GARY P. ROSAURO, COMPLAINANT, VS. JUDGE ALFREDO E.

KALLOS, PRESIDING JUDGE OF TH E REGIONAL TRIAL COURT, LEGASPI CITY, BRANCH X, RESPONDENT. D E C I S I O N CARPIO, J.: The Case This is an administrative complaint against respondent Judge Alfredo E. Kallos ( "respondent Judge") of the Regional Trial Court, Legaspi City, Branch X ("Branc h X"), for "Gross and Serious Misconduct." The Facts In his Complaint dated 12 July 2002, complainant Gary P. Rosauro ("complainant") alleged that in June 1997, respondent Judge, a friend and kumpadre, offered to sell to him an unregistered parcel of land in Penaranda[1] Street, Legaspi City ("Lot No. 1470") measuring 235 square meters. Respondent Judge allegedly claimed ownership over Lot No. 1470. Complainant orally agreed to buy Lot No. 1470 for P2 million provided that respondent Judge take care of its registration in compl ainant's name, at no additional cost. Complainant wanted to donate Lot No. 1470 to his two children, Marivic and Allan Rosauro ("Marivic and Allan"). Starting 30 June 1997, complainant, on respondent Judge's demands, made several partial payments for Lot No. 1470 for which respondent Judge issued receipts.[2] In the course of collecting complainant's payments, respondent Judge also obtai ned from complainant a P50,000 loan, payable in two months from 28 March 1998.[3 ] By August 1998, complainant's total payments amounted to P1,695,000.[4] Meanwhile, in February 1998, a certain Atty. German Mata ("Atty. Mata") filed wi th the Regional Trial Court, Legaspi City, Branch I ("Branch I"), a petition (" LRC Case No. N-683") to register Lot No. 1470 in Marivic and Allan's name. Branc h I initially dismissed LRC Case No. N-683. However, on Atty. Mata's motion, Br anch I reconsidered, reinstated the case, and received petitioners' evidence.[5] Nevertheless, on 19 June 1999, Branch I eventually dismissed the case.[6] Complainant subsequently learned, from a receipt[7] and the Deed of Absolute Sal e[8] respondent Judge gave him, that a certain Rodelia Esplana-Guerrero ("Guerre ro") owned Lot No. 1470. Complainant also learned that Guerrero had sought the r econstitution of her alleged title to Lot No. 1470 in the Regional Trial Court, Legaspi City, Branch IV ("Branch IV") but Branch IV dismissed Guerrero's petitio n on 16 November 1993. With this new information and respondent Judge's failure to register Lot No. 147 0, complainant hired a lawyer to rescind his contract with respondent Judge. Acc ordingly, complainant's counsel wrote respondent Judge on 21 August 2001, demand ing rescission. On 12 September 2001, respondent Judge, using his sala's officia l stationery, replied that he needs more time to confer with Guerrero. After a f ew months, complainant's counsel reiterated the demand for rescission. Again usi ng his sala's official stationery, respondent Judge replied on 8 May 2002 that G uerrero is still raising the amount to refund complainant.[9] For respondent Judge's failure to refund the payments, his misrepresentations on Lot No. 1470's ownership and registrability, and Lot No. 1470's non-registratio n, complainant filed this Complaint. In his Comment, respondent Judge admitted offering to sell Lot No. 1470 to comp lainant but denied claiming ownership over that property. Respondent Judge alleg ed that at the outset, he informed complainant that Guerrero is the owner of Lot

No. 1470. Complainant also allegedly knew that respondent Judge merely acted as Guerrero's representative so he could apply part of the sale's proceeds to sati sfy legal fees Guerrero owed him for services rendered before his appointment to the Bench. Respondent Judge further alleged that he informed complainant of Gue rrero's unsuccessful attempt to reconstitute her title to Lot No. 1470. On the n on-registration of Lot No. 1470, respondent Judge stated that since LRC Case No. N-683 was still pending in Branch I, it was premature to conclude that he faile d to comply with his undertaking to register that property. Respondent Judge al so claimed that complainant hired Atty. Mata to file and litigate LRC Case No. N -683. In his Reply, complainant maintained that respondent Judge never informed him th at Guerrero owned Lot No. 1470 or that respondent Judge was merely acting as Gue rrero's representative. On LRC Case No. N-683, complainant countered that respon dent Judge hired Atty. Mata as part of his undertaking to register Lot No. 1470. Complainant also disclosed that respondent Judge tried to have this Complaint w ithdrawn.[10] Complainant added that respondent Judge is known for borrowing mon ey from "tennis court buddies" in exchange for empty promises to render legal se rvices.[11] Respondent Judge filed a Rejoinder reiterating the claims in his Comment. Respon dent Judge denied soliciting the withdrawal of this Complaint or borrowing money from "tennis court buddies." The Court referred this matter to Associate Justice Salvador J. Valdez, Jr. ("Ju stice Valdez") of the Court of Appeals for investigation, report, and recommenda tion. The Report and Recommendation of Justice Valdez In his Report and Recommendation ("Report"), Justice Valdez found respondent Jud ge liable for gross misconduct and recommended his suspension from service for s ix months. The Report reads: Quite obviously, the respondent judge importuned the complainant to buy the subj ect lot because he knows the latter to be a man of means as he unwittingly revea led in his Comment wherein he stated, inter alia, that "the deed of absolute sal e was made pursuant to the desire of the complainant that the vendee(s) shall be his children Marivic and Allan because his other commercial lot and building in the heart of Legazpi Port w[ere] already placed in the name of his other two (2 ) children." That the respondent had first ascertained the paying capacity of h is buyer, is a rule of thumb in any financial dealing. What is deplorable is tha t he did not make a full disclosure of the nature of the property involved in th e case at bar. As earlier pointed out, he did not let the complainant know that it is not owned by him but by a certain Rodelia Esplana-Guerrero. He insidious ly made the revelation only after the complainant had already given him P130,000 .00. What is more, he assured the complainant of the lot's regist[ra]bility as eviden ced by the receipt of the latter's payment of P100,000.00 as shown by Exhibits " A" and "B", wherein he made it appear that the first payment of P30,000.00 was " for follow (up) of papers of LRA (Land Registration Authority), Manila x x x pre paratory to the issuance of title to said lot" and the second, in the amount of P70,000.00 was for "the expenses in securing the title x x x." He did not level with the complainant by disclosing that there was issued on December 12, 1927, a Decree No. 287130 for the lot but no title was derived therefrom; hence, Rodel ia Esplana's petition for reconstitution of title was peremptorily denied w ay back on [November] 16, 1993. In all likelihood, the decree was not in the nam e of Rodelia. Instead, he subsequently caused to be filed a petition for origina l registration on February 18, 1998. As a judge, he knows or is chargeable with knowledge that such a petition would hardly prosper in light of the earlier dec

ree of registration. Accordingly, even that subsequent petition was eventually denied. Even his testimony as the sole witness in the land registration case af forded no help, presumably because he has no personal knowledge about the lot's genesis. In the interim, he persisted in getting money from the complainant for the titling of the lot, apart from payments on the purchase price. From the re ceipts and other documents presented, respondent has received from the complaina nt the aggregate amount of [P1,695,000] on the account of the lot. Respondent's defense that he merely brokered for Rodelia Esplana-Guerrero so tha t it should be the latter who should return the payments made by the complainant when the lot could not be titled, is no defense at all. On the contrary, his a cting in a fiduciary relation with the real owner of the lot, if true, transgres sed Rule 5.06 of the same Canon 5. More than that, when he assured the complain ant that the lot will be titled, he wittingly or unwittingly dragged the Regiona l Trial Court of Legazpi, of which he is a presiding judge of one of its Branche s, into the failed transaction as the complainant must have believed him because of his position in the court. Unfortunately, the complainant, x x x, was left by the respondent judge holding an empty bag. Respondent's cupidity for complainant's money was not confined to the sale of th e lot but even included a loan of P50,000.00 on March 28, 1998 which he promised to pay in two (2) months, but which he failed to prove to have paid. Obtaining such a loan is already forbidden by Rule 5.04 of Canon 5. Willful failure to p ay the loan is also an administrative offense under Section 52(c)(10), Rule IV o f Memorandum Circular No. 19, s. 1999 of the Civil Service Commission. PREMISES CONSIDERED, the undersigned recommends that the respondent judge be fou nd GUILTY OF GROSS MISCONDUCT as charged and that he be SUSPENDED from office wi thout salary and other benefits for SIX (6) MONTHS. [12] The Court's Ruling The Court finds respondent Judge liable for violation of Rules 5.02, 5.06, and 2 .03 of the Code of Judicial Conduct[13] ("Code") and for Impropriety. Respondent Judge Violated Rule 5.02 and Rule 5.06 of the Code Rule 5.02 Rule 5.02 of the Code provides that "[a] judge shall refrain from financial and business dealings that tend to x x x, interfere with the proper performance of j udicial activities, or increase involvement with lawyers or persons likely to co me before the court x x x." This provision, which filled the void left by Articl e 14(1)[14] of the Spanish Code of Commerce (prohibiting judges from engaging in commerce within their jurisdiction), is meant to limit judges' commercial affai rs except to the extent allowed in Rule 5.03[15] of the Code.[16] Here, respondent Judge took part in a commercial transaction falling outside of the area delineated in Rule 5.03. Worse, respondent Judge did so in an underhand ed manner, concealing vital information on Lot No. 1470's ownership and non-regi strability until after the sale had been consummated. By involving himself in su ch a transaction, respondent Judge not only allowed himself to be distracted fro m the performance of his judicial duties,[17] he also increased his involvement with persons likely to come before his sala regarding Lot No. 1470, thus increas ing the chances of his disqualification from future litigation concerning that p roperty. As we observed in Berin v. Judge Barte,[18] also involving a judge who brokered a real estate sale: By allowing himself to act as agent in the sale of the subject property, respond ent judge has increased the possibility of his disqualification to act as an imp artial judge in the event that a dispute involving the said contract of sale ari

ses. Also, the possibility that the parties to the sale might plead before his court is not remote and his business dealings with them might [not only] create suspicion as to his fairness but also to [his ability to] render it in a manner that is free from any suspicion as to its fairness and impartiality, and also as to the judge's integrity x x x. Rule 5.06 By serving as Guerrero's attorney-in-fact, respondent Judge also violated Rule 5 .06 of the Code which provides: A judge should not serve as the executor, administrator, trustee, guardian, or o ther fiduciary, except for the estate, trust, or person of a member of the immed iate family, and then only if such service will not interfere with the proper pe rformance of judicial duties. xxx (Emphasis supplied) and accordingly negated its purpose, namely to limit a judge's involvement in the affairs and interests of private individua ls to minimize the risk of conflict with his judicial duties and to allow him to devote his undivided attention to the performance of his official functions.[19 ] x x x As Guererro's attorney-in-fact, respondent Judge fell under the purview of "othe r fiduciary" as contemplated in Rule 5.06. We held in Ramos v. Barot:[20] Being and serving as an attorney-in-fact is within the purview of "other fiducia ry" as used in Rule 5.06. As a noun, "fiduciary" means "a person holding the cha racter of a trustee, or a character analogous to that of a trustee, in respect t o the trust and confidence involved in it and the scrupulous good faith and cand or which it requires." A fiduciary primarily acts for another's benefit, pursuan t to his undertaking as such fiduciary, in matters connected with said undertaki ng. x x x Respondent Judge Also Violated Rule 2.03 The Court also finds respondent Judge liable for violating Rule 2.03 of the Code in using official stationery for his correspondence with complainant and the la tter's counsel regarding Lot No. 1470. A court's stationery, with its official l etterhead, should only be used for official correspondence.[21] By using his sal a's stationery other than for official purposes, respondent Judge evidently used the prestige of his office to benefit Guererro (and himself) in violation of Ru le 2.03[22] of the Code. Respondent Judge is Liable for Impropriety for Non-Payment of Loan A judge may obtain a loan if no law prohibits such loan.[23] Respondent Judge d oes not deny obtaining a loan from complainant on 28 March 1998, payable in two months. Respondent Judge does not also controvert Justice Valdez's finding tha t this loan remains unpaid. For this, we find respondent Judge liable for improp riety, absent any proof that he willfully refused to pay the loan despite demand s from complainant.[24] Respondent Judge's Transgressions do not Constitute Misconduct Nevertheless, we cannot adopt Justice Valdez's characterization of respondent Ju dge's transgressions as amounting to (gross) misconduct. Misconduct in office is one that affects the officer's performance of his duties as an officer and not one that affects his character as a private individual.[25] Here, respondent Jud ge's questioned acts do not relate to the performance of his duties but flow fro m his involvement in a private commercial transaction. While this Court has held judges liable for misconduct for acts unrelated to the performance of official functions,[26] the judges' conduct in those cases were deemed prejudicial to the best interest of the service.[27] This exceptional circumstance is absent here . The Applicable Penalty

Under Section 11(B), in relation to Section 9(4) of Rule 140, as amended by A.M . No. 01-8-10-SC,[28] violation of Supreme Court rules constitutes a less-seriou s charge punishable by any of the following sanctions: 1. Suspension from office without salary and other benefits for not less th an one (1) nor more than three (3) months; or 2. A fine of more than P10,000.00 but not exceeding P20,000.00. On the other hand, impropriety, which we have treated as a light charge,[29] is punishable by: 1. A fine of not less than P1,000.00 but not exceeding P10,000.00 and/or 2. Censure; 3. Reprimand; 4. Admonition with warning.[30] Considering the nature and extent of respondent Judge's transgressions, we find it proper to impose on him the following penalties: (1) suspension from office w ithout salary and other benefits for a period of three months for violation of Rules 2.03, 5.02, and 5.06 of the Code and (2) a fine of P10,000 for impropriety . We warn respondent Judge that his further commission of administrative offense s shall merit more severe sanctions. WHEREFORE, we find respondent Judge Alfredo E. Kallos of the Regional Trial Cou rt, Legaspi City, Branch X, GUILTY of (1) violating Rules 2.03, 5.02, and 5.06 of the Code of Judicial Conduct, and (2) Impropriety. We SUSPEND him from office for three months without salary and other benefits for the violation of the Code of Judicial Conduct, and FINE him P10,000 for the Impropriety, with WARNIN G that his further commission of administrative offenses shall merit more severe sanctions. SO ORDERED. ORFILA VS ARELLANO[A. M. No. P-06-2110. April 26, 2006]Facts : Judge Jesusa Manigas questions the P20, 000. 00-fine imposed upon her by the Co urt for the offenseof borrowing money from a subordinate when she was still a Cl erk of Court. She submits that when sheborrowed money from complainant Estifana Arellano, she did so in the privacy of her cubicle and withoutknowledge that Are llano was at that time a moneylender. She further avers that mere borrowing of m oney by asuperior officer from a subordinate does not per se constitute a ground for disciplinary action. She likewisecontends that the penalty imposed upon her "is not in contemplation of law" since borrowing money from asubordinate is a l ight offense punishable only by reprimand for the first offense under the Implem enting Rulesof the Civil Service. Issue : WON the Court imposed upon Judge Manigas the proper penalty Held : Records reveal that she obtained not just one, but two loans from Arellano, wh o was her subordinate atthat time. It is irrelevant that she received the money from Arellano in private as any irregular or unlawfultransaction is hardly done in public view. Furthermore, it is incredible that she did not know that Arellan o was amoneylender as she admitted in her pleadings that she learned of Arellanos money lending from a fellowemployee and that Arellano kept a notebook where she listed payments made by borrowers, including hers. Asthe clerk of court, she sh ould have known that Arellanos acts were illegal. Instead of admonishing the latt er asa superior officer, she countenanced Arellanos illegal activities and even j oined in without hesitation. Moreover,it is even suspect that her cordial relati onship with Arellano has affected the way she handled the situation asher superi or. Furthermore, Judge Manigas misunderstood our ruling in the case of Villaseor v . De Leon4 wherein thisCourt stated as follows: We must likewise point out that respondent occupies sensitive position in the Office of the Clerk of Court. If m oved by sinister or ulterior motives arising from the loan morass she found hers elf in, she could underminethe administration of justice by simply failing to ac t or by tampering with the record books for a considerationwith which to pay her

debts. x x x (Emphasis supplied.) In said case, therein respondent was found gu ilty of willful failure to pay a just debt. In stating the afore-quoted,this Cou rt did not mean that in order to be disciplined, one must have been moved by sin ister or ulterior motives arising from the loan obligation, as Judge Manigas sugg ests. Rather, this Court was emphasizing thatgiven the sensitive position the re spondent therein occupied, being Clerk III in the Office of the Clerk of Court,s he could very well use her position in order to raise money to pay her debts and thereby undermine theadministration of justice. This is the dubious situation t hat the rules and this Court seek to prevent. FIRST DIVISION G.R. No. 168736 April 19, 2006 SPOUSES ADELINA S. CUYCO and FELICIANO U. CUYCO, Petitioners, vs. SPOUSES RENATO CUYCO and FILIPINA CUYCO, Respondents. D E C I S I O N YNARES-SANTIAGO, J.: This petition for review on certiorari assails the Decision1 of the Court of App eals (CA) in CA G.R. CV No. 62352 dated November 5, 2003 which modified the Deci sion2 of the Regional Trial Court (RTC) of Quezon City, Branch 105 in Civil Case No. Q-97-32130 dated January 27, 1999, as well as the Resolution3 dated June 28 , 2005 denying the motion for reconsideration thereof. The facts of the case are as follows: Petitioners, spouses Adelina and Feliciano Cuyco, obtained a loan in the amount of P1,500,000.00 from respondents, spouses Renato and Filipina Cuyco, payable wi thin one year at 18% interest per annum, and secured by a Real Estate Mortgage4 over a parcel of land with improvements thereon situated in Cubao, Quezon City c overed by TCT No. RT-43723 (188321).5 Subsequently, petitioners obtained additional loans from the respondents in the aggregate amount of P1,250,000.00, broken down as follows: (1) P150,000.00 on Ma y 30, 1992; (2) P150,000.00 on July 1, 1992; (3) P500,000.00 on September 5, 199 2; (4) P200,000.00 on October 29, 1992; and (5) P250,000.00 on January 13, 1993. 6 Petitioners made payments amounting to P291,700.00,7 but failed to settle their outstanding loan obligations. Thus, on September 10, 1997, respondents filed a c omplaint8 for foreclosure of mortgage with the RTC of Quezon City, which was doc keted as Civil Case No. Q-97-32130. They alleged that petitioners loans were secu red by the real estate mortgage; that as of August 31, 1997, their indebtedness amounted to P6,967,241.14, inclusive of the 18% interest compounded monthly; and that petitioners refusal to settle the same entitles the respondents to foreclos e the real estate mortgage. Petitioners filed a motion to dismiss9 on the ground that the complaint states n o cause of action which was denied by the RTC10 for lack of merit. In their answer,11 petitioners admitted their loan obligations but argued that o nly the original loan of P1,500,000.00 was secured by the real estate mortgage a t 18% per annum and that there was no agreement that the same will be compounded monthly. On January 27, 1999, the RTC rendered judgment12 in favor of the respondents, th e dispositive portion of which reads: WHEREFORE, in the light of the foregoing, the Court renders judgment on the Comp laint in favor of the plaintiffs and hereby orders the defendants to pay to the Court or to the plaintiffs the amounts of P6,332,019.84, plus interest until ful ly paid, P25,000.00 as attorneys fees, and costs of suit, within a period of one hundred and twenty (120) days from the entry of judgment, and in case of default of such payment and upon proper motion, the property shall be ordered sold at p ublic auction to satisfy the judgment. Further, defendants[] counterclaim is dism issed. SO ORDERED.13 Petitioners appealed to the CA reiterating their previous claim that only the am ount of P1,500,000.00 was secured by the real estate mortgage.14 They also conte nded that the RTC erred in ordering the foreclosure of the real estate mortgage

to satisfy the total indebtedness of P6,532,019.84, as of January 10, 1999, plus interest until fully paid, and in imposing legal interest of 12% per annum on t he stipulated interest of 18% from the filing of the case until fully paid.15 On November 5, 2003, the CA partially granted the petition and modified the RTC decision insofar as the amount of the loan obligations secured by the real estat e mortgage. It held that by express intention of the parties, the real estate mo rtgage secured the original P1,500,000.00 loan and the subsequent loans of P150, 000.00 and P500,000.00 obtained on July 1, 1992 and September 5, 1992, respectiv ely. As regards the loans obtained on May 31, 1992, October 29, 1992 and January 13, 1993 in the amounts of P150,000.00, P200,000.00 and P250,000.00, respective ly, the appellate tribunal held that the parties never intended the same to be s ecured by the real estate mortgage. The Court of Appeals also found that the tri al court properly imposed 12% legal interest on the stipulated interest from the date of filing of the complaint. The dispositive portion of the Decision reads: WHEREFORE, the instant appeal is PARTIALLY GRANTED. The assailed decision of the Regional Trial Court of Quezon City, Branch 105, in Civil Case No. Q-97-32130 i s hereby MODIFIED to read: "WHEREFORE, in the light of the foregoing, the Court renders judgment on the Com plaint in favor of the plaintiffs and hereby orders the defendants to pay to the Court or to the plaintiffs the amount of P2,149,113.92[,] representing the tota l outstanding principal loan of the said defendants, plus the stipulated interes t at the rate of 18% per annum accruing thereon until fully paid, within a perio d of one hundred and twenty days from the entry of judgment, and in case of defa ult of such payment and upon motion, the property, subject of the real estate mo rtgage contract, shall be ordered sold at public auction in satisfaction of the mortgage debts.1avvphil.net Defendants are further, ordered to pay the plaintiffs the following: 1. the legal interest at the rate of 12% per annum on the stipulated interest of 18% per annum, computed from the filing of the complaint until fully paid; 2. the sum of P25,000.00 as and for attorneys fees; and 3. the costs of suit." SO ORDERED.16 Hence, the instant petition for review on the sole issue: WHETHER OR NOT PETITIONERS MUST PAY RESPONDENTS LEGAL INTEREST OF 12% PER ANNUM ON THE STIPULATED INTEREST OF 18% PER ANNUM, COMPUTED FROM THE FILING OF THE COM PLAINT UNTIL FULL PAID.17 Petitioners contend that the imposition of the 12% legal interest per annum on t he stipulated interest of 18% per annum computed from the filing of the complain t until fully paid was not provided in the real estate mortgage contract, thus, the same has no legal basis. We are not persuaded. While a contract is the law between the parties,18 it is also settled that an ex isting law enters into and forms part of a valid contract without the need for t he parties expressly making reference to it.19 Thus, the lower courts correctly applied Article 2212 of the Civil Code as the basis for the imposition of the le gal interest on the stipulated interest due. It reads: Art. 2212. Interest due shall earn legal interest from the time it is judicially demanded, although the obligation may be silent upon this point. The foregoing provision has been incorporated in the comprehensive summary of ex isting rules on the computation of legal interest enunciated by the Court in Eas tern Shipping Lines, Inc. v. Court of Appeals,20 to wit: 1. When an obligation is breached, and it consists in the payment of a sum of mo ney, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from def ault, i.e., from judicial or extrajudicial demand under and subject to the provi sions of Article 1169 of the Civil Code. 2. When an obligation, not constituting a loan or forbearance of money, is breac hed, an interest on the amount of damages awarded may be imposed at the discreti

on of the court at the rate of 6% per annum. No interest, however, shall be adju dged on unliquidated claims or damages except when or until the demand can be es tablished with reasonable certainty. Accordingly, where the demand is establishe d with reasonable certainty, the interest shall begin to run from the time the c laim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, t he interest shall begin to run only from the date the judgment of the court is m ade (at which time the quantification of damages may be deemed to have been reas onably ascertained). The actual base for the computation of legal interest shall , in any case, be on the amount finally adjudged. 3. When the judgment of the court awarding a sum of money becomes final and exec utory, the rate of legal interest, whether the case falls under paragraph 1 or p aragraph 2, above, shall be 12% per annum from such finality until its satisfact ion, this interim period being deemed to be by then an equivalent to a forbearan ce of credit. (Emphasis supplied) In the case at bar, the evidence shows that petitioners obtained several loans f rom the respondent, some of which as held by the CA were secured by real estate mortgage and earned an interest of 18% per annum. Upon default thereof, responde nts demanded payment from the petitioners by filing an action for foreclosure of the real estate mortgage. Clearly, the case falls under the rule stated in para graph 1. Applying the rules in the computation of interest, the principal amount of loans subject of the real estate mortgage must earn the stipulated interest of 18% pe r annum, which interest, as long as unpaid, also earns legal interest of 12% per annum, computed from the date of the filing of the complaint on September 10, 1 997 until finality of the Courts Decision. Such interest is not due to stipulatio n but due to the mandate of the law21 as embodied in Article 2212 of the Civil C ode. From such date of finality, the total amount due shall earn interest of 12% per annum until satisfied.22 Certainly, the computed interest from the filing of the complaint on September 1 0, 1997 would no longer be true upon the finality of this Courts decision. In acc ordance with the rules laid down in Eastern Shipping Lines, Inc. v. Court of App eals, we derive the following formula23 for the RTCs guidance: TOTAL AMOUNT DUE = [principal + interest + interest on interest] - partial payme nts made Interest = principal x 18 % per annum x no. of years from due date until finalit y of judgment Interest on interest = Interest computed as of the filing of the complaint (Sept ember 10, 1997) x 12% x no. of years until finality of judgment Total amount due as of the date of finality of judgment will earn an interest of 12% per annum until fully paid. In Rizal Commercial Banking Corporation v. Alfa RTW Manufacturing Corporation,24 this Court held that the total amount due on the contracts of loan may be easil y determined by the trial court through a simple mathematical computation based on the formula specified above. Mathematics is an exact science, the application of which needs no further proof from the parties. As regards what loans were secured by the real estate mortgage, respondents cont ended that all five additional loans were intended by the parties to be secured by the real estate mortgage. Thus, the CA erred in ruling that only two of the f ive additional loans were secured by the real estate mortgage when the documents evidencing said loans would show at least three loans were secured by the real estate mortgage, namely: (1) P150,000.00 obtained on May 31, 1992; (2) P150,000. 00 obtained on July 1, 1992; and (3) P500,000.00 obtained on September 5, 1992.2 5 In their Reply, petitioners alleged that their petition only raised the sole iss ue of interest on the interest due, thus, by not filing their own petition for r eview, respondents waived their privilege to bring matters for the Courts review that do not deal with the sole issue raised. Procedurally, the appellate court in deciding the case shall consider only the a ssigned errors, however, it is equally settled that the Court is clothed with am

ple authority to review matters not assigned as errors in an appeal, if it finds that their consideration is necessary to arrive at a just disposition of the ca se.26 Moreover, as an exception to the rule that findings of facts of the CA are concl usive and binding on the Court,27 an independent evaluation of facts may be done by it when the findings of facts are conflicting,28 as in this case. The RTC held that all the additional loans were secured by the real estate mortg age, thus: There is, therefore, a preponderance of evidence to show that the parties agreed that the additional loans would be against the mortgaged property. It is of no moment that the Deed of Mortgage (Exh. B) was not amended and thereafter annotat ed at the back of the title (Exh. C) because under Article 2125 of the Civil Cod e, if the instrument of mortgage is not recorded, the mortgage is nevertheless b inding between the parties. It is extremely difficult for the court to perceive that the plaintiffs required the defendants to execute a mortgage on the first l oan and thereafter fail to do so on the succeeding loans. Such contrary behavior is unlikely.29 The CA modified the RTC decision holding that: However, the real estate mortgage contract was supplemented by the express inten tion of the mortgagors (defendants-appellants) to secure the subsequent loans th ey obtained from the mortgagees (plaintiffs-appellees), on 01 July 1992, in the amount of P150,000.00, and on 05 September 1992, in the amount of P500,000.00. T he mortgagors (defendants-appellants) intention to secure a larger amount than th at stated in the real estate mortgage contract was unmistakable in the acknowled gment receipts they issued on the said loans. The acknowledgment receipts read: "July 1, [1]992 "Received from Mr. & Mrs. Renato Q. Cuyco PCIB Ck # 498243 in the amount of P150 ,000.00 July 1/92 as additional loan against mortgaged property TCT No. RT-43723 (188321) Q.C. (SGD) Adelina S. Cuyco" "Sept. 05/92 "Received from Mr. R. Cuyco the amount of P500,000.00 (five hundred thousand) PC IB Ck # 468657 as additional loan from mortgage property TCT RT-43723. (SGD) Adelina S. Cuyco" In such case, the specific amount mentioned in the real estate mortgage contract no longer controls. By express intention of the mortgagors (defendants-appellan ts) the real estate mortgage contract, as supplemented, secures the P1,500,000.0 0 loan obtained on 25 November 1991; the P150,000.00 loan obtained on 01 July 19 92; and the P500,000.00 loan obtained on 05 September 1992. All these loans are subject to stipulated interest of 18% per annum provided in the real estate mort gage contract. With respect to the other subsequent loans of the defendants-appellants in the a mount of P150,000.00, obtained on 31 May 1992; in the amount of P200,000.00, obt ained on 29 October 1992; and, in the amount of P250,000.00, obtained on 13 Janu ary 1993, nothing in the records remotely suggests that the mortgagor (defendant s-appellants), likewise, intended the said loans to be secured by the real estat e mortgage contract. Consequently, we rule that the trial court did err in decla ring said loans to be secured by the real estate mortgage contract.30 As a general rule, a mortgage liability is usually limited to the amount mention ed in the contract.31 However, the amounts named as consideration in a contract of mortgage do not limit the amount for which the mortgage may stand as security if from the four corners of the instrument the intent to secure future and othe r indebtedness can be gathered. This stipulation is valid and binding between th e parties and is known in American Jurisprudence as the "blanket mortgage clause ," also known as a "dragnet clause." 32 A "dragnet clause" operates as a convenience and accommodation to the borrowers as it makes available additional funds without their having to execute additiona l security documents, thereby saving time, travel, loan closing costs, costs of extra legal services, recording fees, et cetera.33 While a real estate mortgage may exceptionally secure future loans or advancemen

ts, these future debts must be sufficiently described in the mortgage contract. An obligation is not secured by a mortgage unless it comes fairly within the ter ms of the mortgage contract.34 The pertinent provisions of the November 26, 1991 real estate mortgage reads: That the MORTGAGOR is indebted unto the MORTGAGEE in the sum of ONE MILLION FIVE THOUSAND PESOS (sic) (1,500,000.00) Philippine Currency, receipt whereof is her eby acknowledged and confessed, payable within a period of one year, with intere st at the rate of eighteen percent (18%) per annum; That for and in consideration of said indebtedness, the MORTGAGOR does hereby co nvey and deliver by way of MORTGAGE unto said MORTGAGEE, the latters heirs and as signs, the following realty together with all the improvements thereon and situa ted at Cubao, Quezon City, and described as follows: x x x x PROVIDED HOWEVER, that should the MORTGAGOR duly pay or cause to be paid unto th e MORTGAGEE or his heirs and assigns, the said indebtedness of ONE MILLION FIVE HUNDRED THOUSAND PESOS (1,500,000.00), Philippine Currency, together with the ag reed interest thereon, within the agreed term of one year on a monthly basis the n this MORTGAGE shall be discharged, and rendered of no force and effect, otherw ise it shall subsist and be subject to foreclosure in the manner and form provid ed by law. It is clear from a perusal of the aforequoted real estate mortgage that there is no stipulation that the mortgaged realty shall also secure future loans and adv ancements. Thus, what applies is the general rule above stated. Even if the parties intended the additional loans of P150,000.00 obtained on May 30, 1992, P150,000.00 obtained on July 1, 1992, and P500,00.00 obtained on Sept ember 5, 1992 to be secured by the same real estate mortgage, as shown in the ac knowledgement receipts, it is not sufficient in law to bind the realty for it wa s not made substantially in the form prescribed by law. In order to constitute a legal mortgage, it must be executed in a public documen t, besides being recorded. A provision in a private document, although denominat ing the agreement as one of mortgage, cannot be considered as it is not suscepti ble of inscription in the property registry. A mortgage in legal form is not con stituted by a private document, even if such mortgage be accompanied with delive ry of possession of the mortgage property.35 Besides, by express provisions of S ection 127 of Act No. 496, a mortgage affecting land, whether registered under s aid Act or not registered at all, is not deemed to be sufficient in law nor may it be effective to encumber or bind the land unless made substantially in the fo rm therein prescribed. It is required, among other things, that the document be signed by the mortgagor executing the same, in the presence of two witnesses, an d acknowledged as his free act and deed before a notary public. A mortgage const ituted by means of a private document obviously does not comply with such legal requirements.36 What the parties could have done in order to bind the realty for the additional loans was to execute a new real estate mortgage or to amend the old mortgage con formably with the form prescribed by the law. Failing to do so, the realty canno t be bound by such additional loans, which may be recovered by the respondents i n an ordinary action for collection of sums of money. Lastly, the CA held that to discharge the real estate mortgage, payment only of the principal and the stipulated interest of 18% per annum is sufficient as the mortgage document does not contain a stipulation that the legal interest on the stipulated interest due, attorneys fees, and costs of suit must be paid first bef ore the same may be discharged.37 We do not agree. Section 2, Rule 68 of the Rules of Court provides: SEC. 2. Judgment on foreclosure for payment or sale. If upon the trial in such a ction the court shall find the facts set forth in the complaint to be true, it s hall ascertain the amount due to the plaintiff upon the mortgage debt or obligat ion, including interest and other charges as approved by the court, and costs, a nd shall render judgment for the sum so found due and order that the same be pai d to the court or to the judgment obligee within a period of not less than ninet

y (90) days nor more than one hundred twenty (120) days from the entry of judgme nt, and that in default of such payment the property shall be sold at public auc tion to satisfy the judgment. (Emphasis added) Indeed, the above provision of the Rules of Court provides that the mortgaged pr operty may be charged not only for the mortgage debt or obligation but also for the interest, other charges and costs approved by the court. Thus, to discharge the real estate mortgage, petitioners must pay the respondents (1) the total amo unt due, as computed in accordance with the formula indicated above, that is, th e principal loan of P1,500,000.00, the stipulated interest of 18%, the interest on the stipulated interest due of 12% computed from the filing of the complaint until finality of the decision less partial payments made, (2) the 12% legal int erest on the total amount due from finality until fully satisfied, (3) the reaso nable attorneys fees of P25,000.00 and (4) the costs of suit, within the period s pecified by the Rules. Should the petitioners default in the payment thereof, th e property shall be sold at public auction to satisfy the judgment. WHEREFORE, in view of the foregoing, the Decision of the Court of Appeals in CA G.R. CV No. 62352 dated November 5, 2003, which modified the Decision of the Reg ional Trial Court of Quezon City, Branch 105, in Civil Case No. Q-97-32130, is A FFIRMED with the MODIFICATIONS that petitioners are ordered to pay the responden ts (1) the total amount due, as computed by the RTC in accordance with the formu la specified above, (2) the legal interest of 12% per annum on the total amount due from such finality until fully paid, (3) the reasonable amount of P25,000.00 as attorneys fees, and (4) the costs of suit, within a period of not less than 9 0 days nor more than 120 days from the entry of judgment, and in case of default of such payment the property shall be sold at public auction to satisfy the jud gment. SO ORDERED. Eastern Shipping Lines, Inc. v. CA and The First Nationwide Assurance Corp. G.R. No. 97412 July 12, 1994 Vitug, J. FACTS: 13 coils of uncoated 7-wire stress relieved wire strand for pre-stressed concret e wereshipped on board a vessel owned and operated by Eastern Shipping Lines at Kobe, Japan,for delivery to Stresstek Post-Tensioning Phils., Inc. in Manila while en route from Kobe to Manila, the carrying vessel encountered very rough s eas andstormy weather; the coils wrapped in burlap cloth and cardboard paper wer e stored in thelower hold of the hatch of the vessel which was flooded with wate r; the water entered thehatch when the vessel encountered heavy weather en route to Manila; upon request, asurvey of bad order cargo was conducted at the pier i n the presence of the representativesof the consignee and E. Razon, Inc. and it was found that 7 coils were rusty on one sideeach; upon survey conducted at the consignees warehouse it was found that the wettingof the cargo was caused by fres h water that entered the hatch when the vesselencountered heavy weather; all 13 coils were extremely rusty and totally unsuitable forthe intended purpose The First Nationwide Assurance Corp. indemnified the consignee in the amount of P171,923.00 for damage and loss to the insured cargo ISSUE: WON Eastern Shipping Lines is liable HELD: Yes. under Art. 1733, common carriers are bound to observe extra-ordinary vigilance o vergoods according to all circumstances of each case Art. 1735: In all cases other than those mentioned in Art. 1734, if the goods ar e lost,destroyed or deteriorated, common carriers are presumed to have been at f

ault or to haveacted negligently, unless they prove that they observed extraordi nary diligence Since the carrier has failed to establish any caso fortuito, the presumption by law of faultor negligence on the part of the carrier applies; and the carrier mu st present evidence thatit has observed the extraordinary diligence required by Article 1733 of the Civil Code inorder to escape liability for damage or destruc tion to the goods that it had admittedlycarried in this case. But no evidence wa s presented; hence, the carrier cannot escapeliability

