed a deed of second real estate mortgage in favor of
petitioner to guarantee the payment of their rental arrearages, the pertinent portion of which
reads:
NOW THEREFORE, for and in consideration of the foregoing premises and of the terms and
conditions hereinafter set forth, the parties hereto have agreed and covenanted, as they agree and
covenant, as follows:
(1)
That to secure payment of the amount of P823,494.50 within the period of time
hereinafter stipulated, the MORTGAGOR hereby transfers and conveys, by way of second
mortgage, in favor of the SECOND MORTGAGEE, the afore-mentioned parcels of land covered
by Transfer Certificate of Titles Nos. S-100612 and S-100613, it being agreed and understood
that the prior mortgage liens over the said two (2) parcels of land in favor of the Philippine
Commercial International Bank shall be superior to this second lien and that this second
mortgage shall be subject to the approval of said PCIB as first lien holder.
(2)
The MORTGAGOR hereby agrees and undertakes to pay the amount of P823,494.50 to
the herein SECOND MORTGAGEE within a period of six (6) months counted from date of
execution hereof, with legal interest of 12% on outstanding balances.
(3)
It shall be special condition of this instrument, that should the MORTGAGOR truly and
faithfully comply with its herein undertaking and settle its account in full with the SECOND
MORTAGAGEE within the period of time herein stipulated, then this second mortgage shall be
rendered automatically cancelled and be null and void; otherwise, the same shall remain in full
force and effect and the SECOND MORTGAGEE shall have the right to foreclose the same
either judicially or extra-judicially in accordance with the provisions of law.
(4)
All expenses for registration of this second mortgage and the annotation thereof on TCTs
Nos. S-100612 and S-100613 including documentary stamps, and other incidental expenses shall
be for the account of the MORTGAGOR.cxvii[13]
Respondents offered to pay their obligation within six (6) months from execution of the second
mortgage, with legal interest of 12%, per annum, on the outstanding balance.cxviii[14]
On July 30, 1986, petitioner filed with the trial court an urgent motion for an alias writ of
execution,cxix[15] which the court granted on August 4, 1986.
On August 22, 1986, the sheriff of Manila levied upon the property of respondents consisting of
two (2) parcels of land with TCT Nos. 100612 and 100613 registered under the name of
Philippine Merchant Marine School.cxx[16]
On October 30, 1986, respondents vacated the leased premises. However, two (2) of these, the
5th floor and Room 406, suffered considerable damage requiring repair and rehabilitation in the

amounts of P112,020.00 and P39,500.00, respectively. Petitioner included the cost of repairs in
the summary of rental account of respondents.
On February 19, 1987, the trial court issued another alias writ of execution pursuant to the
compromise judgment, which reads:
Finding merit in the Urgent Motion For Issuance Of Alias Writ Of Execution filed by plaintiff
through counsel, this Court hereby resolves to GRANT the same.
WHEREFORE, let an alias writ of execution be now issued in the above-entitled case.
SO ORDERED.
Manila, Philippines, February 19, 1987.
(ORIGINAL SIGNED)
EMELITA HABACON-GARAYBLAS
Presiding Judgecxxi[17]
On September 19, 1987, petitioner sent a letter to respondents demanding payment of the
aggregate amount of P1,710,266.88.cxxii[18] On November 23, 1989, petitioner instructed the
sheriff to proceed with the levy on execution.cxxiii[19]
On December 5, 1989, the sheriff of Manila issued a notice of sale on execution of real property,
setting the sale at public auction of the two (2) parcels of land on December 29, 1989.
On December 19, 1989, respondents filed with the Regional Trial Court, Branch 46, Manila a
petition for injunctioncxxiv[20] to enjoin the auction sale.
Petitioner opposed the petition on the ground that the amount of P446,371.46 had been partially
settled by the sale of the personal property of PMMS. Further, assuming that it still owed
petitioner, the property levied upon could not be sold at public auction since the judgment by
compromise did not stipulate for levy and sale of any property. It merely provided for the
ejectment of respondents, and they vacated the premises on October 31, 1986.
On November 2, 1990, the Regional Trial Court rendered a decision dismissing the petition for
injunction.cxxv[21] The trial court ruled that the deed of second mortgage provided for the
imposition of 12% interest per annum on the outstanding balance. Hence, 1% interest is
chargeable per month, contrary to petitioners allegation of 2 % interest per month. In
determining the monthly rentals commencing February 1, 1986, the rental rates stipulated in the
judgment by compromise were used. The dispositive portion reads:
WHEREFORE, the Petition is ordered DISMISSED and the Sheriff may proceed with the
public auction of the property levied upon in order to satisfy what is due the defendant in the sum
of P1,520,065.75 computed until December 31, 1990.

SO ORDERED.
Manila, November 2, 1990.
(Sgd.)
TERESITA DY-LIACCO FLORES
Judgecxxvi[22]
On December 21, 1991, petitioner moved the trial court for partial reconsideration of its
decision, particularly the computation of respondents rental arrearages.cxxvii[23] Petitioner
claimed that the amount in arrears was more than P1,520,065.75.
On March 5, 1991, the trial court denied the motion for reconsideration.cxxviii[24] Hence, both
parties filed their respective appeals with the Court of Appeals.cxxix[25]
Petitioner alleged that the trial court erred in: (1) applying the 1% interest per month, instead of
2.5 %; (2) fixing the monthly rentals of respondent in the total sum of P63,525.00; and (3)
denying its claim for damages for the repair and rehabilitation of the leased premises.
Respondents, on the other hand, questioned the validity of the public auction sale because the
amount of P446,371.46 representing unpaid rents ending June 1984, had been paid.
On June 15, 1994, the Court of Appeals promulgated a decision ruling that the parties were
bound by the terms of the compromise. Since they reduced their agreements to writing, they
were presumed to have intended the writing as the only evidence of their agreement. Hence, the
documents submitted by petitioner as proof of the alleged change in the monthly rental and
stipulated interest on the rental arrearages may not be admitted to vary the terms of the written
agreement.
With regard to the claim for damages, the Court of Appeals denied the claim in the absence of
proof of damage. The properties could be sold at public auction because it was clearly
authorized under paragraphs 2 and 7 of the compromise agreement. The dispositive portion
reads:
WHEREFORE, the separate appeals are hereby DISMISSED and the decision dated
November 2, 1990 is hereby AFFIRMED in toto. No pronouncement is made as to costs.
SO ORDERED.cxxx[26]
On July 11, 1994, petitioner moved for reconsideration of the decision of the Court of
Appeals,cxxxi[27] but the court denied the motion on August 19, 1994.cxxxii[28]
Hence, this petition.cxxxiii[29]
Petitioner alleged that the Court of Appeals erred in: (1) applying the parol evidence rule in
computing the monthly rental; (2) upholding the trial courts ruling that the legal interest of 12%

