G.R. No.
116285 October 19, 2001 every beginning of the year to cover installment payments for
ANTONIO TAN, petitioner,
vs.
COURT OF APPEALS and the CULTURAL CENTER OF THE
PHILIPPINES, respondents.
DE LEON, JR., J.:
Before us is a petition for review of the Decision1 dated August
31, 1993 and Resolution2 dated July 13, 1994 of the Court of
Appeals affirming the Decision3 dated May 8, 1991 of the
Regional Trial Court (RTC) of Manila, Branch 27.
The facts are as follows:
On May 14, 1978 and July 6, 1978, petitioner Antonio Tan
obtained two (2) loans each in the principal amount of Two
Million Pesos (P2,000,000.00), or in the total principal amount
of Four Million Pesos (P4,000,000.00) from respondent Cultural
Center of the Philippines (CCP, for brevity) evidenced by two (2)
promissory notes with maturity dates on May 14, 1979 and July
6, 1979, respectively. Petitioner defaulted but after a few partial
payments he had the loans restructured by respondent CCP, and
petitioner accordingly executed a promissory note (Exhibit "A")
on August 31, 1979 in the amount of Three Million Four Hundred
Eleven Thousand Four Hundred Twenty-One Pesos and Thirty-
Two Centavos (P3,411,421.32) payable in five (5) installments.
Petitioner Tan failed to pay any installment on the said
restructured loan of Three Million Four Hundred Eleven
Thousand Four Hundred Twenty-One Pesos and Thirty-Two
Centavos (P3,411,421.32), the last installment falling due on
December 31, 1980. In a letter dated January 26, 1982,
petitioner requested and proposed to respondent CCP a mode
of paying the restructured loan, i.e., (a) twenty percent (20%)
of the principal amount of the loan upon the respondent giving
its conformity to his proposal; and (b) the balance on the
principal obligation payable in thirty-six (36) equal monthly
installments until fully paid. On October 20, 1983, petitioner
again sent a letter to respondent CCP requesting for a
moratorium on his loan obligation until the following year
allegedly due to a substantial deduction in the volume of his
business and on account of the peso devaluation. No favorable
response was made to said letters. Instead, respondent CCP,
through counsel, wrote a letter dated May 30, 1984 to the
petitioner demanding full payment, within ten (10) days from
receipt of said letter, of the petitioners restructured loan which
as of April 30, 1984 amounted to Six Million Eighty-Eight
Thousand Seven Hundred Thirty-Five Pesos and Three Centavos
(P6,088,735.03).
On August 29, 1984, respondent CCP filed in the RTC of Manila
a complaint for collection of a sum of money, docketed as Civil
Case No. 84-26363, against the petitioner after the latter failed
to settle his said restructured loan obligation. The petitioner
interposed the defense that he merely accommodated a friend,
Wilson Lucmen, who allegedly asked for his help to obtain a loan
from respondent CCP. Petitioner claimed that he has not been
able to locate Wilson Lucmen. While the case was pending in
the trial court, the petitioner filed a Manifestation wherein he
proposed to settle his indebtedness to respondent CCP by
proposing to make a down payment of One Hundred Forty
Thousand Pesos (P140,000.00) and to issue twelve (12) checks
one year, and every year thereafter until the balance is fully
paid. However, respondent CCP did not agree to the petitioners
proposals and so the trial of the case ensued.
On May 8, 1991, the trial court rendered a decision, the
dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of plaintiff
and against defendant, ordering defendant to pay plaintiff, the
amount of P7,996,314.67, representing defendants outstanding
account as of August 28, 1986, with the corresponding
stipulated interest and charges thereof, until fully paid, plus
attorneys fees in an amount equivalent to 25% of said
outstanding account, plus P50,000.00, as exemplary damages,
plus costs.
Defendants counterclaims are ordered dismissed, for lack of
merit.
SO ORDERED.4
The trial court gave five (5) reasons in ruling in favor of
respondent CCP. First, it gave little weight to the petitioners
contention that the loan was merely for the accommodation of
Wilson Lucmen for the reason that the defense propounded was
not credible in itself. Second, assuming, arguendo, that the
petitioner did not personally benefit from the said loan, he
should have filed a third party complaint against Wilson Lucmen,
the alleged accommodated party but he did not. Third, for three
(3) times the petitioner offered to settle his loan obligation with
respondent CCP. Fourth, petitioner may not avoid his liability to
pay his obligation under the promissory note (Exh. "A") which
he must comply with in good faith pursuant to Article 1159 of
the New Civil Code. Fifth, petitioner is estopped from denying
his liability or loan obligation to the private respondent.
The petitioner appealed the decision of the trial court to the
Court of Appeals insofar as it charged interest, surcharges,
attorneys fees and exemplary damages against the petitioner.
In his appeal, the petitioner asked for the reduction of the
penalties and charges on his loan obligation. He abandoned his
alleged defense in the trial court that he merely accommodated
his friend, Wilson Lucmen, in obtaining the loan, and instead
admitted the validity of the same. On August 31, 1993, the
appellate court rendered a decision, the dispositive portion of
which reads:
WHEREFORE, with the foregoing modification, the judgment
appealed from is hereby AFFIRMED.
SO ORDERED.5
In affirming the decision of the trial court imposing surcharges
and interest, the appellate court held that:
We are unable to accept appellants (petitioners) claim for
modification on the basis of alleged partial or irregular
performance, there being none. Appellants offer or tender of
payment cannot be deemed as a partial or irregular performance
of the contract, not a single centavo appears to have been paid
by the defendant.
However, the appellate court modified the decision of the trial
court by deleting the award for exemplary damages and
reducing the amount of awarded attorneys fees to five percent
(5%), by ratiocinating as follows:
Given the circumstances of the case, plus the fact that plaintiff
was represented by a government lawyer, We believe the award
of 25% as attorneys fees and P500,000.00 as exemplary
damages is out of proportion to the actual damage caused by
the non-performance of the contract and is excessive,
unconscionable 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 Manila, the sum of THREE MILLION FOUR HUNDRED ELEVEN
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 pertinent6 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
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.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,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,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 above-quoted 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."10
Therefore, any penalty interest not paid, when due, shall earn
the legal interest of twelve percent (12%) per annum,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,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")13 shows the following breakdown of the petitioners
indebtedness as of August 28, 1986:
Principal P2,838,454.68
Interest P 576,167.89
Surcharge 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 Sixty-One Pesos and Forty-Three Centavos
(P452,561.43) which were made during the period from May 13,
1983 to September 30, 1983.14 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.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
letter16 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.
G.R. No. 173227 January 20, 2009
SEBASTIAN SIGA-AN, Petitioner,
vs.
ALICIA VILLANUEVA, Respondent.
DECISION
CHICO-NAZARIO, J.:
Before Us is a Petition1 for Review on Certiorari under Rule 45
of the Rules of Court seeking to set aside the Decision, 2 dated
16 December 2005, and Resolution,3 dated 19 June 2006 of the
Court of Appeals in CA-G.R. CV No. 71814, which affirmed in
toto the Decision,4 dated 26 January 2001, of the Las Pinas City
Regional Trial Court, Branch 255, in Civil Case No. LP-98-0068.
The facts gathered from the records are as follows:
On 30 March 1998, respondent Alicia Villanueva filed a
complaint5 for sum of money against petitioner Sebastian Siga-
an before the Las Pinas City Regional Trial Court (RTC), Branch
255, docketed as Civil Case No. LP-98-0068. Respondent alleged
that she was a businesswoman engaged in supplying office
materials and equipments to the Philippine Navy Office (PNO)
located at Fort Bonifacio, Taguig City, while petitioner was a
military officer and comptroller of the PNO from 1991 to 1996.
Respondent claimed that sometime in 1992, petitioner
approached her inside the PNO and offered to loan her the
amount of P540,000.00. Since she needed capital for her
business transactions with the PNO, she accepted petitioners
proposal. The loan agreement was not reduced in writing. Also,
there was no stipulation as to the payment of interest for the
loan.6
On 31 August 1993, respondent issued a check worth
P500,000.00 to petitioner as partial payment of the loan. On 31
October 1993, she issued another check in the amount of
P200,000.00 to petitioner as payment of the remaining balance
of the loan. Petitioner told her that since she paid a total amount
of P700,000.00 for the P540,000.00 worth of loan, the excess
amount of P160,000.00 would be applied as interest for the
loan. Not satisfied with the amount applied as interest,
petitioner pestered her to pay additional interest. Petitioner
threatened to block or disapprove her transactions with the PNO
if she would not comply with his demand. As all her transactions