FIRST DIVISION G.R. No. 146918 May 2, 2006 CITIBANK, N.A., Petitioner, vs. SPS. LUIS and CARMELITA CABAMONGAN and their sons LUISCABAMONGAN, JR. and LITO C ABAMONGAN, Respondents. D E C I S I O N AUSTRIA-MARTINEZ, J.: Before the Court is a petition for review on certiorari of the Decision1 dated J anuary 26, 2001 and the Resolution2 dated July 30, 2001 of the Court of Appeals (CA) in CA-G.R. CV No. 59033. The factual background of the case is as follows: On August 16, 1993, spouses Luis and Carmelita Cabamongan opened a joint "and/or " foreign currency time deposit in trust for their sons Luis, Jr. and Lito at th e Citibank, N.A., Makati branch, with Reference No. 60-22214372, in the amount o f $55,216.69 for a term of 182 days or until February 14, 1994, at 2.5625 per ce nt interest per annum.3 Prior to maturity, or on November 10, 1993, a person cla iming to be Carmelita went to the Makati branch and pre-terminated the said fore ign currency time deposit by presenting a passport, a Bank of America Versatele Card, an ATM card and a Mabuhay Credit Card.4 She filled up the necessary forms for pre-termination of deposits with the assistance of Account Officer Yeye San Pedro. While the transaction was being processed, she was casually interviewed b y San Pedro about her personal circumstances and investment plans.5 Since the sa id person failed to surrender the original Certificate of Deposit, she had to ex ecute a notarized release and waiver document in favor of Citibank, pursuant to Citibank's internal procedure, before the money was released to her.6 The releas e and waiver document7 was not notarized on that same day but the money was none theless given to the person withdrawing.8 The transaction lasted for about 40 mi nutes.9 After said person left, San Pedro realized that she left behind an identificatio n card.10 Thus, San Pedro called up Carmelita's listed address at No. 48 Ranger Street, Moonwalk Village, Las Pinas, Metro Manila on the same day to have the ca rd picked up.11 Marites, the wife of Lito, received San Pedro's call and was stu nned by the news that Carmelita preterminated her foreign currency time deposit because Carmelita was in the United States at that time.12 The Cabamongan spouse s work and reside in California. Marites made an overseas call to Carmelita to i nform her about what happened.13 The Cabamongan spouses were shocked at the news . It seems that sometime between June 10 and 16, 1993, an unidentified person br oke in at the couple's residence at No. 3268 Baldwin Park Boulevard, Baldwin Par k, California. Initially, they reported that only Carmelita's jewelry box was mi ssing, but later on, they discovered that other items, such as their passports, bank deposit certificates, including the subject foreign currency deposit, and i dentification cards were also missing.14 It was only then that the Cabamongan sp ouses realized that their passports and bank deposit certificates were lost.15 Through various overseas calls, the Cabamongan spouses informed Citibank, thru S an Pedro, that Carmelita was in the United States and did not preterminate their deposit and that the person who did so was an impostor who could have also been involved in the break-in of their California residence. San Pedro told the spou

ses to submit the necessary documents to support their claim but Citibank conclu ded nonetheless that Carmelita indeed preterminated her deposit. In a letter dat ed September 16, 1994, the Cabamongan spouses, through counsel, made a formal de mand upon Citibank for payment of their preterminated deposit in the amount of $ 55,216.69 with legal interests.16 In a letter dated November 28, 1994, Citibank, through counsel, refused the Cabamongan spouses' demand for payment, asserting that the subject deposit was released to Carmelita upon proper identification an d verification.17 On January 27, 1995, the Cabamongan spouses filed a complaint against Citibank b efore the Regional Trial Court of Makati for Specific Performance with Damages, docketed as Civil Case No 95-163 and raffled to Branch 150 (RTC).18 In its Answer dated April 20, 1995, Citibank insists that it was not negligent o f its duties since the subject deposit was released to Carmelita only upon prope r identification and verification.19 At the pre-trial conference the parties failed to arrive at an amicable settleme nt.20 Thus, trial on the merits ensued. For the plaintiffs, the Cabamongan spouses themselves and Florenda G. Negre, Doc uments Examiner II of the Philippine National Police (PNP) Crime Laboratory in C amp Crame, Quezon City, testified. The Cabamongan spouses, in essence, testified that Carmelita could not have preterminated the deposit account since she was i n California at the time of the incident.21 Negre testified that an examination of the questioned signature and the samples of the standard signatures of Carmel ita submitted in the RTC showed a significant divergence. She concluded that the y were not written by one and the same person.22 For the respondent, Citibank presented San Pedro and Cris Cabalatungan, Vice-Pre sident and In-Charge of Security and Management Division. Both San Pedro and Cab alatungan testified that proper bank procedure was followed and the deposit was released to Carmelita only upon proper identification and verification.23 On July 1, 1997, the RTC rendered a decision in favor of the Cabamongan spouses and against Citibank, the dispositive portion of which reads, thus: WHEREFORE, premises considered, defendant Citibank, N.A., is hereby ordered to p ay the plaintiffs the following: 1) the principal amount of their Foreign Currency Deposit (Reference No. 6022214 372) amounting to $55,216.69 or its Phil. Currency equivalent plus interests fro m August 16, 1993 until fully paid; 2) Moral damages of P50,000.00; 3) Attorney's fees of P50,000.00; and 4) Cost of suit. SO ORDERED.24 The RTC reasoned that: xxx Citibank, N.A., committed negligence resulting to the undue suffering of the plaintiffs. The forgery of the signatures of plaintiff Carmelita Cabamongan on the questioned documents has been categorically established by the handwriting e xpert. xxx Defendant bank was clearly remiss in its duty and obligations to trea t plaintiff's account with the highest degree of care, considering the nature of their relationship. Banks are under the obligation to treat the accounts of the ir depositors with meticulous care. This is the reason for their established pro cedure of requiring several specimen signatures and recent picture from potentia l depositors. For every transaction, the depositor's signature is passed upon by personnel to check and countercheck possible irregularities and therefore must bear the blame when they fail to detect the forgery or discrepancy.25 Despite the favorable decision, the Cabamongan spouses filed on October 1, 1997 a motion to partially reconsider the decision by praying for an increase of the amount of the damages awarded.26 Citibank opposed the motion.27 On November 19, 1997, the RTC granted the motion for partial reconsideration and amended the dis positive portion of the decision as follows: From the foregoing, and considering all the evidence laid down by the parties, t he dispositive portion of the court's decision dated July 1, 1997 is hereby amen ded and/or modified to read as follows: WHEREFORE, defendant Citibank, N.A., is hereby ordered to pay the plaintiffs the

following: 1) the principal amount of their foreign currency deposit (Reference No. 6022214 372) amounting to $55,216.69 or its Philippine currency equivalent (at the time of its actual payment or execution) plus legal interest from Aug. 16, 1993 until fully paid. 2) moral damages in the amount of P200,000.00; 3) exemplary damages in the amount of P100,000.00; 4) attorney's fees of P100,000.00; 5) litigation expenses of P200,000.00; 6) cost of suit. SO ORDERED.28 Dissatisfied, Citibank filed an appeal with the CA, docketed as CA-G.R. CV No. 5 9033.29 On January 26, 2001, the CA rendered a decision sustaining the finding o f the RTC that Citibank was negligent, ratiocinating in this wise: In the instant case, it is beyond dispute that the subject foreign currency depo sit was pre-terminated on 10 November 1993. But Carmelita Cabamongan, who works as a nursing aid (sic) at the Sierra View Care Center in Baldwin Park, Californi a, had shown through her Certificate of Employment and her Daily Time Record fro m the [sic] January to December 1993 that she was in the United States at the ti me of the incident. Defendant Citibank, N.A., however, insists that Carmelita was the one who pre-te rminated the deposit despite claims to the contrary. Its basis for saying so is the fact that the person who made the transaction on the incident mentioned pres ented a valid passport and three (3) other identification cards. The attending a ccount officer examined these documents and even interviewed said person. She wa s satisfied that the person presenting the documents was indeed Carmelita Cabamo ngan. However, such conclusion is belied by these following circumstances. First, the said person did not present the certificate of deposit issued to Carm elita Cabamongan. This would not have been an insurmountable obstacle as the ban k, in the absence of such certificate, allows the termination of the deposit for as long as the depositor executes a notarized release and waiver document in fa vor of the bank. However, this simple procedure was not followed by the bank, as it terminated the deposit and actually delivered the money to the impostor with out having the said document notarized on the flimsy excuse that another departm ent of the bank was in charge of notarization. The said procedure was obviously for the protection of the bank but it deliberately ignored such precaution. At t he very least, the conduct of the bank amounts to negligence. Second, in the internal memorandum of Account Officer Yeye San Pedro regarding t he incident, she reported that upon comparing the authentic signatures of Carmel ita Cabamongan on file with the bank with the signatures made by the person clai ming to be Cabamongan on the documents required for the termination of the depos it, she noticed that one letter in the latter [sic] signatures was different fro m that in the standard signatures. She requested said person to sign again and s crutinized the identification cards presented. Presumably, San Pedro was satisfi ed with the second set of signatures made as she eventually authorized the termi nation of the deposit. However, upon examination of the signatures made during t he incident by the Philippine National Police (PNP) Crime Laboratory, the said s ignatures turned out to be forgeries. As the qualifications of Document Examiner Florenda Negre were established and she satisfactorily testified on her finding s during the trial, we have no reason to doubt the validity of her findings. Aga in, the bank's negligence is patent. San Pedro was able to detect discrepancies in the signatures but she did not exercise additional precautions to ascertain t he identity of the person she was dealing with. In fact, the entire transaction took only 40 minutes to complete despite the anomalous situation. Undoubtedly, t he bank could have done a better job. Third, as the bank had on file pictures of its depositors, it is inconceivable h ow bank employees could have been duped by an impostor. San Pedro admitted in he r testimony that the woman she dealt with did not resemble the pictures appearin g on the identification cards presented but San Pedro still went on with the sen sitive transaction. She did not mind such disturbing anomaly because she was con

vinced of the validity of the passport. She also considered as decisive the fact that the impostor had a mole on her face in the same way that the person in the pictures on the identification cards had a mole. These explanations do not acco unt for the disparity between the pictures and the actual appearance of the impo stor. That said person was allowed to withdraw the money anyway is beyond belief . The above circumstances point to the bank's clear negligence. Bank transactions pass through a successive [sic] of bank personnel, whose duty is to check and co untercheck transactions for possible errors. While a bank is not expected to be infallible, it must bear the blame for failing to discover mistakes of its emplo yees despite established bank procedure involving a battery of personnel designe d to minimize if not eliminate errors. In the instant case, Yeye San Pedro, the employee who primarily dealt with the impostor, did not follow bank procedure wh en she did not have the waiver document notarized. She also openly courted disas ter by ignoring discrepancies between the actual appearance of the impostor and the pictures she presented, as well as the disparities between the signatures ma de during the transaction and those on file with the bank. But even if San Pedro was negligent, why must the other employees in the hierarchy of the bank's work flow allow such thing to pass unnoticed and unrectified?30 The CA, however, disagreed with the damages awarded by the RTC. It held that, in sofar as the date from which legal interest of 12% is to run, it should be count ed from September 16, 1994 when extrajudicial demand was made. As to moral damag es, the CA reduced it to P100,000.00 and deleted the awards of exemplary damages and litigation expenses. Thus, the dispositive portion of the CA decision reads : WHEREFORE, the decision of the trial court dated 01 July 1997, and its order dat ed 19 November 1997, are hereby AFFIRMED with the MODIFICATION that the legal in terest for actual damages awarded in the amount of $55,216.69 shall run from 16 September 1994; exemplary damages amounting to P100,000.00 and litigation expens es amounting to P200,000.00 are deleted; and moral damages is reduced to P100,00 0.00. Costs against defendant. SO ORDERED.31 The Cabamongan spouses filed a motion for partial reconsideration on the matter of the award of damages in the decision.32 On July 30, 2001, the CA granted in part said motion and modified its decision as follows: 1. The actual damages in amount of $55,216.69, representing the amount of appell ees' foreign currency time deposit shall earn an interest of 2.5625% for the per iod 16 August 1993 to 14 February 1994, as stipulated in the contract; 2. From 16 September 1994 until full payment, the amount of $55,216.69 shall ear n interest at the legal rate of 12% per annum, and; 3. The award of moral damages is reduced to P50,000.00.33 Dissatisfied, both parties filed separate petitions for review on certiorari wit h this Court. The Cabamongan spouses' petition, docketed as G.R. No. 149234, was denied by the Court per its Resolution dated October 17, 2001.34 On the other h and, Citibank's petition was given due course by the Court per Resolution dated December 10, 2001 and the parties were required to submit their respective memor anda.35 Citibank poses the following errors for resolution: 1. THE HONORABLE COURT OF APPEALS GRAVELY ERRED AND GRAVELY ABUSED ITS DISCRETIO N IN UPHOLDING THE LOWER COURT'S DECISION WHICH IS NOT BASED ON CLEAR EVIDENCE B UT ON GRAVE MISAPPREHENSION OF FACTS. 2. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN UPHOLDING THE DECISION OF THE TRIAL COURT AWARDING MORAL DAMAGES WHEN IN FACT THERE IS NO BASIS IN LAW AND FA CT FOR SAID AWARD. 3. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN RULING THAT THE PRINCIPAL AMO UNT OF US$55,216.69 SHOULD EARN INTEREST AT THE RATE OF 12% PER ANNUM FROM 16 SE PTEMBER 1994 UNTIL FULL PAYMENT.36 Anent the first ground, Citibank contends that the CA erred in affirming the RTC 's finding that it was negligent since the said courts failed to appreciate the

extra diligence of a good father of a family exercised by Citibank thru San Pedr o. As to the second ground, Citibank argues that the Cabamongan spouses are not ent itled to moral damages since moral damages can be awarded only in cases of breac h of contract where the bank has acted willfully, fraudulently or in bad faith. It submits that it has not been shown in this case that Citibank acted willfully , fraudulently or in bad faith and mere negligence, even if the Cabamongan spous es suffered mental anguish or serious anxiety on account thereof, is not a groun d for awarding moral damages. On the third ground, Citibank avers that the interest rate should not be 12% but the stipulated rate of 2.5625% per annum. It adds that there is no basis to pay the interest rate of 12% per annum from September 16, 1994 until full payment b ecause as of said date there was no legal ground yet for the Cabamongan spouses to demand payment of the principal and it is only after a final judgment is issu ed declaring that Citibank is obliged to return the principal amount of US$55,21 6.69 when the right to demand payment starts and legal interest starts to run. On the other hand, the Cabamongan spouses contend that Citibank's negligence has been established by evidence. As to the interest rate, they submit that the sti pulated interest of 2.5635% should apply for the 182-day contract period from Au gust 16, 1993 to February 14, 1993; thereafter, 12% should apply. They further c ontend that the RTC's award of exemplary damages of P100,000.00 should be mainta ined. They submit that the CA erred in treating the award of litigation expenses as lawyer's fees since they have shown that they incurred actual expenses in li tigating their claim against Citibank. They also contend that the CA erred in re ducing the award of moral damages in view of the degree of mental anguish and em otional fears, anxieties and nervousness suffered by them.37 Subsequently, Citibank, thru a new counsel, submitted a Supplemental Memorandum, 38 wherein it posits that, assuming that it was negligent, the Cabamongan spouse s were guilty of contributory negligence since they failed to notify Citibank th at they had migrated to the United States and were residents thereat and after h aving been victims of a burglary, they should have immediately assessed their lo ss and informed Citibank of the disappearance of the bank certificate, their pas sports and other identification cards, then the fraud would not have been perpet uated and the losses avoided. It further argues that since the Cabamongan spouse s are guilty of contributory negligence, the doctrine of last clear chance is in applicable. Citibank's assertion that the Cabamongan spouses are guilty of contributory negl igence and non-application of the doctrine of last clear chance cannot pass must er since these contentions were raised for the first time only in their Suppleme ntal Memorandum. Indeed, the records show that said contention were neither plea ded in the petition for review and the memorandum nor in Citibank's Answer to th e complaint or in its appellant's brief filed with the CA. To consider the alleg ed facts and arguments raised belatedly in a supplemental pleading to herein pet ition for review at this very late stage in the proceedings would amount to tram pling on the basic principles of fair play, justice and due process.391avvphil.n et The Court has repeatedly emphasized that, since the banking business is impresse d with public interest, of paramount importance thereto is the trust and confide nce of the public in general. Consequently, the highest degree of diligence40 is expected,41 and high standards of integrity and performance are even required, of it.42 By the nature of its functions, a bank is "under obligation to treat th e accounts of its depositors with meticulous care,43 always having in mind the f iduciary nature of their relationship."44 In this case, it has been sufficiently shown that the signatures of Carmelita in the forms for pretermination of deposits are forgeries. Citibank, with its sign ature verification procedure, failed to detect the forgery. Its negligence consi sted in the omission of that degree of diligence required of banks. The Court ha s held that a bank is "bound to know the signatures of its customers; and if it pays a forged check, it must be considered as making the payment out of its own funds, and cannot ordinarily charge the amount so paid to the account of the dep

ositor whose name was forged."45 Such principle equally applies here. Citibank cannot label its negligence as mere mistake or human error. Banks handl e daily transactions involving millions of pesos.46 By the very nature of their works the degree of responsibility, care and trustworthiness expected of their e mployees and officials is far greater than those of ordinary clerks and employee s.47 Banks are expected to exercise the highest degree of diligence in the selec tion and supervision of their employees.48 The Court agrees with the observation of the CA that Citibank, thru Account Offi cer San Pedro, openly courted disaster when despite noticing discrepancies in th e signature and photograph of the person claiming to be Carmelita and the failur e to surrender the original certificate of time deposit, the pretermination of t he account was allowed. Even the waiver document was not notarized, a procedure meant to protect the bank. For not observing the degree of diligence required of banking institutions, whose business is impressed with public interest, Citiban k is liable for damages. As to the interest rate, Citibank avers that the claim of the Cabamongan spouses does not constitute a loan or forbearance of money and therefore, the interest rate of 6%, not 12%, applies. The Court does not agree. The time deposit subject matter of herein petition is a simple loan. The provisi ons of the New Civil Code on simple loan govern the contract between a bank and its depositor. Specifically, Article 1980 thereof categorically provides that ". . . savings . . . deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loan." Thus, the relationship betwe en a bank and its depositor is that of a debtor-creditor, the depositor being th e creditor as it lends the bank money, and the bank is the debtor which agrees t o pay the depositor on demand. The applicable interest rate on the actual damages of $55,216.69, should be in a ccordance with the guidelines set forth in Eastern Shipping Lines, Inc. v. Court of Appeals49 to wit: I. When an obligation, regardless of its source, i.e., law, contracts, quasi-con tracts, delicts or quasi-delicts is breached, the contravenor can be held liable for damages. The provisions under Title XVIII on "Damages" of the Civil Code go vern in determining the measure of recoverable damages. II. With regard particularly to an award of interest, in the concept of actual a nd compensatory damages, the rate of interest, as well as the accrual thereof, i s imposed, as follows: 1. When the obligation is breached, and it consists in the payment of a sum of m oney, i.e., a loan or forbearance of money, the interest due should be that whic h may have been stipulated in writing. Furthermore, the interest due shall itsel f earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from de fault, i.e., from judicial or extrajudicial demand under and subject to the prov isions of Article 1169 of the Civil Code. 2. When an obligation, not constituting a loan or forbearance of money, is breac hed, an interest on the amount of damages awarded may be imposed at the discreti on of the court at the rate of 6% per annum. No interest, however, shall be adju dged on unliquidated claims or damages except when or until the demand can be es tablished with reasonable certainty. Accordingly, where the demand is establishe d with reasonable certainty, the interest shall begin to run from the time the c laim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, t he interest shall begin to run only from the date the judgment of the court is m ade (at which time the quantification of damages may be deemed to have been reas onably ascertained). The actual base for the computation of legal interest shall , in any case, be on the amount finally adjudged. 3. When the judgment of the court awarding a sum of money becomes final and exec utory, the rate of legal interest whether the case falls under paragraph 1 or pa ragraph 2, above, shall be 12% per annum from such finality until its satisfacti on, this interim period being deemed to be by then an equivalent to a forbearanc

e of credit.50 Thus, in a loan or forbearance of money, the interest due should be that stipula ted in writing, and in the absence thereof, the rate shall be 12% per annum coun ted from the time of demand. Accordingly, the stipulated interest rate of 2.562% per annum shall apply for the 182-day contract period from August 16, 1993 to F ebruary 14, 1994. For the period from the date of extra-judicial demand, Septemb er 16, 1994, until full payment, the rate of 12% shall apply. As for the interve ning period between February 15, 1994 to September 15, 1994, the rate of interes t then prevailing granted by Citibank shall apply since the time deposit provide d for roll over upon maturity of the principal and interest.51 As to moral damages, in culpa contractual or breach of contract, as in the case before the Court, moral damages are recoverable only if the defendant has acted fraudulently or in bad faith,52 or is found guilty of gross negligence amounting to bad faith, or in wanton disregard of his contractual obligations.53 The act of Citibank's employee in allowing the pretermination of Cabamongan spouses' acc ount despite the noted discrepancies in Carmelita's signature and photograph, th e absence of the original certificate of time deposit and the lack of notarized waiver dormant, constitutes gross negligence amounting to bad faith under Articl e 2220 of the Civil Code. There is no hard-and-fast rule in the determination of what would be a fair amou nt of moral damages since each case must be governed by its own peculiar facts. The yardstick should be that it is not palpably and scandalously excessive.54 Th e amount of P50,000.00 awarded by the CA is reasonable and just. Moreover, said award is deemed final and executory insofar as respondents are concerned conside ring that their petition for review had been denied by the Court in its final an d executory Resolution dated October 17, 2001 in G.R. No. 149234. Finally, Citibank contends that the award of attorney's fees should be deleted s ince such award appears only in the dispositive portion of the decision of the R TC and the latter failed to elaborate, explain and justify the same. Article 2208 of the New Civil Code enumerates the instances where such may be aw arded and, in all cases, it must be reasonable, just and equitable if the same w ere to be granted. Attorney's fees as part of damages are not meant to enrich th e winning party at the expense of the losing litigant. They are not awarded ever y time a party prevails in a suit because of the policy that no premium should b e placed on the right to litigate.55 The award of attorney's fees is the excepti on rather than the general rule. As such, it is necessary for the court to make findings of facts and law that would bring the case within the exception and jus tify the grant of such award. The matter of attorney's fees cannot be mentioned only in the dispositive portion of the decision.56 They must be clearly explaine d and justified by the trial court in the body of its decision. Consequently, th e award of attorney's fees should be deleted. WHEREFORE, the instant petition is PARTIALLY GRANTED. The assailed Decision and Resolution are AFFIRMED with MODIFICATIONS, as follows: 1. The interest shall be computed as follows: a. The actual damages in principal amount of $55,216.69, representing the amount of foreign currency time deposit shall earn interest at the stipulated rate of 2.5625% for the period August 16, 1993 to February 14, 1994; b. From February 15, 1994 to September 15, 1994, the principal amount of $55,216 .69 and the interest earned as of February 14, 1994 shall earn interest at the r ate then prevailing granted by Citibank; c. From September 16, 1994 until full payment, the principal amount of $55,216.6 9 and the interest earned as of September 15, 1994, shall earn interest at the l egal rate of 12% per annum; 2. The award of attorney's fees is DELETED. No pronouncement as to costs. SO ORDERED. G.R. No. 151890 June 20, 2006 PRUDENTIAL GUARANTEE and ASSURANCE INC., petitioner, vs. TRANS-ASIA SHIPPING LINES, INC., Respondent.

x- - - - - - - - - - - - - - - - - - - - - - - - - x G.R. No. 151991 June 20, 2006 TRANS-ASIA SHIPPING LINES, INC., petitioner, vs. PRUDENTIAL GUARANTEE and ASSURANCE INC., Respondent. D E C I S I O N CHICO-NAZARIO, J: This is a consolidation of two separate Petitions for Review on Certiorari filed by petitioner Prudential Guarantee and Assurance, Inc. (PRUDENTIAL) in G.R. No. 151890 and Trans-Asia Shipping Lines, Inc. (TRANS-ASIA) in G.R. No. 151991, ass ailing the Decision1 dated 6 November 2001 of the Court of Appeals in CA G.R. CV No. 68278, which reversed the Judgment2 dated 6 June 2000 of the Regional Trial Court (RTC), Branch 13, Cebu City in Civil Case No. CEB-20709. The 29 January 2 002 Resolution3 of the Court of Appeals, denying PRUDENTIALs Motion for Reconside ration and TRANS-ASIAs Partial Motion for Reconsideration of the 6 November 2001 Decision, is likewise sought to be annulled and set aside. The Facts The material antecedents as found by the court a quo and adopted by the appellat e court are as follows: Plaintiff [TRANS-ASIA] is the owner of the vessel M/V Asia Korea. In considerati on of payment of premiums, defendant [PRUDENTIAL] insured M/V Asia Korea for los s/damage of the hull and machinery arising from perils, inter alia, of fire and explosion for the sum of P40 Million, beginning [from] the period [of] July 1, 1 993 up to July 1, 1994. This is evidenced by Marine Policy No. MH93/1363 (Exhibi ts "A" to "A-11"). On October 25, 1993, while the policy was in force, a fire br oke out while [M/V Asia Korea was] undergoing repairs at the port of Cebu. On Oc tober 26, 1993 plaintiff [TRANS-ASIA] filed its notice of claim for damage susta ined by the vessel. This is evidenced by a letter/formal claim of even date (Exh ibit "B"). Plaintiff [TRANS-ASIA] reserved its right to subsequently notify defe ndant [PRUDENTIAL] as to the full amount of the claim upon final survey and dete rmination by average adjuster Richard Hogg International (Phil.) of the damage s ustained by reason of fire. An adjusters report on the fire in question was submi tted by Richard Hogg International together with the U-Marine Surveyor Report (E xhibits "4" to "4-115"). On May 29, 1995[,] plaintiff [TRANS-ASIA] executed a document denominated "Loan and Trust receipt", a portion of which read (sic): "Received from Prudential Guarantee and Assurance, Inc., the sum of PESOS THREE MILLION ONLY (P3,000,000.00) as a loan without interest under Policy No. MH 93/1 353 [sic], repayable only in the event and to the extent that any net recovery i s made by Trans-Asia Shipping Corporation, from any person or persons, corporati on or corporations, or other parties, on account of loss by any casualty for whi ch they may be liable occasioned by the 25 October 1993: Fire on Board." (Exhibi t "4") In a letter dated 21 April 1997 defendant [PRUDENTIAL] denied plaintiffs claim (E xhibit "5"). The letter reads: "After a careful review and evaluation of your claim arising from the above-capt ioned incident, it has been ascertained that you are in breach of policy conditi ons, among them "WARRANTED VESSEL CLASSED AND CLASS MAINTAINED". Accordingly, we regret to advise that your claim is not compensable and hereby DENIED." This was followed by defendants letter dated 21 July 1997 requesting the return o r payment of the P3,000,000.00 within a period of ten (10) days from receipt of the letter (Exhibit "6").4 Following this development, on 13 August 1997, TRANS-ASIA filed a Complaint5 for Sum of Money against PRUDENTIAL with the RTC of Cebu City, docketed as Civil Ca se No. CEB-20709, wherein TRANS-ASIA sought the amount of P8,395,072.26 from PRU DENTIAL, alleging that the same represents the balance of the indemnity due upon the insurance policy in the total amount of P11,395,072.26. TRANS-ASIA similarl y sought interest at 42% per annum citing Section 2436 of Presidential Decreee N o. 1460, otherwise known as the "Insurance Code," as amended. In its Answer,7 PRUDENTIAL denied the material allegations of the Complaint and

interposed the defense that TRANS-ASIA breached insurance policy conditions, in particular: "WARRANTED VESSEL CLASSED AND CLASS MAINTAINED." PRUDENTIAL further alleged that it acted as facts and law require and incurred no liability to TRAN S-ASIA; that TRANS-ASIA has no cause of action; and, that its claim has been eff ectively waived and/or abandoned, or it is estopped from pursuing the same. By w ay of a counterclaim, PRUDENTIAL sought a refund of P3,000,000.00, which it alle gedly advanced to TRANS-ASIA by way of a loan without interest and without preju dice to the final evaluation of the claim, including the amounts of P500,000.00, for survey fees and P200,000.00, representing attorneys fees. The Ruling of the Trial Court On 6 June 2000, the court a quo rendered Judgment8 finding for (therein defendan t) PRUDENTIAL. It ruled that a determination of the parties liabilities hinged on whether TRANS-ASIA violated and breached the policy conditions on WARRANTED VES SEL CLASSED AND CLASS MAINTAINED. It interpreted the provision to mean that TRAN S-ASIA is required to maintain the vessel at a certain class at all times pertin ent during the life of the policy. According to the court a quo, TRANS-ASIA fail ed to prove compliance of the terms of the warranty, the violation thereof entit led PRUDENTIAL, the insured party, to rescind the contract.9 Further, citing Section 10710 of the Insurance Code, the court a quo ratiocinate d that the concealment made by TRANS-ASIA that the vessel was not adequately mai ntained to preserve its class was a material concealment sufficient to avoid the policy and, thus, entitled the injured party to rescind the contract. The court a quo found merit in PRUDENTIALs contention that there was nothing in the adjust ment of the particular average submitted by the adjuster that would show that TR ANS-ASIA was not in breach of the policy. Ruling on the denominated loan and tru st receipt, the court a quo said that in substance and in form, the same is a re ceipt for a loan. It held that if TRANS-ASIA intended to receive the amount of P 3,000,000.00 as advance payment, it should have so clearly stated as such. The court a quo did not award PRUDENTIALs claim for P500,000.00, representing exp ert survey fees on the ground of lack of sufficient basis in support thereof. Ne ither did it award attorneys fees on the rationalization that the instant case do es not fall under the exceptions stated in Article 220811 of the Civil Code. How ever, the court a quo granted PRUDENTIALs counterclaim stating that there is fact ual and legal basis for TRANS-ASIA to return the amount of P3,000,000.00 by way of loan without interest. The decretal portion of the Judgment of the RTC reads: WHEREFORE, judgment is hereby rendered DISMISSING the complaint for its failure to prove a cause of action. On defendants counterclaim, plaintiff is directed to return the sum of P3,000,000 .00 representing the loan extended to it by the defendant, within a period of te n (10) days from and after this judgment shall have become final and executory.1 2 The Ruling of the Court of Appeals On appeal by TRANS-ASIA, the Court of Appeals, in its assailed Decision of 6 Nov ember 2001, reversed the 6 June 2000 Judgment of the RTC. On the issue of TRANS-ASIAs alleged breach of warranty of the policy condition CL ASSED AND CLASS MAINTAINED, the Court of Appeals ruled that PRUDENTIAL, as the p arty asserting the non-compensability of the loss had the burden of proof to sho w that TRANS-ASIA breached the warranty, which burden it failed to discharge. PR UDENTIAL cannot rely on the lack of certification to the effect that TRANS-ASIA was CLASSED AND CLASS MAINTAINED as its sole basis for reaching the conclusion t hat the warranty was breached. The Court of Appeals opined that the lack of a ce rtification does not necessarily mean that the warranty was breached by TRANS-AS IA. Instead, the Court of Appeals considered PRUDENTIALs admission that at the ti me the insurance contract was entered into between the parties, the vessel was p roperly classed by Bureau Veritas, a classification society recognized by the in dustry. The Court of Appeals similarly gave weight to the fact that it was the r esponsibility of Richards Hogg International (Phils.) Inc., the average adjuster hired by PRUDENTIAL, to secure a copy of such certification to support its conc lusion that mere absence of a certification does not warrant denial of TRANS-ASI

As claim under the insurance policy. In the same token, the Court of Appeals found the subject warranty allegedly bre ached by TRANS-ASIA to be a rider which, while contained in the policy, was inse rted by PRUDENTIAL without the intervention of TRANS-ASIA. As such, it partakes of a nature of a contract dadhesion which should be construed against PRUDENTIAL, the party which drafted the contract. Likewise, according to the Court of Appea ls, PRUDENTIALs renewal of the insurance policy from noon of 1 July 1994 to noon of 1 July 1995, and then again, until noon of 1 July 1996 must be deemed a waive r by PRUDENTIAL of any breach of warranty committed by TRANS-ASIA. Further, the Court of Appeals, contrary to the ruling of the court a quo, interp reted the transaction between PRUDENTIAL and TRANS-ASIA as one of subrogation, i nstead of a loan. The Court of Appeals concluded that TRANS-ASIA has no obligati on to pay back the amount of P3,000.000.00 to PRUDENTIAL based on its finding th at the aforesaid amount was PRUDENTIALs partial payment to TRANS-ASIAs claim under the policy. Finally, the Court of Appeals denied TRANS-ASIAs prayer for attorneys fees, but held TRANS-ASIA entitled to double interest on the policy for the dur ation of the delay of payment of the unpaid balance, citing Section 24413 of the Insurance Code. Finding for therein appellant TRANS-ASIA, the Court of Appeals ruled in this wis e: WHEREFORE, the foregoing consideration, We find for Appellant. The instant appea l is ALLOWED and the Judgment appealed from REVERSED. The P3,000,000.00 initiall y paid by appellee Prudential Guarantee Assurance Incorporated to appellant Tran s-Asia and covered by a "Loan and Trust Receipt" dated 29 May 1995 is HELD to be in partial settlement of the loss suffered by appellant and covered by Marine P olicy No. MH93/1363 issued by appellee. Further, appellee is hereby ORDERED to p ay appellant the additional amount of P8,395,072.26 representing the balance of the loss suffered by the latter as recommended by the average adjuster Richard H ogg International (Philippines) in its Report, with double interest starting fro m the time Richard Hoggs Survey Report was completed, or on 13 August 1996, until the same is fully paid. All other claims and counterclaims are hereby DISMISSED. All costs against appellee.14 Not satisfied with the judgment, PRUDENTIAL and TRANS-ASIA filed a Motion for Re consideration and Partial Motion for Reconsideration thereon, respectively, whic h motions were denied by the Court of Appeals in the Resolution dated 29 January 2002. The Issues Aggrieved, PRUDENTIAL filed before this Court a Petition for Review, docketed as G.R. No. 151890, relying on the following grounds, viz: I. THE AWARD IS GROSSLY UNCONSCIONABLE. II. THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO VIOLATION BY TRANS-ASIA OF A MATERIAL WARRANTY, NAMELY, WARRANTY CLAUSE NO. 5, OF THE INSURANCE POLICY. III. THE COURT OF APPEALS ERRED IN HOLDING THAT PRUDENTIAL, AS INSURER HAD THE BURDEN OF PROVING THAT THE ASSURED, TRANS-ASIA, VIOLATED A MATERIAL WARRANTY. IV. THE COURT OF APPEALS ERRED IN HOLDING THAT THE WARRANTY CLAUSE EMBODIED IN THE I NSURANCE POLICY CONTRACT WAS A MERE RIDER. V. THE COURT OF APPEALS ERRED IN HOLDING THAT THE ALLEGED RENEWALS OF THE POLICY CO NSTITUTED A WAIVER ON THE PART OF PRUDENTIAL OF THE BREACH OF THE WARRANTY BY TR ANS-ASIA. VI. THE COURT OF APPEALS ERRED IN HOLDING THAT THE "LOAN AND TRUST RECEIPT" EXECUTED BY TRANS-ASIA IS AN ADVANCE ON THE POLICY, THUS CONSTITUTING PARTIAL PAYMENT TH EREOF. VII.