interest per annum, instead of the subsequent agreement of 2.5% per month or a total of 30% per
annum, is chargeable on the outstanding balance of the rental arrearages; and (3) ruling that
petitioner is not entitled to damages for the repair and rehabilitation of the leased
premises.cxxxiv[30]
We find the petition without merit.
It is a well-settled rule that factual findings of the trial court, adopted and confirmed by the Court
of Appeals, are final and conclusive and may not be reviewed on appeal.cxxxv[31] The
exceptions to this rule are as follows: (1) when the inference made is manifestly mistaken, absurd
or impossible; (2) when there is a grave abuse of discretion; (3) when the findings are grounded
entirely on speculations, surmises or conjectures; (4) when the judgment of the Court of Appeals
is based on misapprehension of facts; (5) when the findings of fact are conflicting; (6) when the
Court of Appeals, in making its findings, went beyond the issues of the case and the same is
contrary to the admissions of both appellant and appellee; (7) when the findings of the Court of
Appeals are contrary to those of the trial court; (8) when the findings of fact are conclusions
without citation of specific evidence on which they are based; (9) when the Court of Appeals
manifestly overlooked certain relevant facts not disputed by the parties and which, if properly
considered, would justify a different conclusion and (10) when the findings of fact of the Court
of Appeals are premised on the absence of evidence and are contradicted by the evidence on
record.cxxxvi[32]
Only a clear showing that any of the aforecited exceptions exist would justify a review of the
findings of fact of the lower court and upheld by the Court of Appeals.cxxxvii[33]
After a careful scrutiny of the decision of the trial court, as well as that of the Court of Appeals,
we find that the instant case does not fall under any of the aforecited exceptions.
As elucidated by the Court of Appeals, the parties were bound by the terms of their written
agreements. They cannot vary or alter the terms as contained in this agreement as they were
bound by the parol evidence rule. The so-called parole evidence rule forbids any addition to
or contradiction of the terms of a written instrument by testimony or other evidence purporting to
show that, at or before the execution of the parties written agreement, other or different terms
were agreed upon by the parties, varying the purport of the written contract. When an agreement
has been reduced to writing, the parties cannot be permitted to adduce evidence to prove alleged
practices, which to all purposes would alter the terms of the written agreement. Whatever is not
found in the writing is understood to have been waived and abandoned.cxxxviii[34]
The rule is not without exceptions, however, as it is likewise provided that a party to an action
may present evidence to modify, explain, or add to the terms of the written agreement if he puts
in issue in his pleadings: (a) An intrinsic ambiguity, mistake or imperfection in the written
agreement; (b) The failure of the written agreement to express the true intent and agreement
of the parties thereto; (c) The validity of the written agreement; or (d) The existence of other
terms agreed to by the parties or their successors in interest after the execution of the written
agreement.cxxxix[35] None of these exceptions finds application in the instant case.

With regard to the claim for an increased rate of interest, we affirm the ruling of the trial court.
Based on the deed of second mortgage, the parties agreed on a rate of 12% interest per annum.
The provisions of this deed expressly stipulated that there would be 12% interest per annum on
the outstanding balance. The rate of interest which they might have agreed upon earlier has been
obliterated or superseded by the new agreement.
Neither is petitioner entitled to compounded or accumulated interest. There was no agreement
regarding this either in the compromise agreement or in the deed of second mortgage. The law
clearly provides that interest due and unpaid shall not earn interest, unless the contracting parties
stipulate to capitalize the interest due and unpaid, which as added to the principal, shall earn new
interest.cxl[36]
Lastly, petitioner is not entitled to claim for damages for the cost of repair and rehabilitation of
the two (2) units vacated by respondent. As found by the trial court and affirmed by the
appellate court, petitioner failed to adduce sufficient evidence to support its claim. Hence, the
denial of the claim for actual damages. Absent proof of the amount of actual damage sustained,
the Court cannot rely on speculations, conjectures, or guesswork as to the fact and amount of
damages, but must depend upon competent proof that they have been suffered by the injured
party and on the best obtainable evidence of the actual amount thereof.cxli[37] To seek recovery
of actual damages, it is necessary to prove the actual amount of loss with a reasonable degree of
certainty, premised on competent proof and on the best evidence obtainable by the injured
party.cxlii[38]
Hence, we can not grant the petition. The Court of Appeals did not err or gravely abuse its
discretion in affirming in toto the decision of the trial court.
WHEREFORE, the Court DENIES the petition for lack of merit. The Court AFFIRMS the
decision of the Court of Appeals in CA-G. R. CV No. 32312.
No costs.
SO ORDERED.

8.
Republic of the Philippines
SUPREME COURT
Manila
EN BANC

G.R. No. L-23559 October 4, 1971

AURELIO G. BRIONES, plaintiff-appellee,
vs.
PRIMITIVO P. CAMMAYO, ET AL., defendants-appellants.
Carlos J. Antiporda for plaintiff-appellee.
Manuel A. Cammayo for defendants-appellants.

DIZON, J.:
On February 22, 1962, Aurelio G. Briones filed an action in the Municipal Court of Manila
against Primitivo, Nicasio, Pedro, Hilario and Artemio, all surnamed Cammayo, to recover from
them, jointly and severally, the amount of P1,500.00, plus damages, attorney's fees and costs of
suit. The defendants answered the complaint with specific denials and the following special
defenses and compulsory counterclaim:
...;
By way of
SPECIAL DEFENSES
Defendants allege:
4. Defendants executed the real estate mortgage, Annex "A" of the complaint, as
security for the loan of P1,200.00 given to defendant Primitivo P. Cammayo upon
the usurious agreement that defendant pays to the plaintiff and that the plaintiff
reserve and secure, as in fact plaintiff reserved and secured himself, out of the
alleged loan of P1,500.00 as interest the sum of P300.00 for one year;
5. That although the mortgage contract, Annex "A" was executed for securing the
payment of P1,500.00 for a period of one year, without interest, the truth and the