with the PNO were subject to the approval of petitioner as
comptroller of the PNO, and fearing that petitioner might block
or unduly influence the payment of her vouchers in the PNO,
she conceded. Thus, she paid additional amounts in cash and
checks as interests for the loan. She asked petitioner for receipt
for the payments but petitioner told her that it was not
necessary as there was mutual trust and confidence between
them. According to her computation, the total amount she paid
to petitioner for the loan and interest accumulated to
P1,200,000.00.7
Thereafter, respondent consulted a lawyer regarding the
propriety of paying interest on the loan despite absence of
agreement to that effect. Her lawyer told her that petitioner
could not validly collect interest on the loan because there was
no agreement between her and petitioner regarding payment of
interest. Since she paid petitioner a total amount of
P1,200,000.00 for the P540,000.00 worth of loan, and upon
being advised by her lawyer that she made overpayment to
petitioner, she sent a demand letter to petitioner asking for the
return of the excess amount of P660,000.00. Petitioner, despite
receipt of the demand letter, ignored her claim for
reimbursement.8
Respondent prayed that the RTC render judgment ordering
petitioner to pay respondent (1) P660,000.00 plus legal interest
from the time of demand; (2) P300,000.00 as moral damages;
(3) P50,000.00 as exemplary damages; and (4) an amount
equivalent to 25% of P660,000.00 as attorneys fees.9
In his answer10 to the complaint, petitioner denied that he
offered a loan to respondent. He averred that in 1992,
respondent approached and asked him if he could grant her a
loan, as she needed money to finance her business venture with
the PNO. At first, he was reluctant to deal with respondent,
because the latter had a spotty record as a supplier of the PNO.
However, since respondent was an acquaintance of his
officemate, he agreed to grant her a loan. Respondent paid the
loan in full.11
Subsequently, respondent again asked him to give her a loan.
As respondent had been able to pay the previous loan in full, he
agreed to grant her another loan. Later, respondent requested
him to restructure the payment of the loan because she could
not give full payment on the due date. He acceded to her
request. Thereafter, respondent pleaded for another
restructuring of the payment of the loan. This time he rejected
her plea. Thus, respondent proposed to execute a promissory
note wherein she would acknowledge her obligation to him,
inclusive of interest, and that she would issue several postdated
checks to guarantee the payment of her obligation. Upon his
approval of respondents request for restructuring of the loan,
respondent executed a promissory note dated 12 September
1994 wherein she admitted having borrowed an amount of
P1,240,000.00, inclusive of interest, from petitioner and that she
would pay said amount in March 1995. Respondent also issued
to him six postdated checks amounting to P1,240,000.00 as
guarantee of compliance with her obligation. Subsequently, he
presented the six checks for encashment but only one check was
honored. He demanded that respondent settle her obligation,
but the latter failed to do so. Hence, he filed criminal cases for
Violation of the Bouncing Checks Law (Batas Pambansa Blg. 22)
against respondent. The cases were assigned to the
Metropolitan Trial Court of Makati City, Branch 65 (MeTC).12
Petitioner insisted that there was no overpayment because
respondent admitted in the latters promissory note that her
monetary obligation as of 12 September 1994 amounted to
P1,240,000.00 inclusive of interests. He argued that respondent
was already estopped from complaining that she should not
have paid any interest, because she was given several times to
settle her obligation but failed to do so. He maintained that to
rule in favor of respondent is tantamount to concluding that the
loan was given interest-free. Based on the foregoing averments,
he asked the RTC to dismiss respondents complaint.
After trial, the RTC rendered a Decision on 26 January 2001
holding that respondent made an overpayment of her loan
obligation to petitioner and that the latter should refund the
excess amount to the former. It ratiocinated that respondents
obligation was only to pay the loaned amount of P540,000.00,
and that the alleged interests due should not be included in the
computation of respondents total monetary debt because there
was no agreement between them regarding payment of interest.
It concluded that since respondent made an excess payment to
petitioner in the amount of P660,000.00 through mistake,
petitioner should return the said amount to respondent pursuant
to the principle of solutio indebiti.13
The RTC also ruled that petitioner should pay moral damages
for the sleepless nights and wounded feelings experienced by
respondent. Further, petitioner should pay exemplary damages
by way of example or correction for the public good, plus
attorneys fees and costs of suit.
The dispositive portion of the RTC Decision reads:
WHEREFORE, in view of the foregoing evidence and in the light
of the provisions of law and jurisprudence on the matter,
judgment is hereby rendered in favor of the plaintiff and against
the defendant as follows:
(1) Ordering defendant to pay plaintiff the amount of
P660,000.00 plus legal interest of 12% per annum computed
from 3 March 1998 until the amount is paid in full;
(2) Ordering defendant to pay plaintiff the amount of
P300,000.00 as moral damages;
(3) Ordering defendant to pay plaintiff the amount of
P50,000.00 as exemplary damages;
(4) Ordering defendant to pay plaintiff the amount equivalent to
25% of P660,000.00 as attorneys fees; and
(5) Ordering defendant to pay the costs of suit.14
Petitioner appealed to the Court of Appeals. On 16 December
2005, the appellate court promulgated its Decision affirming in
toto the RTC Decision, thus:
WHEREFORE, the foregoing considered, the instant appeal is
hereby DENIED and the assailed decision [is] AFFIRMED in
toto.15
Petitioner filed a motion for reconsideration of the appellate
courts decision but this was denied.16 Hence, petitioner lodged
the instant petition before us assigning the following errors:
I.
THE RTC AND THE COURT OF APPEALS ERRED IN RULING
THAT NO INTEREST WAS DUE TO PETITIONER;
II.
THE RTC AND THE COURT OF APPEALS ERRED IN APPLYING
THE PRINCIPLE OF SOLUTIO INDEBITI.17
Interest is a compensation fixed by the parties for the use or
forbearance of money. This is referred to as monetary interest.
Interest may also be imposed by law or by courts as penalty or
indemnity for damages. This is called compensatory interest. 18
The right to interest arises only by virtue of a contract or by
virtue of damages for delay or failure to pay the principal loan
on which interest is demanded.19
Article 1956 of the Civil Code, which refers to monetary
interest,20 specifically mandates that no interest shall be due
unless it has been expressly stipulated in writing. As can be
gleaned from the foregoing provision, payment of monetary
interest is allowed only if: (1) there was an express stipulation
for the payment of interest; and (2) the agreement for the
payment of interest was reduced in writing. The concurrence of
the two conditions is required for the payment of monetary
interest. Thus, we have held that collection of interest without
any stipulation therefor in writing is prohibited by law.21
It appears that petitioner and respondent did not agree on the
payment of interest for the loan. Neither was there convincing
proof of written agreement between the two regarding the
payment of interest. Respondent testified that although she
accepted petitioners offer of loan amounting to P540,000.00,
there was, nonetheless, no verbal or written agreement for her
to pay interest on the loan.22
Petitioner presented a handwritten promissory note dated 12
September 199423 wherein respondent purportedly admitted
owing petitioner "capital and interest." Respondent, however,
explained that it was petitioner who made a promissory note
and she was told to copy it in her own handwriting; that all her
transactions with the PNO were subject to the approval of
petitioner as comptroller of the PNO; that petitioner threatened
to disapprove her transactions with the PNO if she would not
pay interest; that being unaware of the law on interest and
fearing that petitioner would make good of his threats if she
would not obey his instruction to copy the promissory note, she
copied the promissory note in her own handwriting; and that
such was the same promissory note presented by petitioner as
alleged proof of their written agreement on interest.24 Petitioner
did not rebut the foregoing testimony. It is evident that
respondent did not really consent to the payment of interest for
the loan and that she was merely tricked and coerced by
petitioner to pay interest. Hence, it cannot be gainfully said that
such promissory note pertains to an express stipulation of
interest or written agreement of interest on the loan between
petitioner and respondent.
Petitioner, nevertheless, claims that both the RTC and the Court
of Appeals found that he and respondent agreed on the payment
of 7% rate of interest on the loan; that the agreed 7% rate of
interest was duly admitted by respondent in her testimony in
the Batas Pambansa Blg. 22 cases he filed against respondent;
that despite such judicial admission by respondent, the RTC and
the Court of Appeals, citing Article 1956 of the Civil Code, still
held that no interest was due him since the agreement on
interest was not reduced in writing; that the application of Article
1956 of the Civil Code should not be absolute, and an exception