THE COURT OF APPEALS ERRED IN HOLDING THAT THE ACCEPTANCE BY PRUDENTIAL OF THE F INDINGS OF RICHARDS HOGG IS INDICATIVE OF A WAIVER ON THE PART OF PRUDENTIAL OF ANY VIOLATION BY TRANS-ASIA OF THE WARRANTY. VIII. THE COURT OF APPEALS ERRRED (sic) IN REVERSING THE TRIAL COURT, IN FINDING THAT PRUDENTIAL "UNJUSTIFIABLY REFUSED" TO PAY THE CLAIM AND IN ORDERING PRUDENTIAL T O PAY TRANS-ASIA P8,395,072.26 PLUS DOUBLE INTEREST FROM 13 AUGUST 1996, UNTIL [ THE] SAME IS FULLY PAID.15 Similarly, TRANS-ASIA, disagreeing in the ruling of the Court of Appeals filed a Petition for Review docketed as G.R. No. 151991, raising the following grounds for the allowance of the petition, to wit: I. THE HONORABLE COURT OF APPEALS ERRED IN NOT AWARDING ATTORNEYS FEES TO PETITIONER TRANS-ASIA ON THE GROUND THAT SUCH CAN ONLY BE AWARDED IN THE CASES ENUMERATED IN ARTICLE 2208 OF THE CIVIL CODE, AND THERE BEING NO BAD FAITH ON THE PART OF R ESPONDENT PRUDENTIAL IN DENYING HEREIN PETITIONER TRANS-ASIAS INSURANCE CLAIM. II. THE "DOUBLE INTEREST" REFERRED TO IN THE DECISION DATED 06 NOVEMBER 2001 SHOULD BE CONSTRUED TO MEAN DOUBLE INTEREST BASED ON THE LEGAL INTEREST OF 12%, OR INTE REST AT THE RATE OF 24% PER ANNUM.16 In our Resolution of 2 December 2002, we granted TRANS-ASIAs Motion for Consolida tion17 of G.R. Nos. 151890 and 151991;18 hence, the instant consolidated petitio ns. In sum, for our main resolution are: (1) the liability, if any, of PRUDENTIAL to TRANS-ASIA arising from the subject insurance contract; (2) the liability, if a ny, of TRANS-ASIA to PRUDENTIAL arising from the transaction between the parties as evidenced by a document denominated as "Loan and Trust Receipt," dated 29 Ma y 1995; and (3) the amount of interest to be imposed on the liability, if any, o f either or both parties. Ruling of the Court Prefatorily, it must be emphasized that in a petition for review, only questions of law, and not questions of fact, may be raised.19 This rule may be disregarde d only when the findings of fact of the Court of Appeals are contrary to the fin dings and conclusions of the trial court, or are not supported by the evidence o n record.20 In the case at bar, we find an incongruence between the findings of fact of the Court of Appeals and the court a quo, thus, in our determination of the issues, we are constrained to assess the evidence adduced by the parties to make appropriate findings of facts as are necessary. I. A. PRUDENTIAL failed to establish that TRANS-ASIA violated and breached the poli cy condition on WARRANTED VESSEL CLASSED AND CLASS MAINTAINED, as contained in t he subject insurance contract. In resisting the claim of TRANS-ASIA, PRUDENTIAL posits that TRANS-ASIA violated an express and material warranty in the subject insurance contract, i.e., Marin e Insurance Policy No. MH93/1363, specifically Warranty Clause No. 5 thereof, wh ich stipulates that the insured vessel, "M/V ASIA KOREA" is required to be CLASS ED AND CLASS MAINTAINED. According to PRUDENTIAL, on 25 October 1993, or at the time of the occurrence of the fire, "M/V ASIA KOREA" was in violation of the war ranty as it was not CLASSED AND CLASS MAINTAINED. PRUDENTIAL submits that Warran ty Clause No. 5 was a condition precedent to the recovery of TRANS-ASIA under th e policy, the violation of which entitled PRUDENTIAL to rescind the contract und er Sec. 7421 of the Insurance Code. The warranty condition CLASSED AND CLASS MAINTAINED was explained by PRUDENTIALs Senior Manager of the Marine and Aviation Division, Lucio Fernandez. The pertine nt portions of his testimony on direct examination is reproduced hereunder, viz: ATTY. LIM Q Please tell the court, Mr. Witness, the result of the evaluation of this claim , what final action was taken? A It was eventually determined that there was a breach of the policy condition, and basically there is a breach of policy warranty condition and on that basis t

he claim was denied. Q To refer you (sic) the "policy warranty condition," I am showing to you a poli cy here marked as Exhibits "1", "1-A" series, please point to the warranty in th e policy which you said was breached or violated by the plaintiff which constitu ted your basis for denying the claim as you testified. A Warranted Vessel Classed and Class Maintained. ATTY. LIM Witness pointing, Your Honor, to that portion in Exhibit "1-A" which is the seco nd page of the policy below the printed words: "Clauses, Endorsements, Special C onditions and Warranties," below this are several typewritten clauses and the wi tness pointed out in particular the clause reading: "Warranted Vessel Classed an d Class Maintained." COURT Q Will you explain that particular phrase? A Yes, a warranty is a condition that has to be complied with by the insured. Wh en we say a class warranty, it must be entered in the classification society. COURT Slowly. WITNESS (continued) A A classification society is an organization which sets certain standards for a vessel to maintain in order to maintain their membership in the classification society. So, if they failed to meet that standard, they are considered not membe rs of that class, and thus breaching the warranty, that requires them to maintai n membership or to maintain their class on that classification society. And it i s not sufficient that the member of this classification society at the time of a loss, their membership must be continuous for the whole length of the policy su ch that during the effectivity of the policy, their classification is suspended, and then thereafter, they get reinstated, that again still a breach of the warr anty that they maintained their class (sic). Our maintaining team membership in the classification society thereby maintaining the standards of the vessel (sic) . ATTY. LIM Q Can you mention some classification societies that you know? A Well we have the Bureau Veritas, American Bureau of Shipping, D&V Local Classi fication Society, The Philippine Registration of Ships Society, China Classifica tion, NKK and Company Classification Society, and many others, we have among oth ers, there are over 20 worldwide. 22 At the outset, it must be emphasized that the party which alleges a fact as a ma tter of defense has the burden of proving it. PRUDENTIAL, as the party which ass erted the claim that TRANS-ASIA breached the warranty in the policy, has the bur den of evidence to establish the same. Hence, on the part of PRUDENTIAL lies the initiative to show proof in support of its defense; otherwise, failing to estab lish the same, it remains self-serving. Clearly, if no evidence on the alleged b reach of TRANS-ASIA of the subject warranty is shown, a fortiori, TRANS-ASIA wou ld be successful in claiming on the policy. It follows that PRUDENTIAL bears the burden of evidence to establish the fact of breach. In our rule on evidence, TRANS-ASIA, as the plaintiff below, necessarily has the burden of proof to show proof of loss, and the coverage thereof, in the subject insurance policy. However, in the course of trial in a civil case, once plainti ff makes out a prima facie case in his favor, the duty or the burden of evidence shifts to defendant to controvert plaintiffs prima facie case, otherwise, a verd ict must be returned in favor of plaintiff.23 TRANS-ASIA was able to establish p roof of loss and the coverage of the loss, i.e., 25 October 1993: Fire on Board. Thereafter, the burden of evidence shifted to PRUDENTIAL to counter TRANS-ASIAs case, and to prove its special and affirmative defense that TRANS-ASIA was in vi olation of the particular condition on CLASSED AND CLASS MAINTAINED. We sustain the findings of the Court of Appeals that PRUDENTIAL was not successf ul in discharging the burden of evidence that TRANS-ASIA breached the subject po licy condition on CLASSED AND CLASS MAINTAINED.

Foremost, PRUDENTIAL, through the Senior Manager of its Marine and Aviation Divi sion, Lucio Fernandez, made a categorical admission that at the time of the proc urement of the insurance contract in July 1993, TRANS-ASIAs vessel, "M/V Asia Kor ea" was properly classed by Bureau Veritas, thus: Q Kindly examine the records particularly the policy, please tell us if you know whether M/V Asia Korea was classed at the time (sic) policy was procured perthe (sic) insurance was procured that Exhibit "1" on 1st July 1993 (sic). WITNESS A I recall that they were classed. ATTY. LIM Q With what classification society? A I believe with Bureau Veritas.24 As found by the Court of Appeals and as supported by the records, Bureau Veritas is a classification society recognized in the marine industry. As it is undispu ted that TRANS-ASIA was properly classed at the time the contract of insurance w as entered into, thus, it becomes incumbent upon PRUDENTIAL to show evidence tha t the status of TRANS-ASIA as being properly CLASSED by Bureau Veritas had shift ed in violation of the warranty. Unfortunately, PRUDENTIAL failed to support the allegation. We are in accord with the ruling of the Court of Appeals that the lack of a cert ification in PRUDENTIALs records to the effect that TRANS-ASIAs "M/V Asia Korea" w as CLASSED AND CLASS MAINTAINED at the time of the occurrence of the fire cannot be tantamount to the conclusion that TRANS-ASIA in fact breached the warranty c ontained in the policy. With more reason must we sustain the findings of the Cou rt of Appeals on the ground that as admitted by PRUDENTIAL, it was likewise the responsibility of the average adjuster, Richards Hogg International (Phils.), In c., to secure a copy of such certification, and the alleged breach of TRANS-ASIA cannot be gleaned from the average adjusters survey report, or adjustment of par ticular average per "M/V Asia Korea" of the 25 October 1993 fire on board. We are not unmindful of the clear language of Sec. 74 of the Insurance Code whic h provides that, "the violation of a material warranty, or other material provis ion of a policy on the part of either party thereto, entitles the other to resci nd." It is generally accepted that "[a] warranty is a statement or promise set f orth in the policy, or by reference incorporated therein, the untruth or non-ful fillment of which in any respect, and without reference to whether the insurer w as in fact prejudiced by such untruth or non-fulfillment, renders the policy voi dable by the insurer."25 However, it is similarly indubitable that for the breac h of a warranty to avoid a policy, the same must be duly shown by the party alle ging the same. We cannot sustain an allegation that is unfounded. Consequently, PRUDENTIAL, not having shown that TRANS-ASIA breached the warranty condition, CL ASSED AND CLASS MAINTAINED, it remains that TRANS-ASIA must be allowed to recove r its rightful claims on the policy. B. Assuming arguendo that TRANS-ASIA violated the policy condition on WARRANTED VESSEL CLASSED AND CLASS MAINTAINED, PRUDENTIAL made a valid waiver of the same. The Court of Appeals, in reversing the Judgment of the RTC which held that TRANS -ASIA breached the warranty provision on CLASSED AND CLASS MAINTAINED, underscor ed that PRUDENTIAL can be deemed to have made a valid waiver of TRANS-ASIAs breac h of warranty as alleged, ratiocinating, thus: Third, after the loss, Prudential renewed the insurance policy of Trans-Asia for two (2) consecutive years, from noon of 01 July 1994 to noon of 01 July 1995, a nd then again until noon of 01 July 1996. This renewal is deemed a waiver of any breach of warranty.26 PRUDENTIAL finds fault with the ruling of the appellate court when it ruled that the renewal policies are deemed a waiver of TRANS-ASIAs alleged breach, averring herein that the subsequent policies, designated as MH94/1595 and MH95/1788 show that they were issued only on 1 July 1994 and 3 July 1995, respectively, prior to the time it made a request to TRANS-ASIA that it be furnished a copy of the c ertification specifying that the insured vessel "M/V Asia Korea" was CLASSED AND CLASS MAINTAINED. PRUDENTIAL posits that it came to know of the breach by TRANS -ASIA of the subject warranty clause only on 21 April 1997. On even date, PRUDEN

TIAL sent TRANS-ASIA a letter of denial, advising the latter that their claim is not compensable. In fine, PRUDENTIAL would have this Court believe that the iss uance of the renewal policies cannot be a waiver because they were issued withou t knowledge of the alleged breach of warranty committed by TRANS-ASIA.27 We are not impressed. We do not find that the Court of Appeals was in error when it held that PRUDENTIAL, in renewing TRANS-ASIAs insurance policy for two consec utive years after the loss covered by Policy No. MH93/1363, was considered to ha ve waived TRANS-ASIAs breach of the subject warranty, if any. Breach of a warrant y or of a condition renders the contract defeasible at the option of the insurer ; but if he so elects, he may waive his privilege and power to rescind by the me re expression of an intention so to do. In that event his liability under the po licy continues as before.28 There can be no clearer intention of the waiver of t he alleged breach than the renewal of the policy insurance granted by PRUDENTIAL to TRANS-ASIA in MH94/1595 and MH95/1788, issued in the years 1994 and 1995, re spectively. To our mind, the argument is made even more credulous by PRUDENTIALs lack of proo f to support its allegation that the renewals of the policies were taken only af ter a request was made to TRANS-ASIA to furnish them a copy of the certificate a ttesting that "M/V Asia Korea" was CLASSED AND CLASS MAINTAINED. Notwithstanding PRUDENTIALs claim that no certification was issued to that effect, it renewed th e policy, thereby, evidencing an intention to waive TRANS-ASIAs alleged breach. C learly, by granting the renewal policies twice and successively after the loss, the intent was to benefit the insured, TRANS-ASIA, as well as to waive complianc e of the warranty. The foregoing finding renders a determination of whether the subject warranty is a rider, moot, as raised by the PRUDENTIAL in its assignment of errors. Whether it is a rider will not effectively alter the result for the reasons that: (1) P RUDENTIAL was not able to discharge the burden of evidence to show that TRANS-AS IA committed a breach, thereof; and (2) assuming arguendo the commission of a br each by TRANS-ASIA, the same was shown to have been waived by PRUDENTIAL. II. A. The amount of P3,000,000.00 granted by PRUDENTIAL to TRANS- ASIA via a transa ction between the parties evidenced by a document denominated as "Loan and Trust Receipt," dated 29 May 1995 constituted partial payment on the policy. It is undisputed that TRANS-ASIA received from PRUDENTIAL the amount of P3,000,0 00.00. The same was evidenced by a transaction receipt denominated as a "Loan an d Trust Receipt," dated 29 May 1995, reproduced hereunder: LOAN AND TRUST RECEIPT Claim File No. MH-93-025 May 29, 1995 P3,000,000.00 Check No. PCIB066755 Received FROM PRUDENTIAL GUARANTEE AND ASSURANCE INC., the sum of PESOS THREE MI LLION ONLY (P3,000,000.00) as a loan without interest, under Policy No. MH93/135 3, repayable only in the event and to the extent that any net recovery is made b y TRANS ASIA SHIPPING CORP., from any person or persons, corporation or corporat ions, or other parties, on account of loss by any casualty for which they may be liable, occasioned by the 25 October 1993: Fire on Board. As security for such repayment, we hereby pledge to PRUDENTIAL GUARANTEE AND ASS URANCE INC. whatever recovery we may make and deliver to it all documents necess ary to prove our interest in said property. We also hereby agree to promptly pro secute suit against such persons, corporation or corporations through whose negl igence the aforesaid loss was caused or who may otherwise be responsible therefo re, with all due diligence, in our own name, but at the expense of and under the exclusive direction and control of PRUDENTIAL GUARANTEE AND ASSURANCE INC. TRANS-ASIA SHIPPING CORPORATION29 PRUDENTIAL largely contends that the "Loan and Trust Receipt" executed by the pa rties evidenced a loan of P3,000,000.00 which it granted to TRANS-ASIA, and not an advance payment on the policy or a partial payment for the loss. It further s ubmits that it is a customary practice for insurance companies in this country t o extend loans gratuitously as part of good business dealing with their assured,

in order to afford their assured the chance to continue business without embarr assment while awaiting outcome of the settlement of their claims.30 According to PRUDENTIAL, the "Trust and Loan Agreement" did not subrogate to it whatever rig hts and/or actions TRANS-ASIA may have against third persons, and it cannot by n o means be taken that by virtue thereof, PRUDENTIAL was granted irrevocable powe r of attorney by TRANS-ASIA, as the sole power to prosecute lies solely with the latter. The Court of Appeals held that the real character of the transaction between the parties as evidenced by the "Loan and Trust Receipt" is that of an advance paym ent by PRUDENTIAL of TRANS-ASIAs claim on the insurance, thus: The Philippine Insurance Code (PD 1460 as amended) was derived from the old Insu rance Law Act No. 2427 of the Philippine Legislature during the American Regime. The Insurance Act was lifted verbatim from the law of California, except Chapte r V thereof, which was taken largely from the insurance law of New York. Therefo re, ruling case law in that jurisdiction is to Us persuasive in interpreting pro visions of our own Insurance Code. In addition, the application of the adopted s tatute should correspond in fundamental points with the application in its count ry of origin x x x. x x x x Likewise, it is settled in that jurisdiction that the (sic) notwithstanding reci tals in the Loan Receipt that the money was intended as a loan does not detract from its real character as payment of claim, thus: "The receipt of money by the insured employers from a surety company for losses on account of forgery of drafts by an employee where no provision or repayment o f the money was made except upon condition that it be recovered from other parti es and neither interest nor security for the asserted debts was provided for, th e money constituted the payment of a liability and not a mere loan, notwithstand ing recitals in the written receipt that the money was intended as a mere loan." What is clear from the wordings of the so-called "Loan and Trust Receipt Agreeme nt" is that appellant is obligated to hand over to appellee "whatever recovery ( Trans Asia) may make and deliver to (Prudential) all documents necessary to prov e its interest in the said property." For all intents and purposes therefore, th e money receipted is payment under the policy, with Prudential having the right of subrogation to whatever net recovery Trans-Asia may obtain from third parties resulting from the fire. In the law on insurance, subrogation is an equitable a ssignment to the insurer of all remedies which the insured may have against thir d person whose negligence or wrongful act caused the loss covered by the insuran ce policy, which is created as the legal effect of payment by the insurer as an assignee in equity. The loss in the first instance is that of the insured but af ter reimbursement or compensation, it becomes the loss of the insurer. It has be en referred to as the doctrine of substitution and rests on the principle that s ubstantial justice should be attained regardless of form, that is, its basis is the doing of complete, essential, and perfect justice between all the parties wi thout regard to form.31 We agree. Notwithstanding its designation, the tenor of the "Loan and Trust Rece ipt" evidences that the real nature of the transaction between the parties was t hat the amount of P3,000,000.00 was not intended as a loan whereby TRANS-ASIA is obligated to pay PRUDENTIAL, but rather, the same was a partial payment or an a dvance on the policy of the claims due to TRANS-ASIA. First, the amount of P3,000,000.00 constitutes an advance payment to TRANS-ASIA by PRUDENTIAL, subrogating the former to the extent of "any net recovery made by TRANS ASIA SHIPPING CORP., from any person or persons, corporation or corporati ons, or other parties, on account of loss by any casualty for which they may be liable, occasioned by the 25 October 1993: Fire on Board."32 Second, we find that per the "Loan and Trust Receipt," even as TRANS-ASIA agreed to "promptly prosecute suit against such persons, corporation or corporations t hrough whose negligence the aforesaid loss was caused or who may otherwise be re sponsible therefore, with all due diligence" in its name, the prosecution of the claims against such third persons are to be carried on "at the expense of and u nder the exclusive direction and control of PRUDENTIAL GUARANTEE AND ASSURANCE I

NC."33 The clear import of the phrase "at the expense of and under the exclusive direction and control" as used in the "Loan and Trust Receipt" grants solely to PRUDENTIAL the power to prosecute, even as the same is carried in the name of T RANS-ASIA, thereby making TRANS-ASIA merely an agent of PRUDENTIAL, the principa l, in the prosecution of the suit against parties who may have occasioned the lo ss. Third, per the subject "Loan and Trust Receipt," the obligation of TRANS-ASIA to repay PRUDENTIAL is highly speculative and contingent, i.e., only in the event and to the extent that any net recovery is made by TRANS-ASIA from any person on account of loss occasioned by the fire of 25 October 1993. The transaction, the refore, was made to benefit TRANS-ASIA, such that, if no recovery from third par ties is made, PRUDENTIAL cannot be repaid the amount. Verily, we do not think th at this is constitutive of a loan.34 The liberality in the tenor of the "Loan an d Trust Receipt" in favor of TRANS-ASIA leads to the conclusion that the amount of P3,000,000.00 was a form of an advance payment on TRANS-ASIAs claim on MH93/13 53. III. A. PRUDENTIAL is directed to pay TRANS-ASIA the amount of P8,395,072.26, represe nting the balance of the loss suffered by TRANS-ASIA and covered by Marine Polic y No. MH93/1363. Our foregoing discussion supports the conclusion that TRANS-ASIA is entitled to the unpaid claims covered by Marine Policy No. MH93/1363, or a total amount of P 8,395,072.26. B. Likewise, PRUDENTIAL is directed to pay TRANS-ASIA, damages in the form of at torneys fees equivalent to 10% of P8,395,072.26. The Court of Appeals denied the grant of attorneys fees. It held that attorneys fe es cannot be awarded absent a showing of bad faith on the part of PRUDENTIAL in rejecting TRANS-ASIAs claim, notwithstanding that the rejection was erroneous. Ac cording to the Court of Appeals, attorneys fees can be awarded only in the cases enumerated in Article 2208 of the Civil Code which finds no application in the i nstant case. We disagree. Sec. 244 of the Insurance Code grants damages consisting of attorne ys fees and other expenses incurred by the insured after a finding by the Insuran ce Commissioner or the Court, as the case may be, of an unreasonable denial or w ithholding of the payment of the claims due. Moreover, the law imposes an intere st of twice the ceiling prescribed by the Monetary Board on the amount of the cl aim due the insured from the date following the time prescribed in Section 24235 or in Section 243,36 as the case may be, until the claim is fully satisfied. Fi nally, Section 244 considers the failure to pay the claims within the time presc ribed in Sections 242 or 243, when applicable, as prima facie evidence of unreas onable delay in payment. To the mind of this Court, Section 244 does not require a showing of bad faith i n order that attorneys fees be granted. As earlier stated, under Section 244, a p rima facie evidence of unreasonable delay in payment of the claim is created by failure of the insurer to pay the claim within the time fixed in both Sections 2 42 and 243 of the Insurance Code. As established in Section 244, by reason of th e delay and the consequent filing of the suit by the insured, the insurers shall be adjudged to pay damages which shall consist of attorneys fees and other expen ses incurred by the insured.37 Section 244 reads: In case of any litigation for the enforcement of any policy or contract of insur ance, it shall be the duty of the Commissioner or the Court, as the case may be, to make a finding as to whether the payment of the claim of the insured has bee n unreasonably denied or withheld; and in the affirmative case, the insurance co mpany shall be adjudged to pay damages which shall consist of attorneys fees and other expenses incurred by the insured person by reason of such unreasonable den ial or withholding of payment plus interest of twice the ceiling prescribed by t he Monetary Board of the amount of the claim due the insured, from the date foll owing the time prescribed in section two hundred forty-two or in section two hun dred forty-three, as the case may be, until the claim is fully satisfied; Provid

ed, That the failure to pay any such claim within the time prescribed in said se ctions shall be considered prima facie evidence of unreasonable delay in payment . Sections 243 and 244 of the Insurance Code apply when the court finds an unreaso nable delay or refusal in the payment of the insurance claims. In the case at bar, the facts as found by the Court of Appeals, and confirmed by the records show that there was an unreasonable delay by PRUDENTIAL in the paym ent of the unpaid balance of P8,395,072.26 to TRANS-ASIA. On 26 October 1993, a day after the occurrence of the fire in "M/V Asia Korea", TRANS-ASIA filed its n otice of claim. On 13 August 1996, the adjuster, Richards Hogg International (Ph ils.), Inc., completed its survey report recommending the amount of P11,395,072. 26 as the total indemnity due to TRANS-ASIA.38 On 21 April 1997, PRUDENTIAL, in a letter39 addressed to TRANS-ASIA denied the latters claim for the amount of P8, 395,072.26 representing the balance of the total indemnity. On 21 July 1997, PRU DENTIAL sent a second letter40 to TRANS-ASIA seeking a return of the amount of P 3,000,000.00. On 13 August 1997, TRANS-ASIA was constrained to file a complaint for sum of money against PRUDENTIAL praying, inter alia, for the sum of P8,395,0 72.26 representing the balance of the proceeds of the insurance claim. As can be gleaned from the foregoing, there was an unreasonable delay on the par t of PRUDENTIAL to pay TRANS-ASIA, as in fact, it refuted the latters right to th e insurance claims, from the time proof of loss was shown and the ascertainment of the loss was made by the insurance adjuster. Evidently, PRUDENTIALs unreasonab le delay in satisfying TRANS-ASIAs unpaid claims compelled the latter to file a s uit for collection. Succinctly, an award equivalent to ten percent (10%) of the unpaid proceeds of t he policy as attorneys fees to TRANS-ASIA is reasonable under the circumstances, or otherwise stated, ten percent (10%) of P8,395,072.26. In the case of Cathay I nsurance, Co., Inc. v. Court of Appeals,41 where a finding of an unreasonable de lay under Section 244 of the Insurance Code was made by this Court, we grant an award of attorneys fees equivalent to ten percent (10%) of the total proceeds. We find no reason to deviate from this judicial precedent in the case at bar. C. Further, the aggregate amount (P8,395,072.26 plus 10% thereof as attorneys fee s) shall be imposed double interest in accordance with Section 244 of the Insura nce Code. Section 244 of the Insurance Code is categorical in imposing an interest twice t he ceiling prescribed by the Monetary Board due the insured, from the date follo wing the time prescribed in Section 242 or in Section 243, as the case may be, u ntil the claim is fully satisfied. In the case at bar, we find Section 243 to be applicable as what is involved herein is a marine insurance, clearly, a policy other than life insurance. Section 243 is hereunder reproduced: SEC. 243. The amount of any loss or damage for which an insurer may be liable, u nder any policy other than life insurance policy, shall be paid within thirty da ys after proof of loss is received by the insurer and ascertainment of the loss or damage is made either by agreement between the insured and the insurer or by arbitration; but if such ascertainment is not had or made within sixty days afte r such receipt by the insurer of the proof of loss, then the loss or damage shal l be paid within ninety days after such receipt. Refusal or failure to pay the l oss or damage within the time prescribed herein will entitle the assured to coll ect interest on the proceeds of the policy for the duration of the delay at the rate of twice the ceiling prescribed by the Monetary Board, unless such failure or refusal to pay is based on the ground that the claim is fraudulent. As specified, the assured is entitled to interest on the proceeds for the durati on of the delay at the rate of twice the ceiling prescribed by the Monetary Boar d except when the failure or refusal of the insurer to pay was founded on the gr ound that the claim is fraudulent. D. The term "double interest" as used in the Decision of the Court of Appeals mu st be interpreted to mean 24% per annum. PRUDENTIAL assails the award of interest, granted by the Court of Appeals, in fa vor of TRANS-ASIA in the assailed Decision of 6 November 2001. It is PRUDENTIALs

stance that the award is extortionate and grossly unsconscionable. In support th ereto, PRUDENTIAL makes a reference to TRANS-ASIAs prayer in the Complaint filed with the court a quo wherein the latter sought, "interest double the prevailing rate of interest of 21% per annum now obtaining in the banking business or plus 42% per annum pursuant to Article 243 of the Insurance Code x x x."42 The contention fails to persuade. It is settled that an award of double interest is lawful and justified under Sections 243 and 244 of the Insurance Code.43 In Finman General Assurance Corporation v. Court of Appeals,44 this Court held that the payment of 24% interest per annum is authorized by the Insurance Code.45 Th ere is no gainsaying that the term "double interest" as used in Sections 243 and 244 can only be interpreted to mean twice 12% per annum or 24% per annum intere st, thus: The term "ceiling prescribed by the Monetary Board" means the legal rate of inte rest of twelve per centum per annum (12%) as prescribed by the Monetary Board in C.B. Circular No. 416, pursuant to P.D. No. 116, amending the Usury Law; so tha t when Sections 242, 243 and 244 of the Insurance Code provide that the insurer shall be liable to pay interest "twice the ceiling prescribed by the Monetary Bo ard", it means twice 12% per annum or 24% per annum interest on the proceeds of the insurance.46 E. The payment of double interest should be counted from 13 September 1996. The Court of Appeals, in imposing double interest for the duration of the delay of the payment of the unpaid balance due TRANS-ASIA, computed the same from 13 A ugust 1996 until such time when the amount is fully paid. Although not raised by the parties, we find the computation of the duration of the delay made by the a ppellate court to be patently erroneous. To be sure, Section 243 imposes interest on the proceeds of the policy for the d uration of the delay at the rate of twice the ceiling prescribed by the Monetary Board. Significantly, Section 243 mandates the payment of any loss or damage fo r which an insurer may be liable, under any policy other than life insurance pol icy, within thirty days after proof of loss is received by the insurer and ascer tainment of the loss or damage is made either by agreement between the insured a nd the insurer or by arbitration. It is clear that under Section 243, the insure r has until the 30th day after proof of loss and ascertainment of the loss or da mage to pay its liability under the insurance, and only after such time can the insurer be held to be in delay, thereby necessitating the imposition of double i nterest. In the case at bar, it was not disputed that the survey report on the ascertainm ent of the loss was completed by the adjuster, Richard Hoggs International (Phil s.), Inc. on 13 August 1996. PRUDENTIAL had thirty days from 13 August 1996 with in which to pay its liability to TRANS-ASIA under the insurance policy, or until 13 September 1996. Therefore, the double interest can begin to run from 13 Sept ember 1996 only. IV. A. An interest of 12% per annum is similarly imposed on the TOTAL amount of liab ility adjudged in section III herein, computed from the time of finality of judg ment until the full satisfaction thereof in conformity with this Courts ruling in Eastern Shipping Lines, Inc. v. Court of Appeals. This Court in Eastern Shipping Lines, Inc. v. Court of Appeals,47 inscribed the rule of thumb48 in the application of interest to be imposed on obligations, reg ardless of their source. Eastern emphasized beyond cavil that when the judgment of the court awarding a sum of money becomes final and executory, the rate of le gal interest, regardless of whether the obligation involves a loan or forbearanc e of money, shall be 12% per annum from such finality until its satisfaction, th is interim period being deemed to be by then an equivalent to a forbearance49 of credit. We find application of the rule in the case at bar proper, thus, a rate of 12% p er annum from the finality of judgment until the full satisfaction thereof must be imposed on the total amount of liability adjudged to PRUDENTIAL. It is clear that the interim period from the finality of judgment until the satisfaction of the same is deemed equivalent to a forbearance of credit, hence, the imposition

of the aforesaid interest. Fallo WHEREFORE, the Petition in G.R. No. 151890 is DENIED. However, the Petition in G .R. No. 151991 is GRANTED, thus, we award the grant of attorneys fees and make a clarification that the term "double interest" as used in the 6 November 2001 Dec ision of the Court of Appeals in CA GR CV No. 68278 should be construed to mean interest at the rate of 24% per annum, with a further clarification, that the sa me should be computed from 13 September 1996 until fully paid. The Decision and Resolution of the Court of Appeals, in CA-G.R. CV No. 68278, dated 6 November 20 01 and 29 January 2002, respectively, are, thus, MODIFIED in the following manne r, to wit: 1. PRUDENTIAL is DIRECTED to PAY TRANS-ASIA the amount of P8,395,072.26, represe nting the balance of the loss suffered by TRANS-ASIA and covered by Marine Polic y No. MH93/1363; 2. PRUDENTIAL is DIRECTED further to PAY TRANS-ASIA damages in the form of attor neys fees equivalent to 10% of the amount of P8,395,072.26; 3. The aggregate amount (P8,395,072.26 plus 10% thereof as attorneys fees) shall be imposed double interest at the rate of 24% per annum to be computed from 13 S eptember 1996 until fully paid; and 4. An interest of 12% per annum is similarly imposed on the TOTAL amount of liab ility adjudged as abovestated in paragraphs (1), (2), and (3) herein, computed f rom the time of finality of judgment until the full satisfaction thereof. No costs. SO ORDERED. G.R. No. 149353 June 26, 2006 JOCELYN B. DOLES, Petitioner, vs. MA. AURA TINA ANGELES, Respondent. D E C I S I O N AUSTRIA-MARTINEZ, J.: This refers to the Petition for Review on Certiorari under Rule 45 of the Rules of Court questioning the Decision1 dated April 30, 2001 of the Court of Appeals (CA) in C.A.-G.R. CV No. 66985, which reversed the Decision dated July 29, 1998 of the Regional Trial Court (RTC), Branch 21, City of Manila; and the CA Resolut ion2 dated August 6, 2001 which denied petitioners Motion for Reconsideration. The antecedents of the case follow: On April 1, 1997, Ma. Aura Tina Angeles (respondent) filed with the RTC a compla int for Specific Performance with Damages against Jocelyn B. Doles (petitioner), docketed as Civil Case No. 97-82716. Respondent alleged that petitioner was ind ebted to the former in the concept of a personal loan amounting to P405,430.00 r epresenting the principal amount and interest; that on October 5, 1996, by virtu e of a "Deed of Absolute Sale",3 petitioner, as seller, ceded to respondent, as buyer, a parcel of land, as well as the improvements thereon, with an area of 42 square meters, covered by Transfer Certificate of Title No. 382532,4 and locate d at a subdivision project known as Camella Townhomes Sorrente in Bacoor, Cavite , in order to satisfy her personal loan with respondent; that this property was mortgaged to National Home Mortgage Finance Corporation (NHMFC) to secure petiti oners loan in the sum of P337,050.00 with that entity; that as a condition for th e foregoing sale, respondent shall assume the undue balance of the mortgage and pay the monthly amortization of P4,748.11 for the remainder of the 25 years whic h began on September 3, 1994; that the property was at that time being occupied by a tenant paying a monthly rent of P3,000.00; that upon verification with the NHMFC, respondent learned that petitioner had incurred arrearages amounting to P 26,744.09, inclusive of penalties and interest; that upon informing the petition er of her arrears, petitioner denied that she incurred them and refused to pay t he same; that despite repeated demand, petitioner refused to cooperate with resp ondent to execute the necessary documents and other formalities required by the NHMFC to effect the transfer of the title over the property; that petitioner col lected rent over the property for the month of January 1997 and refused to remit

the proceeds to respondent; and that respondent suffered damages as a result an d was forced to litigate. Petitioner, then defendant, while admitting some allegations in the Complaint, d enied that she borrowed money from respondent, and averred that from June to Sep tember 1995, she referred her friends to respondent whom she knew to be engaged in the business of lending money in exchange for personal checks through her cap italist Arsenio Pua. She alleged that her friends, namely, Zenaida Romulo, There sa Moratin, Julia Inocencio, Virginia Jacob, and Elizabeth Tomelden, borrowed mo ney from respondent and issued personal checks in payment of the loan; that the checks bounced for insufficiency of funds; that despite her efforts to assist re spondent to collect from the borrowers, she could no longer locate them; that, b ecause of this, respondent became furious and threatened petitioner that if the accounts were not settled, a criminal case will be filed against her; that she w as forced to issue eight checks amounting to P350,000 to answer for the bounced checks of the borrowers she referred; that prior to the issuance of the checks s he informed respondent that they were not sufficiently funded but the latter non etheless deposited the checks and for which reason they were subsequently dishon ored; that respondent then threatened to initiate a criminal case against her fo r violation of Batas Pambansa Blg. 22; that she was forced by respondent to exec ute an "Absolute Deed of Sale" over her property in Bacoor, Cavite, to avoid cri minal prosecution; that the said deed had no valid consideration; that she did n ot appear before a notary public; that the Community Tax Certificate number on t he deed was not hers and for which respondent may be prosecuted for falsificatio n and perjury; and that she suffered damages and lost rental as a result. The RTC identified the issues as follows: first, whether the Deed of Absolute Sa le is valid; second; if valid, whether petitioner is obliged to sign and execute the necessary documents to effect the transfer of her rights over the property to the respondent; and third, whether petitioner is liable for damages. On July 29, 1998, the RTC rendered a decision the dispositive portion of which s tates: WHEREFORE, premises considered, the Court hereby orders the dismissal of the com plaint for insufficiency of evidence. With costs against plaintiff. SO ORDERED. The RTC held that the sale was void for lack of cause or consideration:5 Plaintiff Angeles admission that the borrowers are the friends of defendant Doles and further admission that the checks issued by these borrowers in payment of t he loan obligation negates [sic] the cause or consideration of the contract of s ale executed by and between plaintiff and defendant. Moreover, the property is n ot solely owned by defendant as appearing in Entry No. 9055 of Transfer Certific ate of Title No. 382532 (Annex A, Complaint), thus: "Entry No. 9055. Special Power of Attorney in favor of Jocelyn Doles covering th e share of Teodorico Doles on the parcel of land described in this certificate o f title by virtue of the special power of attorney to mortgage, executed before the notary public, etc." The rule under the Civil Code is that contracts without a cause or consideration produce no effect whatsoever. (Art. 1352, Civil Code). Respondent appealed to the CA. In her appeal brief, respondent interposed her so le assignment of error: THE TRIAL COURT ERRED IN DISMISSING THE CASE AT BAR ON THE GROUND OF [sic] THE D EED OF SALE BETWEEN THE PARTIES HAS NO CONSIDERATION OR INSUFFICIENCY OF EVIDENC E.6 On April 30, 2001, the CA promulgated its Decision, the dispositive portion of w hich reads: WHEREFORE, IN VIEW OF THE FOREGOING, this appeal is hereby GRANTED. The Decision of the lower court dated July 29, 1998 is REVERSED and SET ASIDE. A new one is entered ordering defendant-appellee to execute all necessary documents to effect transfer of subject property to plaintiff-appellant with the arrearages of the formers loan with the NHMFC, at the latters expense. No costs. SO ORDERED. The CA concluded that petitioner was the borrower and, in turn, would "re-lend"

the amount borrowed from the respondent to her friends. Hence, the Deed of Absol ute Sale was supported by a valid consideration, which is the sum of money petit ioner owed respondent amounting to P405,430.00, representing both principal and interest. The CA took into account the following circumstances in their entirety: the supp osed friends of petitioner never presented themselves to respondent and that all transactions were made by and between petitioner and respondent;7 that the mone y borrowed was deposited with the bank account of the petitioner, while payments made for the loan were deposited by the latter to respondents bank account;8 tha t petitioner herself admitted in open court that she was "re-lending" the money loaned from respondent to other individuals for profit;9 and that the documentar y evidence shows that the actual borrowers, the friends of petitioner, consider her as their creditor and not the respondent.10 Furthermore, the CA held that the alleged threat or intimidation by respondent d id not vitiate consent, since the same is considered just or legal if made to en force ones claim through competent authority under Article 133511 of the Civil Co de;12 that with respect to the arrearages of petitioner on her monthly amortizat ion with the NHMFC in the sum of P26,744.09, the same shall be deemed part of th e balance of petitioners loan with the NHMFC which respondent agreed to assume; a nd that the amount of P3,000.00 representing the rental for January 1997 suppose dly collected by petitioner, as well as the claim for damages and attorneys fees, is denied for insufficiency of evidence.13 On May 29, 2001, petitioner filed her Motion for Reconsideration with the CA, ar guing that respondent categorically admitted in open court that she acted only a s agent or representative of Arsenio Pua, the principal financier and, hence, sh e had no legal capacity to sue petitioner; and that the CA failed to consider th e fact that petitioners father, who co-owned the subject property, was not implea ded as a defendant nor was he indebted to the respondent and, hence, she cannot be made to sign the documents to effect the transfer of ownership over the entir e property. On August 6, 2001, the CA issued its Resolution denying the motion on the ground that the foregoing matters had already been passed upon. On August 13, 2001, petitioner received a copy of the CA Resolution. On August 2 8, 2001, petitioner filed the present Petition and raised the following issues: I. WHETHER OR NOT THE PETITIONER CAN BE CONSIDERED AS A DEBTOR OF THE RESPONDENT. II. WHETHER OR NOT AN AGENT WHO WAS NOT AUTHORIZED BY THE PRINCIPAL TO COLLECT DEBT IN HIS BEHALF COULD DIRECTLY COLLECT PAYMENT FROM THE DEBTOR. III. WHETHER OR NOT THE CONTRACT OF SALE WAS EXECUTED FOR A CAUSE.14 Although, as a rule, it is not the business of this Court to review the findings of fact made by the lower courts, jurisprudence has recognized several exceptio ns, at least three of which are present in the instant case, namely: when the ju dgment is based on a misapprehension of facts; when the findings of facts of the courts a quo are conflicting; and when the CA manifestly overlooked certain rel evant facts not disputed by the parties, which, if properly considered, could ju stify a different conclusion.15 To arrive at a proper judgment, therefore, the C ourt finds it necessary to re-examine the evidence presented by the contending p arties during the trial of the case. The Petition is meritorious. The principal issue is whether the Deed of Absolute Sale is supported by a valid consideration. 1. Petitioner argues that since she is merely the agent or representative of the alleged debtors, then she is not a party to the loan; and that the Deed of Sale executed between her and the respondent in their own names, which was predicate d on that pre-existing debt, is void for lack of consideration. Indeed, the Deed of Absolute Sale purports to be supported by a consideration in the form of a price certain in money16 and that this sum indisputably pertains to the debt in issue. This Court has consistently held that a contract of sale i

s null and void and produces no effect whatsoever where the same is without caus e or consideration.17 The question that has to be resolved for the moment is whe ther this debt can be considered as a valid cause or consideration for the sale. To restate, the CA cited four instances in the record to support its holding tha t petitioner "re-lends" the amount borrowed from respondent to her friends: firs t, the friends of petitioner never presented themselves to respondent and that a ll transactions were made by and between petitioner and respondent;18 second; th e money passed through the bank accounts of petitioner and respondent;19 third, petitioner herself admitted that she was "re-lending" the money loaned to other individuals for profit;20 and fourth, the documentary evidence shows that the ac tual borrowers, the friends of petitioner, consider her as their creditor and no t the respondent.21 On the first, third, and fourth points, the CA cites the testimony of the petiti oner, then defendant, during her cross-examination:22 Atty. Diza: q. You also mentioned that you were not the one indebted to the plaintiff? witness: a. Yes, sir. Atty. Diza: q. And you mentioned the persons[,] namely, Elizabeth Tomelden, Teresa Moraquin, Maria Luisa Inocencio, Zenaida Romulo, they are your friends? witness: a. Inocencio and Moraquin are my friends while [as to] Jacob and Tomelden[,] the y were just referred. Atty. Diza: q. And you have transact[ed] with the plaintiff? witness: a. Yes, sir. Atty. Diza: q. What is that transaction? witness: a. To refer those persons to Aura and to refer again to Arsenio Pua, sir. Atty. Diza: q. Did the plaintiff personally see the transactions with your friends? witness: a. No, sir. Atty. Diza: q. Your friends and the plaintiff did not meet personally? witness: a. Yes, sir. Atty. Diza: q. You are intermediaries? witness: a. We are both intermediaries. As evidenced by the checks of the debtors they we re deposited to the name of Arsenio Pua because the money came from Arsenio Pua. x x x x Atty. Diza: q. Did the plaintiff knew [sic] that you will lend the money to your friends spe cifically the one you mentioned [a] while ago? witness: a. Yes, she knows the money will go to those persons. Atty. Diza: q. You are re-lending the money? witness: a. Yes, sir. Atty. Diza: q. What profit do you have, do you have commission? witness: a. Yes, sir. Atty. Diza:

q. How much? witness: a. Two percent to Tomelden, one percent to Jacob and then Inocencio and my frien ds none, sir. Based on the foregoing, the CA concluded that petitioner is the real borrower, w hile the respondent, the real lender. But as correctly noted by the RTC, respondent, then plaintiff, made the followin g admission during her cross examination:23 Atty. Villacorta: q. Who is this Arsenio Pua? witness: a. Principal financier, sir. Atty. Villacorta: q. So the money came from Arsenio Pua? witness: a. Yes, because I am only representing him, sir. Other portions of the testimony of respondent must likewise be considered:24 Atty. Villacorta: q. So it is not actually your money but the money of Arsenio Pua? witness: a. Yes, sir. Court: q. It is not your money? witness: a. Yes, Your Honor. Atty. Villacorta: q. Is it not a fact Ms. Witness that the defendant borrowed from you to accommod ate somebody, are you aware of that? witness: a. I am aware of that. Atty. Villacorta: q. More or less she [accommodated] several friends of the defendant? witness: a. Yes, sir, I am aware of that. x x x x Atty. Villacorta: q. And these friends of the defendant borrowed money from you with the assurance of the defendant? witness: a. They go direct to Jocelyn because I dont know them. x x x x Atty. Villacorta: q. And is it not also a fact Madam witness that everytime that the defendant bor rowed money from you her friends who [are] in need of money issued check[s] to y ou? There were checks issued to you? witness: a. Yes, there were checks issued. Atty. Villacorta: q. By the friends of the defendant, am I correct? witness: a. Yes, sir. Atty. Villacorta: q. And because of your assistance, the friends of the defendant who are in need of money were able to obtain loan to [sic] Arsenio Pua through your assistance? witness: a. Yes, sir. Atty. Villacorta: q. So that occasion lasted for more than a year? witness: a. Yes, sir.