real fact is that plaintiff delivered to the defendant Primitivo P. Cammayo only the
sum of P1,200.00 and withheld the sum of P300.00 which was intended as
advance interest for one year;
6. That on account of said loan of P1,200.00, defendant Primitivo P. Cammayo
paid to the plaintiff during the period from October 1955 to July 1956 the total
sum of P330.00 which plaintiff, illegally and unlawfully refuse to acknowledge as
part payment of the account but as in interest of the said loan for an extension of
another term of one year;
7. That said contract of loan entered into between plaintiff and defendant
Primitivo P. Cammayo is a usurious contract and is contrary to law, morals, good
customs, public order or public policy and is, therefore, in existent and void from
the beginning (Art. 1407 Civil Code);
And as
COMPULSORY COUNTERCLAIM
Defendants replead all their allegations in the preceding paragraphs;
8. That plaintiff, by taking and receiving interest in excess of that allowed by law,
with full intention to violate the law, at the expense of the defendants, committed
a flagrant violation of Act 2655, otherwise known as the Usury Law, causing the
defendants damages and attorney's fees, the amount of which will be proven at the
trial;
9. That this is the second time this same case is filed before this court, the first
having been previously filed and docketed in this court as Civil Case No. 75845
(Branch VII) and the same was dismissed by the Court of First Instance of Manila
on July 13, 1961 in Civil Case No. 43121 (Branch XVII) and for repeatedly
bringing this case to the court, harassing and persecuting defendants in that
manner, defendants have suffered mental anguish and anxiety for which they
should be compensated for moral damages.
On September 7, 1962, Briones filed an unverified reply in which he merely denied the
allegations of the counterclaim. Thereupon the defendants moved for the rendition of a summary
judgment on the ground that, upon the record, there was no genuine issue of fact between the
parties. The Municipal Court granted the motion and rendered judgment sentencing the
defendants to pay the plaintiff the sum of P1,500.00, with interests thereon at the legal rate from
February 22, 1962, plus the sum of P150.00 as attorney's fees. From this judgment, the
defendants appealed to the Court of First Instance of Manila where, according to the appealed
decision, "defendant has asked for summary judgment and plaintiff has agreed to the same."
(Record on Appeal p. 21). Having found the motion for summary judgment to be in order, the
court then, proceeded to render judgment as follows:

Judgment is, therefore, rendered, ordering Defendant to pay plaintiff the sum of
P1,180.00 with interest thereon at the legal rate from October 16, 1962 until fully
paid. This judgment represents Defendant's debt of P1,500.00 less usurious
interest of P120.00 and the additional sum of P200.00 as attorney's fees or a total
deduction of P320.00. Plaintiff shall pay the costs.
In the present appeal defendants claim that the trial court erred in sentencing them to pay the
principal of the loan notwithstanding its finding that the same was tainted with usury, and erred
likewise in not dismissing the case.
It is not now disputed that the contract of loan in question was tainted with usury. The only
questions to be resolved, therefore, are firstly, whether the creditor is entitled to collect from the
debtor the amount representing the principal obligation; secondly, in the affirmative, if he is
entitled to collect interests thereon, and if so, at what rate.
The Usury Law penalizes any person or corporation who, for any loan or renewal thereof or
forbearance, shall collect or receive a higher rate or greater sum or value than is allowed by law,
and provides further that, in such case, the debtor may recover the whole interest, commissions,
premiums, penalties and surcharges paid or delivered, with costs and attorney's fees, in an
appropriate action against his creditor, within two (2) years after such payment or delivery
(Section 6, Act 2655, as amended by Acts 3291 and 3998).
Construing the above provision, We held in Go Chioco vs. Martinez, 45 Phil. 256 that even if the
contract of loan is declared usurious the creditor is entitled to collect the money actually loaned
and the legal interest due thereon.
In Gui Jong & Co. vs. Rivera, et al., 45 Phil. 778, this Court likewise declared that, in any event,
the debtor in a usurious contract of loan should pay the creditor the amount which he justly owes
him citing in support of this ruling its previous decisions in Go Chioco Supra, Aguilar vs.
Rubiato, et al., 40 Phil. 570, and Delgado vs. Duque Valgona, 44 Phil. 739.
In all the above cited cases it was recognized and held that under Act 2655 a usurious contract is
void; that the creditor had no right of action to recover the interest in excess of the lawful rate;
but that this did not mean that the debtor may keep the principal received by him as loan thus
unjustly enriching himself to the damage of the creditor.
Then in Lopez and Javelona vs. El Hogar Filipino, 47 249, We also held that the standing
jurisprudence of this Court on the question under consideration was clearly to the effect that the
Usury Law, by its letter and spirit, did not deprive the lender of his right to recover from the
borrower the money actually loaned to and enjoyed by the latter. This Court went further to say
that the Usury Law did not provide for the forfeiture of the capital in favor of the debtor in
usurious contracts, and that while the forfeiture might appear to be convenient as a drastic
measure to eradicate the evil of usury, the legal question involved should not be resolved on the
basis of convenience.

Other cases upholding the same principle are Palileo vs. Cosio, 97 Phil. 919 and Pascua vs.
Perez, L-19554, January 31, 1964, 10 SCRA 199, 200-202. In the latter We expressly held that
when a contract is found to be tainted with usury "the only right of the respondent (creditor) ...
was merely to collect the amount of the loan, plus interest due thereon."
The view has been expressed, however, that the ruling thus consistently adhered to should now
be abandoned because Article 1957 of the new Civil Code a subsequent law provides that
contracts and stipulations, under any cloak or device whatever, intended to circumvent the laws
against usury, shall be void, and that in such cases "the power may recover in accordance with
the laws on usury." From this the conclusion is drawn that the whole contract is void and that,
therefore, the creditor has no right to recover not even his capital.
The meaning and scope of our ruling in the cases mentioned heretofore is clearly stated, and the
view referred to in the preceding paragraph is adequately answered, in Angel Jose, etc. vs.
Chelda Enterprises, et al. (L-25704, April 24, 1968). On the question of whether a creditor in a
usurious contract may or may not recover the principal of the loan, and, in the affirmative,
whether or not he may also recover interest thereon at the legal rate, We said the following:
... .
The court found that there remained due from defendants an unpaid principal
amount of P20,287.50; that plaintiff charged usurious interests, of which
P1,048.15 had actually been deducted in advance by plaintiff from the loan; that
said amount of P1,048.15 should therefore be deducted from the unpaid principal
of P20,287.50, leaving a balance of P19,247.35 still payable to the plaintiff. Said
court held that notwithstanding the usurious interests charged, plaintiff is not
barred from collecting the principal of the loan or its balance of P19,247.35.
Accordingly, it stated in the dispositive portion of the decision, thus:
WHEREFORE, judgment is hereby rendered, ordering the defendant partnership
to pay to the plaintiff the amount of P19,247.35, with legal interest thereon from
May 29, 1964 until paid, plus an additional sum of P2,000.00 as damages for
attorney's fee; and, in case the assets of defendant partnership be insufficient to
satisfy this judgment in full, ordering the defendant David Syjueco to pay to the
plaintiff one-half () of the unsatisfied portion of this judgment.
With costs against the defendants.
Appealing directly to Us, defendants raise two questions of law: (1) In a loan with
usurious interest, may the creditor recover the principal of the loan? (2) Should
attorney's fees be awarded in plaintiff's favor?
Great reliance is made by appellants on Art. 1411 of the New Civil Code which
states:

ART. 1411. When the nullity proceeds from the illegality of the cause or object of
the contract, and the act constitutes a criminal offense, both parties being in pari
delicto, they shall have no action against each other, and both shall be prosecuted.
Moreover, the provisions of the Penal Code relative to the disposal of effects or
instruments of a crime shall be applicable to the things or the price of the contract.
This rule shall be applicable when only one of the parties is guilty; but the
innocent one may claim what he has given, and shall not be bound to comply with
his promise.
Since, according to the appellants, a usurious loan is void due to illegality of
cause or object, the rule of pari delicto expressed in Article 1411, supra, applies,
so that neither party can bring action against each other. Said rule, however,
appellants add, is modified as to the borrower, by express provision of the law
(Art. 1413, New Civil Code), allowing the borrower to recover interest paid in
excess of the interest allowed by the Usury Law. As to the lender, no exception is
made to the rule; hence, he cannot recover on the contract. So they continue
the New Civil Code provisions must be upheld as against the Usury Law, under
which a loan with usurious interest is not totally void, because of Article 1961 of
the New Civil Code, that: "Usurious contracts shall be governed by the Usury
Law and other special laws, so far as they are not inconsistent with this Code.
(Emphasis ours.) .
We do not agree with such reasoning, Article 1411 of the New Civil Code is not
new; it is the same as Article 1305 of the Old Civil Code. Therefore, said
provision is no warrant for departing from previous interpretation that, as
provided in the Usury Law (Act No. 2655, as amended), a loan with usurious
interest is not totally void only as to the interest.
True, as stated in Article 1411 of the New Civil Code, the rule of pari delicto
applies where a contract's nullity proceeds from illegality of the cause or object of
said contract.
However, appellants fail to consider that a contract of loan with usurious interest
consists of principal and accessory stipulations; the principal one is to pay the
debt; the accessory stipulation is to pay interest thereon.
And said two stipulations are divisible in the sense that the former can still stand
without the latter. Article 1273, Civil Code, attests to this: "The renunciation of
the principal debt shall extinguish the accessory obligations; but the waiver of the
latter shall leave the former in force."
The question therefore to resolve is whether the illegal terms as to payment of
interest likewise renders a nullity the legal terms as to payments of the principal
debt. Article 1420 of the New Civil Code provides in this regard: "In case of a

divisible contract, if the illegal terms can be separated from the legal ones, the
latter may be enforced."
In simple loan with stipulation of usurious interest, the prestation of the debtor to
pay the principal debt, which is the cause of the contract (Article 1350, Civil
Code), is not illegal. The illegality lies only as to the prestation to pay the
stipulated interest; hence, being separable, the latter only should be deemed void,
since it is the only one that is illegal.
Neither is there a conflict between the New Civil Code and the Usury Law. Under
the latter, in Sec. 6, any person who for a loan shall have paid a higher rate or
greater sum or value than is allowed in said law, may recover the whole interest
paid. The New Civil Code, in Article 1413 states: "Interest paid in excess of the
interest allowed by the usury laws may be recovered by the debtor, with interest
thereon from the date of payment." Article 1413, in speaking of "interest paid in
excess of the interest allowed by the usury laws" means the whole usurious
interest; that is, in a loan of P1,000, with interest of 20% per annum or P200 for
one year, if the borrower pays said P200, the whole P200 is the usurious interest,
not just that part thereof in excess of the interest allowed by law. It is in this case
that the law does not allow division. The whole stipulation as to interest is void,
since payment of said interest is illegal. The only change effected, therefore, by
Article 1413, New Civil Code, is not to provide for the recovery of the interest
paid in excess of that allowed by law, which the Usury Law already provided for,
but to add that the same can be recovered "with interest thereon from the date of
payment."
The foregoing interpretation is reached with the philosophy of usury legislation in
mind; to discourage stipulations on usurious interest, said stipulations are treated
as wholly void, so that the loan becomes one without stipulation as to payment of
interest. It should not, however, be interpreted to mean forfeiture even of the
principal, for this would unjustly enrich the borrower at the expense of the lender.
Furthermore, penal sanctions are available against a usurious lender, as a further
deterrence to usury.
The principal debt remaining without stipulation for payment of interest can thus
be recovered by judicial action. And in case of such demand, and the debtor
incurs in delay, the debt earns interest from the date of the demand (in this case
from the filing of the complaint). Such interest is not due to stipulation, for there
was none, the same being void. Rather, it is due to the general provision of law
that in obligations to pay money, where the debtor incurs in delay, he has to pay
interest by way of damages (Art. 2209, Civil Code). The court a quo therefore, did
not err in ordering defendants to pay the principal debt with interest thereon at the
legal rate, from the date of filing of the complaint.
In answer to the contention that the forfeiture of the principal of the usurious loan is necessary to
punish the usurer, We say this: Under the Usury Law there is already provision for adequate

punishment for the usurer namely, criminal prosecution where, if convicted, he may be sentence
to pay a fine of not less than P50 nor more than P500, or imprisonment of not less than 30 days
nor more than one year, or both, in the discretion of the court. He may further be sentenced to
return the entire sum received as interest, with subsidiary imprisonment in case of non-payment
thereof. lt is, of course, to be assumed that this last penalty may be imposed only if the return of
the entire sum received as interest had not yet been the subject of judgment in a civil action
involving the usurious contract of load.
In arriving at the above conclusion We also considered our decision in Mulet vs. The People of
the Philippines (73 Phil. p. 60), but found that the same does not apply to the present case. The
facts therein involved were as follows:
On July 25, 1929, Alejandra Rubillos and Espectacion Rubillos secured from
petitioner Miguel Mulet a loan of P550, payable within 5 years at 30 per cent
interest per annum. In the deed of mortgage executed by the Rubillos as a
security; the sum of P1,375 was made to appear as the capital of the loan. This
amount obviously represented the actual loan of P550 and the total interest of
P825 computed at 30 per cent per annum for 5 years. Within four years of
following the execution of the mortgage, the debtors made partial payments
aggregating P278.27, on account of interest. Thereafter, the debtors paid the
whole capital of P550, due to petitioner's promise to condone the unpaid interest
upon payment of such capital. But to their surprise, petitioner informed them that
they were still indebted in the sum of P546.73 which represented the balance of
the usurious interest. And in consideration of this amount, petitioner pressed upon
the debtors to execute in October, 1933, in his favor, a deed of sale with pacto de
retro of a parcel of land, in substitution of the original mortgage which was
cancelled. From the date of the execution of the new deed up to 1936, petitioner
received, as his share of the products of the land, the total sum of P480.
Prosecuted on November 18, 1936, for the violation of the Usury Law, petitioner
was convicted by the trial court, and on appeal, the judgment was affirmed by the
Court of Appeals. The instant petition for certiorari is directed at that portion of
the decision of the appellate court ordering petitioner to return to the offended
parties the sum of P373.27, representing interests received by him in excess of
that allowed by law.
It was Mulet's claim that, as the amount of P373.27 had been paid more than two years prior to
the filing of the complaint for usury against him, its return could no longer be ordered in
accordance with the prescriptive period provided therefor in Section 6 of the Usury Law. Said
amount was made up of the usurious interest amounting to P278.27 paid to Mulet, in cash, and
the sum of P480.00 paid to him in kind, from the total of which two amounts 14% interest
allowed by law amounting to P385.85 was deducted. Our decision was that Mulet should
return the amount of P480.00 which represented the value of the produce of the land sold to him
under pacto de retro which, with the unpaid balance of the usurious interest, was the
consideration of the transaction meaning the pacto de retro sale. This Court then said:

... . This last amount is not usurious interest on the capital of the loan but the
value of the produce of the land sold to petitioner under pacto de retro with the
unpaid balance of the usurious interest (P546.73) as the consideration of the
transaction. This consideration, because contrary to law, is illicit, and the contract
which results therefrom, null and void. (Art. 1275, Civil Code). And, under the
provisions of article 1305, in connection with article 1303, of the Civil Code,
when the nullity of a contract arises from the illegality of the consideration which
in itself constitutes a felony, the guilty party shall be subject to criminal
proceeding while the innocent party may recover whatever he has given,
including the fruits thereof. (emphasis supplied).
It is clear, therefore, that in the Mulet case, the principal of the obligation had been fully paid by
the debtor to the creditor; that the latter was not sentenced to pay it back to the former, and that
what this Court declared recoverable by the debtor were only the usurious interest paid as well as
the fruits of the property sold under pacto de retro.
IN VIEW OF THE FOREGOING, the decision, appealed from is modified in the sense that
appellee may recover from appellant the principal of the loan (P1,180.00) only, with interest
thereon at the legal rate of 6% per annum from the date of the filing of the complaint. With costs.
Makalintal, Zaldivar, Teehankee, Villamor and Makasiar, JJ., concur.

9.
Republic of the Philippines
Supreme Court
Manila
SECOND DIVISION

ELEANOR DE LEON LLENADO,

G.R. No. 193279

Present:

Petitioner,

CARPIO, J., Chairperson,

BRION,
PEREZ,
SERENO, and
REYES, JJ.
Promulgated:

- versus -

March 14, 2012

PEOPLE OF THE PHILIPPINES and

EDITHA VILLAFLORES,
Respondents.
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION
SERENO, J.:

Petitioner was convicted by the Metropolitan Trial Court (MeTC) of Valenzuela City,
Branch 82 in Criminal Case No. 54905 for violating Batasang Pambansa Blg. 22 (B.P. 22) or the
Bouncing Checks Law.

It appears that petitioner issued checks to secure the loans obtained from private
respondent. Upon presentment, the checks were dishonored, leading to the filing with the MeTC
of criminal cases docketed as Criminal Case Nos. 54905, 54906, 54907, and 54908 for four (4)
counts of violation of B.P. 22.

Subsequently, petitioner settled the loans subject of Criminal Case Nos. 54906, 54907
and 54908 using the funds of the Children of Mary Immaculate College, of which she was
president. Private respondent executed an Affidavit of Desistance for the three cases;1[1] thus,
only Criminal Case No. 54905 covering a check worth, 1,500,000, proceeded to trial.

The MeTC found that all the following elements of a violation of B.P. 22 were present
in the last check subject of the criminal proceedings: (1) the making, drawing, and issuance of
any check to apply for account or for value; (2) the knowledge of the maker, drawer, or issuer
that at the time of issue he or she does not have sufficient funds in or credit with the drawee bank
for the payment of the check in full upon its presentment; and (3) the drawee banks subsequent
dishonor of the check for insufficiency of funds or credit, or dishonor of the check for the same
reason had not the drawer, without any valid cause, ordered the bank to stop payment.2[2] In
ruling against petitioner, the MeTC took note that petitioner admitted knowledge of the checks
dishonor, and that the demand letter with Notice of Dishonor mailed to petitioners residence on
10 May 1999 was received by one Alfredo Abierra on 14 May 1999. Thus, petitioner was
sentenced to pay 1,500,000, the amount of the dishonored check, and a fine of 200,000 with
subsidiary imprisonment in case of insolvency.

The MeTC also held the Children of Mary Immaculate College liable for the value of the
check for being the drawer thereof. Finally, the court ordered the payment of attorneys fees and
litigation expenses.

On appeal with the Regional Trial Court (RTC), petitioner alleged that the receipt of the
Notice of Dishonor was not sufficiently proven, and that the notice received by Abierra should
not be held to be binding on her. However, on 26 November 2006, the RTC affirmed the
Decision of the MeTC.

Petitioner subsequently filed a Petition for Review with the Court of Appeals (CA) under
Rule 42 of the Rules of Court. In her Petition, she alleged that the trial court erred in ruling that
she had received a notice of dishonor and in holding the school also liable for the value of the
check.

The CA ruled that the elements of a violation of B.P. 22 were established.3[3] However,
it held that the trial court erred in holding Children of Mary Immaculate College civilly liable.

Applying Lunaria v. People,4[4] the CA modified the appealed judgment by imposing

legal interest of 12% on the amount of the dishonored check. The dispositive portion of the CA
Decision states:

WHEREFORE, the appeal is GRANTED in part. The Decision dated

November 26, 2006 of the Regional Trial Court, Branch 75 of Valenzuela City, is
MODIFIED in that petitioner is SENTENCED to pay a fine of 200,000.00 with
subsidiary imprisonment in case of insolvency. Petitioner is ORDERED to
indemnify private complainant in the amount of 1,500,000.00, the amount of the
dishonored check, with 12% interest per annum from the date of judicial demand
until the finality of this Decision plus attorneys fees of 20,000.00 and litigation
expenses of 16,860.00. The civil liability adjudged against Children of Mary
Immaculate College is REVERSED and SET ASIDE.
SO ORDERED.5[5]

Petitioner thereafter filed a Motion for Reconsideration.6[6] Finding no merit in the

motion, it was denied by the CA through its assailed Resolution7[7] promulgated on 10 August
2010.
Hence, this Rule 45 Petition.

Petitioner now alleges that respondent failed to prove that there was actual receipt of the
notice of dishonor. She also alleges, without expounding, that the ruling of the CA was not in
accordance with laws and jurisprudence.

It is an established rule that the remedy of appeal through a Petition for Review on
Certiorari under Rule 45 of the Rules of Court contemplates only questions of law and not
questions of fact.8[8] The issue in the case at bar is clearly a question of fact that rightfully
belonged to the proper determination of the MeTC, the RTC and the CA. All these lower courts
found the elements of a violation of B.P. 22 present. Petitioner failed to provide any cogent
reason for us to overturn these findings, or to consider this case as an exception to this general
rule.