to the application of such provision should be made when the
borrower admits that a specific rate of interest was agreed upon
as in the present case; and that it would be unfair to allow
respondent to pay only the loan when the latter very well knew
and even admitted in the Batas Pambansa Blg. 22 cases that
there was an agreed 7% rate of interest on the loan.25
We have carefully examined the RTC Decision and found that
the RTC did not make a ruling therein that petitioner and
respondent agreed on the payment of interest at the rate of 7%
for the loan. The RTC clearly stated that although petitioner and
respondent entered into a valid oral contract of loan amounting
to P540,000.00, they, nonetheless, never intended the payment
of interest thereon.26 While the Court of Appeals mentioned in
its Decision that it concurred in the RTCs ruling that petitioner
and respondent agreed on a certain rate of interest as regards
the loan, we consider this as merely an inadvertence because,
as earlier elucidated, both the RTC and the Court of Appeals
ruled that petitioner is not entitled to the payment of interest on
the loan. The rule is that factual findings of the trial court
deserve great weight and respect especially when affirmed by
the appellate court.27 We found no compelling reason to disturb
the ruling of both courts.
Petitioners reliance on respondents alleged admission in the
Batas Pambansa Blg. 22 cases that they had agreed on the
payment of interest at the rate of 7% deserves scant
consideration. In the said case, respondent merely testified that
after paying the total amount of loan, petitioner ordered her to
pay interest.28 Respondent did not categorically declare in the
same case that she and respondent made an express stipulation
in writing as regards payment of interest at the rate of 7%. As
earlier discussed, monetary interest is due only if there was an
express stipulation in writing for the payment of interest.
There are instances in which an interest may be imposed even
in the absence of express stipulation, verbal or written,
regarding payment of interest. Article 2209 of the Civil Code
states that if the obligation consists in the payment of a sum of
money, and the debtor incurs delay, a legal interest of 12% per
annum may be imposed as indemnity for damages if no
stipulation on the payment of interest was agreed upon.
Likewise, Article 2212 of the Civil Code provides that interest
due shall earn legal interest from the time it is judicially
demanded, although the obligation may be silent on this point.
All the same, the interest under these two instances may be
imposed only as a penalty or damages for breach of contractual
obligations. It cannot be charged as a compensation for the use
or forbearance of money. In other words, the two instances
apply only to compensatory interest and not to monetary
interest.29 The case at bar involves petitioners claim for
monetary interest.
Further, said compensatory interest is not chargeable in the
instant case because it was not duly proven that respondent
defaulted in paying the loan. Also, as earlier found, no interest
was due on the loan because there was no written agreement
as regards payment of interest.
Apropos the second assigned error, petitioner argues that the
principle of solutio indebiti does not apply to the instant case.
Thus, he cannot be compelled to return the alleged excess
amount paid by respondent as interest.30
Under Article 1960 of the Civil Code, if the borrower of loan pays
interest when there has been no stipulation therefor, the
provisions of the Civil Code concerning solutio indebiti shall be
applied. Article 2154 of the Civil Code explains the principle of
solutio indebiti. Said provision provides that if something is
received when there is no right to demand it, and it was unduly
delivered through mistake, the obligation to return it arises. In
such a case, a creditor-debtor relationship is created under a
quasi-contract whereby the payor becomes the creditor who
then has the right to demand the return of payment made by
mistake, and the person who has no right to receive such
payment becomes obligated to return the same. The quasi-
contract of solutio indebiti harks back to the ancient principle
that no one shall enrich himself unjustly at the expense of
another.31 The principle of solutio indebiti applies where (1) a
payment is made when there exists no binding relation between
the payor, who has no duty to pay, and the person who received
the payment; and (2) the payment is made through mistake,
and not through liberality or some other cause.32 We have held
that the principle of solutio indebiti applies in case of erroneous
payment of undue interest.33
It was duly established that respondent paid interest to
petitioner. Respondent was under no duty to make such
payment because there was no express stipulation in writing to
that effect. There was no binding relation between petitioner
and respondent as regards the payment of interest. The
payment was clearly a mistake. Since petitioner received
something when there was no right to demand it, he has an
obligation to return it.
We shall now determine the propriety of the monetary award
and damages imposed by the RTC and the Court of Appeals.
Records show that respondent received a loan amounting to
P540,000.00 from petitioner.34 Respondent issued two checks
with a total worth of P700,000.00 in favor of petitioner as
payment of the loan.35 These checks were subsequently
encashed by petitioner.36 Obviously, there was an excess of
P160,000.00 in the payment for the loan. Petitioner claims that
the excess of P160,000.00 serves as interest on the loan to
which he was entitled. Aside from issuing the said two checks,
respondent also paid cash in the total amount of P175,000.00
to petitioner as interest.37 Although no receipts reflecting the
same were presented because petitioner refused to issue such
to respondent, petitioner, nonetheless, admitted in his Reply-
Affidavit38 in the Batas Pambansa Blg. 22 cases that respondent
paid him a total amount of P175,000.00 cash in addition to the
two checks. Section 26 Rule 130 of the Rules of Evidence
provides that the declaration of a party as to a relevant fact may
be given in evidence against him. Aside from the amounts of
P160,000.00 and P175,000.00 paid as interest, no other proof
of additional payment as interest was presented by respondent.
Since we have previously found that petitioner is not entitled to
payment of interest and that the principle of solutio indebiti
applies to the instant case, petitioner should return to
respondent the excess amount of P160,000.00 and P175,000.00
or the total amount of P335,000.00. Accordingly, the
reimbursable amount to respondent fixed by the RTC and the
Court of Appeals should be reduced from P660,000.00 to
P335,000.00.
As earlier stated, petitioner filed five (5) criminal cases for
violation of Batas Pambansa Blg. 22 against respondent. In the
said cases, the MeTC found respondent guilty of violating Batas
Pambansa Blg. 22 for issuing five dishonored checks to
petitioner. Nonetheless, respondents conviction therein does
not affect our ruling in the instant case. The two checks, subject
matter of this case, totaling P700,000.00 which respondent
claimed as payment of the P540,000.00 worth of loan, were not
among the five checks found to be dishonored or bounced in the
five criminal cases. Further, the MeTC found that respondent
made an overpayment of the loan by reason of the interest
which the latter paid to petitioner.39
Article 2217 of the Civil Code provides that moral damages may
be recovered if the party underwent physical suffering, mental
anguish, fright, serious anxiety, besmirched reputation,
wounded feelings, moral shock, social humiliation and similar
injury. Respondent testified that she experienced sleepless
nights and wounded feelings when petitioner refused to return
the amount paid as interest despite her repeated demands.
Hence, the award of moral damages is justified. However, its
corresponding amount of P300,000.00, as fixed by the RTC and
the Court of Appeals, is exorbitant and should be equitably
reduced. Article 2216 of the Civil Code instructs that assessment
of damages is left to the discretion of the court according to the
circumstances of each case. This discretion is limited by the
principle that the amount awarded should not be palpably
excessive as to indicate that it was the result of prejudice or
corruption on the part of the trial court.40 To our mind, the
amount of P150,000.00 as moral damages is fair, reasonable,
and proportionate to the injury suffered by respondent.
Article 2232 of the Civil Code states that in a quasi-contract,
such as solutio indebiti, exemplary damages may be imposed if
the defendant acted in an oppressive manner. Petitioner acted
oppressively when he pestered respondent to pay interest and
threatened to block her transactions with the PNO if she would
not pay interest. This forced respondent to pay interest despite
lack of agreement thereto. Thus, the award of exemplary
damages is appropriate. The amount of P50,000.00 imposed as
exemplary damages by the RTC and the Court is fitting so as to
deter petitioner and other lenders from committing similar and
other serious wrongdoings.41
Jurisprudence instructs that in awarding attorneys fees, the trial
court must state the factual, legal or equitable justification for
awarding the same.42 In the case under consideration, the RTC
stated in its Decision that the award of attorneys fees equivalent
to 25% of the amount paid as interest by respondent to
petitioner is reasonable and moderate considering the extent of
work rendered by respondents lawyer in the instant case and
the fact that it dragged on for several years.43 Further,