Atty. Villacorta: q. And some of the checks that were issued by the friends of the defendant bounc ed, am I correct? witness: a. Yes, sir. Atty. Villacorta: q. And because of that Arsenio Pua got mad with you? witness: a. Yes, sir. Respondent is estopped to deny that she herself acted as agent of a certain Arse nio Pua, her disclosed principal. She is also estopped to deny that petitioner a cted as agent for the alleged debtors, the friends whom she (petitioner) referre d. This Court has affirmed that, under Article 1868 of the Civil Code, the basis of agency is representation.25 The question of whether an agency has been created is ordinarily a question which may be established in the same way as any other f act, either by direct or circumstantial evidence. The question is ultimately one of intention.26 Agency may even be implied from the words and conduct of the pa rties and the circumstances of the particular case.27 Though the fact or extent of authority of the agents may not, as a general rule, be established from the d eclarations of the agents alone, if one professes to act as agent for another, s he may be estopped to deny her agency both as against the asserted principal and the third persons interested in the transaction in which he or she is engaged.2 8 In this case, petitioner knew that the financier of respondent is Pua; and respo ndent knew that the borrowers are friends of petitioner. The CA is incorrect when it considered the fact that the "supposed friends of [p etitioner], the actual borrowers, did not present themselves to [respondent]" as evidence that negates the agency relationshipit is sufficient that petitioner di sclosed to respondent that the former was acting in behalf of her principals, he r friends whom she referred to respondent. For an agency to arise, it is not nec essary that the principal personally encounter the third person with whom the ag ent interacts. The law in fact contemplates, and to a great degree, impersonal d ealings where the principal need not personally know or meet the third person wi th whom her agent transacts: precisely, the purpose of agency is to extend the p ersonality of the principal through the facility of the agent.29 In the case at bar, both petitioner and respondent have undeniably disclosed to each other that they are representing someone else, and so both of them are esto pped to deny the same. It is evident from the record that petitioner merely refe rs actual borrowers and then collects and disburses the amounts of the loan upon which she received a commission; and that respondent transacts on behalf of her "principal financier", a certain Arsenio Pua. If their respective principals do not actually and personally know each other, such ignorance does not affect the ir juridical standing as agents, especially since the very purpose of agency is to extend the personality of the principal through the facility of the agent. With respect to the admission of petitioner that she is "re-lending" the money l oaned from respondent to other individuals for profit, it must be stressed that the manner in which the parties designate the relationship is not controlling. I f an act done by one person in behalf of another is in its essential nature one of agency, the former is the agent of the latter notwithstanding he or she is no t so called.30 The question is to be determined by the fact that one represents and is acting for another, and if relations exist which will constitute an agenc y, it will be an agency whether the parties understood the exact nature of the r elation or not.31 That both parties acted as mere agents is shown by the undisputed fact that the friends of petitioner issued checks in payment of the loan in the name of Pua. I f it is true that petitioner was "re-lending", then the checks should have been drawn in her name and not directly paid to Pua. With respect to the second point, particularly, the finding of the CA that the d isbursements and payments for the loan were made through the bank accounts of pe

titioner and respondent, suffice it to say that in the normal course of commercial dealings and for reaso ns of convenience and practical utility it can be reasonably expected that the f acilities of the agent, such as a bank account, may be employed, and that a subagent be appointed, such as the bank itself, to carry out the task, especially w here there is no stipulation to the contrary.32 In view of the two agency relationships, petitioner and respondent are not privy to the contract of loan between their principals. Since the sale is predicated on that loan, then the sale is void for lack of consideration. 2. A further scrutiny of the record shows, however, that the sale might have bee n backed up by another consideration that is separate and distinct from the debt : respondent averred in her complaint and testified that the parties had agreed that as a condition for the conveyance of the property the respondent shall assu me the balance of the mortgage loan which petitioner allegedly owed to the NHMFC .33 This Court in the recent past has declared that an assumption of a mortgage debt may constitute a valid consideration for a sale.34 Although the record shows that petitioner admitted at the time of trial that she owned the property described in the TCT,35 the Court must stress that the Trans fer Certificate of Title No. 38253236 on its face shows that the owner of the pr operty which admittedly forms the subject matter of the Deed of Absolute Sale re fers neither to the petitioner nor to her father, Teodorico Doles, the alleged c o-owner. Rather, it states that the property is registered in the name of "House hold Development Corporation." Although there is an entry to the effect that the petitioner had been granted a special power of attorney "covering the shares of Teodorico Doles on the parcel of land described in this certificate,"37 it cann ot be inferred from this bare notation, nor from any other evidence on the recor d, that the petitioner or her father held any direct interest on the property in question so as to validly constitute a mortgage thereon38 and, with more reason , to effect the delivery of the object of the sale at the consummation stage.39 What is worse, there is a notation that the TCT itself has been "cancelled."40 In view of these anomalies, the Court cannot entertain the possibility that respondent agreed to assume the balance of the mortgage loan wh ich petitioner allegedly owed to the NHMFC, especially since the record is beref t of any factual finding that petitioner was, in the first place, endowed with a ny ownership rights to validly mortgage and convey the property. As the complain ant who initiated the case, respondent bears the burden of proving the basis of her complaint. Having failed to discharge such burden, the Court has no choice b ut to declare the sale void for lack of cause. And since the sale is void, the C ourt finds it unnecessary to dwell on the issue of whether duress or intimidatio n had been foisted upon petitioner upon the execution of the sale. Moreover, even assuming the mortgage validly exists, the Court notes respondents allegation that the mortgage with the NHMFC was for 25 years which began Septemb er 3, 1994. Respondent filed her Complaint for Specific Performance in 1997. Sin ce the 25 years had not lapsed, the prayer of respondent to compel petitioner to execute necessary documents to effect the transfer of title is premature. WHEREFORE, the petition is granted. The Decision and Resolution of the Court of Appeals are REVERSED and SET ASIDE. The complaint of respondent in Civil Case No . 97-82716 is DISMISSED. SO ORDERED. G.R. No. 138703 June 30, 2006 DEVELOPMENT BANK OF THE PHILIPPINES1 and PRIVATIZATION AND MANAGEMENT OFFICE (fo rmerly ASSET PRIVATIZATION TRUST), Petitioners, vs. HON. COURT OF APPEALS, PHILIPPINE UNITED FOUNDRY AND MACHINERY CORP. and PHILIPP INE IRON MANUFACTURING CO., INC., Respondents. D E C I S I O N AZCUNA, J.: This is a petition for review on certiorari under Rule 45 of the Rules of Court of the decision of the Court of Appeals (CA) dated May 7, 1999 in CA-G.R. CV No. 49239 entitled "Philippine United Foundry and Machinery Corp. and Philippine Ir

on Manufacturing Co., Inc. v. Development Bank of the Philippines and Asset Priv atization Trust" which upheld the decision of the Regional Trial Court (RTC), Br anch 98 of Quezon City in Civil Case No. Q-49650. Sometime in March 1968, the Development Bank of the Philippines (DBP) granted to respondents Philippine United Foundry and Machineries Corporation and Philippin e Iron Manufacturing Company, Inc. an industrial loan in the amount of P2,500,00 0 consisting of P500,000 in cash and P2,000,000 in DBP Progress Bonds. The loan was evidenced by a promissory note2 dated June 26, 1968 and secured by a mortgag e3 executed by respondents over their present and future properties such as buil dings, permanent improvements, various machineries and equipment for manufacture . Subsequently, DBP granted to respondents another loan in the form of a five-year revolving guarantee amounting to P1,700,000 which was reflected in the amended mortgage contract4 dated November 20, 1968. According to respondents, the loan g uarantee was extended to them when they encountered difficulty in negotiating th e DBP Progress Bonds. Respondents were only able to sell the bonds in 1972 or ab out five years from its issuance for an amount that was 25% less than its face v alue.5 On September 10, 1975, the outstanding accounts of respondents with DBP were res tructured in view of their failure to pay. Thus, the outstanding principal balan ce of the loans and advances amounting to P4,655,992.35 were consolidated into a single account. The restructured loan was evidenced by a new promissory note6 d ated November 12, 1975 payable within seven years, with partial payments on the principal to be made beginning on the third year plus a 12% interest per annum p ayable every month. The following paragraph appears at the bottom portion of the note: This promissory note represents the consolidation into one account of the outsta nding principal balance of PHILIMCO and PHUMACOs account, and is prepared pursuan t to Res. No. 228, dated September 10, 1975, approved by the Executive Committee pursuant to Bd. Res. No. 3577, s. of 1975. This note is secured by mortgages on the existing assets of the firms.7 On the other hand, all accrued interest and charges due amounting to P3,074,672. 21 were denominated as "Notes Taken for Interests" and evidenced by a separate p romissory note8 dated November 12, 1975. The following annotation appears at the bottom portion of the note: This promissory note represents all accrued interests and charges which are take n up as "NOTES TAKEN FOR INTEREST" due on the accounts of PHILIMCO and PHUMACO a pproved under Bd. Res. No. 3577, s. of 1975. This note is secured by (a) mortgag e on the existing assets of the firm.9 Both notes provided for the following additional charges and penalties: (1) 12% interest per annum on unpaid amortizations10 ; (2) 10% penalty charge per annum on the total amortizations past due effective 3 0 days from the date respondents failed to comply with any of the terms stipulat ed in the notes11 ; and, (3) Bank advances for insurance premiums, taxes, rentals, litigation and acquire d assets expenses, collection and other out-of-pocket expenses not covered by in spection and processing fees subject to the following charges12 : (a) One time service charge of % on the amount advanced to be included in the rec eivable account; (b) Penalty charge of 8% per annum on past due advances; and (c) Interest at 12% per annum. Notwithstanding the restructuring, respondents were still unable to comply with the terms and conditions of the new promissory notes. As a result, respondents r equested DBP to refinance the matured obligation. The request was granted by DBP , pursuant to which three foreign currency denominated loans sourced from DBPs ow n foreign borrowings were extended to respondents on various dates between 1980 and 1981.13 These loans were secured by mortgages14 on the properties of respond ents and were evidenced by the following promissory notes: Face Value Maturity Date Interest Rate Per Annum (1) Promissory Note15

dated December 11, 1980 $661,330 owing rate16 (2) Promissory Note17 dated June 5, 1981 $666,666 te18

December 15, 1990

3% over DBPs borr

June 23, 1991

3% over DBPs borrowing ra

(3) Promissory Note19 dated December 16, 1981 $486,472.37 December 31, 1982 4% over DBPs borr owing cost Apart from the interest, the promissory notes imposed additional charges and pen alties if respondents defaulted on their payments. The notes dated December 11, 1980 and June 5, 1981 specifically provided for a 2% annual service fee computed on the outstanding principal balance of the loans as well as the following addi tional interest and penalty charges on the loan amortizations or portions in arr ears: (a) If in arrears for thirty (30) days or less: i. Additional interest at the basic loan interest rate per annum computed on tot al amortizations past due, irrespective of age. ii. No penalty charge (b) If in arrears for more than thirty (30) days: i. Additional interest at the basic loan interest rate per annum computed on tot al amortizations past due, irrespective of age, plus, ii. Penalty charge of 16% per annum computed on amortizations or portions thereo f in arrears for more than thirty (30) days counted from the date the amount in arrears becomes liable to this charge.20 Under these two notes, respondents also bound themselves to pay bank advances fo r insurance premiums, taxes, litigation and acquired assets expenses and other o ut-of-pocket expenses not covered by inspection and processing fees as follows: (a) One-time service charge of 2% of the amount advanced, same to be included in the receivable account. (b) Interest at 16% per annum. (c) Penalty charge from date of advance at 16% per annum. The note dated December 16, 1981, on the other hand, provided for the interest a nd penalty charges on loan amortizations or portions of it in arrears as follows : (a) Additional interest at the basic loan interest per annum computed on total a mortizations past due irrespective of age; plus (b) Penalty charges of 8% per annum computed on total amortizations in arrears, irrespective of age.21 Respondents were likewise bound to pay bank advances for insurance premiums, tax es, litigation and acquired assets expenses and other out-of-pocket expenses not covered by inspection and processing fees as follows: (a) One-time service charge of 2% of (the) amount advanced, same to be included and debited to the advances account; (b) Interest at the basic loan interest rate; and (c) Penalty charge from date of advance at 8% per annum.22 Sometime in October 1985, DBP initiated foreclosure proceedings upon its computa tion that respondents loans were in arrears by P62,954,473.68.23 According to DBP , this figure already took into account the intermittent payments made by respon dents between 1968 and 1981 in the aggregate amount of P5,150,827.71.24 However, the foreclosure proceedings were suspended on twelve separate occasions from October 1985 to December 1986 upon the representations of respondents that a financial rehabilitation fund arising from a contract with the military was f orthcoming. On December 23, 1986, before DBP could proceed with the foreclosure proceedings, respondents instituted the present suit for injunction. On January 6, 1987, the complaint was amended to include the annulment of mortga ge. On December 15, 1987, the complaint was amended a second time to implead the Asset Privatization Trust (APT) (now the Privatization and Management Office [P MO])25 as a party defendant.

Respondents cause of action arose from their claim that DBP was collecting from t hem an unconscionable if not unlawful or usurious obligation of P62,954,473.68 a s of September 30, 1985, out of a mere P6,200,000 loan. Primarily, respondents c ontended that the amount claimed by DBP is erroneous since they have remitted to DBP approximately P5,300,000 to repay their original debt. Additionally, respon dents assert that since the loans were procured for the Self-Reliant Defense Pos ture Program of the Armed Forces of the Philippines (AFP), the latters breach of its commitment to purchase military armaments and equipment from respondents amo unts to a failure of consideration that would justify the annulment of the mortg age on respondents properties.26 On December 24, 1986, the RTC issued a temporary restraining order. A Writ of Pr eliminary Injunction was subsequently issued on May 4, 1987. After trial on the merits, the court rendered a decision in favor of respondents,27 the dispositive portion of which reads: WHEREFORE, in view of the foregoing consideration, judgment is hereby rendered i n favor of the [respondents] and against the defendants [DBP and APT], ordering that: (1) The Writ of Preliminary Injunction already issued be made permanent; (2) The [respondents] be made to pay the original loans in the aggregate amount of Six Million Two Hundred Thousand (P6,200,000) Pesos; (3) The [respondents] payment in the amount of Five Million Three Hundred ThirtyFive Thousand, Eight Hundred Twenty-seven Pesos and Seventy-one Centavos (P5,335 ,827.71) be applied to payment for interest and penalties; and (4) No further interest and/or penalties on the aforementioned principal obligat ion of P6.2 million shall be imposed/charged upon the [respondents] for failure of the military establishment to honor their commitment to a valid and consummat ed contract with the former. Costs against the defendants. SO ORDERED. Both DBP and PMO appealed the decision to the CA. The CA, however, affirmed the decision of the RTC. Aggrieved, DBP filed with the CA a motion for a reconsidera tion28 dated May 26, 1999, which motion has not been resolved by the CA to date. PMO, on the other hand, sought relief directly with the Court by filing this pr esent petition upon the following grounds: I. THE CA DISREGARDED THE BINDING AND OBLIGATORY FORCE OF CONTRACTS WHICH IS THE LAW BETWEEN THE PARTIES. x x x II. THE CA VIOLATED THE PRINCIPLE OF LAW THAT CONTRACTS TAKE EFFECT ONLY BETWEEN THE PARTIES AS IT LINKED RESPONDENTS CONTRACTS WITH THE AFP WITH RESPONDENTS LOAN S WITH DBP. x x x III. THE CA ERRED IN PERMANENTLY ENJOINING THE DBP AND APT FROM FORECLOSING THE MORTGAGES ON RESPONDENTS PROPERTIES THEREBY VIOLATING THE PROVISIONS OF P[RESIDEN TIAL] D[ECREE NO.] 385 AND PROCLAMATION NO. 50.29 On the first issue, PMO asserts that the CA erred in declaring that the interest rate on the loans had been unilaterally increased by DBP despite the evidence o n record (consisting of promissory notes and testimonies of witnesses for DBP) s howing otherwise. PMO also claims that the CA failed to take into account the ef fect of the restructuring and refinancing of the loans granted by DBP upon the r equest of respondents. Anent the second issue, PMO argues that the failure of the AFP to honor its comm itment to respondents should have had no bearing on respondents loan obligations to DBP as DBP was not a party to their contract. Hence, PMO contends that the CA ran afoul of the principle of relativity of contracts when it ruled that no fur ther interest could be imposed on the loans. Finally, PMO claims that DBP, being a government financial institution, could no t be enjoined by any restraining order or injunction, whether permanent or tempo rary, from proceeding with the foreclosure proceedings mandated under Section 1 of Presidential Decree No. 385. For their part, respondents moved for the denial of the petition in their commen t dated October 27, 1999,30 stating that (1) the petition merely raises question

s of fact and not of law; (2) PMO is engaged in forum shopping considering that the motion for reconsideration filed by its co-defendant, DBP, against the CA de cision was still pending before the appellate court; and, (3) the petition is fa tally defective because the attached certification against non-forum shopping do es not conform to the requirements set by law. After PMO filed its reply denying the foregoing allegations, the parties submitted their respective memoranda. The petition is partly meritorious. Prefatorily, it bears stressing that only questions of law may be raised in a pe tition for review on certiorari under Rule 45 of the Rules of Court. This Court is not a trier of facts, its jurisdiction in such a proceeding being limited to reviewing only errors of law that may have been committed by the lower courts. C onsequently, findings of fact of the trial court and the CA are final and conclu sive, and cannot be reviewed on appeal.31 It is not the function of the Court to reexamine or reevaluate evidence, whether testimonial or documentary, adduced b y the parties in the proceedings below.32 Nevertheless, the rule admits of certa in exceptions and has, in the past, been relaxed when the lower courts findings w ere not supported by the evidence on record or were based on a misapprehension o f facts,33 or when certain relevant and undisputed facts were manifestly overloo ked that, if properly considered, would justify a different conclusion.34 The resolution of the present controversy turns on the issue regarding the preci se amount of respondents principal obligation under the series of mortgages which DBP, as mortgagee-creditor, attempted to foreclose. In this case, the total amo unt of respondents indebtedness is not simply a question of fact but is a questio n of law, one requiring the application of legal principles for the computation of the amount owed, and is thus a matter that can be properly brought up for the Courts determination.35 PMO claims that the total outstanding obligation of respondents reached P62.9 Mi llion on September 30, 1985. This amount was purportedly the peso equivalent of the foreign-currency denominated loans granted to respondents to refinance the o riginal loans they procured, and is inclusive of interest, penalties and other s urcharges incurred from that date as a result of respondents past defaults. Respo ndents contend, on the other hand, that DBP grossly misstated the extent of thei r obligation, and insist that they should be made liable only for the amount of P6.2 Million which they actually received from DBP. As mentioned, the RTC ultimately sustained respondents and made permanent the wr it of preliminary injunction it issued to enjoin the foreclosure proceedings. Re spondents were directed to pay only the amount of the original loans, that is, P 6.2 Million, with the P5.3 Million which they previously paid to be applied as i nterest and penalties. The RTC did not find respondents culpable for defaulting on their loan obligations and passed the blame to the AFP for not fulfilling its contractual obligations to respondents. The CA affirmed the RTC decision and agreed that DBP cannot be allowed to forecl ose on the mortgage securing respondents loan. The CA surmised that since DBP fai led to adequately explain how it arrived at P62.9 Million, the original loan amo unt of P6.2 Million could only have been "blatantly enlarged or erroneously comp uted" by DBP through the imposition of an "unconscionable rate of interest and c harges." The CA also agreed with the trial court that there was no consideration for the mortgage contracts executed by respondents considering the proceeds fro m the alleged foreign currency loans were never actually received by the latter. This view is untenable and lacks foundation. As correctly pointed out by PMO, the original loans alluded to by respondents ha d been refinanced and restructured in order to extend their maturity dates. Refi nancing is an exchange of an old debt for a new debt, as by negotiating a differ ent interest rate or term or by repaying the existing loan with money acquired f rom a new loan.36 On the other hand, restructuring, as applied to a debt, implie s not only a postponement of the maturity37 but also a modification of the essen tial terms of the debt (e.g., conversion of debt into bonds or into equity,38 or a change in or amendment of collateral security) in order to make the account o f the debtor current.39 In this instance, it is important to note that DBP accommodated respondents reque

st to restructure and refinance their account twice in view of the financial dif ficulties the latter were experiencing. The first restructuring/refinancing was granted in 1975 while the second one was undertaken sometime in the early 1980s. Pursuant to the restructuring schemes, respondents executed promissory notes an d mortgage contracts in favor of DBP,40 the second restructuring being evidenced by three promissory notes dated December 11, 1980, June 5, 1981 and December 16 , 1981 in the total amount of $1.8 Million. The reason respondents seek to be ex cused from fulfilling their obligation under the second batch of promissory note s is that first, they allegedly had "no choice" but to sign the documents in ord er to have the loan restructured41 and thus avert the foreclosure of their prope rties, and second, they never received any proceeds from the same. This reasonin g cannot be sustained. Respondents allegation that they had no "choice" but to sign is tantamount to say ing that DBP exerted undue influence upon them. The Court is mindful that the la w grants an aggrieved party the right to obtain the annulment of a contract on a ccount of factors such as mistake, violence, intimidation, undue influence and f raud which vitiate consent.42 However, the fact that the representatives were "f orced" to sign the promissory notes and mortgage contracts in order to have resp ondents original loans restructured and to prevent the foreclosure of their prope rties does not amount to vitiated consent. The financial condition of respondents may have motivated them to contract with DBP, but undue influence cannot be attributed to DBP simply because the latter h ad lent money. The concept of undue influence is defined as follows: There is undue influence when a person takes improper advantage of his power ove r the will of another, depriving the latter of a reasonable freedom of choice. T he following circumstances shall be considered: the confidential, family, spirit ual and other relations between the parties or the fact that the person alleged to have been unduly influenced was suffering from mental weakness, or was ignora nt or in financial distress.43 While respondents were purportedly financially distressed, there is no clear sho wing that those acting on their behalf had been deprived of their free agency wh en they executed the promissory notes representing respondents refinanced obligat ions to DBP. For undue influence to be present, the influence exerted must have so overpowered or subjugated the mind of a contracting party as to destroy the l atters free agency, making such party express the will of another rather than its own. The alleged lingering financial woes of a debtor per se cannot be equated with the presence of undue influence.44 Corollarily, the threat to foreclose the mortgage would not in itself vitiate co nsent as it is a threat to enforce a just or legal claim through competent autho rity.45 It bears emphasis that the foreclosure of mortgaged properties in case o f default in payment of a debtor is a legal remedy given by law to a creditor.46 In the event of default by the mortgage debtor in the performance of the princi pal obligation, the mortgagee undeniably has the right to cause the sale at publ ic auction of the mortgaged property for payment of the proceeds to the mortgage e.47 It is likewise of no moment that respondents never physically received the proce eds of the foreign currency loans. When the loan was refinanced and restructured , the proceeds were understandably not actually given by DBP to respondents sinc e the transaction was but a renewal of the first or original loan and the suppos ed proceeds were applied as payment for the latter. It also bears emphasis that the second set of promissory notes executed by respo ndents must govern the contractual relation of the parties for they unequivocall y express the terms and conditions of the parties loan agreement, which are bindi ng and conclusive between them. Parties are free to enter into stipulations, cla uses, terms and conditions they may deem convenient; that is, as long as these a re not contrary to law, morals, good customs, public order or public policy.48 W ith the signatures of their duly authorized representatives on the subject notes and mortgage contracts, the genuineness and due execution of which having been admitted,49 respondents in effect freely and voluntarily affirmed all the concur rent rights and obligations flowing therefrom. Accordingly, respondents are barr

ed from claiming the contrary without transgressing the principle of estoppel an d mutuality of contracts. Contracts must bind both contracting parties; their va lidity or compliance cannot be left to the will of one of them.50 The significance of the promissory notes should not have been overlooked by the trial court and the CA. By completely disregarding the promissory notes, the low er courts unilaterally modified the contractual obligations of respondents after the latter already benefited from the extension of the maturity date on their o riginal loans, to the damage and prejudice of PMO which steps into the shoes of DBP as mortgagee-creditor. At this juncture, it must be emphasized that a party to a contract cannot deny i ts validity after enjoying its benefits without outrage to ones sense of justice and fairness. Where parties have entered into a well-defined contractual relatio nship, it is imperative that they should honor and adhere to their rights and ob ligations as stated in their contracts because obligations arising from it have the force of law between the contracting parties and should be complied with in good faith.51 As a rule, a court in such a case has no alternative but to enforce the contract ual stipulations in the manner they have been agreed upon and written. Courts, w hether trial or appellate, generally have no power to relieve parties from oblig ations voluntarily assumed simply because their contract turned out to be disast rous or unwise investments.52 Thus, respondents cannot be absolved from their loan obligations on the basis of the failure of the AFP to fulfill its commitment under the manufacturing agreem ent53 entered by them allegedly upon the prompting of certain AFP and DBP offici als. While it is true that the DBP representatives appear to have been aware tha t the proceeds from the sale to the AFP were supposed to be applied to the loan, the records are bereft of any proof that would show that DBP was a party to the contract itself or that DBP would condone respondents credit if the contract did not materialize. Even assuming that the AFP defaulted in its obligations under the manufacturing agreement, respondents cause of action lies with the AFP, and n ot with DBP or PMO. The loan contract of respondents is separate and distinct fr om their manufacturing agreement with the AFP. Incidentally, the CA sustained the validity of a loan obligation but annulled th e mortgage securing it on the ground of failure of consideration. This is errone ous. A mortgage is a mere accessory contract and its validity would depend on th e validity of the loan secured by it.54 Hence, the consideration of the mortgage contract is the same as that of the principal contract from which it receives l ife, and without which it cannot exist as an independent contract. 55 The debtor cannot escape the consequences of the mortgage contract once the validity of th e loan is upheld. Again, as a rule, courts cannot intervene to save parties from disadvantageous p rovisions of their contracts if they consented to the same freely and voluntaril y.56 Thus, respondents cannot now protest against the fact that the loans were d enominated in foreign currency and were to be paid in its peso equivalent after they had already given their consent to such terms.57 There is no legal impedime nt to having obligations or transactions paid in a foreign currency as long as t he parties agree to such an arrangement. In fact, obligations in foreign currenc y may be discharged in Philippine currency based on the prevailing rate at the t ime of payment.58 For this reason, it was improper for the CA to reject outright DBPs claim that the conversion of the remaining balance of the foreign currency loans into peso accounted for the considerable differential in the total indebte dness of respondents mainly because the exchange rates at the time of demand had been volatile and led to the depreciation of the peso.59 PMO also denies that a unilateral increase in the interest rates on the loans ca used the substantial increase in the indebtedness of respondents and points out that the promissory notes themselves specifically provided for the rates of inte rest as well as penalty and other charges which were merely applied on responden ts outstanding obligations. It should be noted, however, that at the time of the transaction, Act No. 2655, as amended by Presidential Decree No. 116 (Usury Law) , was still in full force and effect. Basic is the rule that the laws in force a

t the time the contract is made governs the effectivity of its provisions.60 Sec tion 2 of the Usury Law specifically provides as follows: Sec. 2. No person or corporation shall directly or indirectly take or receive in money or other property, real or personal, or choses in action, a higher rate o f interest or a greater sum or value, including commissions, premiums, fines and penalties, for the loan or renewal thereof or forbearance of money, goods, or c redits, where such loan or renewal or forbearance is secured in whole or in part by a mortgage upon real estate the title to which is duly registered, or by any document conveying such real estate or interest therein, than twelve per centum per annum or the maximum rate prescribed by the Monetary Board and in force at the time the loan or renewal thereof or forbearance is granted: Provided, that t he rate of interest under this section or the maximum rate of interest that may be prescribed by the monetary board under this section may likewise apply to loa ns secured by other types of security as may be specified by the Monetary Board. A perusal of the promissory notes reveals that the interest charged upon the not es is dependent upon the borrowing cost of DBP which, however, would be pegged a t a fixed rate assuming certain factors. The notes dated December 11, 1980 and J une 5, 1981, for example, had a per annum interest rate of 3% over DBPs borrowing rate that will become 1 % per annum in the event the loan is drawn under the Cen tral Banks Jumbo Loan. These were further subject to the condition that should th e loan from where they were drawn be fully repaid, the interest to be charged on respondents remaining dollar obligation would be pegged at 16% per annum.61 The promissory note dated December 16, 1981, on the other hand, had a per annum inte rest rate of 4% over DBPs borrowing rate. This rate would also become 1 % per annu m in the event the loan is drawn under the Central Banks Jumbo Loan. However, sho uld the loan from where respondents foreign currency loan was drawn be fully repa id, the interest to be charged on their remaining dollar obligation would be peg ged at 18% per annum.62 Due to the variable factors mentioned above, it cannot be determined whether DBP did in fact apply an interest rate higher than what is prescribed under the law . It appears on the records, however, that DBP attempted to explain how it arriv ed at the amount stated in the Statement of Account63 it submitted in support of its claim but was not allowed by the trial court to do so citing the rule that the best evidence of the same is the document itself. 64 DBP should have been gi ven the opportunity to explain its entries in the Statement of Account in order to place the figures that were cited in the proper context. Assuming the interes t applied to the principal obligation did, in fact, exceed 12%, in addition to t he other penalties stipulated in the note, this should be stricken out for being usurious. In usurious loans, the entire obligation does not become void because of an agre ement for usurious interest; the unpaid principal debt still stands and remains valid but the stipulation as to the interest is void. The debt is then considere d to be without stipulation as to the interest. In the absence of an express sti pulation as to the rate of interest, the legal rate of 12% per annum shall be im posed.65 As to the issue raised by PMO that the injunction issued by the lower courts vio lated Presidential Decree No. 385, the Court agrees with the ruling of the CA. P residential Decree No. 385 was issued primarily to see to it that government fin ancial institutions are not denied substantial cash inflows which are necessary to finance development projects all over the country, by large borrowers who, wh en they become delinquent, resort to court actions in order to prevent or delay the governments collection of their debts and loans.66 The government, however, is bound by basic principles of fairness and decency un der the due process clause of the Bill of Rights. Presidential Decree No. 385 do es not provide the government blanket authority to unqualifiedly impose the mand atory provisions of the decree without due regard to the constitutional rights o f the borrowers. In fact, it is required that a hearing first be conducted to de termine whether or not 20% of the outstanding arrearages has been paid, as a pre requisite for the issuance of a temporary restraining order or a writ of prelimi nary injunction. Hence, the trial court can, on the basis of the evidence then i

n its possession, make a provisional determination on the matter of the actual e xistence of the arrearages and the amount on which the 20% requirement is to be computed. Consequently, Presidential Decree No. 385 cannot be invoked where the extent of the loan actually received by the borrower is still to be determined.6 7 Finally, respondents allegation that PMO is engaged in forum shopping is untenabl e. Forum shopping is the act of a party, against whom an adverse judgment has be en rendered in one forum, of seeking another and possibly favorable opinion in a nother forum by appeal or a special civil action of certiorari.68 As correctly p ointed out by PMO, the present petition is merely an appeal from the adverse dec ision rendered in the same action where it was impleaded as co-defendant with DB P. That DBP opted to file a motion for reconsideration with the CA rather than a direct appeal to this Court does not bar PMO from seeking relief from the judgm ent by taking the latter course of action. It must be remembered that PMO was impleaded as party defendant through the amen ded complaint69 dated November 25, 1987. Persons made parties-defendants via a s upplemental complaint possess locus standi or legal personality to seek a review by the Court of the decision by the CA which they assail even if their co-defen dants did not appeal the said ruling of the appellate court.70 Even assuming tha t separate actions have been filed by two different parties involving essentiall y the same subject matter, no forum shopping is committed where the parties did not resort to multiple judicial remedies. 71 In any event, the Court deems it fit to put an end to this controversy and to fi nally adjudicate the rights and obligations of the parties in the interest of a speedy dispensation of justice, taking into account the length of time this acti on has been pending with the courts as well as in light of the fact that PMO is the real party-in-interest in this case, being the successor-in-interest of DBP. WHEREFORE, the petition is PARTLY GRANTED and the assailed Decision dated May 7, 1999 rendered by the Court of Appeals in CA-G.R. CV No. 49239 is REVERSED AND S ET ASIDE. The case is hereby remanded to the trial court for determination of th e total amount of the respondents obligation based on the promissory notes dated December 11, 1980, June 5, 1981 and December 16, 1981 according to the interest rate agreed upon by the parties or the interest rate of 12% per annum, whichever is lower. No costs. SO ORDERED. SECOND DIVISION KOJI YASUMA, Petitioner, PUNO, J., Chairperson, SANDOVAL-GUTIERREZ, - v e r s u s GARCIA, JJ. HEIRS OF CECILIO S. DE VILLA and EAST CORDILLERA MINING CORPORATION, Respondents. August 22, 2006 x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x Promulgated: CORONA, AZCUNA* and G.R. No. 150350 Present:

D E C I S I O N CORONA, J.: This is a petition for review on certiorari of a decision of the Court of Appeals (CA) dated October 18, 2001 in CA-G.R. CV No. 61755. The antecedent facts follow. On September 15, 1988, October 21, 1988 and December 5, 1988, Cecilio S. de Vill a obtained loans from petitioner Koji Yasuma in the amounts of P1,100,000, P100, 000 and P100,000, respectively, for the total amount of P1.3 million. These loa ns were evidenced by three promissory notes signed by de Villa as borrower. The last promissory note in the amount of P1,300,000 cancelled the first two notes.