However, conforming to prevailing jurisprudence, we find the need to modify the ruling
of the CA with regard to the imposition of interest on the judgment. It has been established that
in the absence of stipulation, the rate of interest shall be 12% per annum to be computed from
default, that is, from judicial or extrajudicial demand under and subject to the provisions of
Article 1169 of the Civil Code.9[9] In Ongson v. People,10[10] we held that interest began to run
from the time of the extrajudicial demand, as duly proved by the creditor. Thus, petitioner should

also be held liable for the amount of the dishonored check, which is 1,500,000, plus 12% legal
interest covering the period from the date of the receipt of the demand letter on 14 May 1999 to
the finality of this Decision. The total amount due in the dispositive portion of the CAs
Decision, inclusive of interest, shall further earn 12% interest per annum from the finality of this
Decision until fully paid.

WHEREFORE, in view of the foregoing, the Decision dated 27 April 2010 of the Court
of Appeals in CA-G.R. CR No. 31349 is hereby AFFIRMED with MODIFICATIONS.
Petitioner is ordered to indemnify private respondent the amount of the dishonored check, which
is 1,500,000, with 12% interest per annum from the date of receipt of the extrajudicial demand
on 14 May 1999 to the finality of this Decision. This total amount inclusive of interest shall
further earn 12% interest per annum from the finality of the Decision until it is fully paid.

Petitioner is sentenced to pay a fine of 200,000 with subsidiary imprisonment in case of

insolvency, plus attorneys fees of 20,000 and litigation expenses of 16,860.

SO ORDERED.

10.
Republic of the Philippines
SUPREME COURT
Manila
THIRD DIVISION
G.R. No. 194785

July 11, 2012

VIRGILIO S. DAVID, Petitioner,

vs.
MISAMIS OCCIDENTAL II ELECTRIC COOPERATIVE, INC., Respondent.
DECISION
MENDOZA, J.:
Before this Court is a petition for review under Rule 45 of the Rules of Court assailing the July 8,
2010 Decision1 of the Court of Appeals (CA), in CA-G.R. CR No. 91839, which affirmed the
July 17, 2008 Decision2 of the Regional Trial Court, Branch VIII, Manila (RTC) in Civil Case
No. 94-69402, an action for specific performance and damages.
The Facts:
Petitioner Virgilio S. David (David) was the owner or proprietor of VSD Electric Sales, a
company engaged in the business of supplying electrical hardware including transformers for
rural electric cooperatives like respondent Misamis Occidental II Electric Cooperative, Inc.
(MOELCI), with principal office located in Ozamis City.
To solve its problem of power shortage affecting some areas within its coverage, MOELCI
expressed its intention to purchase a 10 MVA power transformer from David. For this reason, its
General Manager, Engr. Reynaldo Rada (Engr. Rada), went to meet David in the latters office in
Quezon City. David agreed to supply the power transformer provided that MOELCI would
secure a board resolution because the item would still have to be imported.
On June 8, 1992, Engr. Rada and Director Jose Jimenez (Jimenez), who was in-charge of
procurement, returned to Manila and presented to David the requested board resolution which
authorized the purchase of one 10 MVA power transformer. In turn, David presented his
proposal for the acquisition of said transformer. This proposal was the same proposal that he
would usually give to his clients.
After the reading of the proposal and the discussion of terms, David instructed his then secretary
and bookkeeper, Ellen M. Wong, to type the names of Engr. Rada and Jimenez at the end of the
proposal. Both signed the document under the word "conforme." The board resolution was
thereafter attached to the proposal.

As stated in the proposal, the subject transformer, together with the basic accessories, was valued
at P5,200,000.00. It was also stipulated therein that 50% of the purchase price should be paid as
downpayment and the remaining balance to be paid upon delivery. Freight handling, insurance,
customs duties, and incidental expenses were for the account of the buyer.
The Board Resolution, on the other hand, stated that the purchase of the said transformer was to
be financed through a loan from the National Electrification Administration (NEA). As there was
no immediate action on the loan application, Engr. Rada returned to Manila in early December
1992 and requested David to deliver the transformer to them even without the required
downpayment. David granted the request provided that MOELCI would pay interest at 24% per
annum. Engr. Rada acquiesced to the condition. On December 17, 1992, the goods were shipped
to Ozamiz City via William Lines. In the Bill of Lading, a sales invoice was included which
stated the agreed interest rate of 24% per annum.
When nothing was heard from MOELCI for sometime after the shipment, Emanuel Medina
(Medina), Davids Marketing Manager, went to Ozamiz City to check on the shipment. Medina
was able to confer with Engr. Rada who told him that the loan was not yet released and asked if
it was possible to withdraw the shipped items. Medina agreed.
When no payment was made after several months, Medina was constrained to send a demand
letter, dated September 15, 1993, which MOELCI duly received. Engr. Rada replied in writing
that the goods were still in the warehouse of William Lines again reiterating that the loan had not
been approved by NEA. This prompted Medina to head back to Ozamiz City where he found out
that the goods had already been released to MOELCI evidenced by the shipping companys copy
of the Bill of Lading which was stamped "Released," and with the notation that the arrastre
charges in the amount of P5,095.60 had been paid. This was supported by a receipt of payment
with the corresponding cargo delivery receipt issued by the Integrated Port Services of Ozamiz,
Inc.
Subsequently, demand letters were sent to MOELCI demanding the payment of the whole
amount plus the balance of previous purchases of other electrical hardware. Aside from the
formal demand letters, David added that several statements of accounts were regularly sent
through the mails by the company and these were never disputed by MOELCI.
On February 17, 1994, David filed a complaint for specific performance with damages with the
RTC. In response, MOECLI moved for its dismissal on the ground that there was lack of cause
of action as there was no contract of sale, to begin with, or in the alternative, the said contract
was unenforceable under the Statute of Frauds. MOELCI argued that the quotation letter could
not be considered a binding contract because there was nothing in the said document from which
consent, on its part, to the terms and conditions proposed by David could be inferred. David
knew that MOELCIs assent could only be obtained upon the issuance of a purchase order in
favor of the bidder chosen by the Canvass and Awards Committee.
Eventually, pursuant to Rule 16, Section 5 of the Rules of Court, MOELCI filed its Motion for
Preliminary Hearing of Affirmative Defenses and Deferment of the Pre-Trial Conference which
was denied by the RTC to abbreviate proceedings and for the parties to proceed to trial and avoid