respondent testified that she agreed to compensate her lawyer
handling the instant case such amount.44 The award, therefore,
of attorneys fees and its amount equivalent to 25% of the
amount paid as interest by respondent to petitioner is proper.
Finally, the RTC and the Court of Appeals imposed a 12% rate
of legal interest on the amount refundable to respondent
computed from 3 March 1998 until its full payment. This is
erroneous.
We held in Eastern Shipping Lines, Inc. v. Court of Appeals,45
that when an obligation, not constituting a loan or forbearance
of money is breached, an interest on the amount of damages
awarded may be imposed at the rate of 6% per annum. We
further declared that when the judgment of the court awarding
a sum of money becomes final and executory, the rate of legal
interest, whether it is a loan/forbearance of money or not, shall
be 12% per annum from such finality until its satisfaction, this
interim period being deemed equivalent to a forbearance of
credit.
In the present case, petitioners obligation arose from a quasi-
contract of solutio indebiti and not from a loan or forbearance
of money. Thus, an interest of 6% per annum should be
imposed on the amount to be refunded as well as on the
damages awarded and on the attorneys fees, to be computed
from the time of the extra-judicial demand on 3 March 1998,46
up to the finality of this Decision. In addition, the interest shall
become 12% per annum from the finality of this Decision up to
its satisfaction.
WHEREFORE, the Decision of the Court of Appeals in CA-G.R.
CV No. 71814, dated 16 December 2005, is hereby AFFIRMED
with the following MODIFICATIONS: (1) the amount of
P660,000.00 as refundable amount of interest is reduced to
THREE HUNDRED THIRTY FIVE THOUSAND PESOS
(P335,000.00); (2) the amount of P300,000.00 imposed as
moral damages is reduced to ONE HUNDRED FIFTY THOUSAND
PESOS (P150,000.00); (3) an interest of 6% per annum is
imposed on the P335,000.00, on the damages awarded and on
the attorneys fees to be computed from the time of the extra-
judicial demand on 3 March 1998 up to the finality of this
Decision; and (4) an interest of 12% per annum is also imposed
from the finality of this Decision up to its satisfaction. Costs
against petitioner.
SO ORDERED.
G.R. No. 171925 July 23, 2010
SOLIDBANK CORPORATION, (now Metropolitan Bank
and Trust Company), Petitioner,
vs.
ERMANENT HOMES, INCORPORATED, Respondent.
DECISION
CARPIO, J.:
G.R. No. 171925 is a petition for review1 assailing the Decision2
promulgated on 29 June 2005 by the Court of Appeals (appellate
court) as well as the Resolution3 promulgated on 14 March 2006
in CA-G.R. CV No. 75926. The appellate court granted the
petition filed by Permanent Homes, Incorporated (Permanent)
and reversed the decision of the Regional Trial Court of Makati
City, Branch 58 (trial court) dated 5 July 2002 in Civil Case No.
98-654. The appellate court ordered Solidbank Corporation
(Solidbank) and Permanent to enter into an express agreement
about the applicable interest rates on Permanents loan.
Solidbank was also ordered to render an accounting of
Permanents payments, not to impose interest on interest upon
Permanents loans, and to release the remaining amount
available under Permanents omnibus credit line.
The Facts
The appellate court narrated the facts as follows:
The records disclose that PERMANENT HOMES is a real estate
development company, and to finance its housing project known
as the "Buena Vida Townhomes" located within Merville
Subdivision, Paraaque City, it applied and was subsequently
granted by SOLIDBANK with an "Omnibus Line" credit facility in
the total amount of SIXTY MILLION PESOS. Of the entire loan,
FIFTY NINE MILLION as [sic] time loan for a term of up to three
hundred sixty (360) days, with interest thereon at prevailing
market rates, and subject to monthly repricing. The remaining
ONE MILLION was available for domestic bills purchase.
To secure the aforesaid loan, PERMANENT HOMES initially
mortgaged three (3) townhouse units within the Buena Vida
project in Paraaque. At the time, however, the instant
complaint was filed against SOLIDBANK, a total of thirty six (36)
townhouse units were mortgaged with said bank.
Of the 60 million available to PERMANENT HOMES, it availed of
a total of 41.5 million pesos, covered by three (3) promissory
notes, which contain the following provisions, thus:
"xxx
5. We/I irrevocably authorize Solidbank to increase or decrease
at any time the interest rate agreed in this Note or Loan on the
basis of, among others, prevailing rates in the local or
international capital markets. For this purpose, We/I authorize
Solidbank to debit any deposit or placement account with
Solidbank belonging to any one of us. The adjustment of the
interest rate shall be effective from the date indicated in the
written notice sent to us by the bank, or if no date is indicated,
from the time the notice was sent.
6. Should We/I disagree to the interest rate adjustment, We/I
shall prepay all amounts due under this Note or Loan within
thirty (30) days from the receipt by anyone of us of the written
notice. Otherwise, We/I shall be deemed to have given our
consent to the interest rate adjustment."
Contrary, however, to the specific provisions as afore-quoted,
there was a standing agreement by the parties that any increase
or decrease in interest rates shall be subject to the mutual
agreement of the parties.
For the first loan availment of PERMANENT HOMES on March
20, 1997, in the amount of 19.6 MILLION, from the initial
interest rate of 14.25% per annum (p.a.), the same was
increased 15% p.a. effective May 19, 1997; it was again
increased to 26% p.a. effective July 18, 1997. It was thereafter
reduced to 20% p.a. effective August 18, 1997, and then
increased to 24% p.a. effective September 17, 1997. The rate
was increased further to 30% p.a. effective October 17, 1997,
then decreased to 27% p.a. on November 17, 1997, and again
increased to 34% p.a. effective December 17, 1997. The rate
then decreased to 30% p.a. on January 16, 1998.
For the second loan availment in the amount of 18 million, the
rate was initially pegged at 15.75% p.a. on June 24, 1997. A
month later, the rate increased to 23.5% p.a. It thereafter
decreased to 20% p.a. effective August 24, 1997, but again
increased to 22.5% p.a. effective September 24, 1997. For the
next month, the rate surged to 30% p.a., and decreased to
27% p.a. for the month of November. The rate again surged
to 34% p.a. for the month of December, and was decreased
to 30% p.a. from January 22, 1998 to February 20, 1998.
For the third loan availment on July 15, 1997, in the amount of
3.9 million, the interest rate was initially pegged at 35% p.a.,
but this was decreased to 21% p.a. from August 14 until
September 11, 1997. The rate increased slightly to 23% p.a.
on September 12, 1997, and surged to 27% p.a. on October
13, 1997. The rate went down slightly to 27% p.a. for the
month of November, and to 26% p.a. for the month of
December. The rate, however, again surged to 30% p.a. on
January 12, 1998 before settling at 29% p.a. for the month of
February.
It is [Permanents] stand that SOLIDBANK unilaterally and
arbitrarily accelerated the interest rates without any declared
basis of such increases, of which PERMANENT HOMES had not
agreed to, or at the very least, been informed of. This is contrary
to their earlier agreement that any interest rate changes will be
subject to mutual agreement of the parties. PERMANENT
HOMES further admits that it was not able to protest such
arbitrary increases at the time they were imposed by
SOLIDBANK, for fear that SOLIDBANK might cut off the credit
facility it extended to PERMANENT HOMES. Permanent was then
in the midst of the construction of its project in Merville,
Paraaque City, and SOLIDBANK knew that it was relying
substantially on the credit facility the latter extended to it.
[Permanent] thus filed a case before the trial court seeking the
following: (1) the annulment of the increases in interest rates
on the loans it obtained from SOLIDBANK, on the ground that it
was violative of the principle of mutuality of agreement of the
parties, as enunciated in Article 1409 of the New Civil Code, (2)
the fixing of the interest rates at the applicable interest rate, and
(3) for the trial court to order SOLIDBANK to make an
accounting of the payments it made, so as to determine the
amount of refund PERMANENT is entitled to, as well as to order
SOLIDBANK to release the remaining available balance of the
loan it extended to PERMANENT. In addition, [Permanent] prays
for the payment of compensatory, moral and exemplary
damages.
SOLIDBANK, on the other hand, avers that PERMANENT HOMES
has no cause of action against it, in view of the pertinent
provisions of the Omnibus Credit Line and the promissory notes
agreed to and signed by PERMANENT HOMES. Thus, in
accordance with said provisions, SOLIDBANK was authorized to,
upon due notice, periodically adjust the interest rates on
PERMANENT HOMES loan availments during the monthly
interest repricing dates, depending on the changes in prevailing
interest rates in the local and international capital markets. In
fact, SOLIDBANK avers that four (4) days before July 15, 1997,
the Bangko Sentral ng Pilipinas (BSP) declared that it could no
longer support the Philippine currency from external speculative
forces, hence, the local currency was allowed to seek its own
exchange rate level. As a result of the volatile exchange rate
ratio, banks were then hesitant to extend loans, and in some
instances that it granted loans, they had to ensure that they will
not be at the losing end of the deal, so to speak, by the repricing
of the interest rates every month. SOLIDBANK insists that