The loans were initially secured by three separate real estate mortgages on a pa rcel of land with Transfer Certificate of Title No. 176575 in the name of respon dent East Cordillera Mining Corporation. The deeds of mortgage were executed on the dates the loans were obtained, signed by de Villa as president of respondent corporation. The third real estate mortgage later cancelled the first two. For failure of de Villa to pay, petitioner filed a collection suit in the Regional Trial Court of Makati City, Branch 148 (RTC-Br. 148) against de Vil la and respondent corporation. The RTC-Br. 148 declared de Villa and respondent corporation in default and resolved the case in favor of petitioner. On appeal, however, the judgment of RTC-Br. 148 was annulled on the ground of improper ser vice of summons. Thus, the case was remanded for retrial. During the pendency of the case in the RTC-Br. 148, de Villa died. Petitioner co nsequently amended the complaint and impleaded the heirs of de Villa as defendan ts. After the case was re-heard, the RTC of Makati City, Branch 139 (RTC-Br. 139) re ndered judgment on November 13, 1998 in favor of petitioner and against responde nt corporation. It ordered respondent corporation to pay petitioner P1.3 million plus legal interest, attorneys fees, liquidated damages and costs of suit. The c omplaint was dismissed against respondent heirs. On appeal, the CA reversed and set aside the decision of RTC-Br. 139. It held t hat the loan was personal to de Villa and that the mortgage was null and void fo r lack of authority from the corporation. Petitioner is now before this Court with the following assignment of errors: 1. THE [CA], WITH ALL DUE RESPECT, COMMITTED PALPABLE AND REVERSIBLE ERROR OF LAW WHEN IT DECLARED THAT THE CORPORATION DID NOT RATIFY THE ACT OF ITS PRESI DENT IN OBTAINING LOANS FROM PETITIONER DESPITE ITS ADMISSION THAT IT RECEIVED T HE MONEY OF THE PETITIONER. 2. THE [CA], WITH ALL DUE RESPECT, COMMITTED PALPABLE AND REVERSIBLE ERROR OF LAW WHEN IT TOTALLY DISREGARDED THE ADMITTED FACTS AND ISSUES AGREED UPON BY

THE PARTIES AND APPROVED BY THE TRIAL COURT DURING THE PRE-TRIAL. 3. THE [CA], WITH ALL DUE RESPECT, COMMITTED PALPABLE AND REVERSIBLE ERROR OF LAW WHEN IT SET ASIDE THE REAL ESTATE MORTGAGE AND THE AWARD OF ATTORNEYS FEES , 10% LIQUIDATED DAMAGES AND THE COSTS OF SUIT. 4. THE [CA], WITH ALL DUE RESPECT, COMMITTED PALPABLE AND REVERSIBLE ERROR OF LAW WHEN IT SET ASIDE THE AWARD OF INTEREST BY WAY OF DAMAGES IN FAVOR OF PET ITIONER. The issues to be resolved are the following: 1) whether the loans were personal liabilities of de Villa or de bts of respondent corporation and 2) whether the mortgage on respondent corporations property was n ull and void for having been executed without its authority. We begin with a brief study of some well-settled legal doctrines relevant to the disposition of this case. PERSONAL OR CORPORATE LIABILITY? A corporation is a juridical person, separate and distinct from its stockholders . Being a juridical entity, a corporation may act through its board of director s, as provided in Section 23 of the Corporation Code of the Philippines: Sec. 23. The Board of Directors or Trustees. Unless otherwise provided in this Code, the corporate powers of all corporations formed under this Code shall be e xercised, all business conducted and all property of such corporations controlle d and held by the board of directors or trustees xxx xxx xxx

The corporation can also act through its corporate officers who may be authorize d either expressly by the by-laws or board resolutions or impliedly such as by g eneral practice or policy or as are implied from express powers. The general pri nciples of agency govern the relation between the corporation and its officers o r agents. When authorized, their acts can bind the corporation. Conversely, whe n unauthorized, their acts cannot bind it. However, the corporation may ratify the unauthorized act of its corporate office r. Ratification means that the principal voluntarily adopts, confirms and gives sanction to some unauthorized act of its agent on its behalf. It is this volun tary choice, knowingly made, which amounts to a ratification of what was thereto fore unauthorized and becomes the authorized act of the party so making the rati fication. The substance of the doctrine is confirmation after conduct, amountin g to a substitute for a prior authority. Ratification can be made either expres sly or impliedly. Implied ratification may take various forms like silence or ac quiescence, acts showing approval or adoption of the act, or acceptance and rete ntion of benefits flowing therefrom. The power to borrow money is one of those cases where corporate officers as agen ts of the corporation need a special power of attorney. In the case at bar, no special power of attorney conferring authority on de Villa was ever presented. The promissory notes evidencing the loans were signed by de Villa (who was the p

resident of respondent corporation) as borrower without indicating in what capac ity he was signing them. In fact, there was no mention at all of respondent corp oration. On their face, they appeared to be personal loans of de Villa. Petitioner, however, contends that respondent corporations admission that it rece ived the total amount of P1.3 million was effectively a ratification of the act of its former president. It appears that, in the pre-trial order dated March 4, 1997 issued by RTC-Br. 139, respondent corporation indeed admitted the followin g: xxx xxx xxx

3. Defendants ADMIT that the total amount of P1.3 Million subject matter of the Promissory Notes was RECEIVED by the Defendant-Corporation; (emphasis s upplied) xxx xxx xxx

In its answer, respondent corporation stated: 7. The sum of money which [petitioner] sought to recover form herein [responden ts] is not really a loan but his investment to the mining project of [respondent ] corporation which unfortunately did not succeed due to the delays caused by ty phoons and bad rainy season in the Benguet mountains causing landslides in the m ining and milling site during the latter part of 1988, and the killer earthquake of 1990 which destroyed the mining area. As investment to a losing business ve nture, he is not entitled to claim payment neither could he treat it as a loan. The CA held that this admission was not tantamount to ratification because what respondent corporation admitted was that the money was in fact received as an in vestment. It concluded that: even if the [respondent corporation] received the money, it cannot be held respo nsible for not knowing the preceding transaction between the [p]resident and the [petitioner] as in fact there was a misrepresentation made to the [respondent c orporation], to the effect that the money was an investment and not a loan. Th e alleged investment is actually a personal loan of Cecilio de Villa.

Petitioners contention has no merit. There was no showing that respond ent corporation ever authorized de Villa to obtain the loans on its behalf. The notes did not show that de Villa acted on behalf of the corporation. Actually, the corporation would not have figured in the transaction at all had it not been for its admission that it received the amount of P1.3 million. As could be gle aned from the promissory notes, it was a stranger to the transaction. Thus, we conclude that petitioner himself did not consider the corporation to be his debtor for if he really knew that de Villa was obtaining the loan on behalf of the corporation, then why did he allow the notes to reflect only the persona l liability of de Villa? Even the demand letters of petitioner were personally addressed to de Villa and not to respondent corporation. Undoubtedly, petitioner dealt with de Villa purely in his personal capacity. Respondent corporation could not have ratified the act of de Villa because there

was no proof that it knew that he took out a loan on its behalf. As stated ear lier, ratification is a voluntary choice that is knowingly made. The corporatio n could not have ratified an act it had no knowledge of: xxx xxx xxx Ordinarily, the principal must have full knowledge at the time of ratification o f all the material facts and circumstances relating to the unauthorized act of t he person who assumed to act as agent. Thus, if material facts were suppressed or unknown, there can be no valid ratification . The fact that the corporation admitted receiving the proceeds of the loan did no t amount to ratification of the loan. It accepted the amount from de Villa, its president at that time, in good faith. Good faith is always presumed. Petition er did not show that the corporation acted in bad faith. It follows that respondent corporation was not liable for the subsequent loss of the money which it accepted as an investment. It could not be faulted for not knowing that it was the proceeds of a loan obtained by de Villa. It was under n o obligation to check the source of the investments which went into its coffers. As long as the investment was used for legitimate corporate purposes, the inves tor bore the risk of loss. Therefore, on the first issue, the loan was personal to de Villa. There was no basis to hold the corporation liable since there was no authority, express, impl ied or apparent, given to de Villa to borrow money from petitioner. Neither was there any subsequent ratification of his act.

WAS THE MORTGAGE VALID OR VOID? Petitioner insists that the mortgage executed by de Villa, as president of the c orporation, was ratified by the latter since the mortgage was an accessory contr act of the loan. We disagree. A special power of attorney is necessary to create or convey real rights over im movable property. Furthermore, the special power of attorney must appear in a pu blic document. In the absence of a special power of attorney in favor of de Vil la as president of the corporation, no valid mortgage could have been executed b y him. Since the mortgage was void, it could not be ratified. Petitioner cannot blame anyone but himself. He did not check if the person he w as dealing with had the authority to mortgage the property being offered as coll ateral. Given that the loan and mortgage were not binding on respondent corpor ation, the latter cannot be held liable for interest, attorneys fees and liquidat ed damages arising from the loan.

PERSONAL LIABILITY OF DE VILLA The liability arising from the loan was the sole indebtedness of de Vi lla (or of his estate after his death). Petitioner vigorously sought to make re spondent corporation liable but exerted no effort at all to argue for the liabil ity of respondent heirs. The trial court correctly dismissed the case against th e latter. Petitioners remedy now is to file a money claim in the settlement pro ceedings of de Villas estate, if not too late, as indicated in Rule 86 of the Rules of Court. WHEREFORE, the petition is hereby DENIED. The October 18, 2001 decision of th e Court of Appeals in CA-G.R. CV No. 61755 is AFFIRMED. G.R. No. 163712, November 30, 2006 METROPOLITAN BANK AND TRUST COMPANY AND ROGELIO T. UY, PETITIONERS, VS. JOSE B. TAN AND ELIZA GO TAN, RESPONDENTS. DECISION Carpio Morales, J.: On the application for extra-judicial foreclosure of mortgage filed by herein pe titioners Metropolitan Bank and Trust Company (Metrobank) and its Vice President Rogelio T. Uy (Uy), the Office of the Provincial Sheriff of Misamis Oriental is sued a Sheriffs Notice of Sale[1] setting on April 17, 1998 the sale at public auct ion of four mortgaged parcels of land including that covered by Transfer Certifi cate of Title No. T-53267 (the title in question) registered in the name of here in respondent Jose B. Tan who was referred to in the title as JOSE B. TAN, of leg al age, Filipino, married to Eliza Go Tan. . . .[2] A day before the scheduled public auction of the mortgaged properties or on Apri l 16, 1998, respondent spouses Jose B. Tan and Eliza Go Tan filed a complaint[3] against petitioners, along with Albano L. Cuarto, Sheriff IV of the Office of t he Provincial Sheriff of Misamis Oriental, for removal of cloud on the title in question and injunction before the Regional Trial Court of Misamis Oriental. The complaint was docketed as Civil Case No. 98-225. Respondents cited the following grounds-bases of their complaint: 1. Respondent Eliza Go Tan never gave her consent or conformity to encumber the title in question; 2. The real estate mortgages, annotated as Entries No. 142475, 146789, 174644, 2 13699, 247803, and 246959 at the back of TCT No. 52367 covering the questioned l and are null and void because respondent Jose B. Tan had already fully paid the obligations secured by the mortgages annotated as Entries No. 14275, 146789, and 174644; while the mortgages registered as Entry No. 213699 (amendment of mortga ge, amending a previous loan of P15,000,000 to P25,000,000) and Entry No. 246959 (amendment of mortgage amending a previous loan of P25,000,000 to P40,000,000), as well as any mortgage prior to that registered as Entry No. 213699 was not ex ecuted and signed by [respondent Jose B. Tan]. (Underscoring supplied) As scheduled, the public auction of the foreclosed properties took place on Apri l 17, 1998 following which the Office of the Provincial Sheriff of Misamis Orien tal issued a Sheriffs Certificate of Sale[4] in the name of petitioner Metrobank, the highest bidder. In their Answer[5] to the Complaint, petitioners alleged that: Plaintiffs [herein respondents], together with their two sons, Ariel and Rey Joh n, obtained a credit line from the defendant bank from which they made availment s from time to time. In time and always upon their plea, the line was gradually increased until it reached P40 million. There was no separate or distinct loan to speak of; all availments or r eleases were taken from one and the same line. In the same token, the mortgage constituted on the four lots, TCT No. T-53267 in cluded, was for the entire credit line and not for any particular availment or f or a determinate portion of the credit. As such, the mortgage will be discharged and the four lots released only upon the termination of the line, which means f

ull payment of the entire loan which plaintiffs never did.[6] (Emphasis and unde rscoring supplied) Petitioners further alleged that the deeds of real estate mortgage,[7] promissor y notes,[8] and credit line agreements[9] bore the signature of respondent Jose B. Tan either for himself or as attorney-in-fact of his son Ariel Tan and, in on e of them, his wife-co-respondent Eliza Go Tans signature appeared. By way of Counterclaim, petitioners prayed for the award of attorneys fees, compe nsatory and/or moral damages, exemplary damages, and other reliefs.[10] Crediting the testimony of respondent Jose B. Tan denying having 1) executed and signed the two amendments of the mortgage, 2) received the amount of P40,000,00 0, and 3) appeared before Notary Public Joel Pearanda who notarized[11] the mortg age for P40,000.00, and likewise crediting the testimony of respondent Eliza Go Tan denying that the signature ap pearing on the real estate mortgage dated November 5, 1992 was hers,[12] and fin ding that . . . the existing loans covered by real estate mortgages annotated at the back of subject TCT No. T-53267 of the Registry of Deeds for Cagayan de Oro, had been fully paid as of July 1, 1997, defendant Metrobank had no basis to be paid agai n through the extra-judicial foreclosure proceedings[13] (underscoring supplied) [,] Branch 38 of the Misamis Oriental RTC, by Decision of March 5, 2001, rendered ju dgment in favor of respondents, disposing as follows: WHEREFORE, premises considered, this Court hereby renders judgment in favor of t he plaintiffs spouses Jose B. Tan and Eliza G. Tan and against the defendants, a s follows: a) Declaring that, because of the fact that the plaintiff Eliza G. Tan did not g ive her consent to all the real estate mortgages annotated at the back of her ti tle, TCT No. T-53267, of the Registry of Deeds for Cagayan de Oro, all said mort gages are null and void ab initio; b) Declaring that, because plaintiff Jose B. Tan did not execute the real estate mortgages annotated at the back of his title, TCT No. T-53267, of the Registry of Deeds for Cagayan de Oro, all said mortgages are null and void ab initio; c) Declaring the extra-judicial foreclosure proceedings taken by the defendant s heriff , including the sheriffs certificate of sale as null and void; d) Making permanent the writ of preliminary injunction against the defendant she riff, and the Office of the Provincial Sheriff of Misamis Oriental enjoining and restraining them, their agents, and representatives from issuing a final certif icate of sale in favor of defendant Metrobank covering the parcel of land covere d by TCT No. T-53267; e) Ordering the removal of the cloud on the title, TCT No. T-53267, of the Regis try of Deeds for Cagayan de Oro, and the cancellation of all the entries of the real estate mortgages and amendment of mortgages annotated at the back of TCT No . T-53267, of the Registry of Deeds for Cagayan de Oro City; f) Absolving the plaintiffs spouses from financial liability from the null and v oid real estate mortgages; g) Declaring the principal obligations obtained by Rey John Tan through the annu lled real estate mortgages as FULLY PAID by him; h) Ordering defendant Metrobank to pay attorneys fee and expenses of litigation i n the amount of P100,000 and the costs. SO ORDERED.[14] (Emphasis and underscoring supplied) Petitioners appealed the trial courts decision before the Court of Appeals. By Decision of November 21, 2003,[15] the Court of Appeals affirmed the trial co urts decision and accordingly dismissed petitioners appeal. And it denied petition ers Motion for Reconsideration.[16] Hence, the present Petition for Review on Certiorari filed on July 7, 2004.[17] The petition is impressed with merit. Petitioners assail, in the main, the appellate courts affirmance of the trial cou rts decision absolving respondents from liability for the principal obligation ob tained by their son Rey John Tan which was secured by real estate mortgages, inc luding that covered by the title in question, and declaring such principal oblig

ation of Rey John Tan, who is not a party to the case, to have been fully paid b y him as of July 1, 1997, before the questioned extra-judicial foreclosure and p ublic auction sale conducted on April 17, 1998.[18] Respondent Jose B. Tan[19] insisted that he was not a party to the documents bea ring on the grant of the credit line, he pointing to the absence of his signatur e above his typewritten name on the Credit Line Agreements, promissory notes, di sclosure statements, and an Amendment of Real Estate Mortgage. Respondents prese nted in evidence Promissory Notes Exhibits B-2 and B-4 dated July 1, 1997 and June 2 4, 1997, respectively; three Credit Line Agreements Exhibits B-6, B-7, and B-8,[20] d ted May 2, 1997; and the Agreement amending the real estate mortgage Exhibit B-9,[ 21] all dated May 2, 1997. Petitioners, on the other hand, presented six Promissory Notes dated February 26 , 1996, May 8, 1996, August 27, 1996, October 8, 1996, October 25, 1996, and Nov ember 18, 1996;[22] five Credit Line Agreements dated September 9, 1991, Septemb er 24, 1992, September 2, 1993, November 3, 1994, and April 25, 1996;[23] an Ame ndment of Real Estate Mortgage from P15,000,000 to P25,000,000; and October 29, 1996[24] Amendment of Real Estate Mortgage from P25,000,000 to P40,000,000. All document-exhibits of petitioners which are original copies bear the signatur e of respondent Jose B. Tan, however, as solidary co-debtor of his sons Rey John Tan and Ariel Tan.[25] And these documents were annotated at the back of the ti tle in question.[26] In the absence of proof, nay allegation, that the signatures of respondent Jose B. Tan on the abovementioned documents were forged, this Court is constrained to uphold their genuineness.[27] As for the claim that respondent Eliza Go Tan did not give her consent to the mo rtgage of the title in question, the same is belied by her signature[28] on Exhi bit 18-Real Estate Mortgage which is annotated as Entry No. 174644 at the back of the title. Her bare denial that the signature was forged, without more, does not lie. In any event, lack of respondent Eliza Go Tans consent to the mortgage covering t he title in question would not render the encumbrance void under the second para graph of Article 124 of the Family Code.[29] For proof is wanting that the prope rty covered by the title is conjugal that it was acquired during respondents marr iage which is what would give rise to the presumption that it is conjugal proper ty.[30] The statement in the title that the property is registered in accordance with the provisions of Section 103 of the Property Registration Decree in the na me of JOSE B. TAN, of legal age, married to Eliza Go Tan[31] does not prove or in dicate that the property is conjugal. So Ruiz v. Court of Appeals[32] instructs: The property subject of the mortgage is registered in the name of Corazon G. Ruiz , of legal age, married to Rogelio Ruiz, Filipinos. Thus, title is registered in the name of Corazon alone because the phrase married to Rogelio Ruiz is merely des criptive of the civil status of Corazon and should not be construed to mean that her husband is also a registered owner. Furthermore, registration of the proper ty in the name of Corazon G. Ruiz, of legal age, married to Rogelio Ruiz is not pr oof that such property was acquired during the marriage, and thus, is presumed t o be conjugal. The property could have been acquired by Corazon while she was st ill single, and registered only after her marriage to Rogelio Ruiz. Acquisition of title and registration thereof are two different acts. The presumption under Article 116 of the Family Code that properties acquired during the marriage are presumed to be conjugal cannot apply in the instant case. Before such presumptio n can apply, it must first be established that the property was in fact acquired during the marriage. In other words, proof of acquisition during the marriage i s a condition sine qua non for the operation of the presumption in favor of conj ugal ownership. No such proof was offered nor presented in the case at bar.[33] (Emphasis and underscoring supplied) On respondents claim of payment, they presented debit memo-Exhibits G to G-11[34] (of which only Exhibits G-6 to G-11[35] are relevant to the issues) and certificationsExhibits H and H-1[36] issued by an accountant, one Glenn Cabading. Rebutting Exhibits G to G-11 inclusive, petitioners presented credit memos[37] which , to them, cancelled respondents debit memos. From a comparison of the credit and

debit memos with the bank ledgers[38] and especially considering the unquestion ed explanation of petitioner Uy on the reason behind the issuance of these memos , viz: ATTY. DEL CASTILLO: Q You said, when a loan is renewed you credit a certain amount. Can you expound that a little bit? A Actually, the Banco Central punish[es] if the loan cannot be renewed for sever al years without payment. Just to circumvent that policy, we do the credit first and the debit just for the renewal. Q Why is that? A To show that amount is fully paid and we avail. Q How is that done? A We credit first the renewed amount and we debit the old promissory note. Q When you credit, there were other papers accomplished? A Yes. Q What are these papers called? A Credit Memos on loan release. Q Where do you credit this? A It is credited on their accounts. Q On the existing accounts? A Yes, deposit account. Q And what is debit memos? A Debit memos are ones that liquidate the loan so that the whole promissory note will be distinguished [sic].[39] (Emphasis and underscoring supplied), this Court is persuaded by petitioners claim that the debit memos represented paym ent only in the banks book entries but did not actually involve payment/settlement of the original obligation. In fine, the extra-judicial foreclosure and subsequent sale of the mortgaged pro perty covered by the title in question was valid. WHEREFORE, the petition is GRANTED. The assailed decision of the appellate court is SET ASIDE. Civil Case No. 98-225, Jose B. Tan and Eliza Go Tan v. Metropolita n Bank and Trust Company, et al., filed before and raffled to Branch 38 of the Re gional Trial Court of Misamis Oriental, is DISMISSED. SO ORDERED. EMILIO Y. TAEDO, petitioner, vs. ALLIED BANKING CORPORATION, respondent. D E C I S I O N PARDO, J.: Appeal via certiorari from the decision of the Court of Appeals reversing the ru ling of the trial court and holding petitioner liable solidarily with defendant Cheng Ban Yek Co., Inc. for all items of the money judgment and costs of suit. The Facts The facts, as found by the Court of Appeals, are as follows: Appeal by both the plaintiff Allied Banking Corporation and the defendant Cheng B an Yek & Co., Inc. from the Order, as summary judgment, of the Regional Trial Co urt (Branch XLIV, Manila), the decretal part whereof reads: WHEREFORE, and in view of the foregoing considerations, summary judgment is hereb y rendered in favor of the plaintiff, Allied Banking Corporation, and against de fendant Cheng Ban Yek and Co., Inc. as follows: 1. On the first cause of action: Ordering the defendant Cheng Ban Yek Co., Inc. to pay plaintiff the sum of P2,000 ,000.00, plus interest thereon at 14% per annum, 2% per annum as service charge, and penalty charge of 1% per month from February 11, 1981 until fully paid; 2. On the second cause of action: Ordering the defendant Cheng Ban Yek Co., Inc. to pay plaintiff the sum of P2,500 ,000.00, plus interest thereon at 14% per annum, service charge of 2% per ann um, and penalty charge of 1 % per month, from February 3, 1981 until fully paid; 3. On the third cause of action: Ordering the defendant Cheng Ban Yek Co., Inc. to pay plaintiff the sum of P1,000 ,000.00 plus interest thereon at 14% per annum, service charge of 2% per annum, and penalty charge of 1 % per month, from February 12, 1981 until fully paid;

4. On the fourth cause of action: Ordering the defendant Cheng Ban Yek Co., Inc. to pay plaintiff the sum of P1,000 ,000.00 plus interest thereon at 14% per annum, service charge of 2% per annum, and penalty charge of 1 % per month, from February 12, 1981 until fully paid; 5. On the fifth cause of action: Ordering the defendant Cheng Ban Yek Co., Inc. to pay plaintiff the sum of P1,000 ,000.00 plus interest thereon at 14% per annum, service charge of 2% per annum, and penalty charge of 1% per month, from February 12, 1981 until fully paid; 6. On the sixth cause of action: Ordering the defendant Cheng Ban Yek Co., Inc. to pay plaintiff the sum of P1,00 0,000.00 plus interest thereon at 14% per annum, service charge of 2% per annum , and penalty charge of 1% per month, from February 12, 1981 until fully paid; 7. On the seventh cause of action: Ordering the defendant Cheng Ban Yek Co., Inc. to pay plaintiff the sum of P1,5 00,000.00 plus interest thereon at 14% per annum, service charge of 2% per annum , and penalty charge of 1% per month, from February 12, 1981 until fully paid; 8. On all the causes of action: Ordering the defendant Cheng Ban Yek Co., Inc. to pay plaintiff the sum equivalen t to 25% of the amount due and demandable as and for attorneys fees; 9. Declaring the Continuing Guaranty as having been extinguished after plaintiff b randed it as a worthless security and preferred to avail, as it did avail, of the provisional remedy of attachment; and declaring defendants Alfredo Ching and Emi lio Taedo relieved of their obligation under the said continuing Guaranty; and 10. Ordering the defendant Cheng Ban Yek Co., Inc. to pay the costs of suit. SO ORDERED. The foregoing summary judgment has its roots in a complaint with preliminary atta chment filed by plaintiff bank to recover sums of money from defendant corporati on on its seven past due promissory notes with principal amounts totaling P10,00 0,000.00, from defendants Alfredo Ching and Emilio Taedo under a Continuing Guara nty providing for joint and several liability relative to the said promissory no tes. The preliminary attachment sought was granted upon the required bond and wa s thereafter maintained despite defendant corporations efforts to have it dischar ged. The appeal of plaintiff bank is limited to paragraph 9 of the summary judgment (s upra, p. 3) which declared defendants Aldredo Ching and Emilio Taedo as free from any liability under the Continuing Guaranty since their respective liabilities thereunder became extinguished when plaintiff bank in its pleading branded the C ontinuing Guaranty as worthless security. On the other hand, defendant corporations appeal is an attack on the summary natur e of the proceeding adopted by the lower court since, according to defendant cor poration, there was a petition for suspension of payment filed by it with the Se curities and Exchange Commission which, although dismissed, was duly appealed to the Court of Appeals. x x x Defendant corporations petition for suspension of payment was dismissed by the Sec urities and Exchange Commission for lack of quorum. At the creditors meeting call ed and accordingly held to approve the corporations petition for suspension of pa yment, out of outstanding liabilities of P237,718,426.00, only the creditors rep resenting P110,355,607.37 thereof attended. This was far short of the three-fif ths quorum unqualifiedly required by law which should have been P142,631,055.60 (Act No. 1956, Sec. 8) x x x . On October 16, 1984, the trial court rendered a summary judgment, as quoted abov e. Both plaintiff Allied Banking Corporation and the defendant Cheng Ban Yek & Co ., Inc. appealed from the summary judgment to the Court of Appeals. On March 27, 1990, the Court of Appeals promulgated a decision, the dispositive portion of which reads: WHEREFORE, the Order appealed from is in part REVERSED and MODIFIED by deleting p aragraph 9 from the dispositive portion thereof, and declaring the defendants Alfredo Ching and Emilio Taedo solidarily liable with defendant Cheng Ban Yek Co

., Inc. for all items of the money judgment set forth in paragraphs one 91) to e ight (8) inclusive, and paragraph ten (10), of said dispositive portion. The Ord er is AFFIRMED in its other aspects. No costs in this instance. SO ORDERED. On April 11, 1990, petitioner Emilio Y. Taedo filed a motion for reconsideration of the decision, contending that while the case was pending before the Court of Appeals the Allied Bank and Cheng Ban Yek & Co., Inc. agreed to extend the time of payment of the indebtedness, without the consent of petitioner, thereby relie ving him of his obligation as guarantor or surety of such obligation. On November 27, 1998, the Court of Appeals denied the motion for lack of merit. Hence, this appeal. The Issues The basic issues raised are (a) whether the execution by the respondent Bank of the Fourth Amendatory Agreement extinguished petitioners obligations as surety, a nd (b) whether the continuing guarantee executed by the petitioner is a contract o f (surety) adhesion. The Courts Ruling We find the petition without merit. Resolving the first issue, we note that the amendatory agreement between the res pondent Allied Banking Corporation and Cheng Ban Yek & Co., Inc. extended the ma turity of the promissory notes without notice or consent of the petitioner as su rety of the obligations. However, the continuing guarantee executed by the petitio ner provided that he consents and agrees that the bank may, at any time or from time to time extend or change the time of payments and/or the manner, place or t erms of payment of all such instruments, loans, advances, credits or other oblig ations guaranteed by the surety. Hence, the extensions of the loans did not rele ase the surety. As to the second issue, even if the continuing guarantee were considered as one of adhesion, we find the contract of surety valid because petitioner was free to reje ct it entirely. Petitioner was a stockholder and officer of Cheng Ban Yek and Co ., Inc. and it was common business and banking practice to require sureties to gua rantee corporate obligations. The Fallo IN VIEW WHEREOF, the Court DENIES the petition and AFFIRMS the decision of the C ourt of Appeals. No costs in this instance. BPI Investment Corp. v. CA G.R. No. 133632. February 15, 2002 credit transactions: Loan (Mutuum): A loan contract is not a consensual contract but a real contract. It is perfected upon delivery of the object of the contrac t. obligations and contracts: Reciprocal Obligations: It is a basic principle in re ciprocal obligations that neither party incurs in delay, if the other does not c omply or is not ready to comply in a proper manner with what is incumbent upon h im. FACTS: Frank Roa obtained a loan at 16 1/4% interest rate per annum from Ayala Investme nt and Development Corporation. For security, Roa's house and lot were mortgaged . Later, Roa sold the house and lot to ALS and Antonio Litonjua, who assumed Roa 's debt to Ayala Investment. Ayala Investment, however, granted a new loan to be applied to Roa's debt, secured by the same property at a different interest rat e of 20% per annum. When ALS and Litonjua failed to pay, BPIIC, successor to Ayala Investment, filed for foreclosure of mortgage. ISSUE:

 HELD:

W/N a contract of loan is a consensual contract

A loan contract is not a consensual contract but a real contract. It is perfecte d upon delivery of the object of the contract. Although a perfected consensual c ontract can give rise to an action for damages, it does not constitute a real co ntract which requires delivery for perfection. A perfected real contract gives r ise only to obligations on the part of the borrower. In the present case, the loan contract was only perfected on the date of the sec ond release of the loan. A contract of loan involves a reciprocal obligation, wherein the obligation or p romise of each party is the consideration for that of the other. It is a basic p rinciple in reciprocal obligations that neither party incurs in delay, if the ot her does not comply or is not ready to comply in a proper manner with what is in cumbent upon him. Only when a party has performed his part of the contract can h e demand that the other party also fulfills his own obligation and if the latter fails, default sets in. DECISION: The payment of amortization should accrue from the time BPIIC released the loan amount to ALS and Litonjua because it was only at that time (the delivery of the amount -- the object of the contract) that the loan contract was perfected. Carlos vs Abelardo Carlos vs. Abelardo GR No. 146504, April 4, 2002 FACTS: Honorio Carlos filed a petition against Manuel Abelardo, his son-in-law for reco very of the $25,000 loan used to purchase a house and lot located at Paranaque. It was in October 1989 when the petitioner issued a check worth as such to assi st the spouses in conducting their married life independently. The seller of th e property acknowledged receipt of the full payment. In July 1991, the petition er inquired from spouses status of the amount loaned from him, the spouses plead ed that they were not yet in position to make a definite settlement. Thereafter , respondent expressed violent resistance to the extent of making various death threats against petitioner. In 1994, petitioner made a formal demand but the sp ouses failed to comply with the obligation. The spouses were separated in fact for more than a year prior the filing of the complaint hence spouses filed separ ate answers. Abelardo contended that the amount was never intended as a loan bu t his share of income on contracts obtained by him in the construction firm and that the petitoner could have easily deducted the debt from his share in the pro fits. RTC decision was in favor of the petitioner, however CA reversed and set aside trial courts decision for insufficiency of evidence. Evidently, there was a check issued worth $25,000 paid to the owner of the Paranaque property which b ecame the conjugal dwelling of the spouses. The wife executed an instrument ack nowledging the loan but Abelardo did not sign. ISSUE: WON a loan obtained to purchase the conjugal dwelling can be charged agai nst the conjugal partnership. HELD: Yes, as it has redounded to the benefit of the family. They did not deny that t he same served as their conjugal home thus benefiting the family. Hence, the sp

ouses are jointly and severally liable in the payment of the loan. Abelardos con tention that it is not a loan rather a profit share in the construction firm is untenable since there was no proof that he was part of the stockholders that wil l entitle him to the profits and income of the company. GARY P. ROSAURO, COMPLAINANT, VS. JUDGE ALFREDO E. KALLOS, PRESIDING JUDGE OF TH E REGIONAL TRIAL COURT, LEGASPI CITY, BRANCH X, RESPONDENT. D E C I S I O N CARPIO, J.: The Case This is an administrative complaint against respondent Judge Alfredo E. Kallos ( "respondent Judge") of the Regional Trial Court, Legaspi City, Branch X ("Branc h X"), for "Gross and Serious Misconduct." The Facts In his Complaint dated 12 July 2002, complainant Gary P. Rosauro ("complainant") alleged that in June 1997, respondent Judge, a friend and kumpadre, offered to sell to him an unregistered parcel of land in Penaranda[1] Street, Legaspi City ("Lot No. 1470") measuring 235 square meters. Respondent Judge allegedly claimed ownership over Lot No. 1470. Complainant orally agreed to buy Lot No. 1470 for P2 million provided that respondent Judge take care of its registration in compl ainant's name, at no additional cost. Complainant wanted to donate Lot No. 1470 to his two children, Marivic and Allan Rosauro ("Marivic and Allan"). Starting 30 June 1997, complainant, on respondent Judge's demands, made several partial payments for Lot No. 1470 for which respondent Judge issued receipts.[2] In the course of collecting complainant's payments, respondent Judge also obtai ned from complainant a P50,000 loan, payable in two months from 28 March 1998.[3 ] By August 1998, complainant's total payments amounted to P1,695,000.[4] Meanwhile, in February 1998, a certain Atty. German Mata ("Atty. Mata") filed wi th the Regional Trial Court, Legaspi City, Branch I ("Branch I"), a petition (" LRC Case No. N-683") to register Lot No. 1470 in Marivic and Allan's name. Branc h I initially dismissed LRC Case No. N-683. However, on Atty. Mata's motion, Br anch I reconsidered, reinstated the case, and received petitioners' evidence.[5] Nevertheless, on 19 June 1999, Branch I eventually dismissed the case.[6] Complainant subsequently learned, from a receipt[7] and the Deed of Absolute Sal e[8] respondent Judge gave him, that a certain Rodelia Esplana-Guerrero ("Guerre ro") owned Lot No. 1470. Complainant also learned that Guerrero had sought the r econstitution of her alleged title to Lot No. 1470 in the Regional Trial Court, Legaspi City, Branch IV ("Branch IV") but Branch IV dismissed Guerrero's petitio n on 16 November 1993. With this new information and respondent Judge's failure to register Lot No. 147 0, complainant hired a lawyer to rescind his contract with respondent Judge. Acc ordingly, complainant's counsel wrote respondent Judge on 21 August 2001, demand ing rescission. On 12 September 2001, respondent Judge, using his sala's officia l stationery, replied that he needs more time to confer with Guerrero. After a f ew months, complainant's counsel reiterated the demand for rescission. Again usi ng his sala's official stationery, respondent Judge replied on 8 May 2002 that G uerrero is still raising the amount to refund complainant.[9] For respondent Judge's failure to refund the payments, his misrepresentations on Lot No. 1470's ownership and registrability, and Lot No. 1470's non-registratio

n, complainant filed this Complaint. In his Comment, respondent Judge admitted offering to sell Lot No. 1470 to comp lainant but denied claiming ownership over that property. Respondent Judge alleg ed that at the outset, he informed complainant that Guerrero is the owner of Lot No. 1470. Complainant also allegedly knew that respondent Judge merely acted as Guerrero's representative so he could apply part of the sale's proceeds to sati sfy legal fees Guerrero owed him for services rendered before his appointment to the Bench. Respondent Judge further alleged that he informed complainant of Gue rrero's unsuccessful attempt to reconstitute her title to Lot No. 1470. On the n on-registration of Lot No. 1470, respondent Judge stated that since LRC Case No. N-683 was still pending in Branch I, it was premature to conclude that he faile d to comply with his undertaking to register that property. Respondent Judge al so claimed that complainant hired Atty. Mata to file and litigate LRC Case No. N -683. In his Reply, complainant maintained that respondent Judge never informed him th at Guerrero owned Lot No. 1470 or that respondent Judge was merely acting as Gue rrero's representative. On LRC Case No. N-683, complainant countered that respon dent Judge hired Atty. Mata as part of his undertaking to register Lot No. 1470. Complainant also disclosed that respondent Judge tried to have this Complaint w ithdrawn.[10] Complainant added that respondent Judge is known for borrowing mon ey from "tennis court buddies" in exchange for empty promises to render legal se rvices.[11] Respondent Judge filed a Rejoinder reiterating the claims in his Comment. Respon dent Judge denied soliciting the withdrawal of this Complaint or borrowing money from "tennis court buddies." The Court referred this matter to Associate Justice Salvador J. Valdez, Jr. ("Ju stice Valdez") of the Court of Appeals for investigation, report, and recommenda tion. The Report and Recommendation of Justice Valdez In his Report and Recommendation ("Report"), Justice Valdez found respondent Jud ge liable for gross misconduct and recommended his suspension from service for s ix months. The Report reads: Quite obviously, the respondent judge importuned the complainant to buy the subj ect lot because he knows the latter to be a man of means as he unwittingly revea led in his Comment wherein he stated, inter alia, that "the deed of absolute sal e was made pursuant to the desire of the complainant that the vendee(s) shall be his children Marivic and Allan because his other commercial lot and building in the heart of Legazpi Port w[ere] already placed in the name of his other two (2 ) children." That the respondent had first ascertained the paying capacity of h is buyer, is a rule of thumb in any financial dealing. What is deplorable is tha t he did not make a full disclosure of the nature of the property involved in th e case at bar. As earlier pointed out, he did not let the complainant know that it is not owned by him but by a certain Rodelia Esplana-Guerrero. He insidious ly made the revelation only after the complainant had already given him P130,000 .00. What is more, he assured the complainant of the lot's regist[ra]bility as eviden ced by the receipt of the latter's payment of P100,000.00 as shown by Exhibits " A" and "B", wherein he made it appear that the first payment of P30,000.00 was " for follow (up) of papers of LRA (Land Registration Authority), Manila x x x pre paratory to the issuance of title to said lot" and the second, in the amount of P70,000.00 was for "the expenses in securing the title x x x." He did not level with the complainant by disclosing that there was issued on December 12, 1927, a Decree No. 287130 for the lot but no title was derived therefrom; hence, Rodel