piecemeal resolution of issues. The order denying its motion was raised with the CA, and then
with this Court. Both courts sustained the RTC ruling.
Trial ensued. By reason of MOELCIs continued failure to appear despite notice, David was
allowed to present his testimonial and documentary evidence ex parte, pursuant to Rule 18,
Section 5 of the Rules. A Very Urgent Motion to Allow Defendant to Present Evidence was filed
by MOELCI, but was denied.
In its July 17, 2008 Decision, the RTC dismissed the complaint. It found that although a contract
of sale was perfected, it was not consummated because David failed to prove that there was
indeed a delivery of the subject item and that MOELCI received it. 3
Aggrieved, David appealed his case to the CA.
On July 8, 2010, the CA affirmed the ruling of the RTC. In the assailed decision, the CA
reasoned out that although David was correct in saying that MOELCI was deemed to have
admitted the genuineness and due execution of the "quotation letter" (Exhibit A), wherein the
signatures of the Chairman and the General Manager of MOELCI appeared, he failed to offer
any textual support to his stand that it was a contract of sale instead of a mere price quotation
agreed to by MOELCI representatives. On this score, the RTC erred in stating that a contract of
sale was perfected between the parties despite the irregularities that tainted their transaction.
Further, the fact that MOELCIs representatives agreed to the terms embodied in the agreement
would not preclude the finding that said contract was at best a mere contract to sell.
A motion for reconsideration was filed by David but it was denied. 4
Hence, this petition.
Before this Court, David presents the following issues for consideration:
I.
WHETHER OR NOT THERE WAS A PERFECTED CONTRACT OF SALE.
II.
WHETHER OR NOT THERE WAS A DELIVERY THAT CONSUMMATED THE
CONTRACT.
The Court finds merit in the petition.
I.
On the issue as to whether or not there was a perfected contract of sale, this Court is required to
delve into the evidence of the case. In a petition for review on certiorari under Rule 45 of the
Rules of Court, the issues to be threshed out are generally questions of law only, and not of fact.

This was reiterated in the case of Buenaventura v. Pascual, 5 where it was written:
Time and again, this Court has stressed that its jurisdiction in a petition for review on certiorari
under Rule 45 of the Rules of Court is limited to reviewing only errors of law, not of fact, unless
the findings of fact complained of are devoid of support by the evidence on record, or the
assailed judgment is based on the misapprehension of facts. The trial court, having heard the
witnesses and observed their demeanor and manner of testifying, is in a better position to decide
the question of their credibility. Hence, the findings of the trial court must be accorded the
highest respect, even finality, by this Court.
That being said, the Court is not unmindful, however, of the recognized exceptions wellentrenched in jurisprudence. It has always been stressed that when supported by substantial
evidence, the findings of fact of the CA are conclusive and binding on the parties and are not
reviewable by this Court, unless the case falls under any of the following recognized exceptions:
(1) When the conclusion is a finding grounded entirely on speculation, surmises and
conjectures;
(2) When the inference made is manifestly mistaken, absurd or impossible;
(3) Where there is a grave abuse of discretion:
(4) When the judgment is based on a misapprehension of facts;
(5) When the findings of fact are conflicting;
(6) When the Court of Appeals, in making its findings, went beyond the issues of the case
and the same is contrary to the admissions of both appellant and appellee;
(7) When the findings are contrary to those of the trial court;
(8) When the findings of fact are without citation of specific evidence on which the
conclusions are based;
(9) When the facts set forth in the petition as well as in the petitioners main and reply
briefs are not disputed by the respondents; and
(10) When the findings of fact of the Court of Appeals are premised on the supposed
absence of evidence and contradicted by the evidence on record. 6 [Emphasis supplied]
In this case, the CA and the RTC reached different conclusions on the question of whether or not
there was a perfected contract of sale. The RTC ruled that a contract of sale was perfected
although the same was not consummated because David failed to show proof of delivery. 7
The CA was of the opposite view. The CA wrote:

Be that as it may, it must be emphasized that the appellant failed to offer any textual support to
his insistence that Exhibit "A" is a contract of sale instead of a mere price quotation conformed
to by MOELCI representatives. To that extent, the trial court erred in laying down the premise
that "indeed a contract of sale is perfected between the parties despite the irregularities attending
the transaction." x x x
That representatives of MOELCI conformed to the terms embodied in the agreement does not
preclude the finding that such contract is, at best, a mere contract to sell with stipulated costs
quoted should it ultimately ripen into one of sale. The conditions upon which that development
may occur may even be obvious from statements in the agreement itself, that go beyond just
"captions." Thus, the appellant opens with, "WE are pleased to submit our quotation xxx." The
purported contract also ends with. "Thank you for giving us the opportunity to quote on your
requirements and we hope to receive your order soon" apparently referring to a purchase order
which MOELCI contends to be a formal requirement for the entire transaction. 8
In other words, the CA was of the position that Exhibit A was at best a contract to sell.
A perusal of the records persuades the Court to hold otherwise.
The elements of a contract of sale are, to wit: a) Consent or meeting of the minds, that is, consent
to transfer ownership in exchange for the price; b) Determinate subject matter; and c) Price
certain in money or its equivalent. 9 It is the absence of the first element which distinguishes a
contract of sale from that of a contract to sell.
In a contract to sell, the prospective seller explicitly reserves the transfer of title to the
prospective buyer, meaning, the prospective seller does not as yet agree or consent to transfer
ownership of the property subject of the contract to sell until the happening of an event, such as,
in most cases, the full payment of the purchase price. What the seller agrees or obliges himself to
do is to fulfill his promise to sell the subject property when the entire amount of the purchase
price is delivered to him. In other words, the full payment of the purchase price partakes of a
suspensive condition, the non-fulfillment of which prevents the obligation to sell from arising
and, thus, ownership is retained by the prospective seller without further remedies by the
prospective buyer.10
In a contract of sale, on the other hand, the title to the property passes to the vendee upon the
delivery of the thing sold. Unlike in a contract to sell, the first element of consent is present,
although it is conditioned upon the happening of a contingent event which may or may not occur.
If the suspensive condition is not fulfilled, the perfection of the contract of sale is completely
abated. However, if the suspensive condition is fulfilled, the contract of sale is thereby perfected,
such that if there had already been previous delivery of the property subject of the sale to the
buyer, ownership thereto automatically transfers to the buyer by operation of law without any
further act having to be performed by the seller. The vendor loses ownership over the property
and cannot recover it until and unless the contract is resolved or rescinded. 11
An examination of the alleged contract to sell, "Exhibit A," despite its unconventional form,
would show that said document, with all the stipulations therein and with the attendant