PERMANENT HOMES should not be allowed to renege on its
contractual obligations, as it freely and voluntarily bound itself
to the provisions of the Omnibus Credit Line and the promissory
notes.
PERMANENT HOMES presented as witnesses Jacqueline S. Lim,
its Vice President and Chief Financial Officer, Engr. Rey A.
Romasanta, its Executive Vice President and Chief Operating
Officer, and Martha Julia Flores, its Treasury Officer.
On March 24, 1998, the trial court issued a temporary
restraining order (TRO), after a summary hearing, which
enjoined SOLIDBANK from implementing and collecting the
increases in interest rates and from initiating any action,
including the foreclosure of the mortgaged properties.
Ms. Lims testimony centered on PERMANENT HOMES
allegations that the repricing of the interest rates was done by
SOLIDBANK without any written agreement entered into
between the parties. In fact, Ms. Lim accounted that
SOLIDBANK will merely advise them of the interest rate for the
period, after said period had already commenced, and at times
very late in the period, by fax messages. When PERMANENT
HOMES called SOLIDBANKs attention to the seemingly surging
rates it imposed on its loan, SOLIDBANK will merely answer that
it was the banks policy, without offering any basis for such
increase. Furthermore, Ms. Lim also mentioned SOLIDBANKs
alleged practice of imposing interest on unpaid interest, at the
highest rate of 30% p.a.. Ms. Lim also presented a tabulation,
which presents the number of days their billing statements were
sent late, from the time the interest period started. It is
PERMANENT HOMES stand that since the purpose of the billing
statements was to inform them beforehand of the applicable
interest rate for the period, the late billings will clearly show
SOLIDBANKs arbitrary imposition of the repriced interest rates,
as well as its indifference to PERMANENT HOMES plight.
To illustrate, for the first loan availment in the amount of P19.6
million, the billing statements which should have notified
PERMANENT HOMES of the repriced interest rates were faxed
to PERMANENT HOMES between eighteen (18) to thirty-three
(33) days late. For the second loan availment in the amount of
P18 million, the faxed billings were late between six (6) to
twenty-one (21) days, and one instance where PERMANENT
HOMES received no billing at all. For the third loan availment in
the amount of P3.9 million, the faxed billings were late between
seven (7) to twenty-nine (29) days, and also an instance where
PERMANENT HOMES received no billing at all.
This practice, according to Ms. Lim, clearly affected its
operations, as the completion of its construction project was
unnecessarily delayed, to its prejudice and its buyers. This was
the import of the testimony of PERMANENT HOMES second
witness, Engr. Rey A. Romasanta. According to Engr. Rey, the
target date of completion was August 1997, but in view of the
shortage of funds by reason of SOLIDBANKs refusal for
PERMANENT HOMES to make further availments on its omnibus
credit line, the project was completed only on February 1998.
PERMANENT HOMES third and final witness was Martha Julia
Flores, its Treasury Officer, who explained that as such, it was
her who received the late billings from SOLIDBANK. She would
also call up SOLIDBANK to ask what the repriced interest rate
for the coming interest period, to no avail, as SOLIDBANK will
merely fax its billings almost always, as abovementioned, late in
the period. Ms. Flores admitted that she prepared the tabulation
presented before the court, which showed how late
SOLIDBANKs billings were sent to PERMANENT HOMES, as well
as the computation of interest rates that SOLIDBANK had
allegedly overcharged on its loan, vis-a-vis the average of the
high and the low published lending rates of SOLIDBANK.
SOLIDBANK, to establish its defense, presented its lone witness,
Mr. Cesar Lugtu, who testified to the effect that, contrary to
PERMANENT HOMES assertions that it was not promptly
informed of the repriced interest rates, SOLIDBANKs officers
verbally advised PERMANENT HOMES of the repriced rates at
the start of the period, and even added that their transaction[s]
were based on trust. Aside from these allegations, however, no
written memorandum or note was presented by SOLIDBANK to
support their assertion that PERMANENT HOMES was timely
advised of the repriced interests.4
The Trial Courts Ruling
On 5 July 2002, the trial court promulgated its Decision in favor
of Solidbank. The trial court ratiocinated and ruled thus:
It becomes crystal clear that there is sufficient proof to show
that the instant case was instituted by [Permanent] as an after-
thought and as an obvious subterfuge intended to completely
lay on the defendant the blame for the debacle of its Buena Vida
project. An afterthought because the records of the case show
that the complaint was filed in March 16, 1998, already after it
was having difficulty making the amortization payments, the last
of which being in February 1998. A subterfuge because plaintiff,
instead of blaming itself and its own business judgment that
went sour, would rather put the blame on [Solidbank], taking
advantage of every conceivable gray area of its contract with
[Solidbank] to avoid its own liabilities. In fact, this complaint was
made the very basis for [Permanent] to altogether stop the
payment of its loan from [Solidbank] including the interest
payment (TSN, May 07, 1998, p. 60).
xxxx
WHEREFORE, finding the complaint not impressed with merit,
judgment is hereby rendered dismissing the said complaint. The
Counterclaim is likewise dismissed for lack of evidence to
support the same.
SO ORDERED.5
Permanent filed an appeal before the appellate court.
The Appellate Courts Ruling
The appellate court granted Permanents appeal, and set aside
the trial courts ruling. The appellate court not only recognized
the validity of escalation clauses, but also underscored the
necessity of a basis for the increase in interest rates and of the
principle of mutuality of contracts.
The dispositive portion of the appellate courts decision reads,
thus:
THE FOREGOING CONSIDERED, the instant appeal is hereby
GRANTED, the assailed decision dated July 5, 2002 is REVERSED
and SET ASIDE, and a new one is hereby entered as follows:
(1) Unless the parties herein subsequently enter into an
express agreement regarding the applicable interest rates on
PERMANENT HOMES loan availments subsequent to the initial
thirty-day (30) period, the legal rate of twelve percent (12%)
per annum is hereby FIXED, to be applied on the outstanding
balance of the loan;
(2) SOLIDBANK is ordered to render an accounting of all the
payments made by PERMANENT HOMES, and in case there is
excess payment by reason of the wrongful imposition of the
repriced interest rates, to apply such amount to the interest
payment at the legal rate, and thereafter to the outstanding
principal amount;
(3) SOLIDBANK is directed not to impose penalties, particularly
interest on interest, upon PERMANENT HOMES loan, there
being no evidence that the latter was in default on its payments;
(4) SOLIDBANK is hereby ordered to release the remaining
amount available under the omnibus credit line, subject,
however, to availability of funds on the part of SOLIDBANK.
No pronouncement as to costs.
SO ORDERED.6
The appellate court resolved to deny Solidbanks Motion for
Reconsideration for lack of merit.7
The Issues
Solidbank raised the following issues in their petition:
(A) Whether the Honorable Court of Appeals was correct in
ruling that the increases in the interest rates on [Permanents]
loans are void for having been unilaterally imposed without
basis.
(B) Whether the Honorable Court of Appeals was correct in dependent exclusively upon the uncontrolled will of one of the
ordering the parties to enter into an express agreement contracting parties is void.11 There was no showing that either
regarding the applicable interest rates on Permanents loan Solidbank or Permanent coerced each other to enter into the
availments subsequent to the initial thirty-day (30) period. loan agreements. The terms of the Omnibus Line Agreement
and the promissory notes were mutually and freely agreed upon
(C) Whether the Honorable Court of Appeals was correct in by the parties.
ruling that [Permanent] is entitled to attorneys fees
notwithstanding the absence of bad faith or malice on the part Moreover, Solidbanks range of lending rates were consistent
of [Solidbank].8 with "prevailing rates in the local or international capital
markets." Permanent presented a tabulation12 of the range of
The Courts Ruling Solidbanks lending rates, as reported to Bangko Sentral ng
The petition has merit. Pilipinas and compared the lending rates with the interest rates
charged by Solidbank on Permanents loans, thus:
The Usury Law had been rendered legally ineffective by
Resolution No. 224 dated 3 December 1982 of the Monetary Solidbanks
Board of the Central Bank, and later by Central Bank Circular range of
No. 905 which took effect on 1 January 1983. These circulars lending rates
removed the ceiling on interest rates for secured and unsecured as per BSP
loans regardless of maturity. The effect of these circulars is to records
allow the parties to agree on any interest that may be charged
on a loan. The virtual repeal of the Usury Law is within the range
High Low Interest rates Excess
of judicial notice which courts are bound to take into account.9
charged by Interest Rate
Although interest rates are no longer subject to a ceiling, the
Solidbank on Over the
lender still does not have an unbridled license to impose
Permanents Average of
increased interest rates. The lender and the borrower should
loans High and Low
agree on the imposed rate, and such imposed rate should be in
Rates
writing.