ia Esplana's petition for reconstitution of title was peremptorily denied w ay back on [November] 16, 1993. In all likelihood, the decree was not in the nam e of Rodelia. Instead, he subsequently caused to be filed a petition for origina l registration on February 18, 1998. As a judge, he knows or is chargeable with knowledge that such a petition would hardly prosper in light of the earlier dec ree of registration. Accordingly, even that subsequent petition was eventually denied. Even his testimony as the sole witness in the land registration case af forded no help, presumably because he has no personal knowledge about the lot's genesis. In the interim, he persisted in getting money from the complainant for the titling of the lot, apart from payments on the purchase price. From the re ceipts and other documents presented, respondent has received from the complaina nt the aggregate amount of [P1,695,000] on the account of the lot. Respondent's defense that he merely brokered for Rodelia Esplana-Guerrero so tha t it should be the latter who should return the payments made by the complainant when the lot could not be titled, is no defense at all. On the contrary, his a cting in a fiduciary relation with the real owner of the lot, if true, transgres sed Rule 5.06 of the same Canon 5. More than that, when he assured the complain ant that the lot will be titled, he wittingly or unwittingly dragged the Regiona l Trial Court of Legazpi, of which he is a presiding judge of one of its Branche s, into the failed transaction as the complainant must have believed him because of his position in the court. Unfortunately, the complainant, x x x, was left by the respondent judge holding an empty bag. Respondent's cupidity for complainant's money was not confined to the sale of th e lot but even included a loan of P50,000.00 on March 28, 1998 which he promised to pay in two (2) months, but which he failed to prove to have paid. Obtaining such a loan is already forbidden by Rule 5.04 of Canon 5. Willful failure to p ay the loan is also an administrative offense under Section 52(c)(10), Rule IV o f Memorandum Circular No. 19, s. 1999 of the Civil Service Commission. PREMISES CONSIDERED, the undersigned recommends that the respondent judge be fou nd GUILTY OF GROSS MISCONDUCT as charged and that he be SUSPENDED from office wi thout salary and other benefits for SIX (6) MONTHS. [12] The Court's Ruling The Court finds respondent Judge liable for violation of Rules 5.02, 5.06, and 2 .03 of the Code of Judicial Conduct[13] ("Code") and for Impropriety. Respondent Judge Violated Rule 5.02 and Rule 5.06 of the Code Rule 5.02 Rule 5.02 of the Code provides that "[a] judge shall refrain from financial and business dealings that tend to x x x, interfere with the proper performance of j udicial activities, or increase involvement with lawyers or persons likely to co me before the court x x x." This provision, which filled the void left by Articl e 14(1)[14] of the Spanish Code of Commerce (prohibiting judges from engaging in commerce within their jurisdiction), is meant to limit judges' commercial affai rs except to the extent allowed in Rule 5.03[15] of the Code.[16] Here, respondent Judge took part in a commercial transaction falling outside of the area delineated in Rule 5.03. Worse, respondent Judge did so in an underhand ed manner, concealing vital information on Lot No. 1470's ownership and non-regi strability until after the sale had been consummated. By involving himself in su ch a transaction, respondent Judge not only allowed himself to be distracted fro m the performance of his judicial duties,[17] he also increased his involvement with persons likely to come before his sala regarding Lot No. 1470, thus increas ing the chances of his disqualification from future litigation concerning that p

roperty. As we observed in Berin v. Judge Barte,[18] also involving a judge who brokered a real estate sale: By allowing himself to act as agent in the sale of the subject property, respond ent judge has increased the possibility of his disqualification to act as an imp artial judge in the event that a dispute involving the said contract of sale ari ses. Also, the possibility that the parties to the sale might plead before his court is not remote and his business dealings with them might [not only] create suspicion as to his fairness but also to [his ability to] render it in a manner that is free from any suspicion as to its fairness and impartiality, and also as to the judge's integrity x x x. Rule 5.06 By serving as Guerrero's attorney-in-fact, respondent Judge also violated Rule 5 .06 of the Code which provides: A judge should not serve as the executor, administrator, trustee, guardian, or o ther fiduciary, except for the estate, trust, or person of a member of the immed iate family, and then only if such service will not interfere with the proper pe rformance of judicial duties. xxx (Emphasis supplied) and accordingly negated its purpose, namely to limit a judge's involvement in the affairs and interests of private individua ls to minimize the risk of conflict with his judicial duties and to allow him to devote his undivided attention to the performance of his official functions.[19 ] x x x As Guererro's attorney-in-fact, respondent Judge fell under the purview of "othe r fiduciary" as contemplated in Rule 5.06. We held in Ramos v. Barot:[20] Being and serving as an attorney-in-fact is within the purview of "other fiducia ry" as used in Rule 5.06. As a noun, "fiduciary" means "a person holding the cha racter of a trustee, or a character analogous to that of a trustee, in respect t o the trust and confidence involved in it and the scrupulous good faith and cand or which it requires." A fiduciary primarily acts for another's benefit, pursuan t to his undertaking as such fiduciary, in matters connected with said undertaki ng. x x x Respondent Judge Also Violated Rule 2.03 The Court also finds respondent Judge liable for violating Rule 2.03 of the Code in using official stationery for his correspondence with complainant and the la tter's counsel regarding Lot No. 1470. A court's stationery, with its official l etterhead, should only be used for official correspondence.[21] By using his sal a's stationery other than for official purposes, respondent Judge evidently used the prestige of his office to benefit Guererro (and himself) in violation of Ru le 2.03[22] of the Code. Respondent Judge is Liable for Impropriety for Non-Payment of Loan A judge may obtain a loan if no law prohibits such loan.[23] Respondent Judge d oes not deny obtaining a loan from complainant on 28 March 1998, payable in two months. Respondent Judge does not also controvert Justice Valdez's finding tha t this loan remains unpaid. For this, we find respondent Judge liable for improp riety, absent any proof that he willfully refused to pay the loan despite demand s from complainant.[24] Respondent Judge's Transgressions do not Constitute Misconduct Nevertheless, we cannot adopt Justice Valdez's characterization of respondent Ju dge's transgressions as amounting to (gross) misconduct. Misconduct in office is one that affects the officer's performance of his duties as an officer and not one that affects his character as a private individual.[25] Here, respondent Jud ge's questioned acts do not relate to the performance of his duties but flow fro m his involvement in a private commercial transaction. While this Court has held judges liable for misconduct for acts unrelated to the performance of official

functions,[26] the judges' conduct in those cases were deemed prejudicial to the best interest of the service.[27] This exceptional circumstance is absent here . The Applicable Penalty Under Section 11(B), in relation to Section 9(4) of Rule 140, as amended by A.M . No. 01-8-10-SC,[28] violation of Supreme Court rules constitutes a less-seriou s charge punishable by any of the following sanctions: 1. Suspension from office without salary and other benefits for not less th an one (1) nor more than three (3) months; or 2. A fine of more than P10,000.00 but not exceeding P20,000.00. On the other hand, impropriety, which we have treated as a light charge,[29] is punishable by: 1. A fine of not less than P1,000.00 but not exceeding P10,000.00 and/or 2. Censure; 3. Reprimand; 4. Admonition with warning.[30] Considering the nature and extent of respondent Judge's transgressions, we find it proper to impose on him the following penalties: (1) suspension from office w ithout salary and other benefits for a period of three months for violation of Rules 2.03, 5.02, and 5.06 of the Code and (2) a fine of P10,000 for impropriety . We warn respondent Judge that his further commission of administrative offense s shall merit more severe sanctions. WHEREFORE, we find respondent Judge Alfredo E. Kallos of the Regional Trial Cou rt, Legaspi City, Branch X, GUILTY of (1) violating Rules 2.03, 5.02, and 5.06 of the Code of Judicial Conduct, and (2) Impropriety. We SUSPEND him from office for three months without salary and other benefits for the violation of the Code of Judicial Conduct, and FINE him P10,000 for the Impropriety, with WARNIN G that his further commission of administrative offenses shall merit more severe sanctions. SO ORDERED. ORFILA VS ARELLANO[A. M. No. P-06-2110. April 26, 2006]Facts : Judge Jesusa Manigas questions the P20, 000. 00-fine imposed upon her by the Co urt for the offenseof borrowing money from a subordinate when she was still a Cl erk of Court. She submits that when sheborrowed money from complainant Estifana Arellano, she did so in the privacy of her cubicle and withoutknowledge that Are llano was at that time a moneylender. She further avers that mere borrowing of m oney by asuperior officer from a subordinate does not per se constitute a ground for disciplinary action. She likewisecontends that the penalty imposed upon her "is not in contemplation of law" since borrowing money from asubordinate is a l ight offense punishable only by reprimand for the first offense under the Implem enting Rulesof the Civil Service. Issue : WON the Court imposed upon Judge Manigas the proper penalty Held : Records reveal that she obtained not just one, but two loans from Arellano, wh o was her subordinate atthat time. It is irrelevant that she received the money from Arellano in private as any irregular or unlawfultransaction is hardly done in public view. Furthermore, it is incredible that she did not know that Arellan o was amoneylender as she admitted in her pleadings that she learned of Arellanos money lending from a fellowemployee and that Arellano kept a notebook where she listed payments made by borrowers, including hers. Asthe clerk of court, she sh ould have known that Arellanos acts were illegal. Instead of admonishing the latt er asa superior officer, she countenanced Arellanos illegal activities and even j oined in without hesitation. Moreover,it is even suspect that her cordial relati onship with Arellano has affected the way she handled the situation asher superi or. Furthermore, Judge Manigas misunderstood our ruling in the case of Villaseor v

. De Leon4 wherein thisCourt stated as follows: We must likewise point out that respondent occupies sensitive position in the Office of the Clerk of Court. If m oved by sinister or ulterior motives arising from the loan morass she found hers elf in, she could underminethe administration of justice by simply failing to ac t or by tampering with the record books for a considerationwith which to pay her debts. x x x (Emphasis supplied.) In said case, therein respondent was found gu ilty of willful failure to pay a just debt. In stating the afore-quoted,this Cou rt did not mean that in order to be disciplined, one must have been moved by sin ister or ulterior motives arising from the loan obligation, as Judge Manigas sugg ests. Rather, this Court was emphasizing thatgiven the sensitive position the re spondent therein occupied, being Clerk III in the Office of the Clerk of Court,s he could very well use her position in order to raise money to pay her debts and thereby undermine theadministration of justice. This is the dubious situation t hat the rules and this Court seek to prevent. FIRST DIVISION G.R. No. 168736 April 19, 2006 SPOUSES ADELINA S. CUYCO and FELICIANO U. CUYCO, Petitioners, vs. SPOUSES RENATO CUYCO and FILIPINA CUYCO, Respondents. D E C I S I O N YNARES-SANTIAGO, J.: This petition for review on certiorari assails the Decision1 of the Court of App eals (CA) in CA G.R. CV No. 62352 dated November 5, 2003 which modified the Deci sion2 of the Regional Trial Court (RTC) of Quezon City, Branch 105 in Civil Case No. Q-97-32130 dated January 27, 1999, as well as the Resolution3 dated June 28 , 2005 denying the motion for reconsideration thereof. The facts of the case are as follows: Petitioners, spouses Adelina and Feliciano Cuyco, obtained a loan in the amount of P1,500,000.00 from respondents, spouses Renato and Filipina Cuyco, payable wi thin one year at 18% interest per annum, and secured by a Real Estate Mortgage4 over a parcel of land with improvements thereon situated in Cubao, Quezon City c overed by TCT No. RT-43723 (188321).5 Subsequently, petitioners obtained additional loans from the respondents in the aggregate amount of P1,250,000.00, broken down as follows: (1) P150,000.00 on Ma y 30, 1992; (2) P150,000.00 on July 1, 1992; (3) P500,000.00 on September 5, 199 2; (4) P200,000.00 on October 29, 1992; and (5) P250,000.00 on January 13, 1993. 6 Petitioners made payments amounting to P291,700.00,7 but failed to settle their outstanding loan obligations. Thus, on September 10, 1997, respondents filed a c omplaint8 for foreclosure of mortgage with the RTC of Quezon City, which was doc keted as Civil Case No. Q-97-32130. They alleged that petitioners loans were secu red by the real estate mortgage; that as of August 31, 1997, their indebtedness amounted to P6,967,241.14, inclusive of the 18% interest compounded monthly; and that petitioners refusal to settle the same entitles the respondents to foreclos e the real estate mortgage. Petitioners filed a motion to dismiss9 on the ground that the complaint states n o cause of action which was denied by the RTC10 for lack of merit. In their answer,11 petitioners admitted their loan obligations but argued that o nly the original loan of P1,500,000.00 was secured by the real estate mortgage a t 18% per annum and that there was no agreement that the same will be compounded monthly. On January 27, 1999, the RTC rendered judgment12 in favor of the respondents, th e dispositive portion of which reads: WHEREFORE, in the light of the foregoing, the Court renders judgment on the Comp laint in favor of the plaintiffs and hereby orders the defendants to pay to the Court or to the plaintiffs the amounts of P6,332,019.84, plus interest until ful ly paid, P25,000.00 as attorneys fees, and costs of suit, within a period of one hundred and twenty (120) days from the entry of judgment, and in case of default of such payment and upon proper motion, the property shall be ordered sold at p ublic auction to satisfy the judgment. Further, defendants[] counterclaim is dism

issed. SO ORDERED.13 Petitioners appealed to the CA reiterating their previous claim that only the am ount of P1,500,000.00 was secured by the real estate mortgage.14 They also conte nded that the RTC erred in ordering the foreclosure of the real estate mortgage to satisfy the total indebtedness of P6,532,019.84, as of January 10, 1999, plus interest until fully paid, and in imposing legal interest of 12% per annum on t he stipulated interest of 18% from the filing of the case until fully paid.15 On November 5, 2003, the CA partially granted the petition and modified the RTC decision insofar as the amount of the loan obligations secured by the real estat e mortgage. It held that by express intention of the parties, the real estate mo rtgage secured the original P1,500,000.00 loan and the subsequent loans of P150, 000.00 and P500,000.00 obtained on July 1, 1992 and September 5, 1992, respectiv ely. As regards the loans obtained on May 31, 1992, October 29, 1992 and January 13, 1993 in the amounts of P150,000.00, P200,000.00 and P250,000.00, respective ly, the appellate tribunal held that the parties never intended the same to be s ecured by the real estate mortgage. The Court of Appeals also found that the tri al court properly imposed 12% legal interest on the stipulated interest from the date of filing of the complaint. The dispositive portion of the Decision reads: WHEREFORE, the instant appeal is PARTIALLY GRANTED. The assailed decision of the Regional Trial Court of Quezon City, Branch 105, in Civil Case No. Q-97-32130 i s hereby MODIFIED to read: "WHEREFORE, in the light of the foregoing, the Court renders judgment on the Com plaint in favor of the plaintiffs and hereby orders the defendants to pay to the Court or to the plaintiffs the amount of P2,149,113.92[,] representing the tota l outstanding principal loan of the said defendants, plus the stipulated interes t at the rate of 18% per annum accruing thereon until fully paid, within a perio d of one hundred and twenty days from the entry of judgment, and in case of defa ult of such payment and upon motion, the property, subject of the real estate mo rtgage contract, shall be ordered sold at public auction in satisfaction of the mortgage debts.1avvphil.net Defendants are further, ordered to pay the plaintiffs the following: 1. the legal interest at the rate of 12% per annum on the stipulated interest of 18% per annum, computed from the filing of the complaint until fully paid; 2. the sum of P25,000.00 as and for attorneys fees; and 3. the costs of suit." SO ORDERED.16 Hence, the instant petition for review on the sole issue: WHETHER OR NOT PETITIONERS MUST PAY RESPONDENTS LEGAL INTEREST OF 12% PER ANNUM ON THE STIPULATED INTEREST OF 18% PER ANNUM, COMPUTED FROM THE FILING OF THE COM PLAINT UNTIL FULL PAID.17 Petitioners contend that the imposition of the 12% legal interest per annum on t he stipulated interest of 18% per annum computed from the filing of the complain t until fully paid was not provided in the real estate mortgage contract, thus, the same has no legal basis. We are not persuaded. While a contract is the law between the parties,18 it is also settled that an ex isting law enters into and forms part of a valid contract without the need for t he parties expressly making reference to it.19 Thus, the lower courts correctly applied Article 2212 of the Civil Code as the basis for the imposition of the le gal interest on the stipulated interest due. It reads: Art. 2212. Interest due shall earn legal interest from the time it is judicially demanded, although the obligation may be silent upon this point. The foregoing provision has been incorporated in the comprehensive summary of ex isting rules on the computation of legal interest enunciated by the Court in Eas tern Shipping Lines, Inc. v. Court of Appeals,20 to wit: 1. When an obligation is breached, and it consists in the payment of a sum of mo ney, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of

stipulation, the rate of interest shall be 12% per annum to be computed from def ault, i.e., from judicial or extrajudicial demand under and subject to the provi sions of Article 1169 of the Civil Code. 2. When an obligation, not constituting a loan or forbearance of money, is breac hed, an interest on the amount of damages awarded may be imposed at the discreti on of the court at the rate of 6% per annum. No interest, however, shall be adju dged on unliquidated claims or damages except when or until the demand can be es tablished with reasonable certainty. Accordingly, where the demand is establishe d with reasonable certainty, the interest shall begin to run from the time the c laim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, t he interest shall begin to run only from the date the judgment of the court is m ade (at which time the quantification of damages may be deemed to have been reas onably ascertained). The actual base for the computation of legal interest shall , in any case, be on the amount finally adjudged. 3. When the judgment of the court awarding a sum of money becomes final and exec utory, the rate of legal interest, whether the case falls under paragraph 1 or p aragraph 2, above, shall be 12% per annum from such finality until its satisfact ion, this interim period being deemed to be by then an equivalent to a forbearan ce of credit. (Emphasis supplied) In the case at bar, the evidence shows that petitioners obtained several loans f rom the respondent, some of which as held by the CA were secured by real estate mortgage and earned an interest of 18% per annum. Upon default thereof, responde nts demanded payment from the petitioners by filing an action for foreclosure of the real estate mortgage. Clearly, the case falls under the rule stated in para graph 1. Applying the rules in the computation of interest, the principal amount of loans subject of the real estate mortgage must earn the stipulated interest of 18% pe r annum, which interest, as long as unpaid, also earns legal interest of 12% per annum, computed from the date of the filing of the complaint on September 10, 1 997 until finality of the Courts Decision. Such interest is not due to stipulatio n but due to the mandate of the law21 as embodied in Article 2212 of the Civil C ode. From such date of finality, the total amount due shall earn interest of 12% per annum until satisfied.22 Certainly, the computed interest from the filing of the complaint on September 1 0, 1997 would no longer be true upon the finality of this Courts decision. In acc ordance with the rules laid down in Eastern Shipping Lines, Inc. v. Court of App eals, we derive the following formula23 for the RTCs guidance: TOTAL AMOUNT DUE = [principal + interest + interest on interest] - partial payme nts made Interest = principal x 18 % per annum x no. of years from due date until finalit y of judgment Interest on interest = Interest computed as of the filing of the complaint (Sept ember 10, 1997) x 12% x no. of years until finality of judgment Total amount due as of the date of finality of judgment will earn an interest of 12% per annum until fully paid. In Rizal Commercial Banking Corporation v. Alfa RTW Manufacturing Corporation,24 this Court held that the total amount due on the contracts of loan may be easil y determined by the trial court through a simple mathematical computation based on the formula specified above. Mathematics is an exact science, the application of which needs no further proof from the parties. As regards what loans were secured by the real estate mortgage, respondents cont ended that all five additional loans were intended by the parties to be secured by the real estate mortgage. Thus, the CA erred in ruling that only two of the f ive additional loans were secured by the real estate mortgage when the documents evidencing said loans would show at least three loans were secured by the real estate mortgage, namely: (1) P150,000.00 obtained on May 31, 1992; (2) P150,000. 00 obtained on July 1, 1992; and (3) P500,000.00 obtained on September 5, 1992.2 5 In their Reply, petitioners alleged that their petition only raised the sole iss

ue of interest on the interest due, thus, by not filing their own petition for r eview, respondents waived their privilege to bring matters for the Courts review that do not deal with the sole issue raised. Procedurally, the appellate court in deciding the case shall consider only the a ssigned errors, however, it is equally settled that the Court is clothed with am ple authority to review matters not assigned as errors in an appeal, if it finds that their consideration is necessary to arrive at a just disposition of the ca se.26 Moreover, as an exception to the rule that findings of facts of the CA are concl usive and binding on the Court,27 an independent evaluation of facts may be done by it when the findings of facts are conflicting,28 as in this case. The RTC held that all the additional loans were secured by the real estate mortg age, thus: There is, therefore, a preponderance of evidence to show that the parties agreed that the additional loans would be against the mortgaged property. It is of no moment that the Deed of Mortgage (Exh. B) was not amended and thereafter annotat ed at the back of the title (Exh. C) because under Article 2125 of the Civil Cod e, if the instrument of mortgage is not recorded, the mortgage is nevertheless b inding between the parties. It is extremely difficult for the court to perceive that the plaintiffs required the defendants to execute a mortgage on the first l oan and thereafter fail to do so on the succeeding loans. Such contrary behavior is unlikely.29 The CA modified the RTC decision holding that: However, the real estate mortgage contract was supplemented by the express inten tion of the mortgagors (defendants-appellants) to secure the subsequent loans th ey obtained from the mortgagees (plaintiffs-appellees), on 01 July 1992, in the amount of P150,000.00, and on 05 September 1992, in the amount of P500,000.00. T he mortgagors (defendants-appellants) intention to secure a larger amount than th at stated in the real estate mortgage contract was unmistakable in the acknowled gment receipts they issued on the said loans. The acknowledgment receipts read: "July 1, [1]992 "Received from Mr. & Mrs. Renato Q. Cuyco PCIB Ck # 498243 in the amount of P150 ,000.00 July 1/92 as additional loan against mortgaged property TCT No. RT-43723 (188321) Q.C. (SGD) Adelina S. Cuyco" "Sept. 05/92 "Received from Mr. R. Cuyco the amount of P500,000.00 (five hundred thousand) PC IB Ck # 468657 as additional loan from mortgage property TCT RT-43723. (SGD) Adelina S. Cuyco" In such case, the specific amount mentioned in the real estate mortgage contract no longer controls. By express intention of the mortgagors (defendants-appellan ts) the real estate mortgage contract, as supplemented, secures the P1,500,000.0 0 loan obtained on 25 November 1991; the P150,000.00 loan obtained on 01 July 19 92; and the P500,000.00 loan obtained on 05 September 1992. All these loans are subject to stipulated interest of 18% per annum provided in the real estate mort gage contract. With respect to the other subsequent loans of the defendants-appellants in the a mount of P150,000.00, obtained on 31 May 1992; in the amount of P200,000.00, obt ained on 29 October 1992; and, in the amount of P250,000.00, obtained on 13 Janu ary 1993, nothing in the records remotely suggests that the mortgagor (defendant s-appellants), likewise, intended the said loans to be secured by the real estat e mortgage contract. Consequently, we rule that the trial court did err in decla ring said loans to be secured by the real estate mortgage contract.30 As a general rule, a mortgage liability is usually limited to the amount mention ed in the contract.31 However, the amounts named as consideration in a contract of mortgage do not limit the amount for which the mortgage may stand as security if from the four corners of the instrument the intent to secure future and othe r indebtedness can be gathered. This stipulation is valid and binding between th e parties and is known in American Jurisprudence as the "blanket mortgage clause ," also known as a "dragnet clause." 32

A "dragnet clause" operates as a convenience and accommodation to the borrowers as it makes available additional funds without their having to execute additiona l security documents, thereby saving time, travel, loan closing costs, costs of extra legal services, recording fees, et cetera.33 While a real estate mortgage may exceptionally secure future loans or advancemen ts, these future debts must be sufficiently described in the mortgage contract. An obligation is not secured by a mortgage unless it comes fairly within the ter ms of the mortgage contract.34 The pertinent provisions of the November 26, 1991 real estate mortgage reads: That the MORTGAGOR is indebted unto the MORTGAGEE in the sum of ONE MILLION FIVE THOUSAND PESOS (sic) (1,500,000.00) Philippine Currency, receipt whereof is her eby acknowledged and confessed, payable within a period of one year, with intere st at the rate of eighteen percent (18%) per annum; That for and in consideration of said indebtedness, the MORTGAGOR does hereby co nvey and deliver by way of MORTGAGE unto said MORTGAGEE, the latters heirs and as signs, the following realty together with all the improvements thereon and situa ted at Cubao, Quezon City, and described as follows: x x x x PROVIDED HOWEVER, that should the MORTGAGOR duly pay or cause to be paid unto th e MORTGAGEE or his heirs and assigns, the said indebtedness of ONE MILLION FIVE HUNDRED THOUSAND PESOS (1,500,000.00), Philippine Currency, together with the ag reed interest thereon, within the agreed term of one year on a monthly basis the n this MORTGAGE shall be discharged, and rendered of no force and effect, otherw ise it shall subsist and be subject to foreclosure in the manner and form provid ed by law. It is clear from a perusal of the aforequoted real estate mortgage that there is no stipulation that the mortgaged realty shall also secure future loans and adv ancements. Thus, what applies is the general rule above stated. Even if the parties intended the additional loans of P150,000.00 obtained on May 30, 1992, P150,000.00 obtained on July 1, 1992, and P500,00.00 obtained on Sept ember 5, 1992 to be secured by the same real estate mortgage, as shown in the ac knowledgement receipts, it is not sufficient in law to bind the realty for it wa s not made substantially in the form prescribed by law. In order to constitute a legal mortgage, it must be executed in a public documen t, besides being recorded. A provision in a private document, although denominat ing the agreement as one of mortgage, cannot be considered as it is not suscepti ble of inscription in the property registry. A mortgage in legal form is not con stituted by a private document, even if such mortgage be accompanied with delive ry of possession of the mortgage property.35 Besides, by express provisions of S ection 127 of Act No. 496, a mortgage affecting land, whether registered under s aid Act or not registered at all, is not deemed to be sufficient in law nor may it be effective to encumber or bind the land unless made substantially in the fo rm therein prescribed. It is required, among other things, that the document be signed by the mortgagor executing the same, in the presence of two witnesses, an d acknowledged as his free act and deed before a notary public. A mortgage const ituted by means of a private document obviously does not comply with such legal requirements.36 What the parties could have done in order to bind the realty for the additional loans was to execute a new real estate mortgage or to amend the old mortgage con formably with the form prescribed by the law. Failing to do so, the realty canno t be bound by such additional loans, which may be recovered by the respondents i n an ordinary action for collection of sums of money. Lastly, the CA held that to discharge the real estate mortgage, payment only of the principal and the stipulated interest of 18% per annum is sufficient as the mortgage document does not contain a stipulation that the legal interest on the stipulated interest due, attorneys fees, and costs of suit must be paid first bef ore the same may be discharged.37 We do not agree. Section 2, Rule 68 of the Rules of Court provides: SEC. 2. Judgment on foreclosure for payment or sale. If upon the trial in such a

ction the court shall find the facts set forth in the complaint to be true, it s hall ascertain the amount due to the plaintiff upon the mortgage debt or obligat ion, including interest and other charges as approved by the court, and costs, a nd shall render judgment for the sum so found due and order that the same be pai d to the court or to the judgment obligee within a period of not less than ninet y (90) days nor more than one hundred twenty (120) days from the entry of judgme nt, and that in default of such payment the property shall be sold at public auc tion to satisfy the judgment. (Emphasis added) Indeed, the above provision of the Rules of Court provides that the mortgaged pr operty may be charged not only for the mortgage debt or obligation but also for the interest, other charges and costs approved by the court. Thus, to discharge the real estate mortgage, petitioners must pay the respondents (1) the total amo unt due, as computed in accordance with the formula indicated above, that is, th e principal loan of P1,500,000.00, the stipulated interest of 18%, the interest on the stipulated interest due of 12% computed from the filing of the complaint until finality of the decision less partial payments made, (2) the 12% legal int erest on the total amount due from finality until fully satisfied, (3) the reaso nable attorneys fees of P25,000.00 and (4) the costs of suit, within the period s pecified by the Rules. Should the petitioners default in the payment thereof, th e property shall be sold at public auction to satisfy the judgment. WHEREFORE, in view of the foregoing, the Decision of the Court of Appeals in CA G.R. CV No. 62352 dated November 5, 2003, which modified the Decision of the Reg ional Trial Court of Quezon City, Branch 105, in Civil Case No. Q-97-32130, is A FFIRMED with the MODIFICATIONS that petitioners are ordered to pay the responden ts (1) the total amount due, as computed by the RTC in accordance with the formu la specified above, (2) the legal interest of 12% per annum on the total amount due from such finality until fully paid, (3) the reasonable amount of P25,000.00 as attorneys fees, and (4) the costs of suit, within a period of not less than 9 0 days nor more than 120 days from the entry of judgment, and in case of default of such payment the property shall be sold at public auction to satisfy the jud gment. SO ORDERED. Eastern Shipping Lines, Inc. v. CA and The First Nationwide Assurance Corp. G.R. No. 97412 July 12, 1994 Vitug, J. FACTS: 13 coils of uncoated 7-wire stress relieved wire strand for pre-stressed concret e wereshipped on board a vessel owned and operated by Eastern Shipping Lines at Kobe, Japan,for delivery to Stresstek Post-Tensioning Phils., Inc. in Manila while en route from Kobe to Manila, the carrying vessel encountered very rough s eas andstormy weather; the coils wrapped in burlap cloth and cardboard paper wer e stored in thelower hold of the hatch of the vessel which was flooded with wate r; the water entered thehatch when the vessel encountered heavy weather en route to Manila; upon request, asurvey of bad order cargo was conducted at the pier i n the presence of the representativesof the consignee and E. Razon, Inc. and it was found that 7 coils were rusty on one sideeach; upon survey conducted at the consignees warehouse it was found that the wettingof the cargo was caused by fres h water that entered the hatch when the vesselencountered heavy weather; all 13 coils were extremely rusty and totally unsuitable forthe intended purpose The First Nationwide Assurance Corp. indemnified the consignee in the amount of P171,923.00 for damage and loss to the insured cargo ISSUE: WON Eastern Shipping Lines is liable HELD: Yes.

under Art. 1733, common carriers are bound to observe extra-ordinary vigilance o vergoods according to all circumstances of each case Art. 1735: In all cases other than those mentioned in Art. 1734, if the goods ar e lost,destroyed or deteriorated, common carriers are presumed to have been at f ault or to haveacted negligently, unless they prove that they observed extraordi nary diligence Since the carrier has failed to establish any caso fortuito, the presumption by law of faultor negligence on the part of the carrier applies; and the carrier mu st present evidence thatit has observed the extraordinary diligence required by Article 1733 of the Civil Code inorder to escape liability for damage or destruc tion to the goods that it had admittedlycarried in this case. But no evidence wa s presented; hence, the carrier cannot escapeliability

FIRST DIVISION G.R. No. 146918 May 2, 2006 CITIBANK, N.A., Petitioner, vs. SPS. LUIS and CARMELITA CABAMONGAN and their sons LUISCABAMONGAN, JR. and LITO C ABAMONGAN, Respondents. D E C I S I O N AUSTRIA-MARTINEZ, J.: Before the Court is a petition for review on certiorari of the Decision1 dated J anuary 26, 2001 and the Resolution2 dated July 30, 2001 of the Court of Appeals (CA) in CA-G.R. CV No. 59033. The factual background of the case is as follows: On August 16, 1993, spouses Luis and Carmelita Cabamongan opened a joint "and/or " foreign currency time deposit in trust for their sons Luis, Jr. and Lito at th e Citibank, N.A., Makati branch, with Reference No. 60-22214372, in the amount o f $55,216.69 for a term of 182 days or until February 14, 1994, at 2.5625 per ce nt interest per annum.3 Prior to maturity, or on November 10, 1993, a person cla iming to be Carmelita went to the Makati branch and pre-terminated the said fore ign currency time deposit by presenting a passport, a Bank of America Versatele Card, an ATM card and a Mabuhay Credit Card.4 She filled up the necessary forms for pre-termination of deposits with the assistance of Account Officer Yeye San Pedro. While the transaction was being processed, she was casually interviewed b y San Pedro about her personal circumstances and investment plans.5 Since the sa id person failed to surrender the original Certificate of Deposit, she had to ex ecute a notarized release and waiver document in favor of Citibank, pursuant to Citibank's internal procedure, before the money was released to her.6 The releas e and waiver document7 was not notarized on that same day but the money was none theless given to the person withdrawing.8 The transaction lasted for about 40 mi nutes.9 After said person left, San Pedro realized that she left behind an identificatio n card.10 Thus, San Pedro called up Carmelita's listed address at No. 48 Ranger Street, Moonwalk Village, Las Pinas, Metro Manila on the same day to have the ca rd picked up.11 Marites, the wife of Lito, received San Pedro's call and was stu nned by the news that Carmelita preterminated her foreign currency time deposit because Carmelita was in the United States at that time.12 The Cabamongan spouse s work and reside in California. Marites made an overseas call to Carmelita to i nform her about what happened.13 The Cabamongan spouses were shocked at the news . It seems that sometime between June 10 and 16, 1993, an unidentified person br oke in at the couple's residence at No. 3268 Baldwin Park Boulevard, Baldwin Par k, California. Initially, they reported that only Carmelita's jewelry box was mi ssing, but later on, they discovered that other items, such as their passports, bank deposit certificates, including the subject foreign currency deposit, and i dentification cards were also missing.14 It was only then that the Cabamongan sp

ouses realized that their passports and bank deposit certificates were lost.15 Through various overseas calls, the Cabamongan spouses informed Citibank, thru S an Pedro, that Carmelita was in the United States and did not preterminate their deposit and that the person who did so was an impostor who could have also been involved in the break-in of their California residence. San Pedro told the spou ses to submit the necessary documents to support their claim but Citibank conclu ded nonetheless that Carmelita indeed preterminated her deposit. In a letter dat ed September 16, 1994, the Cabamongan spouses, through counsel, made a formal de mand upon Citibank for payment of their preterminated deposit in the amount of $ 55,216.69 with legal interests.16 In a letter dated November 28, 1994, Citibank, through counsel, refused the Cabamongan spouses' demand for payment, asserting that the subject deposit was released to Carmelita upon proper identification an d verification.17 On January 27, 1995, the Cabamongan spouses filed a complaint against Citibank b efore the Regional Trial Court of Makati for Specific Performance with Damages, docketed as Civil Case No 95-163 and raffled to Branch 150 (RTC).18 In its Answer dated April 20, 1995, Citibank insists that it was not negligent o f its duties since the subject deposit was released to Carmelita only upon prope r identification and verification.19 At the pre-trial conference the parties failed to arrive at an amicable settleme nt.20 Thus, trial on the merits ensued. For the plaintiffs, the Cabamongan spouses themselves and Florenda G. Negre, Doc uments Examiner II of the Philippine National Police (PNP) Crime Laboratory in C amp Crame, Quezon City, testified. The Cabamongan spouses, in essence, testified that Carmelita could not have preterminated the deposit account since she was i n California at the time of the incident.21 Negre testified that an examination of the questioned signature and the samples of the standard signatures of Carmel ita submitted in the RTC showed a significant divergence. She concluded that the y were not written by one and the same person.22 For the respondent, Citibank presented San Pedro and Cris Cabalatungan, Vice-Pre sident and In-Charge of Security and Management Division. Both San Pedro and Cab alatungan testified that proper bank procedure was followed and the deposit was released to Carmelita only upon proper identification and verification.23 On July 1, 1997, the RTC rendered a decision in favor of the Cabamongan spouses and against Citibank, the dispositive portion of which reads, thus: WHEREFORE, premises considered, defendant Citibank, N.A., is hereby ordered to p ay the plaintiffs the following: 1) the principal amount of their Foreign Currency Deposit (Reference No. 6022214 372) amounting to $55,216.69 or its Phil. Currency equivalent plus interests fro m August 16, 1993 until fully paid; 2) Moral damages of P50,000.00; 3) Attorney's fees of P50,000.00; and 4) Cost of suit. SO ORDERED.24 The RTC reasoned that: xxx Citibank, N.A., committed negligence resulting to the undue suffering of the plaintiffs. The forgery of the signatures of plaintiff Carmelita Cabamongan on the questioned documents has been categorically established by the handwriting e xpert. xxx Defendant bank was clearly remiss in its duty and obligations to trea t plaintiff's account with the highest degree of care, considering the nature of their relationship. Banks are under the obligation to treat the accounts of the ir depositors with meticulous care. This is the reason for their established pro cedure of requiring several specimen signatures and recent picture from potentia l depositors. For every transaction, the depositor's signature is passed upon by personnel to check and countercheck possible irregularities and therefore must bear the blame when they fail to detect the forgery or discrepancy.25 Despite the favorable decision, the Cabamongan spouses filed on October 1, 1997 a motion to partially reconsider the decision by praying for an increase of the amount of the damages awarded.26 Citibank opposed the motion.27 On November 19, 1997, the RTC granted the motion for partial reconsideration and amended the dis

positive portion of the decision as follows: From the foregoing, and considering all the evidence laid down by the parties, t he dispositive portion of the court's decision dated July 1, 1997 is hereby amen ded and/or modified to read as follows: WHEREFORE, defendant Citibank, N.A., is hereby ordered to pay the plaintiffs the following: 1) the principal amount of their foreign currency deposit (Reference No. 6022214 372) amounting to $55,216.69 or its Philippine currency equivalent (at the time of its actual payment or execution) plus legal interest from Aug. 16, 1993 until fully paid. 2) moral damages in the amount of P200,000.00; 3) exemplary damages in the amount of P100,000.00; 4) attorney's fees of P100,000.00; 5) litigation expenses of P200,000.00; 6) cost of suit. SO ORDERED.28 Dissatisfied, Citibank filed an appeal with the CA, docketed as CA-G.R. CV No. 5 9033.29 On January 26, 2001, the CA rendered a decision sustaining the finding o f the RTC that Citibank was negligent, ratiocinating in this wise: In the instant case, it is beyond dispute that the subject foreign currency depo sit was pre-terminated on 10 November 1993. But Carmelita Cabamongan, who works as a nursing aid (sic) at the Sierra View Care Center in Baldwin Park, Californi a, had shown through her Certificate of Employment and her Daily Time Record fro m the [sic] January to December 1993 that she was in the United States at the ti me of the incident. Defendant Citibank, N.A., however, insists that Carmelita was the one who pre-te rminated the deposit despite claims to the contrary. Its basis for saying so is the fact that the person who made the transaction on the incident mentioned pres ented a valid passport and three (3) other identification cards. The attending a ccount officer examined these documents and even interviewed said person. She wa s satisfied that the person presenting the documents was indeed Carmelita Cabamo ngan. However, such conclusion is belied by these following circumstances. First, the said person did not present the certificate of deposit issued to Carm elita Cabamongan. This would not have been an insurmountable obstacle as the ban k, in the absence of such certificate, allows the termination of the deposit for as long as the depositor executes a notarized release and waiver document in fa vor of the bank. However, this simple procedure was not followed by the bank, as it terminated the deposit and actually delivered the money to the impostor with out having the said document notarized on the flimsy excuse that another departm ent of the bank was in charge of notarization. The said procedure was obviously for the protection of the bank but it deliberately ignored such precaution. At t he very least, the conduct of the bank amounts to negligence. Second, in the internal memorandum of Account Officer Yeye San Pedro regarding t he incident, she reported that upon comparing the authentic signatures of Carmel ita Cabamongan on file with the bank with the signatures made by the person clai ming to be Cabamongan on the documents required for the termination of the depos it, she noticed that one letter in the latter [sic] signatures was different fro m that in the standard signatures. She requested said person to sign again and s crutinized the identification cards presented. Presumably, San Pedro was satisfi ed with the second set of signatures made as she eventually authorized the termi nation of the deposit. However, upon examination of the signatures made during t he incident by the Philippine National Police (PNP) Crime Laboratory, the said s ignatures turned out to be forgeries. As the qualifications of Document Examiner Florenda Negre were established and she satisfactorily testified on her finding s during the trial, we have no reason to doubt the validity of her findings. Aga in, the bank's negligence is patent. San Pedro was able to detect discrepancies in the signatures but she did not exercise additional precautions to ascertain t he identity of the person she was dealing with. In fact, the entire transaction took only 40 minutes to complete despite the anomalous situation. Undoubtedly, t he bank could have done a better job.