circumstances surrounding it, was actually a Contract of Sale. The rule is that it is not the title of
the contract, but its express terms or stipulations that determine the kind of contract entered into
by the parties.12 First, there was meeting of minds as to the transfer of ownership of the subject
matter. The letter (Exhibit A), though appearing to be a mere price quotation/proposal, was not
what it seemed. It contained terms and conditions, so that, by the fact that Jimenez, Chairman of
the Committee on Management, and Engr. Rada, General Manager of MOELCI, had signed their
names under the word "CONFORME," they, in effect, agreed with the terms and conditions with
respect to the purchase of the subject 10 MVA Power Transformer. As correctly argued by
David, if their purpose was merely to acknowledge the receipt of the proposal, they would not
have signed their name under the word "CONFORME."
Besides, the uncontroverted attending circumstances bolster the fact that there was consent or
meeting of minds in the transfer of ownership. To begin with, a board resolution was issued
authorizing the purchase of the subject power transformer. Next, armed with the said resolution,
top officials of MOELCI visited Davids office in Quezon City three times to discuss the terms
of the purchase. Then, when the loan that MOELCI was relying upon to finance the purchase
was not forthcoming, MOELCI, through Engr. Rada, convinced David to do away with the 50%
downpayment and deliver the unit so that it could already address its acute power shortage
predicament, to which David acceded when it made the delivery, through the carrier William
Lines, as evidenced by a bill of lading.
Second, the document specified a determinate subject matter which was one (1) Unit of 10 MVA
Power Transformer with corresponding KV Line Accessories. And third, the document stated
categorically the price certain in money which was P5,200,000.00 for one (1) unit of 10 MVA
Power Transformer and P2,169,500.00 for the KV Line Accessories.
In sum, since there was a meeting of the minds, there was consent on the part of David to
transfer ownership of the power transformer to MOELCI in exchange for the price, thereby
complying with the first element. Thus, the said document cannot just be considered a contract to
sell but rather a perfected contract of sale.
II.
Now, the next question is, was there a delivery?
MOELCI, in denying that the power transformer was delivered to it, argued that the Bill of
Lading which David was relying upon was not conclusive. It argued that although the bill of
lading was stamped "Released," there was nothing in it that indicated that said power transformer
was indeed released to it or delivered to its possession. For this reason, it is its position that it is
not liable to pay the purchase price of the 10 MVA power transformer.
This Court is unable to agree with the CA that there was no delivery of the items. On the
contrary, there was delivery and release.
To begin with, among the terms and conditions of the proposal to which MOELCI agreed stated:

2. Delivery Ninety (90) working days upon receipt of your purchase order and downpayment.
C&F Manila, freight, handling, insurance, custom duties and incidental expenses shall be for the
account of MOELCI II. 13 (Emphasis supplied)
On this score, it is clear that MOELCI agreed that the power transformer would be delivered and
that the freight, handling, insurance, custom duties, and incidental expenses shall be shouldered
by it.
On the basis of this express agreement, Article 1523 of the Civil Code becomes
applicable.1wphi1 It provides:
Where, in pursuance of a contract of sale, the seller is authorized or required to send the goods to
the buyer delivery of the goods to a carrier, whether named by the buyer or not, for the purpose
of transmission to the buyer is deemed to be a delivery of the goods to the buyer, except in the
cases provided for in Article 1503, first, second and third paragraphs, or unless a contrary intent
appears. (Emphasis supplied)
Thus, the delivery made by David to William Lines, Inc., as evidenced by the Bill of Lading, was
deemed to be a delivery to MOELCI. David was authorized to send the power transformer to the
buyer pursuant to their agreement. When David sent the item through the carrier, it amounted to
a delivery to MOELCI.
Furthermore, in the case of Behn, Meyer & Co. (Ltd.) v. Yangco, 14 it was pointed out that a
specification in a contract relative to the payment of freight can be taken to indicate the intention
of the parties with regard to the place of delivery. So that, if the buyer is to pay the freight, as in
this case, it is reasonable to suppose that the subject of the sale is transferred to the buyer at the
point of shipment. In other words, the title to the goods transfers to the buyer upon shipment or
delivery to the carrier.
Of course, Article 1523 provides a mere presumption and in order to overcome said presumption,
MOELCI should have presented evidence to the contrary. The burden of proof was shifted to
MOELCI, who had to show that the rule under Article 1523 was not applicable. In this regard,
however, MOELCI failed.
There being delivery and release, said fact constitutes partial performance which takes the case
out of the protection of the Statute of Frauds. It is elementary that the partial execution of a
contract of sale takes the transaction out of the provisions of the Statute of Frauds so long as the
essential requisites of consent of the contracting parties, object and cause of the obligation
concur and are clearly established to be present. 15
That being said, the Court now comes to Davids prayer that MOELCI be made to pay the total
sum of P 5,472,722.27 plus the stipulated interest at 24% per annum from the filing of the
complaint. Although the Court agrees that MOELCI should pay interest, the stipulated rate is,
however, unconscionable and should be equitably reduced. While there is no question that
parties to a loan agreement have wide latitude to stipulate on any interest rate in view of the

Central Bank Circular No. 905 s. 1982 which suspended the Usury Law ceiling on interest
effective January 1, 1983, it is also worth stressing that interest rates whenever unconscionable
may still be reduced to a reasonable and fair level. There is nothing in the said circular which
grants lenders carte blanche authority to raise interest rates to levels which will either enslave
their borrowers or lead to a hemorrhaging of their assets. 16 Accordingly, the excessive interest of
24% per annum stipulated in the sales invoice should be reduced to 12% per annum.
Indeed, David was compelled to file an action against MOELCI but this reason alone will not
warrant an award of attorneys fees. It is settled that the award of attorney's fees is the exception
rather than the rule. Counsel's fees are not awarded every time a party prevails in a suit because
of the policy that no premium should be placed on the right to litigate. Attorney's fees, as part of
damages, are not necessarily equated to the amount paid by a litigant to a lawyer. In the ordinary
sense, attorney's fees represent the reasonable compensation paid to a lawyer by his client for the
legal services he has rendered to the latter; while in its extraordinary concept, they may be
awarded by the court as indemnity for damages to be paid by the losing party to the prevailing
party. Attorney's fees as part of damages are awarded only in the instances specified in Article
2208 of the Civil Code 17 which demands factual, legal, and equitable justification. Its basis
cannot be left to speculation or conjecture. In this regard, none was proven.
Moreover, in the absence of stipulation, a winning party may be awarded attorney's fees only in
case plaintiffs action or defendant's stand is so untenable as to amount to gross and evident bad
faith.18 is MOELCI's case cannot be similarly classified.
Also, David's claim for the balance of P73,059.76 plus the stipulated interest is denied for being
unsubstantiated.
WHEREFORE, the petition Is GRANTED. The July 8, 2010 Decision of the Court of Appeals Is
REVERSED and SET ASIDE. Respondent Misamis Occidental II Electric Cooperative, Inc. is
ordered to pay petitioner Virgilio S. David the total sum of P5,472,722.27 with interest at the rate
of 12o/o per annum reckoned from the filing of the complaint until fully paid.
SO ORDERED.