The three promissory notes between Solidbank and Permanent Sept. 12, 25.0% 22.0% 23.0%
all contain the following provisions: 1997
5. We/I irrevocably authorize Solidbank to increase or decrease
at any time the interest rate agreed in this Note or Loan on the Sept. 17, 27.0% 24.0% 24.0%
basis of, among others, prevailing rates in the local or 1997
international capital markets. For this purpose, We/I authorize
Solidbank to debit any deposit or placement account with
Sept. 22, 26.0% 23.0% 22.5%
Solidbank belonging to any one of us. The adjustment of the
1997
interest rate shall be effective from the date indicated in the
written notice sent to us by the bank, or if no date is indicated,
from the time the notice was sent. Oct. 13, 29.0% 26.0% 28.0%
1997
6. Should We/I disagree to the interest rate adjustment, We/I
shall prepay all amounts due under this Note or Loan within
thirty (30) days from the receipt by anyone of us of the written Oct. 17, 30.0% 27.0% 30.0%
notice. Otherwise, We/I shall be deemed to have given our 1997
consent to the interest rate adjustment.
Oct. 22, 32.0% 29.0% 30.0%
The stipulations on interest rate repricing are valid because (1)
1997
the parties mutually agreed on said stipulations; (2) repricing
takes effect only upon Solidbanks written notice to Permanent
of the new interest rate; and (3) Permanent has the option to Nov. 12, 28.0% 25.0% 27.0%
prepay its loan if Permanent and Solidbank do not agree on the 1997
new interest rate. The phrases "irrevocably authorize," "at any
time" and "adjustment of the interest rate shall be effective from
Nov. 17, 28.0% 25.0% 27.0%
the date indicated in the written notice sent to us by the bank,
1997
or if no date is indicated, from the time the notice was sent,"
emphasize that Permanent should receive a written notice from
Solidbank as a condition for the adjustment of the interest rates. Nov. 21, 27.0% 24.0% 27.0%
1997
In order that obligations arising from contracts may have the
force of law between the parties, there must be a mutuality
between the parties based on their essential equality.10 A
contract containing a condition which makes its fulfillment
 Dec. 12, 25.0% 23.0% 26.0% 2.0% to Statement
1997 Permanent was Late