Third, as the bank had on file pictures of its depositors, it is inconceivable h ow bank employees could have been duped by an impostor. San Pedro admitted in he r testimony that the woman she dealt with did not resemble the pictures appearin g on the identification cards presented but San Pedro still went on with the sen sitive transaction. She did not mind such disturbing anomaly because she was con vinced of the validity of the passport. She also considered as decisive the fact that the impostor had a mole on her face in the same way that the person in the pictures on the identification cards had a mole. These explanations do not acco unt for the disparity between the pictures and the actual appearance of the impo stor. That said person was allowed to withdraw the money anyway is beyond belief . The above circumstances point to the bank's clear negligence. Bank transactions pass through a successive [sic] of bank personnel, whose duty is to check and co untercheck transactions for possible errors. While a bank is not expected to be infallible, it must bear the blame for failing to discover mistakes of its emplo yees despite established bank procedure involving a battery of personnel designe d to minimize if not eliminate errors. In the instant case, Yeye San Pedro, the employee who primarily dealt with the impostor, did not follow bank procedure wh en she did not have the waiver document notarized. She also openly courted disas ter by ignoring discrepancies between the actual appearance of the impostor and the pictures she presented, as well as the disparities between the signatures ma de during the transaction and those on file with the bank. But even if San Pedro was negligent, why must the other employees in the hierarchy of the bank's work flow allow such thing to pass unnoticed and unrectified?30 The CA, however, disagreed with the damages awarded by the RTC. It held that, in sofar as the date from which legal interest of 12% is to run, it should be count ed from September 16, 1994 when extrajudicial demand was made. As to moral damag es, the CA reduced it to P100,000.00 and deleted the awards of exemplary damages and litigation expenses. Thus, the dispositive portion of the CA decision reads : WHEREFORE, the decision of the trial court dated 01 July 1997, and its order dat ed 19 November 1997, are hereby AFFIRMED with the MODIFICATION that the legal in terest for actual damages awarded in the amount of $55,216.69 shall run from 16 September 1994; exemplary damages amounting to P100,000.00 and litigation expens es amounting to P200,000.00 are deleted; and moral damages is reduced to P100,00 0.00. Costs against defendant. SO ORDERED.31 The Cabamongan spouses filed a motion for partial reconsideration on the matter of the award of damages in the decision.32 On July 30, 2001, the CA granted in part said motion and modified its decision as follows: 1. The actual damages in amount of $55,216.69, representing the amount of appell ees' foreign currency time deposit shall earn an interest of 2.5625% for the per iod 16 August 1993 to 14 February 1994, as stipulated in the contract; 2. From 16 September 1994 until full payment, the amount of $55,216.69 shall ear n interest at the legal rate of 12% per annum, and; 3. The award of moral damages is reduced to P50,000.00.33 Dissatisfied, both parties filed separate petitions for review on certiorari wit h this Court. The Cabamongan spouses' petition, docketed as G.R. No. 149234, was denied by the Court per its Resolution dated October 17, 2001.34 On the other h and, Citibank's petition was given due course by the Court per Resolution dated December 10, 2001 and the parties were required to submit their respective memor anda.35 Citibank poses the following errors for resolution: 1. THE HONORABLE COURT OF APPEALS GRAVELY ERRED AND GRAVELY ABUSED ITS DISCRETIO N IN UPHOLDING THE LOWER COURT'S DECISION WHICH IS NOT BASED ON CLEAR EVIDENCE B UT ON GRAVE MISAPPREHENSION OF FACTS. 2. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN UPHOLDING THE DECISION OF THE TRIAL COURT AWARDING MORAL DAMAGES WHEN IN FACT THERE IS NO BASIS IN LAW AND FA CT FOR SAID AWARD.

3. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN RULING THAT THE PRINCIPAL AMO UNT OF US$55,216.69 SHOULD EARN INTEREST AT THE RATE OF 12% PER ANNUM FROM 16 SE PTEMBER 1994 UNTIL FULL PAYMENT.36 Anent the first ground, Citibank contends that the CA erred in affirming the RTC 's finding that it was negligent since the said courts failed to appreciate the extra diligence of a good father of a family exercised by Citibank thru San Pedr o. As to the second ground, Citibank argues that the Cabamongan spouses are not ent itled to moral damages since moral damages can be awarded only in cases of breac h of contract where the bank has acted willfully, fraudulently or in bad faith. It submits that it has not been shown in this case that Citibank acted willfully , fraudulently or in bad faith and mere negligence, even if the Cabamongan spous es suffered mental anguish or serious anxiety on account thereof, is not a groun d for awarding moral damages. On the third ground, Citibank avers that the interest rate should not be 12% but the stipulated rate of 2.5625% per annum. It adds that there is no basis to pay the interest rate of 12% per annum from September 16, 1994 until full payment b ecause as of said date there was no legal ground yet for the Cabamongan spouses to demand payment of the principal and it is only after a final judgment is issu ed declaring that Citibank is obliged to return the principal amount of US$55,21 6.69 when the right to demand payment starts and legal interest starts to run. On the other hand, the Cabamongan spouses contend that Citibank's negligence has been established by evidence. As to the interest rate, they submit that the sti pulated interest of 2.5635% should apply for the 182-day contract period from Au gust 16, 1993 to February 14, 1993; thereafter, 12% should apply. They further c ontend that the RTC's award of exemplary damages of P100,000.00 should be mainta ined. They submit that the CA erred in treating the award of litigation expenses as lawyer's fees since they have shown that they incurred actual expenses in li tigating their claim against Citibank. They also contend that the CA erred in re ducing the award of moral damages in view of the degree of mental anguish and em otional fears, anxieties and nervousness suffered by them.37 Subsequently, Citibank, thru a new counsel, submitted a Supplemental Memorandum, 38 wherein it posits that, assuming that it was negligent, the Cabamongan spouse s were guilty of contributory negligence since they failed to notify Citibank th at they had migrated to the United States and were residents thereat and after h aving been victims of a burglary, they should have immediately assessed their lo ss and informed Citibank of the disappearance of the bank certificate, their pas sports and other identification cards, then the fraud would not have been perpet uated and the losses avoided. It further argues that since the Cabamongan spouse s are guilty of contributory negligence, the doctrine of last clear chance is in applicable. Citibank's assertion that the Cabamongan spouses are guilty of contributory negl igence and non-application of the doctrine of last clear chance cannot pass must er since these contentions were raised for the first time only in their Suppleme ntal Memorandum. Indeed, the records show that said contention were neither plea ded in the petition for review and the memorandum nor in Citibank's Answer to th e complaint or in its appellant's brief filed with the CA. To consider the alleg ed facts and arguments raised belatedly in a supplemental pleading to herein pet ition for review at this very late stage in the proceedings would amount to tram pling on the basic principles of fair play, justice and due process.391avvphil.n et The Court has repeatedly emphasized that, since the banking business is impresse d with public interest, of paramount importance thereto is the trust and confide nce of the public in general. Consequently, the highest degree of diligence40 is expected,41 and high standards of integrity and performance are even required, of it.42 By the nature of its functions, a bank is "under obligation to treat th e accounts of its depositors with meticulous care,43 always having in mind the f iduciary nature of their relationship."44 In this case, it has been sufficiently shown that the signatures of Carmelita in the forms for pretermination of deposits are forgeries. Citibank, with its sign

ature verification procedure, failed to detect the forgery. Its negligence consi sted in the omission of that degree of diligence required of banks. The Court ha s held that a bank is "bound to know the signatures of its customers; and if it pays a forged check, it must be considered as making the payment out of its own funds, and cannot ordinarily charge the amount so paid to the account of the dep ositor whose name was forged."45 Such principle equally applies here. Citibank cannot label its negligence as mere mistake or human error. Banks handl e daily transactions involving millions of pesos.46 By the very nature of their works the degree of responsibility, care and trustworthiness expected of their e mployees and officials is far greater than those of ordinary clerks and employee s.47 Banks are expected to exercise the highest degree of diligence in the selec tion and supervision of their employees.48 The Court agrees with the observation of the CA that Citibank, thru Account Offi cer San Pedro, openly courted disaster when despite noticing discrepancies in th e signature and photograph of the person claiming to be Carmelita and the failur e to surrender the original certificate of time deposit, the pretermination of t he account was allowed. Even the waiver document was not notarized, a procedure meant to protect the bank. For not observing the degree of diligence required of banking institutions, whose business is impressed with public interest, Citiban k is liable for damages. As to the interest rate, Citibank avers that the claim of the Cabamongan spouses does not constitute a loan or forbearance of money and therefore, the interest rate of 6%, not 12%, applies. The Court does not agree. The time deposit subject matter of herein petition is a simple loan. The provisi ons of the New Civil Code on simple loan govern the contract between a bank and its depositor. Specifically, Article 1980 thereof categorically provides that ". . . savings . . . deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loan." Thus, the relationship betwe en a bank and its depositor is that of a debtor-creditor, the depositor being th e creditor as it lends the bank money, and the bank is the debtor which agrees t o pay the depositor on demand. The applicable interest rate on the actual damages of $55,216.69, should be in a ccordance with the guidelines set forth in Eastern Shipping Lines, Inc. v. Court of Appeals49 to wit: I. When an obligation, regardless of its source, i.e., law, contracts, quasi-con tracts, delicts or quasi-delicts is breached, the contravenor can be held liable for damages. The provisions under Title XVIII on "Damages" of the Civil Code go vern in determining the measure of recoverable damages. II. With regard particularly to an award of interest, in the concept of actual a nd compensatory damages, the rate of interest, as well as the accrual thereof, i s imposed, as follows: 1. When the obligation is breached, and it consists in the payment of a sum of m oney, i.e., a loan or forbearance of money, the interest due should be that whic h may have been stipulated in writing. Furthermore, the interest due shall itsel f earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from de fault, i.e., from judicial or extrajudicial demand under and subject to the prov isions of Article 1169 of the Civil Code. 2. When an obligation, not constituting a loan or forbearance of money, is breac hed, an interest on the amount of damages awarded may be imposed at the discreti on of the court at the rate of 6% per annum. No interest, however, shall be adju dged on unliquidated claims or damages except when or until the demand can be es tablished with reasonable certainty. Accordingly, where the demand is establishe d with reasonable certainty, the interest shall begin to run from the time the c laim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, t he interest shall begin to run only from the date the judgment of the court is m ade (at which time the quantification of damages may be deemed to have been reas onably ascertained). The actual base for the computation of legal interest shall

, in any case, be on the amount finally adjudged. 3. When the judgment of the court awarding a sum of money becomes final and exec utory, the rate of legal interest whether the case falls under paragraph 1 or pa ragraph 2, above, shall be 12% per annum from such finality until its satisfacti on, this interim period being deemed to be by then an equivalent to a forbearanc e of credit.50 Thus, in a loan or forbearance of money, the interest due should be that stipula ted in writing, and in the absence thereof, the rate shall be 12% per annum coun ted from the time of demand. Accordingly, the stipulated interest rate of 2.562% per annum shall apply for the 182-day contract period from August 16, 1993 to F ebruary 14, 1994. For the period from the date of extra-judicial demand, Septemb er 16, 1994, until full payment, the rate of 12% shall apply. As for the interve ning period between February 15, 1994 to September 15, 1994, the rate of interes t then prevailing granted by Citibank shall apply since the time deposit provide d for roll over upon maturity of the principal and interest.51 As to moral damages, in culpa contractual or breach of contract, as in the case before the Court, moral damages are recoverable only if the defendant has acted fraudulently or in bad faith,52 or is found guilty of gross negligence amounting to bad faith, or in wanton disregard of his contractual obligations.53 The act of Citibank's employee in allowing the pretermination of Cabamongan spouses' acc ount despite the noted discrepancies in Carmelita's signature and photograph, th e absence of the original certificate of time deposit and the lack of notarized waiver dormant, constitutes gross negligence amounting to bad faith under Articl e 2220 of the Civil Code. There is no hard-and-fast rule in the determination of what would be a fair amou nt of moral damages since each case must be governed by its own peculiar facts. The yardstick should be that it is not palpably and scandalously excessive.54 Th e amount of P50,000.00 awarded by the CA is reasonable and just. Moreover, said award is deemed final and executory insofar as respondents are concerned conside ring that their petition for review had been denied by the Court in its final an d executory Resolution dated October 17, 2001 in G.R. No. 149234. Finally, Citibank contends that the award of attorney's fees should be deleted s ince such award appears only in the dispositive portion of the decision of the R TC and the latter failed to elaborate, explain and justify the same. Article 2208 of the New Civil Code enumerates the instances where such may be aw arded and, in all cases, it must be reasonable, just and equitable if the same w ere to be granted. Attorney's fees as part of damages are not meant to enrich th e winning party at the expense of the losing litigant. They are not awarded ever y time a party prevails in a suit because of the policy that no premium should b e placed on the right to litigate.55 The award of attorney's fees is the excepti on rather than the general rule. As such, it is necessary for the court to make findings of facts and law that would bring the case within the exception and jus tify the grant of such award. The matter of attorney's fees cannot be mentioned only in the dispositive portion of the decision.56 They must be clearly explaine d and justified by the trial court in the body of its decision. Consequently, th e award of attorney's fees should be deleted. WHEREFORE, the instant petition is PARTIALLY GRANTED. The assailed Decision and Resolution are AFFIRMED with MODIFICATIONS, as follows: 1. The interest shall be computed as follows: a. The actual damages in principal amount of $55,216.69, representing the amount of foreign currency time deposit shall earn interest at the stipulated rate of 2.5625% for the period August 16, 1993 to February 14, 1994; b. From February 15, 1994 to September 15, 1994, the principal amount of $55,216 .69 and the interest earned as of February 14, 1994 shall earn interest at the r ate then prevailing granted by Citibank; c. From September 16, 1994 until full payment, the principal amount of $55,216.6 9 and the interest earned as of September 15, 1994, shall earn interest at the l egal rate of 12% per annum; 2. The award of attorney's fees is DELETED. No pronouncement as to costs.

SO ORDERED. G.R. No. 151890 June 20, 2006 PRUDENTIAL GUARANTEE and ASSURANCE INC., petitioner, vs. TRANS-ASIA SHIPPING LINES, INC., Respondent. x- - - - - - - - - - - - - - - - - - - - - - - - - x G.R. No. 151991 June 20, 2006 TRANS-ASIA SHIPPING LINES, INC., petitioner, vs. PRUDENTIAL GUARANTEE and ASSURANCE INC., Respondent. D E C I S I O N CHICO-NAZARIO, J: This is a consolidation of two separate Petitions for Review on Certiorari filed by petitioner Prudential Guarantee and Assurance, Inc. (PRUDENTIAL) in G.R. No. 151890 and Trans-Asia Shipping Lines, Inc. (TRANS-ASIA) in G.R. No. 151991, ass ailing the Decision1 dated 6 November 2001 of the Court of Appeals in CA G.R. CV No. 68278, which reversed the Judgment2 dated 6 June 2000 of the Regional Trial Court (RTC), Branch 13, Cebu City in Civil Case No. CEB-20709. The 29 January 2 002 Resolution3 of the Court of Appeals, denying PRUDENTIALs Motion for Reconside ration and TRANS-ASIAs Partial Motion for Reconsideration of the 6 November 2001 Decision, is likewise sought to be annulled and set aside. The Facts The material antecedents as found by the court a quo and adopted by the appellat e court are as follows: Plaintiff [TRANS-ASIA] is the owner of the vessel M/V Asia Korea. In considerati on of payment of premiums, defendant [PRUDENTIAL] insured M/V Asia Korea for los s/damage of the hull and machinery arising from perils, inter alia, of fire and explosion for the sum of P40 Million, beginning [from] the period [of] July 1, 1 993 up to July 1, 1994. This is evidenced by Marine Policy No. MH93/1363 (Exhibi ts "A" to "A-11"). On October 25, 1993, while the policy was in force, a fire br oke out while [M/V Asia Korea was] undergoing repairs at the port of Cebu. On Oc tober 26, 1993 plaintiff [TRANS-ASIA] filed its notice of claim for damage susta ined by the vessel. This is evidenced by a letter/formal claim of even date (Exh ibit "B"). Plaintiff [TRANS-ASIA] reserved its right to subsequently notify defe ndant [PRUDENTIAL] as to the full amount of the claim upon final survey and dete rmination by average adjuster Richard Hogg International (Phil.) of the damage s ustained by reason of fire. An adjusters report on the fire in question was submi tted by Richard Hogg International together with the U-Marine Surveyor Report (E xhibits "4" to "4-115"). On May 29, 1995[,] plaintiff [TRANS-ASIA] executed a document denominated "Loan and Trust receipt", a portion of which read (sic): "Received from Prudential Guarantee and Assurance, Inc., the sum of PESOS THREE MILLION ONLY (P3,000,000.00) as a loan without interest under Policy No. MH 93/1 353 [sic], repayable only in the event and to the extent that any net recovery i s made by Trans-Asia Shipping Corporation, from any person or persons, corporati on or corporations, or other parties, on account of loss by any casualty for whi ch they may be liable occasioned by the 25 October 1993: Fire on Board." (Exhibi t "4") In a letter dated 21 April 1997 defendant [PRUDENTIAL] denied plaintiffs claim (E xhibit "5"). The letter reads: "After a careful review and evaluation of your claim arising from the above-capt ioned incident, it has been ascertained that you are in breach of policy conditi ons, among them "WARRANTED VESSEL CLASSED AND CLASS MAINTAINED". Accordingly, we regret to advise that your claim is not compensable and hereby DENIED." This was followed by defendants letter dated 21 July 1997 requesting the return o r payment of the P3,000,000.00 within a period of ten (10) days from receipt of the letter (Exhibit "6").4 Following this development, on 13 August 1997, TRANS-ASIA filed a Complaint5 for Sum of Money against PRUDENTIAL with the RTC of Cebu City, docketed as Civil Ca se No. CEB-20709, wherein TRANS-ASIA sought the amount of P8,395,072.26 from PRU

DENTIAL, alleging that the same represents the balance of the indemnity due upon the insurance policy in the total amount of P11,395,072.26. TRANS-ASIA similarl y sought interest at 42% per annum citing Section 2436 of Presidential Decreee N o. 1460, otherwise known as the "Insurance Code," as amended. In its Answer,7 PRUDENTIAL denied the material allegations of the Complaint and interposed the defense that TRANS-ASIA breached insurance policy conditions, in particular: "WARRANTED VESSEL CLASSED AND CLASS MAINTAINED." PRUDENTIAL further alleged that it acted as facts and law require and incurred no liability to TRAN S-ASIA; that TRANS-ASIA has no cause of action; and, that its claim has been eff ectively waived and/or abandoned, or it is estopped from pursuing the same. By w ay of a counterclaim, PRUDENTIAL sought a refund of P3,000,000.00, which it alle gedly advanced to TRANS-ASIA by way of a loan without interest and without preju dice to the final evaluation of the claim, including the amounts of P500,000.00, for survey fees and P200,000.00, representing attorneys fees. The Ruling of the Trial Court On 6 June 2000, the court a quo rendered Judgment8 finding for (therein defendan t) PRUDENTIAL. It ruled that a determination of the parties liabilities hinged on whether TRANS-ASIA violated and breached the policy conditions on WARRANTED VES SEL CLASSED AND CLASS MAINTAINED. It interpreted the provision to mean that TRAN S-ASIA is required to maintain the vessel at a certain class at all times pertin ent during the life of the policy. According to the court a quo, TRANS-ASIA fail ed to prove compliance of the terms of the warranty, the violation thereof entit led PRUDENTIAL, the insured party, to rescind the contract.9 Further, citing Section 10710 of the Insurance Code, the court a quo ratiocinate d that the concealment made by TRANS-ASIA that the vessel was not adequately mai ntained to preserve its class was a material concealment sufficient to avoid the policy and, thus, entitled the injured party to rescind the contract. The court a quo found merit in PRUDENTIALs contention that there was nothing in the adjust ment of the particular average submitted by the adjuster that would show that TR ANS-ASIA was not in breach of the policy. Ruling on the denominated loan and tru st receipt, the court a quo said that in substance and in form, the same is a re ceipt for a loan. It held that if TRANS-ASIA intended to receive the amount of P 3,000,000.00 as advance payment, it should have so clearly stated as such. The court a quo did not award PRUDENTIALs claim for P500,000.00, representing exp ert survey fees on the ground of lack of sufficient basis in support thereof. Ne ither did it award attorneys fees on the rationalization that the instant case do es not fall under the exceptions stated in Article 220811 of the Civil Code. How ever, the court a quo granted PRUDENTIALs counterclaim stating that there is fact ual and legal basis for TRANS-ASIA to return the amount of P3,000,000.00 by way of loan without interest. The decretal portion of the Judgment of the RTC reads: WHEREFORE, judgment is hereby rendered DISMISSING the complaint for its failure to prove a cause of action. On defendants counterclaim, plaintiff is directed to return the sum of P3,000,000 .00 representing the loan extended to it by the defendant, within a period of te n (10) days from and after this judgment shall have become final and executory.1 2 The Ruling of the Court of Appeals On appeal by TRANS-ASIA, the Court of Appeals, in its assailed Decision of 6 Nov ember 2001, reversed the 6 June 2000 Judgment of the RTC. On the issue of TRANS-ASIAs alleged breach of warranty of the policy condition CL ASSED AND CLASS MAINTAINED, the Court of Appeals ruled that PRUDENTIAL, as the p arty asserting the non-compensability of the loss had the burden of proof to sho w that TRANS-ASIA breached the warranty, which burden it failed to discharge. PR UDENTIAL cannot rely on the lack of certification to the effect that TRANS-ASIA was CLASSED AND CLASS MAINTAINED as its sole basis for reaching the conclusion t hat the warranty was breached. The Court of Appeals opined that the lack of a ce rtification does not necessarily mean that the warranty was breached by TRANS-AS IA. Instead, the Court of Appeals considered PRUDENTIALs admission that at the ti me the insurance contract was entered into between the parties, the vessel was p

roperly classed by Bureau Veritas, a classification society recognized by the in dustry. The Court of Appeals similarly gave weight to the fact that it was the r esponsibility of Richards Hogg International (Phils.) Inc., the average adjuster hired by PRUDENTIAL, to secure a copy of such certification to support its conc lusion that mere absence of a certification does not warrant denial of TRANS-ASI As claim under the insurance policy. In the same token, the Court of Appeals found the subject warranty allegedly bre ached by TRANS-ASIA to be a rider which, while contained in the policy, was inse rted by PRUDENTIAL without the intervention of TRANS-ASIA. As such, it partakes of a nature of a contract dadhesion which should be construed against PRUDENTIAL, the party which drafted the contract. Likewise, according to the Court of Appea ls, PRUDENTIALs renewal of the insurance policy from noon of 1 July 1994 to noon of 1 July 1995, and then again, until noon of 1 July 1996 must be deemed a waive r by PRUDENTIAL of any breach of warranty committed by TRANS-ASIA. Further, the Court of Appeals, contrary to the ruling of the court a quo, interp reted the transaction between PRUDENTIAL and TRANS-ASIA as one of subrogation, i nstead of a loan. The Court of Appeals concluded that TRANS-ASIA has no obligati on to pay back the amount of P3,000.000.00 to PRUDENTIAL based on its finding th at the aforesaid amount was PRUDENTIALs partial payment to TRANS-ASIAs claim under the policy. Finally, the Court of Appeals denied TRANS-ASIAs prayer for attorneys fees, but held TRANS-ASIA entitled to double interest on the policy for the dur ation of the delay of payment of the unpaid balance, citing Section 24413 of the Insurance Code. Finding for therein appellant TRANS-ASIA, the Court of Appeals ruled in this wis e: WHEREFORE, the foregoing consideration, We find for Appellant. The instant appea l is ALLOWED and the Judgment appealed from REVERSED. The P3,000,000.00 initiall y paid by appellee Prudential Guarantee Assurance Incorporated to appellant Tran s-Asia and covered by a "Loan and Trust Receipt" dated 29 May 1995 is HELD to be in partial settlement of the loss suffered by appellant and covered by Marine P olicy No. MH93/1363 issued by appellee. Further, appellee is hereby ORDERED to p ay appellant the additional amount of P8,395,072.26 representing the balance of the loss suffered by the latter as recommended by the average adjuster Richard H ogg International (Philippines) in its Report, with double interest starting fro m the time Richard Hoggs Survey Report was completed, or on 13 August 1996, until the same is fully paid. All other claims and counterclaims are hereby DISMISSED. All costs against appellee.14 Not satisfied with the judgment, PRUDENTIAL and TRANS-ASIA filed a Motion for Re consideration and Partial Motion for Reconsideration thereon, respectively, whic h motions were denied by the Court of Appeals in the Resolution dated 29 January 2002. The Issues Aggrieved, PRUDENTIAL filed before this Court a Petition for Review, docketed as G.R. No. 151890, relying on the following grounds, viz: I. THE AWARD IS GROSSLY UNCONSCIONABLE. II. THE COURT OF APPEALS ERRED IN HOLDING THAT THERE WAS NO VIOLATION BY TRANS-ASIA OF A MATERIAL WARRANTY, NAMELY, WARRANTY CLAUSE NO. 5, OF THE INSURANCE POLICY. III. THE COURT OF APPEALS ERRED IN HOLDING THAT PRUDENTIAL, AS INSURER HAD THE BURDEN OF PROVING THAT THE ASSURED, TRANS-ASIA, VIOLATED A MATERIAL WARRANTY. IV. THE COURT OF APPEALS ERRED IN HOLDING THAT THE WARRANTY CLAUSE EMBODIED IN THE I NSURANCE POLICY CONTRACT WAS A MERE RIDER. V. THE COURT OF APPEALS ERRED IN HOLDING THAT THE ALLEGED RENEWALS OF THE POLICY CO NSTITUTED A WAIVER ON THE PART OF PRUDENTIAL OF THE BREACH OF THE WARRANTY BY TR ANS-ASIA.

VI. THE COURT OF APPEALS ERRED IN HOLDING THAT THE "LOAN AND TRUST RECEIPT" EXECUTED BY TRANS-ASIA IS AN ADVANCE ON THE POLICY, THUS CONSTITUTING PARTIAL PAYMENT TH EREOF. VII. THE COURT OF APPEALS ERRED IN HOLDING THAT THE ACCEPTANCE BY PRUDENTIAL OF THE F INDINGS OF RICHARDS HOGG IS INDICATIVE OF A WAIVER ON THE PART OF PRUDENTIAL OF ANY VIOLATION BY TRANS-ASIA OF THE WARRANTY. VIII. THE COURT OF APPEALS ERRRED (sic) IN REVERSING THE TRIAL COURT, IN FINDING THAT PRUDENTIAL "UNJUSTIFIABLY REFUSED" TO PAY THE CLAIM AND IN ORDERING PRUDENTIAL T O PAY TRANS-ASIA P8,395,072.26 PLUS DOUBLE INTEREST FROM 13 AUGUST 1996, UNTIL [ THE] SAME IS FULLY PAID.15 Similarly, TRANS-ASIA, disagreeing in the ruling of the Court of Appeals filed a Petition for Review docketed as G.R. No. 151991, raising the following grounds for the allowance of the petition, to wit: I. THE HONORABLE COURT OF APPEALS ERRED IN NOT AWARDING ATTORNEYS FEES TO PETITIONER TRANS-ASIA ON THE GROUND THAT SUCH CAN ONLY BE AWARDED IN THE CASES ENUMERATED IN ARTICLE 2208 OF THE CIVIL CODE, AND THERE BEING NO BAD FAITH ON THE PART OF R ESPONDENT PRUDENTIAL IN DENYING HEREIN PETITIONER TRANS-ASIAS INSURANCE CLAIM. II. THE "DOUBLE INTEREST" REFERRED TO IN THE DECISION DATED 06 NOVEMBER 2001 SHOULD BE CONSTRUED TO MEAN DOUBLE INTEREST BASED ON THE LEGAL INTEREST OF 12%, OR INTE REST AT THE RATE OF 24% PER ANNUM.16 In our Resolution of 2 December 2002, we granted TRANS-ASIAs Motion for Consolida tion17 of G.R. Nos. 151890 and 151991;18 hence, the instant consolidated petitio ns. In sum, for our main resolution are: (1) the liability, if any, of PRUDENTIAL to TRANS-ASIA arising from the subject insurance contract; (2) the liability, if a ny, of TRANS-ASIA to PRUDENTIAL arising from the transaction between the parties as evidenced by a document denominated as "Loan and Trust Receipt," dated 29 Ma y 1995; and (3) the amount of interest to be imposed on the liability, if any, o f either or both parties. Ruling of the Court Prefatorily, it must be emphasized that in a petition for review, only questions of law, and not questions of fact, may be raised.19 This rule may be disregarde d only when the findings of fact of the Court of Appeals are contrary to the fin dings and conclusions of the trial court, or are not supported by the evidence o n record.20 In the case at bar, we find an incongruence between the findings of fact of the Court of Appeals and the court a quo, thus, in our determination of the issues, we are constrained to assess the evidence adduced by the parties to make appropriate findings of facts as are necessary. I. A. PRUDENTIAL failed to establish that TRANS-ASIA violated and breached the poli cy condition on WARRANTED VESSEL CLASSED AND CLASS MAINTAINED, as contained in t he subject insurance contract. In resisting the claim of TRANS-ASIA, PRUDENTIAL posits that TRANS-ASIA violated an express and material warranty in the subject insurance contract, i.e., Marin e Insurance Policy No. MH93/1363, specifically Warranty Clause No. 5 thereof, wh ich stipulates that the insured vessel, "M/V ASIA KOREA" is required to be CLASS ED AND CLASS MAINTAINED. According to PRUDENTIAL, on 25 October 1993, or at the time of the occurrence of the fire, "M/V ASIA KOREA" was in violation of the war ranty as it was not CLASSED AND CLASS MAINTAINED. PRUDENTIAL submits that Warran ty Clause No. 5 was a condition precedent to the recovery of TRANS-ASIA under th e policy, the violation of which entitled PRUDENTIAL to rescind the contract und er Sec. 7421 of the Insurance Code. The warranty condition CLASSED AND CLASS MAINTAINED was explained by PRUDENTIALs Senior Manager of the Marine and Aviation Division, Lucio Fernandez. The pertine nt portions of his testimony on direct examination is reproduced hereunder, viz:

ATTY. LIM Q Please tell the court, Mr. Witness, the result of the evaluation of this claim , what final action was taken? A It was eventually determined that there was a breach of the policy condition, and basically there is a breach of policy warranty condition and on that basis t he claim was denied. Q To refer you (sic) the "policy warranty condition," I am showing to you a poli cy here marked as Exhibits "1", "1-A" series, please point to the warranty in th e policy which you said was breached or violated by the plaintiff which constitu ted your basis for denying the claim as you testified. A Warranted Vessel Classed and Class Maintained. ATTY. LIM Witness pointing, Your Honor, to that portion in Exhibit "1-A" which is the seco nd page of the policy below the printed words: "Clauses, Endorsements, Special C onditions and Warranties," below this are several typewritten clauses and the wi tness pointed out in particular the clause reading: "Warranted Vessel Classed an d Class Maintained." COURT Q Will you explain that particular phrase? A Yes, a warranty is a condition that has to be complied with by the insured. Wh en we say a class warranty, it must be entered in the classification society. COURT Slowly. WITNESS (continued) A A classification society is an organization which sets certain standards for a vessel to maintain in order to maintain their membership in the classification society. So, if they failed to meet that standard, they are considered not membe rs of that class, and thus breaching the warranty, that requires them to maintai n membership or to maintain their class on that classification society. And it i s not sufficient that the member of this classification society at the time of a loss, their membership must be continuous for the whole length of the policy su ch that during the effectivity of the policy, their classification is suspended, and then thereafter, they get reinstated, that again still a breach of the warr anty that they maintained their class (sic). Our maintaining team membership in the classification society thereby maintaining the standards of the vessel (sic) . ATTY. LIM Q Can you mention some classification societies that you know? A Well we have the Bureau Veritas, American Bureau of Shipping, D&V Local Classi fication Society, The Philippine Registration of Ships Society, China Classifica tion, NKK and Company Classification Society, and many others, we have among oth ers, there are over 20 worldwide. 22 At the outset, it must be emphasized that the party which alleges a fact as a ma tter of defense has the burden of proving it. PRUDENTIAL, as the party which ass erted the claim that TRANS-ASIA breached the warranty in the policy, has the bur den of evidence to establish the same. Hence, on the part of PRUDENTIAL lies the initiative to show proof in support of its defense; otherwise, failing to estab lish the same, it remains self-serving. Clearly, if no evidence on the alleged b reach of TRANS-ASIA of the subject warranty is shown, a fortiori, TRANS-ASIA wou ld be successful in claiming on the policy. It follows that PRUDENTIAL bears the burden of evidence to establish the fact of breach. In our rule on evidence, TRANS-ASIA, as the plaintiff below, necessarily has the burden of proof to show proof of loss, and the coverage thereof, in the subject insurance policy. However, in the course of trial in a civil case, once plainti ff makes out a prima facie case in his favor, the duty or the burden of evidence shifts to defendant to controvert plaintiffs prima facie case, otherwise, a verd ict must be returned in favor of plaintiff.23 TRANS-ASIA was able to establish p roof of loss and the coverage of the loss, i.e., 25 October 1993: Fire on Board. Thereafter, the burden of evidence shifted to PRUDENTIAL to counter TRANS-ASIAs

case, and to prove its special and affirmative defense that TRANS-ASIA was in vi olation of the particular condition on CLASSED AND CLASS MAINTAINED. We sustain the findings of the Court of Appeals that PRUDENTIAL was not successf ul in discharging the burden of evidence that TRANS-ASIA breached the subject po licy condition on CLASSED AND CLASS MAINTAINED. Foremost, PRUDENTIAL, through the Senior Manager of its Marine and Aviation Divi sion, Lucio Fernandez, made a categorical admission that at the time of the proc urement of the insurance contract in July 1993, TRANS-ASIAs vessel, "M/V Asia Kor ea" was properly classed by Bureau Veritas, thus: Q Kindly examine the records particularly the policy, please tell us if you know whether M/V Asia Korea was classed at the time (sic) policy was procured perthe (sic) insurance was procured that Exhibit "1" on 1st July 1993 (sic). WITNESS A I recall that they were classed. ATTY. LIM Q With what classification society? A I believe with Bureau Veritas.24 As found by the Court of Appeals and as supported by the records, Bureau Veritas is a classification society recognized in the marine industry. As it is undispu ted that TRANS-ASIA was properly classed at the time the contract of insurance w as entered into, thus, it becomes incumbent upon PRUDENTIAL to show evidence tha t the status of TRANS-ASIA as being properly CLASSED by Bureau Veritas had shift ed in violation of the warranty. Unfortunately, PRUDENTIAL failed to support the allegation. We are in accord with the ruling of the Court of Appeals that the lack of a cert ification in PRUDENTIALs records to the effect that TRANS-ASIAs "M/V Asia Korea" w as CLASSED AND CLASS MAINTAINED at the time of the occurrence of the fire cannot be tantamount to the conclusion that TRANS-ASIA in fact breached the warranty c ontained in the policy. With more reason must we sustain the findings of the Cou rt of Appeals on the ground that as admitted by PRUDENTIAL, it was likewise the responsibility of the average adjuster, Richards Hogg International (Phils.), In c., to secure a copy of such certification, and the alleged breach of TRANS-ASIA cannot be gleaned from the average adjusters survey report, or adjustment of par ticular average per "M/V Asia Korea" of the 25 October 1993 fire on board. We are not unmindful of the clear language of Sec. 74 of the Insurance Code whic h provides that, "the violation of a material warranty, or other material provis ion of a policy on the part of either party thereto, entitles the other to resci nd." It is generally accepted that "[a] warranty is a statement or promise set f orth in the policy, or by reference incorporated therein, the untruth or non-ful fillment of which in any respect, and without reference to whether the insurer w as in fact prejudiced by such untruth or non-fulfillment, renders the policy voi dable by the insurer."25 However, it is similarly indubitable that for the breac h of a warranty to avoid a policy, the same must be duly shown by the party alle ging the same. We cannot sustain an allegation that is unfounded. Consequently, PRUDENTIAL, not having shown that TRANS-ASIA breached the warranty condition, CL ASSED AND CLASS MAINTAINED, it remains that TRANS-ASIA must be allowed to recove r its rightful claims on the policy. B. Assuming arguendo that TRANS-ASIA violated the policy condition on WARRANTED VESSEL CLASSED AND CLASS MAINTAINED, PRUDENTIAL made a valid waiver of the same. The Court of Appeals, in reversing the Judgment of the RTC which held that TRANS -ASIA breached the warranty provision on CLASSED AND CLASS MAINTAINED, underscor ed that PRUDENTIAL can be deemed to have made a valid waiver of TRANS-ASIAs breac h of warranty as alleged, ratiocinating, thus: Third, after the loss, Prudential renewed the insurance policy of Trans-Asia for two (2) consecutive years, from noon of 01 July 1994 to noon of 01 July 1995, a nd then again until noon of 01 July 1996. This renewal is deemed a waiver of any breach of warranty.26 PRUDENTIAL finds fault with the ruling of the appellate court when it ruled that the renewal policies are deemed a waiver of TRANS-ASIAs alleged breach, averring herein that the subsequent policies, designated as MH94/1595 and MH95/1788 show

that they were issued only on 1 July 1994 and 3 July 1995, respectively, prior to the time it made a request to TRANS-ASIA that it be furnished a copy of the c ertification specifying that the insured vessel "M/V Asia Korea" was CLASSED AND CLASS MAINTAINED. PRUDENTIAL posits that it came to know of the breach by TRANS -ASIA of the subject warranty clause only on 21 April 1997. On even date, PRUDEN TIAL sent TRANS-ASIA a letter of denial, advising the latter that their claim is not compensable. In fine, PRUDENTIAL would have this Court believe that the iss uance of the renewal policies cannot be a waiver because they were issued withou t knowledge of the alleged breach of warranty committed by TRANS-ASIA.27 We are not impressed. We do not find that the Court of Appeals was in error when it held that PRUDENTIAL, in renewing TRANS-ASIAs insurance policy for two consec utive years after the loss covered by Policy No. MH93/1363, was considered to ha ve waived TRANS-ASIAs breach of the subject warranty, if any. Breach of a warrant y or of a condition renders the contract defeasible at the option of the insurer ; but if he so elects, he may waive his privilege and power to rescind by the me re expression of an intention so to do. In that event his liability under the po licy continues as before.28 There can be no clearer intention of the waiver of t he alleged breach than the renewal of the policy insurance granted by PRUDENTIAL to TRANS-ASIA in MH94/1595 and MH95/1788, issued in the years 1994 and 1995, re spectively. To our mind, the argument is made even more credulous by PRUDENTIALs lack of proo f to support its allegation that the renewals of the policies were taken only af ter a request was made to TRANS-ASIA to furnish them a copy of the certificate a ttesting that "M/V Asia Korea" was CLASSED AND CLASS MAINTAINED. Notwithstanding PRUDENTIALs claim that no certification was issued to that effect, it renewed th e policy, thereby, evidencing an intention to waive TRANS-ASIAs alleged breach. C learly, by granting the renewal policies twice and successively after the loss, the intent was to benefit the insured, TRANS-ASIA, as well as to waive complianc e of the warranty. The foregoing finding renders a determination of whether the subject warranty is a rider, moot, as raised by the PRUDENTIAL in its assignment of errors. Whether it is a rider will not effectively alter the result for the reasons that: (1) P RUDENTIAL was not able to discharge the burden of evidence to show that TRANS-AS IA committed a breach, thereof; and (2) assuming arguendo the commission of a br each by TRANS-ASIA, the same was shown to have been waived by PRUDENTIAL. II. A. The amount of P3,000,000.00 granted by PRUDENTIAL to TRANS- ASIA via a transa ction between the parties evidenced by a document denominated as "Loan and Trust Receipt," dated 29 May 1995 constituted partial payment on the policy. It is undisputed that TRANS-ASIA received from PRUDENTIAL the amount of P3,000,0 00.00. The same was evidenced by a transaction receipt denominated as a "Loan an d Trust Receipt," dated 29 May 1995, reproduced hereunder: LOAN AND TRUST RECEIPT Claim File No. MH-93-025 May 29, 1995 P3,000,000.00 Check No. PCIB066755 Received FROM PRUDENTIAL GUARANTEE AND ASSURANCE INC., the sum of PESOS THREE MI LLION ONLY (P3,000,000.00) as a loan without interest, under Policy No. MH93/135 3, repayable only in the event and to the extent that any net recovery is made b y TRANS ASIA SHIPPING CORP., from any person or persons, corporation or corporat ions, or other parties, on account of loss by any casualty for which they may be liable, occasioned by the 25 October 1993: Fire on Board. As security for such repayment, we hereby pledge to PRUDENTIAL GUARANTEE AND ASS URANCE INC. whatever recovery we may make and deliver to it all documents necess ary to prove our interest in said property. We also hereby agree to promptly pro secute suit against such persons, corporation or corporations through whose negl igence the aforesaid loss was caused or who may otherwise be responsible therefo re, with all due diligence, in our own name, but at the expense of and under the exclusive direction and control of PRUDENTIAL GUARANTEE AND ASSURANCE INC. TRANS-ASIA SHIPPING CORPORATION29