Dec. 17, 25.0% 23.0% 34.0% 10.0% 1 03/20/97 04/18/97 04/17/97 28

1997
2 04/18/97 05/19/97 05/16/97 28
Dec. 22, 25.0% 23.0% 32.0% 8.0%
1997
05/19/97 06/19/97 no
statement
Jan. 12, 26.0% 24.0% 30.0% 5.0% received
1998
3 06/19/97 07/18/97 07/12/97 23
Jan. 16, 28.0% 25.0% 30.0% 3.5%
1998
4 07/18/97 08/18/97 08/05/97 18

Jan. 22, 28.0% 25.0% 30.0% 3.5%

5 08/18/97 09/17/97 09/10/97 23
1998

6 09/17/97 10/17/97 10/06/97 19

Feb. 9, 27.0% 24.0% 30.0% 3.5%
1998
7 10/17/97 11/17/97 11/11/97 25

Feb. 11, 27.0% 24.0% 29.0% 4.5%

1998 8 11/17/97 12/17/97 12/12/97 25

Feb. 12, 27.0% 24.0% 30.0% 4.5% 9 12/17/97 01/16/98 01/09/98 23

1998
14 01/16/98 02/20/98 02/18/98 33

The repriced interest rates from 12 September to 21 November

1997 conformed to the range of Solidbanks lending rates to
other borrowers. The 12 December 1997 to 12 February 1998 PN #969 P18MM
repriced interest rates were not unconscionably out of line with
the upper range of lending rates to other borrowers. The Reference Interest Period Date Billing Number
interest rate repricing happened at the height of the Asian No. Statements of days
financial crises in late 1997, when banks clamped down on were faxed Billing
lendings because of higher credit risks across industries, to Statement
particularly the real estate industry. Permanent was Late
We also recognize that Solidbank admitted that it did not
promptly send Permanent written repriced rates, but rather 3 06/24/97 07/24/97 07/12/97 18
verbally advised Permanents officers over the phone at the start
of the period. Solidbank did not present any written
4 07/24/97 08/22/97 08/05/97 12
memorandum to support its allegation that it promptly advised
Permanent of the change in interest rates.13 Solidbank advised
Permanent on the repriced interest rate applicable for the 30- 5 08/22/97 09/22/97 09/10/97 19
day interest period only after the period had begun. Permanent
presented a tabulation which showed that Solidbank either did 6 09/22/97 10/22/97 10/06/97 14
not send a billing statement, or sent a billing statement 6 to 33
days late.14 We reproduce the tabulation below:
7 10/22/97 11/21/97 11/11/97 20
PN #435 P19.6MM
8 11/21/97 12/22/97 12/12/97 21
Reference Interest Period Date Billing Number
No. Statements of days 9 12/22/97 01/22/98 01/09/98 18
were faxed Billing
 G.R. No. L-66826 August 19, 1988
01/22/98 02/12/97 no
statement BANK OF THE PHILIPPINE ISLANDS, petitioner,
received vs.
THE INTERMEDIATE APPELLATE COURT and
14 02/12/98 02/20/98 02/18/98 6 ZSHORNACK respondents.

CORTES, J.:

The original parties to this case were Rizaldy T. Zshornack and

PN #1077 P3.9MM the Commercial Bank and Trust Company of the Philippines
[hereafter referred to as "COMTRUST."] In 1980, the Bank of
the Philippine Islands (hereafter referred to as BPI absorbed
Reference Interest Period Date Billing Number
COMTRUST through a corporate merger, and was substituted as
No. Statements of days
party to the case.
were faxed Billing
to Statement Rizaldy Zshornack initiated proceedings on June 28,1976 by
Permanent was Late filing in the Court of First Instance of Rizal Caloocan City a
complaint against COMTRUST alleging four causes of action.
10 07/15/97 08/14/97 08/14/97 30 Except for the third cause of action, the CFI ruled in favor of
Zshornack. The bank appealed to the Intermediate Appellate
Court which modified the CFI decision absolving the bank from
11 08/14/97 08/26/97 08/26/97 12 liability on the fourth cause of action. The pertinent portions of
the judgment, as modified, read:
5 08/26/97 09/12/97 09/10/97 15
IN VIEW OF THE FOREGOING, the Court renders judgment as
follows:
6 09/12/97 10/13/97 10/06/97 24
1. Ordering the defendant COMTRUST to restore to the dollar
savings account of plaintiff (No. 25-4109) the amount of U.S
7 10/13/97 11/12/97 11/11/97 29 $1,000.00 as of October 27, 1975 to earn interest together with
the remaining balance of the said account at the rate fixed by
12 11/12/97 12/12/97 12/10/97 28 the bank for dollar deposits under Central Bank Circular 343;

2. Ordering defendant COMTRUST to return to the plaintiff the

9 12/12/97 01/12/98 01/09/98 28 amount of U.S. $3,000.00 immediately upon the finality of this
decision, without interest for the reason that the said amount
was merely held in custody for safekeeping, but was not actually
13 01/12/98 02/09/98 02/09/98 28
deposited with the defendant COMTRUST because being cash
currency, it cannot by law be deposited with plaintiffs dollar
02/09/98 02/11/98 no account and defendant's only obligation is to return the same to
statement plaintiff upon demand;
received
xxx xxx xxx

14 02/11/98 03/13/98 02/18/98 7 5. Ordering defendant COMTRUST to pay plaintiff in the amount
of P8,000.00 as damages in the concept of litigation expenses
We rule that Solidbanks computation of the interest due from and attorney's fees suffered by plaintiff as a result of the failure
Permanent should be adjusted to take effect only upon of the defendant bank to restore to his (plaintiffs) account the
Permanents receipt of the written notice from amount of U.S. $1,000.00 and to return to him (plaintiff) the
Solidbank.1avvphi1 U.S. $3,000.00 cash left for safekeeping.

WHEREFORE, we GRANT the petition in part. We SET ASIDE
the Decision of the Court of Appeals promulgated on 29 June
2005 as well as the Resolution promulgated on 14 March 2006
in CA-G.R. CV No. 75926 and AFFIRM the decision of the
Regional Trial Court of Makati City, Branch 58 dated 5 July 2002
in Civil Case No. 98-654 with the MODIFICATION that the
repricing of the interest rates should take effect only upon
Permanent Homes, Incorporateds receipt of the written notice
from Solidbank Corporation of the adjustment in interest rate.
The records of this case are therefore remanded to the trial
court for the computation of the proper interest payments based
on the dates of receipt of written notice. SO ORDERED.
Costs against defendant COMTRUST.
SO ORDERED. [Rollo, pp. 47-48.]
Undaunted, the bank comes to this Court praying that it be
totally absolved from any liability to Zshornack. The latter not
having appealed the Court of Appeals decision, the issues facing
this Court are limited to the bank's liability with regard to the
first and second causes of action and its liability for damages.
1. We first consider the first cause of action, On the dates
material to this case, Rizaldy Zshornack and his wife, Shirley
Gorospe, maintained in COMTRUST, Quezon City Branch, a
dollar savings account and a peso current account.
On October 27, 1975, an application for a dollar draft was
accomplished by Virgilio V. Garcia, Assistant Branch Manager of
COMTRUST Quezon City, payable to a certain Leovigilda D.
Dizon in the amount of $1,000.00. In the application, Garcia
indicated that the amount was to be charged to Dollar Savings
Acct. No. 25-4109, the savings account of the Zshornacks; the
charges for commission, documentary stamp tax and others
totalling P17.46 were to be charged to Current Acct. No.
210465-29, again, the current account of the Zshornacks. There
was no indication of the name of the purchaser of the dollar
draft.
On the same date, October 27,1975, COMTRUST, under the
signature of Virgilio V. Garcia, issued a check payable to the
order of Leovigilda D. Dizon in the sum of US $1,000 drawn on
the Chase Manhattan Bank, New York, with an indication that it
was to be charged to Dollar Savings Acct. No. 25-4109.
When Zshornack noticed the withdrawal of US$1,000.00 from
his account, he demanded an explanation from the bank. In
answer, COMTRUST claimed that the peso value of the
withdrawal was given to Atty. Ernesto Zshornack, Jr., brother of
Rizaldy, on October 27, 1975 when he (Ernesto) encashed with
COMTRUST a cashier's check for P8,450.00 issued by the Manila
Banking Corporation payable to Ernesto.
Upon consideration of the foregoing facts, this Court finds no
reason to disturb the ruling of both the trial court and the
Appellate Court on the first cause of action. Petitioner must be
held liable for the unauthorized withdrawal of US$1,000.00 from
private respondent's dollar account.
In its desperate attempt to justify its act of withdrawing from its
depositor's savings account, the bank has adopted inconsistent
theories. First, it still maintains that the peso value of the
amount withdrawn was given to Atty. Ernesto Zshornack, Jr.
when the latter encashed the Manilabank Cashier's Check. At
the same time, the bank claims that the withdrawal was made
pursuant to an agreement where Zshornack allegedly authorized
the bank to withdraw from his dollar savings account such
amount which, when converted to pesos, would be needed to
fund his peso current account. If indeed the peso equivalent of
the amount withdrawn from the dollar account was credited to
the peso current account, why did the bank still have to pay
Ernesto?
At any rate, both explanations are unavailing. With regard to the
first explanation, petitioner bank has not shown how the
transaction involving the cashier's check is related to the
transaction involving the dollar draft in favor of Dizon financed
by the withdrawal from Rizaldy's dollar account. The two
transactions appear entirely independent of each other.
Moreover, Ernesto Zshornack, Jr., possesses a personality
distinct and separate from Rizaldy Zshornack. Payment made to
Ernesto cannot be considered payment to Rizaldy.
As to the second explanation, even if we assume that there was
such an agreement, the evidence do not show that the
withdrawal was made pursuant to it. Instead, the record reveals
that the amount withdrawn was used to finance a dollar draft in
favor of Leovigilda D. Dizon, and not to fund the current account
of the Zshornacks. There is no proof whatsoever that peso
Current Account No. 210-465-29 was ever credited with the
peso equivalent of the US$1,000.00 withdrawn on October 27,
1975 from Dollar Savings Account No. 25-4109.
2. As for the second cause of action, the complaint filed with the
trial court alleged that on December 8, 1975, Zshornack
entrusted to COMTRUST, thru Garcia, US $3,000.00 cash
(popularly known as greenbacks) for safekeeping, and that the
agreement was embodied in a document, a copy of which was
attached to and made part of the complaint. The document
reads:
Makati Cable Address:
Philippines "COMTRUST"
COMMERCIAL BANK AND TRUST COMPANY
of the Philippines
Quezon City Branch
December 8, 1975
MR. RIZALDY T. ZSHORNACK
&/OR MRS SHIRLEY E. ZSHORNACK
Sir/Madam:
We acknowledged (sic) having received from you today the sum
of US DOLLARS: THREE THOUSAND ONLY (US$3,000.00) for
safekeeping.
Received by:
(Sgd.) VIRGILIO V. GARCIA
It was also alleged in the complaint that despite demands, the
bank refused to return the money.
In its answer, COMTRUST averred that the US$3,000 was
credited to Zshornack's peso current account at prevailing
conversion rates.
It must be emphasized that COMTRUST did not deny specifically
under oath the authenticity and due execution of the above
instrument.
During trial, it was established that on December 8, 1975
Zshornack indeed delivered to the bank US $3,000 for
safekeeping. When he requested the return of the money on
May 10, 1976, COMTRUST explained that the sum was disposed
of in this manner: US$2,000.00 was sold on December 29, 1975
and the peso proceeds amounting to P14,920.00 were deposited
to Zshornack's current account per deposit slip accomplished by
Garcia; the remaining US$1,000.00 was sold on February 3,
1976 and the peso proceeds amounting to P8,350.00 were
deposited to his current account per deposit slip also
accomplished by Garcia.
Aside from asserting that the US$3,000.00 was properly credited
to Zshornack's current account at prevailing conversion rates,
BPI now posits another ground to defeat private respondent's
claim. It now argues that the contract embodied in the
document is the contract of depositum (as defined in Article
1962, New Civil Code), which banks do not enter into. The bank
alleges that Garcia exceeded his powers when he entered into
the transaction. Hence, it is claimed, the bank cannot be liable
under the contract, and the obligation is purely personal to
Garcia.
Before we go into the nature of the contract entered into, an
important point which arises on the pleadings, must be
considered.
The second cause of action is based on a document purporting
to be signed by COMTRUST, a copy of which document was
attached to the complaint. In short, the second cause of action
was based on an actionable document. It was therefore
incumbent upon the bank to specifically deny under oath the
due execution of the document, as prescribed under Rule 8,
Section 8, if it desired: (1) to question the authority of Garcia to
bind the corporation; and (2) to deny its capacity to enter into
such contract. [See, E.B. Merchant v. International Banking
Corporation, 6 Phil. 314 (1906).] No sworn answer denying the
due execution of the document in question, or questioning the
authority of Garcia to bind the bank, or denying the bank's
capacity to enter into the contract, was ever filed. Hence, the
bank is deemed to have admitted not only Garcia's authority,
but also the bank's power, to enter into the contract in question.
In the past, this Court had occasion to explain the reason behind
this procedural requirement.
The reason for the rule enunciated in the foregoing authorities
will, we think, be readily appreciated. In dealing with
corporations the public at large is bound to rely to a large extent
upon outward appearances. If a man is found acting for a
corporation with the external indicia of authority, any person,
not having notice of want of authority, may usually rely upon
those appearances; and if it be found that the directors had
permitted the agent to exercise that authority and thereby held
him out as a person competent to bind the corporation, or had
acquiesced in a contract and retained the benefit supposed to
have been conferred by it, the corporation will be bound,
notwithstanding the actual authority may never have been
granted
... Whether a particular officer actually possesses the authority
which he assumes to exercise is frequently known to very few,
and the proof of it usually is not readily accessible to the
stranger who deals with the corporation on the faith of the
ostensible authority exercised by some of the corporate officers.
It is therefore reasonable, in a case where an officer of a
corporation has made a contract in its name, that the
corporation should be required, if it denies his authority, to state
such defense in its answer. By this means the plaintiff is apprised
of the fact that the agent's authority is contested; and he is
given an opportunity to adduce evidence showing either that the
authority existed or that the contract was ratified and approved.
[Ramirez v. Orientalist Co. and Fernandez, 38 Phil. 634, 645-
646 (1918).]
Petitioner's argument must also be rejected for another reason.
The practical effect of absolving a corporation from liability every
time an officer enters into a contract which is beyond corporate
powers, even without the proper allegation or proof that the
corporation has not authorized nor ratified the officer's act, is to
cast corporations in so perfect a mold that transgressions and
wrongs by such artificial beings become impossible [Bissell v.
Michigan Southern and N.I.R. Cos 22 N.Y 258 (1860).] "To say
that a corporation has no right to do unauthorized acts is only
to put forth a very plain truism but to say that such bodies have
no power or capacity to err is to impute to them an excellence
which does not belong to any created existence with which we
are acquainted. The distinction between power and right is no
more to be lost sight of in respect to artificial than in respect to
natural persons." [Ibid.]
Having determined that Garcia's act of entering into the contract
binds the corporation, we now determine the correct nature of
the contract, and its legal consequences, including its
enforceability.
The document which embodies the contract states that the
US$3,000.00 was received by the bank for safekeeping. The
subsequent acts of the parties also show that the intent of the
parties was really for the bank to safely keep the dollars and to
return it to Zshornack at a later time, Thus, Zshornack
demanded the return of the money on May 10, 1976, or over
five months later.
The above arrangement is that contract defined under Article
1962, New Civil Code, which reads:
Art. 1962. A deposit is constituted from the moment a person
receives a thing belonging to another, with the obligation of
safely keeping it and of returning the same. If the safekeeping
of the thing delivered is not the principal purpose of the
contract, there is no deposit but some other contract.
Note that the object of the contract between Zshornack and
COMTRUST was foreign exchange. Hence, the transaction was
covered by Central Bank Circular No. 20, Restrictions on Gold
and Foreign Exchange Transactions, promulgated on December
9, 1949, which was in force at the time the parties entered into
the transaction involved in this case. The circular provides:
xxx xxx xxx
2. Transactions in the assets described below and all dealings in
them of whatever nature, including, where applicable their
exportation and importation, shall NOT be effected, except with
respect to deposit accounts included in sub-paragraphs (b) and
(c) of this paragraph, when such deposit accounts are owned by
and in the name of, banks.
(a) Any and all assets, provided they are held through, in, or
with banks or banking institutions located in the Philippines,
including money, checks, drafts, bullions bank drafts, deposit
accounts (demand, time and savings), all debts, indebtedness
or obligations, financial brokers and investment houses, notes,
debentures, stocks, bonds, coupons, bank acceptances,
mortgages, pledges, liens or other rights in the nature of
security, expressed in foreign currencies, or if payable abroad,
irrespective of the currency in which they are expressed, and
belonging to any person, firm, partnership, association, branch
office, agency, company or other unincorporated body or
corporation residing or located within the Philippines;
(b) Any and all assets of the kinds included and/or described in
subparagraph (a) above, whether or not held through, in, or
with banks or banking institutions, and existent within the
Philippines, which belong to any person, firm, partnership,
association, branch office, agency, company or other
unincorporated body or corporation not residing or located
within the Philippines;
(c) Any and all assets existent within the Philippines including
money, checks, drafts, bullions, bank drafts, all debts,
indebtedness or obligations, financial securities commonly dealt
in by bankers, brokers and investment houses, notes,
debentures, stock, bonds, coupons, bank acceptances,
mortgages, pledges, liens or other rights in the nature of
security expressed in foreign currencies, or if payable abroad,
irrespective of the currency in which they are expressed, and
belonging to any person, firm, partnership, association, branch
office, agency, company or other unincorporated body or
corporation residing or located within the Philippines.
xxx xxx xxx
4. (a) All receipts of foreign exchange shall be sold daily to the
Central Bank by those authorized to deal in foreign exchange.
All receipts of foreign exchange by any person, firm,
partnership, association, branch office, agency, company or
other unincorporated body or corporation shall be sold to the
authorized agents of the Central Bank by the recipients within
one business day following the receipt of such foreign exchange.
Any person, firm, partnership, association, branch office,
agency, company or other unincorporated body or corporation,
residing or located within the Philippines, who acquires on and
after the date of this Circular foreign exchange shall not, unless
licensed by the Central Bank, dispose of such foreign exchange
in whole or in part, nor receive less than its full value, nor delay
taking ownership thereof except as such delay is customary;
Provided, further, That within one day upon taking ownership,
or receiving payment, of foreign exchange the aforementioned
persons and entities shall sell such foreign exchange to
designated agents of the Central Bank.
xxx xxx xxx
8. Strict observance of the provisions of this Circular is enjoined;
and any person, firm or corporation, foreign or domestic, who
being bound to the observance thereof, or of such other rules,
regulations or directives as may hereafter be issued in
implementation of this Circular, shall fail or refuse to comply
with, or abide by, or shall violate the same, shall be subject to
the penal sanctions provided in the Central Bank Act.
xxx xxx xxx
Paragraph 4 (a) above was modified by Section 6 of Central
Bank Circular No. 281, Regulations on Foreign Exchange,
promulgated on November 26, 1969 by limiting its coverage to
Philippine residents only. Section 6 provides:
SEC. 6. All receipts of foreign exchange by any resident person,
firm, company or corporation shall be sold to authorized agents
of the Central Bank by the recipients within one business day
following the receipt of such foreign exchange. Any resident
person, firm, company or corporation residing or located within
the Philippines, who acquires foreign exchange shall not, unless
authorized by the Central Bank, dispose of such foreign
exchange in whole or in part, nor receive less than its full value,
nor delay taking ownership thereof except as such delay is
customary; Provided, That, within one business day upon taking
ownership or receiving payment of foreign exchange the
aforementioned persons and entities shall sell such foreign
exchange to the authorized agents of the Central Bank.
As earlier stated, the document and the subsequent acts of the
parties show that they intended the bank to safekeep the foreign
exchange, and return it later to Zshornack, who alleged in his
complaint that he is a Philippine resident. The parties did not
intended to sell the US dollars to the Central Bank within one
business day from receipt. Otherwise, the contract of depositum
would never have been entered into at all.
Since the mere safekeeping of the greenbacks, without selling
them to the Central Bank within one business day from receipt,
is a transaction which is not authorized by CB Circular No. 20, it
must be considered as one which falls under the general class
of prohibited transactions. Hence, pursuant to Article 5 of the
Civil Code, it is void, having been executed against the
provisions of a mandatory/prohibitory law. More importantly, it
affords neither of the parties a cause of action against the other.
"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 cause of
action against each other. . ." [Art. 1411, New Civil Code.] The
only remedy is one on behalf of the State to prosecute the
parties for violating the law.
We thus rule that Zshornack cannot recover under the second
cause of action.
3. Lastly, we find the P8,000.00 awarded by the courts a quo as
damages in the concept of litigation expenses and attorney's
fees to be reasonable. The award is sustained.
WHEREFORE, the decision appealed from is hereby MODIFIED.
Petitioner is ordered to restore to the dollar savings account of
private respondent the amount of US$1,000.00 as of October
27, 1975 to earn interest at the rate fixed by the bank for dollar
savings deposits. Petitioner is further ordered to pay private
respondent the amount of P8,000.00 as damages. The other
causes of action of private respondent are ordered dismissed.
SO ORDERED.