PRUDENTIAL largely contends that the "Loan and Trust Receipt" executed by the pa rties evidenced a loan of P3,000,000.00 which it granted to TRANS-ASIA, and not an advance payment on the policy or a partial payment for the loss. It further s ubmits that it is a customary practice for insurance companies in this country t o extend loans gratuitously as part of good business dealing with their assured, in order to afford their assured the chance to continue business without embarr assment while awaiting outcome of the settlement of their claims.30 According to PRUDENTIAL, the "Trust and Loan Agreement" did not subrogate to it whatever rig hts and/or actions TRANS-ASIA may have against third persons, and it cannot by n o means be taken that by virtue thereof, PRUDENTIAL was granted irrevocable powe r of attorney by TRANS-ASIA, as the sole power to prosecute lies solely with the latter. The Court of Appeals held that the real character of the transaction between the parties as evidenced by the "Loan and Trust Receipt" is that of an advance paym ent by PRUDENTIAL of TRANS-ASIAs claim on the insurance, thus: The Philippine Insurance Code (PD 1460 as amended) was derived from the old Insu rance Law Act No. 2427 of the Philippine Legislature during the American Regime. The Insurance Act was lifted verbatim from the law of California, except Chapte r V thereof, which was taken largely from the insurance law of New York. Therefo re, ruling case law in that jurisdiction is to Us persuasive in interpreting pro visions of our own Insurance Code. In addition, the application of the adopted s tatute should correspond in fundamental points with the application in its count ry of origin x x x. x x x x Likewise, it is settled in that jurisdiction that the (sic) notwithstanding reci tals in the Loan Receipt that the money was intended as a loan does not detract from its real character as payment of claim, thus: "The receipt of money by the insured employers from a surety company for losses on account of forgery of drafts by an employee where no provision or repayment o f the money was made except upon condition that it be recovered from other parti es and neither interest nor security for the asserted debts was provided for, th e money constituted the payment of a liability and not a mere loan, notwithstand ing recitals in the written receipt that the money was intended as a mere loan." What is clear from the wordings of the so-called "Loan and Trust Receipt Agreeme nt" is that appellant is obligated to hand over to appellee "whatever recovery ( Trans Asia) may make and deliver to (Prudential) all documents necessary to prov e its interest in the said property." For all intents and purposes therefore, th e money receipted is payment under the policy, with Prudential having the right of subrogation to whatever net recovery Trans-Asia may obtain from third parties resulting from the fire. In the law on insurance, subrogation is an equitable a ssignment to the insurer of all remedies which the insured may have against thir d person whose negligence or wrongful act caused the loss covered by the insuran ce policy, which is created as the legal effect of payment by the insurer as an assignee in equity. The loss in the first instance is that of the insured but af ter reimbursement or compensation, it becomes the loss of the insurer. It has be en referred to as the doctrine of substitution and rests on the principle that s ubstantial justice should be attained regardless of form, that is, its basis is the doing of complete, essential, and perfect justice between all the parties wi thout regard to form.31 We agree. Notwithstanding its designation, the tenor of the "Loan and Trust Rece ipt" evidences that the real nature of the transaction between the parties was t hat the amount of P3,000,000.00 was not intended as a loan whereby TRANS-ASIA is obligated to pay PRUDENTIAL, but rather, the same was a partial payment or an a dvance on the policy of the claims due to TRANS-ASIA. First, the amount of P3,000,000.00 constitutes an advance payment to TRANS-ASIA by PRUDENTIAL, subrogating the former to the extent of "any net recovery made by TRANS ASIA SHIPPING CORP., from any person or persons, corporation or corporati ons, or other parties, on account of loss by any casualty for which they may be liable, occasioned by the 25 October 1993: Fire on Board."32 Second, we find that per the "Loan and Trust Receipt," even as TRANS-ASIA agreed

to "promptly prosecute suit against such persons, corporation or corporations t hrough whose negligence the aforesaid loss was caused or who may otherwise be re sponsible therefore, with all due diligence" in its name, the prosecution of the claims against such third persons are to be carried on "at the expense of and u nder the exclusive direction and control of PRUDENTIAL GUARANTEE AND ASSURANCE I NC."33 The clear import of the phrase "at the expense of and under the exclusive direction and control" as used in the "Loan and Trust Receipt" grants solely to PRUDENTIAL the power to prosecute, even as the same is carried in the name of T RANS-ASIA, thereby making TRANS-ASIA merely an agent of PRUDENTIAL, the principa l, in the prosecution of the suit against parties who may have occasioned the lo ss. Third, per the subject "Loan and Trust Receipt," the obligation of TRANS-ASIA to repay PRUDENTIAL is highly speculative and contingent, i.e., only in the event and to the extent that any net recovery is made by TRANS-ASIA from any person on account of loss occasioned by the fire of 25 October 1993. The transaction, the refore, was made to benefit TRANS-ASIA, such that, if no recovery from third par ties is made, PRUDENTIAL cannot be repaid the amount. Verily, we do not think th at this is constitutive of a loan.34 The liberality in the tenor of the "Loan an d Trust Receipt" in favor of TRANS-ASIA leads to the conclusion that the amount of P3,000,000.00 was a form of an advance payment on TRANS-ASIAs claim on MH93/13 53. III. A. PRUDENTIAL is directed to pay TRANS-ASIA the amount of P8,395,072.26, represe nting the balance of the loss suffered by TRANS-ASIA and covered by Marine Polic y No. MH93/1363. Our foregoing discussion supports the conclusion that TRANS-ASIA is entitled to the unpaid claims covered by Marine Policy No. MH93/1363, or a total amount of P 8,395,072.26. B. Likewise, PRUDENTIAL is directed to pay TRANS-ASIA, damages in the form of at torneys fees equivalent to 10% of P8,395,072.26. The Court of Appeals denied the grant of attorneys fees. It held that attorneys fe es cannot be awarded absent a showing of bad faith on the part of PRUDENTIAL in rejecting TRANS-ASIAs claim, notwithstanding that the rejection was erroneous. Ac cording to the Court of Appeals, attorneys fees can be awarded only in the cases enumerated in Article 2208 of the Civil Code which finds no application in the i nstant case. We disagree. Sec. 244 of the Insurance Code grants damages consisting of attorne ys fees and other expenses incurred by the insured after a finding by the Insuran ce Commissioner or the Court, as the case may be, of an unreasonable denial or w ithholding of the payment of the claims due. Moreover, the law imposes an intere st of twice the ceiling prescribed by the Monetary Board on the amount of the cl aim due the insured from the date following the time prescribed in Section 24235 or in Section 243,36 as the case may be, until the claim is fully satisfied. Fi nally, Section 244 considers the failure to pay the claims within the time presc ribed in Sections 242 or 243, when applicable, as prima facie evidence of unreas onable delay in payment. To the mind of this Court, Section 244 does not require a showing of bad faith i n order that attorneys fees be granted. As earlier stated, under Section 244, a p rima facie evidence of unreasonable delay in payment of the claim is created by failure of the insurer to pay the claim within the time fixed in both Sections 2 42 and 243 of the Insurance Code. As established in Section 244, by reason of th e delay and the consequent filing of the suit by the insured, the insurers shall be adjudged to pay damages which shall consist of attorneys fees and other expen ses incurred by the insured.37 Section 244 reads: In case of any litigation for the enforcement of any policy or contract of insur ance, it shall be the duty of the Commissioner or the Court, as the case may be, to make a finding as to whether the payment of the claim of the insured has bee n unreasonably denied or withheld; and in the affirmative case, the insurance co mpany shall be adjudged to pay damages which shall consist of attorneys fees and

other expenses incurred by the insured person by reason of such unreasonable den ial or withholding of payment plus interest of twice the ceiling prescribed by t he Monetary Board of the amount of the claim due the insured, from the date foll owing the time prescribed in section two hundred forty-two or in section two hun dred forty-three, as the case may be, until the claim is fully satisfied; Provid ed, That the failure to pay any such claim within the time prescribed in said se ctions shall be considered prima facie evidence of unreasonable delay in payment . Sections 243 and 244 of the Insurance Code apply when the court finds an unreaso nable delay or refusal in the payment of the insurance claims. In the case at bar, the facts as found by the Court of Appeals, and confirmed by the records show that there was an unreasonable delay by PRUDENTIAL in the paym ent of the unpaid balance of P8,395,072.26 to TRANS-ASIA. On 26 October 1993, a day after the occurrence of the fire in "M/V Asia Korea", TRANS-ASIA filed its n otice of claim. On 13 August 1996, the adjuster, Richards Hogg International (Ph ils.), Inc., completed its survey report recommending the amount of P11,395,072. 26 as the total indemnity due to TRANS-ASIA.38 On 21 April 1997, PRUDENTIAL, in a letter39 addressed to TRANS-ASIA denied the latters claim for the amount of P8, 395,072.26 representing the balance of the total indemnity. On 21 July 1997, PRU DENTIAL sent a second letter40 to TRANS-ASIA seeking a return of the amount of P 3,000,000.00. On 13 August 1997, TRANS-ASIA was constrained to file a complaint for sum of money against PRUDENTIAL praying, inter alia, for the sum of P8,395,0 72.26 representing the balance of the proceeds of the insurance claim. As can be gleaned from the foregoing, there was an unreasonable delay on the par t of PRUDENTIAL to pay TRANS-ASIA, as in fact, it refuted the latters right to th e insurance claims, from the time proof of loss was shown and the ascertainment of the loss was made by the insurance adjuster. Evidently, PRUDENTIALs unreasonab le delay in satisfying TRANS-ASIAs unpaid claims compelled the latter to file a s uit for collection. Succinctly, an award equivalent to ten percent (10%) of the unpaid proceeds of t he policy as attorneys fees to TRANS-ASIA is reasonable under the circumstances, or otherwise stated, ten percent (10%) of P8,395,072.26. In the case of Cathay I nsurance, Co., Inc. v. Court of Appeals,41 where a finding of an unreasonable de lay under Section 244 of the Insurance Code was made by this Court, we grant an award of attorneys fees equivalent to ten percent (10%) of the total proceeds. We find no reason to deviate from this judicial precedent in the case at bar. C. Further, the aggregate amount (P8,395,072.26 plus 10% thereof as attorneys fee s) shall be imposed double interest in accordance with Section 244 of the Insura nce Code. Section 244 of the Insurance Code is categorical in imposing an interest twice t he ceiling prescribed by the Monetary Board due the insured, from the date follo wing the time prescribed in Section 242 or in Section 243, as the case may be, u ntil the claim is fully satisfied. In the case at bar, we find Section 243 to be applicable as what is involved herein is a marine insurance, clearly, a policy other than life insurance. Section 243 is hereunder reproduced: SEC. 243. The amount of any loss or damage for which an insurer may be liable, u nder any policy other than life insurance policy, shall be paid within thirty da ys after proof of loss is received by the insurer and ascertainment of the loss or damage is made either by agreement between the insured and the insurer or by arbitration; but if such ascertainment is not had or made within sixty days afte r such receipt by the insurer of the proof of loss, then the loss or damage shal l be paid within ninety days after such receipt. Refusal or failure to pay the l oss or damage within the time prescribed herein will entitle the assured to coll ect interest on the proceeds of the policy for the duration of the delay at the rate of twice the ceiling prescribed by the Monetary Board, unless such failure or refusal to pay is based on the ground that the claim is fraudulent. As specified, the assured is entitled to interest on the proceeds for the durati on of the delay at the rate of twice the ceiling prescribed by the Monetary Boar d except when the failure or refusal of the insurer to pay was founded on the gr

ound that the claim is fraudulent. D. The term "double interest" as used in the Decision of the Court of Appeals mu st be interpreted to mean 24% per annum. PRUDENTIAL assails the award of interest, granted by the Court of Appeals, in fa vor of TRANS-ASIA in the assailed Decision of 6 November 2001. It is PRUDENTIALs stance that the award is extortionate and grossly unsconscionable. In support th ereto, PRUDENTIAL makes a reference to TRANS-ASIAs prayer in the Complaint filed with the court a quo wherein the latter sought, "interest double the prevailing rate of interest of 21% per annum now obtaining in the banking business or plus 42% per annum pursuant to Article 243 of the Insurance Code x x x."42 The contention fails to persuade. It is settled that an award of double interest is lawful and justified under Sections 243 and 244 of the Insurance Code.43 In Finman General Assurance Corporation v. Court of Appeals,44 this Court held that the payment of 24% interest per annum is authorized by the Insurance Code.45 Th ere is no gainsaying that the term "double interest" as used in Sections 243 and 244 can only be interpreted to mean twice 12% per annum or 24% per annum intere st, thus: The term "ceiling prescribed by the Monetary Board" means the legal rate of inte rest of twelve per centum per annum (12%) as prescribed by the Monetary Board in C.B. Circular No. 416, pursuant to P.D. No. 116, amending the Usury Law; so tha t when Sections 242, 243 and 244 of the Insurance Code provide that the insurer shall be liable to pay interest "twice the ceiling prescribed by the Monetary Bo ard", it means twice 12% per annum or 24% per annum interest on the proceeds of the insurance.46 E. The payment of double interest should be counted from 13 September 1996. The Court of Appeals, in imposing double interest for the duration of the delay of the payment of the unpaid balance due TRANS-ASIA, computed the same from 13 A ugust 1996 until such time when the amount is fully paid. Although not raised by the parties, we find the computation of the duration of the delay made by the a ppellate court to be patently erroneous. To be sure, Section 243 imposes interest on the proceeds of the policy for the d uration of the delay at the rate of twice the ceiling prescribed by the Monetary Board. Significantly, Section 243 mandates the payment of any loss or damage fo r which an insurer may be liable, under any policy other than life insurance pol icy, within thirty days after proof of loss is received by the insurer and ascer tainment of the loss or damage is made either by agreement between the insured a nd the insurer or by arbitration. It is clear that under Section 243, the insure r has until the 30th day after proof of loss and ascertainment of the loss or da mage to pay its liability under the insurance, and only after such time can the insurer be held to be in delay, thereby necessitating the imposition of double i nterest. In the case at bar, it was not disputed that the survey report on the ascertainm ent of the loss was completed by the adjuster, Richard Hoggs International (Phil s.), Inc. on 13 August 1996. PRUDENTIAL had thirty days from 13 August 1996 with in which to pay its liability to TRANS-ASIA under the insurance policy, or until 13 September 1996. Therefore, the double interest can begin to run from 13 Sept ember 1996 only. IV. A. An interest of 12% per annum is similarly imposed on the TOTAL amount of liab ility adjudged in section III herein, computed from the time of finality of judg ment until the full satisfaction thereof in conformity with this Courts ruling in Eastern Shipping Lines, Inc. v. Court of Appeals. This Court in Eastern Shipping Lines, Inc. v. Court of Appeals,47 inscribed the rule of thumb48 in the application of interest to be imposed on obligations, reg ardless of their source. Eastern emphasized beyond cavil that when the judgment of the court awarding a sum of money becomes final and executory, the rate of le gal interest, regardless of whether the obligation involves a loan or forbearanc e of money, shall be 12% per annum from such finality until its satisfaction, th is interim period being deemed to be by then an equivalent to a forbearance49 of credit.

We find application of the rule in the case at bar proper, thus, a rate of 12% p er annum from the finality of judgment until the full satisfaction thereof must be imposed on the total amount of liability adjudged to PRUDENTIAL. It is clear that the interim period from the finality of judgment until the satisfaction of the same is deemed equivalent to a forbearance of credit, hence, the imposition of the aforesaid interest. Fallo WHEREFORE, the Petition in G.R. No. 151890 is DENIED. However, the Petition in G .R. No. 151991 is GRANTED, thus, we award the grant of attorneys fees and make a clarification that the term "double interest" as used in the 6 November 2001 Dec ision of the Court of Appeals in CA GR CV No. 68278 should be construed to mean interest at the rate of 24% per annum, with a further clarification, that the sa me should be computed from 13 September 1996 until fully paid. The Decision and Resolution of the Court of Appeals, in CA-G.R. CV No. 68278, dated 6 November 20 01 and 29 January 2002, respectively, are, thus, MODIFIED in the following manne r, to wit: 1. PRUDENTIAL is DIRECTED to PAY TRANS-ASIA the amount of P8,395,072.26, represe nting the balance of the loss suffered by TRANS-ASIA and covered by Marine Polic y No. MH93/1363; 2. PRUDENTIAL is DIRECTED further to PAY TRANS-ASIA damages in the form of attor neys fees equivalent to 10% of the amount of P8,395,072.26; 3. The aggregate amount (P8,395,072.26 plus 10% thereof as attorneys fees) shall be imposed double interest at the rate of 24% per annum to be computed from 13 S eptember 1996 until fully paid; and 4. An interest of 12% per annum is similarly imposed on the TOTAL amount of liab ility adjudged as abovestated in paragraphs (1), (2), and (3) herein, computed f rom the time of finality of judgment until the full satisfaction thereof. No costs. SO ORDERED. G.R. No. 149353 June 26, 2006 JOCELYN B. DOLES, Petitioner, vs. MA. AURA TINA ANGELES, Respondent. D E C I S I O N AUSTRIA-MARTINEZ, J.: This refers to the Petition for Review on Certiorari under Rule 45 of the Rules of Court questioning the Decision1 dated April 30, 2001 of the Court of Appeals (CA) in C.A.-G.R. CV No. 66985, which reversed the Decision dated July 29, 1998 of the Regional Trial Court (RTC), Branch 21, City of Manila; and the CA Resolut ion2 dated August 6, 2001 which denied petitioners Motion for Reconsideration. The antecedents of the case follow: On April 1, 1997, Ma. Aura Tina Angeles (respondent) filed with the RTC a compla int for Specific Performance with Damages against Jocelyn B. Doles (petitioner), docketed as Civil Case No. 97-82716. Respondent alleged that petitioner was ind ebted to the former in the concept of a personal loan amounting to P405,430.00 r epresenting the principal amount and interest; that on October 5, 1996, by virtu e of a "Deed of Absolute Sale",3 petitioner, as seller, ceded to respondent, as buyer, a parcel of land, as well as the improvements thereon, with an area of 42 square meters, covered by Transfer Certificate of Title No. 382532,4 and locate d at a subdivision project known as Camella Townhomes Sorrente in Bacoor, Cavite , in order to satisfy her personal loan with respondent; that this property was mortgaged to National Home Mortgage Finance Corporation (NHMFC) to secure petiti oners loan in the sum of P337,050.00 with that entity; that as a condition for th e foregoing sale, respondent shall assume the undue balance of the mortgage and pay the monthly amortization of P4,748.11 for the remainder of the 25 years whic h began on September 3, 1994; that the property was at that time being occupied by a tenant paying a monthly rent of P3,000.00; that upon verification with the NHMFC, respondent learned that petitioner had incurred arrearages amounting to P 26,744.09, inclusive of penalties and interest; that upon informing the petition

er of her arrears, petitioner denied that she incurred them and refused to pay t he same; that despite repeated demand, petitioner refused to cooperate with resp ondent to execute the necessary documents and other formalities required by the NHMFC to effect the transfer of the title over the property; that petitioner col lected rent over the property for the month of January 1997 and refused to remit the proceeds to respondent; and that respondent suffered damages as a result an d was forced to litigate. Petitioner, then defendant, while admitting some allegations in the Complaint, d enied that she borrowed money from respondent, and averred that from June to Sep tember 1995, she referred her friends to respondent whom she knew to be engaged in the business of lending money in exchange for personal checks through her cap italist Arsenio Pua. She alleged that her friends, namely, Zenaida Romulo, There sa Moratin, Julia Inocencio, Virginia Jacob, and Elizabeth Tomelden, borrowed mo ney from respondent and issued personal checks in payment of the loan; that the checks bounced for insufficiency of funds; that despite her efforts to assist re spondent to collect from the borrowers, she could no longer locate them; that, b ecause of this, respondent became furious and threatened petitioner that if the accounts were not settled, a criminal case will be filed against her; that she w as forced to issue eight checks amounting to P350,000 to answer for the bounced checks of the borrowers she referred; that prior to the issuance of the checks s he informed respondent that they were not sufficiently funded but the latter non etheless deposited the checks and for which reason they were subsequently dishon ored; that respondent then threatened to initiate a criminal case against her fo r violation of Batas Pambansa Blg. 22; that she was forced by respondent to exec ute an "Absolute Deed of Sale" over her property in Bacoor, Cavite, to avoid cri minal prosecution; that the said deed had no valid consideration; that she did n ot appear before a notary public; that the Community Tax Certificate number on t he deed was not hers and for which respondent may be prosecuted for falsificatio n and perjury; and that she suffered damages and lost rental as a result. The RTC identified the issues as follows: first, whether the Deed of Absolute Sa le is valid; second; if valid, whether petitioner is obliged to sign and execute the necessary documents to effect the transfer of her rights over the property to the respondent; and third, whether petitioner is liable for damages. On July 29, 1998, the RTC rendered a decision the dispositive portion of which s tates: WHEREFORE, premises considered, the Court hereby orders the dismissal of the com plaint for insufficiency of evidence. With costs against plaintiff. SO ORDERED. The RTC held that the sale was void for lack of cause or consideration:5 Plaintiff Angeles admission that the borrowers are the friends of defendant Doles and further admission that the checks issued by these borrowers in payment of t he loan obligation negates [sic] the cause or consideration of the contract of s ale executed by and between plaintiff and defendant. Moreover, the property is n ot solely owned by defendant as appearing in Entry No. 9055 of Transfer Certific ate of Title No. 382532 (Annex A, Complaint), thus: "Entry No. 9055. Special Power of Attorney in favor of Jocelyn Doles covering th e share of Teodorico Doles on the parcel of land described in this certificate o f title by virtue of the special power of attorney to mortgage, executed before the notary public, etc." The rule under the Civil Code is that contracts without a cause or consideration produce no effect whatsoever. (Art. 1352, Civil Code). Respondent appealed to the CA. In her appeal brief, respondent interposed her so le assignment of error: THE TRIAL COURT ERRED IN DISMISSING THE CASE AT BAR ON THE GROUND OF [sic] THE D EED OF SALE BETWEEN THE PARTIES HAS NO CONSIDERATION OR INSUFFICIENCY OF EVIDENC E.6 On April 30, 2001, the CA promulgated its Decision, the dispositive portion of w hich reads: WHEREFORE, IN VIEW OF THE FOREGOING, this appeal is hereby GRANTED. The Decision of the lower court dated July 29, 1998 is REVERSED and SET ASIDE. A new one is

entered ordering defendant-appellee to execute all necessary documents to effect transfer of subject property to plaintiff-appellant with the arrearages of the formers loan with the NHMFC, at the latters expense. No costs. SO ORDERED. The CA concluded that petitioner was the borrower and, in turn, would "re-lend" the amount borrowed from the respondent to her friends. Hence, the Deed of Absol ute Sale was supported by a valid consideration, which is the sum of money petit ioner owed respondent amounting to P405,430.00, representing both principal and interest. The CA took into account the following circumstances in their entirety: the supp osed friends of petitioner never presented themselves to respondent and that all transactions were made by and between petitioner and respondent;7 that the mone y borrowed was deposited with the bank account of the petitioner, while payments made for the loan were deposited by the latter to respondents bank account;8 tha t petitioner herself admitted in open court that she was "re-lending" the money loaned from respondent to other individuals for profit;9 and that the documentar y evidence shows that the actual borrowers, the friends of petitioner, consider her as their creditor and not the respondent.10 Furthermore, the CA held that the alleged threat or intimidation by respondent d id not vitiate consent, since the same is considered just or legal if made to en force ones claim through competent authority under Article 133511 of the Civil Co de;12 that with respect to the arrearages of petitioner on her monthly amortizat ion with the NHMFC in the sum of P26,744.09, the same shall be deemed part of th e balance of petitioners loan with the NHMFC which respondent agreed to assume; a nd that the amount of P3,000.00 representing the rental for January 1997 suppose dly collected by petitioner, as well as the claim for damages and attorneys fees, is denied for insufficiency of evidence.13 On May 29, 2001, petitioner filed her Motion for Reconsideration with the CA, ar guing that respondent categorically admitted in open court that she acted only a s agent or representative of Arsenio Pua, the principal financier and, hence, sh e had no legal capacity to sue petitioner; and that the CA failed to consider th e fact that petitioners father, who co-owned the subject property, was not implea ded as a defendant nor was he indebted to the respondent and, hence, she cannot be made to sign the documents to effect the transfer of ownership over the entir e property. On August 6, 2001, the CA issued its Resolution denying the motion on the ground that the foregoing matters had already been passed upon. On August 13, 2001, petitioner received a copy of the CA Resolution. On August 2 8, 2001, petitioner filed the present Petition and raised the following issues: I. WHETHER OR NOT THE PETITIONER CAN BE CONSIDERED AS A DEBTOR OF THE RESPONDENT. II. WHETHER OR NOT AN AGENT WHO WAS NOT AUTHORIZED BY THE PRINCIPAL TO COLLECT DEBT IN HIS BEHALF COULD DIRECTLY COLLECT PAYMENT FROM THE DEBTOR. III. WHETHER OR NOT THE CONTRACT OF SALE WAS EXECUTED FOR A CAUSE.14 Although, as a rule, it is not the business of this Court to review the findings of fact made by the lower courts, jurisprudence has recognized several exceptio ns, at least three of which are present in the instant case, namely: when the ju dgment is based on a misapprehension of facts; when the findings of facts of the courts a quo are conflicting; and when the CA manifestly overlooked certain rel evant facts not disputed by the parties, which, if properly considered, could ju stify a different conclusion.15 To arrive at a proper judgment, therefore, the C ourt finds it necessary to re-examine the evidence presented by the contending p arties during the trial of the case. The Petition is meritorious. The principal issue is whether the Deed of Absolute Sale is supported by a valid consideration. 1. Petitioner argues that since she is merely the agent or representative of the alleged debtors, then she is not a party to the loan; and that the Deed of Sale

executed between her and the respondent in their own names, which was predicate d on that pre-existing debt, is void for lack of consideration. Indeed, the Deed of Absolute Sale purports to be supported by a consideration in the form of a price certain in money16 and that this sum indisputably pertains to the debt in issue. This Court has consistently held that a contract of sale i s null and void and produces no effect whatsoever where the same is without caus e or consideration.17 The question that has to be resolved for the moment is whe ther this debt can be considered as a valid cause or consideration for the sale. To restate, the CA cited four instances in the record to support its holding tha t petitioner "re-lends" the amount borrowed from respondent to her friends: firs t, the friends of petitioner never presented themselves to respondent and that a ll transactions were made by and between petitioner and respondent;18 second; th e money passed through the bank accounts of petitioner and respondent;19 third, petitioner herself admitted that she was "re-lending" the money loaned to other individuals for profit;20 and fourth, the documentary evidence shows that the ac tual borrowers, the friends of petitioner, consider her as their creditor and no t the respondent.21 On the first, third, and fourth points, the CA cites the testimony of the petiti oner, then defendant, during her cross-examination:22 Atty. Diza: q. You also mentioned that you were not the one indebted to the plaintiff? witness: a. Yes, sir. Atty. Diza: q. And you mentioned the persons[,] namely, Elizabeth Tomelden, Teresa Moraquin, Maria Luisa Inocencio, Zenaida Romulo, they are your friends? witness: a. Inocencio and Moraquin are my friends while [as to] Jacob and Tomelden[,] the y were just referred. Atty. Diza: q. And you have transact[ed] with the plaintiff? witness: a. Yes, sir. Atty. Diza: q. What is that transaction? witness: a. To refer those persons to Aura and to refer again to Arsenio Pua, sir. Atty. Diza: q. Did the plaintiff personally see the transactions with your friends? witness: a. No, sir. Atty. Diza: q. Your friends and the plaintiff did not meet personally? witness: a. Yes, sir. Atty. Diza: q. You are intermediaries? witness: a. We are both intermediaries. As evidenced by the checks of the debtors they we re deposited to the name of Arsenio Pua because the money came from Arsenio Pua. x x x x Atty. Diza: q. Did the plaintiff knew [sic] that you will lend the money to your friends spe cifically the one you mentioned [a] while ago? witness: a. Yes, she knows the money will go to those persons. Atty. Diza: q. You are re-lending the money? witness: a. Yes, sir.

Atty. Diza: q. What profit do you have, do you have commission? witness: a. Yes, sir. Atty. Diza: q. How much? witness: a. Two percent to Tomelden, one percent to Jacob and then Inocencio and my frien ds none, sir. Based on the foregoing, the CA concluded that petitioner is the real borrower, w hile the respondent, the real lender. But as correctly noted by the RTC, respondent, then plaintiff, made the followin g admission during her cross examination:23 Atty. Villacorta: q. Who is this Arsenio Pua? witness: a. Principal financier, sir. Atty. Villacorta: q. So the money came from Arsenio Pua? witness: a. Yes, because I am only representing him, sir. Other portions of the testimony of respondent must likewise be considered:24 Atty. Villacorta: q. So it is not actually your money but the money of Arsenio Pua? witness: a. Yes, sir. Court: q. It is not your money? witness: a. Yes, Your Honor. Atty. Villacorta: q. Is it not a fact Ms. Witness that the defendant borrowed from you to accommod ate somebody, are you aware of that? witness: a. I am aware of that. Atty. Villacorta: q. More or less she [accommodated] several friends of the defendant? witness: a. Yes, sir, I am aware of that. x x x x Atty. Villacorta: q. And these friends of the defendant borrowed money from you with the assurance of the defendant? witness: a. They go direct to Jocelyn because I dont know them. x x x x Atty. Villacorta: q. And is it not also a fact Madam witness that everytime that the defendant bor rowed money from you her friends who [are] in need of money issued check[s] to y ou? There were checks issued to you? witness: a. Yes, there were checks issued. Atty. Villacorta: q. By the friends of the defendant, am I correct? witness: a. Yes, sir. Atty. Villacorta: q. And because of your assistance, the friends of the defendant who are in need of money were able to obtain loan to [sic] Arsenio Pua through your assistance? witness:

a. Yes, sir. Atty. Villacorta: q. So that occasion lasted for more than a year? witness: a. Yes, sir. Atty. Villacorta: q. And some of the checks that were issued by the friends of the defendant bounc ed, am I correct? witness: a. Yes, sir. Atty. Villacorta: q. And because of that Arsenio Pua got mad with you? witness: a. Yes, sir. Respondent is estopped to deny that she herself acted as agent of a certain Arse nio Pua, her disclosed principal. She is also estopped to deny that petitioner a cted as agent for the alleged debtors, the friends whom she (petitioner) referre d. This Court has affirmed that, under Article 1868 of the Civil Code, the basis of agency is representation.25 The question of whether an agency has been created is ordinarily a question which may be established in the same way as any other f act, either by direct or circumstantial evidence. The question is ultimately one of intention.26 Agency may even be implied from the words and conduct of the pa rties and the circumstances of the particular case.27 Though the fact or extent of authority of the agents may not, as a general rule, be established from the d eclarations of the agents alone, if one professes to act as agent for another, s he may be estopped to deny her agency both as against the asserted principal and the third persons interested in the transaction in which he or she is engaged.2 8 In this case, petitioner knew that the financier of respondent is Pua; and respo ndent knew that the borrowers are friends of petitioner. The CA is incorrect when it considered the fact that the "supposed friends of [p etitioner], the actual borrowers, did not present themselves to [respondent]" as evidence that negates the agency relationshipit is sufficient that petitioner di sclosed to respondent that the former was acting in behalf of her principals, he r friends whom she referred to respondent. For an agency to arise, it is not nec essary that the principal personally encounter the third person with whom the ag ent interacts. The law in fact contemplates, and to a great degree, impersonal d ealings where the principal need not personally know or meet the third person wi th whom her agent transacts: precisely, the purpose of agency is to extend the p ersonality of the principal through the facility of the agent.29 In the case at bar, both petitioner and respondent have undeniably disclosed to each other that they are representing someone else, and so both of them are esto pped to deny the same. It is evident from the record that petitioner merely refe rs actual borrowers and then collects and disburses the amounts of the loan upon which she received a commission; and that respondent transacts on behalf of her "principal financier", a certain Arsenio Pua. If their respective principals do not actually and personally know each other, such ignorance does not affect the ir juridical standing as agents, especially since the very purpose of agency is to extend the personality of the principal through the facility of the agent. With respect to the admission of petitioner that she is "re-lending" the money l oaned from respondent to other individuals for profit, it must be stressed that the manner in which the parties designate the relationship is not controlling. I f an act done by one person in behalf of another is in its essential nature one of agency, the former is the agent of the latter notwithstanding he or she is no t so called.30 The question is to be determined by the fact that one represents and is acting for another, and if relations exist which will constitute an agenc y, it will be an agency whether the parties understood the exact nature of the r elation or not.31 That both parties acted as mere agents is shown by the undisputed fact that the

friends of petitioner issued checks in payment of the loan in the name of Pua. I f it is true that petitioner was "re-lending", then the checks should have been drawn in her name and not directly paid to Pua. With respect to the second point, particularly, the finding of the CA that the d isbursements and payments for the loan were made through the bank accounts of pe titioner and respondent, suffice it to say that in the normal course of commercial dealings and for reaso ns of convenience and practical utility it can be reasonably expected that the f acilities of the agent, such as a bank account, may be employed, and that a subagent be appointed, such as the bank itself, to carry out the task, especially w here there is no stipulation to the contrary.32 In view of the two agency relationships, petitioner and respondent are not privy to the contract of loan between their principals. Since the sale is predicated on that loan, then the sale is void for lack of consideration. 2. A further scrutiny of the record shows, however, that the sale might have bee n backed up by another consideration that is separate and distinct from the debt : respondent averred in her complaint and testified that the parties had agreed that as a condition for the conveyance of the property the respondent shall assu me the balance of the mortgage loan which petitioner allegedly owed to the NHMFC .33 This Court in the recent past has declared that an assumption of a mortgage debt may constitute a valid consideration for a sale.34 Although the record shows that petitioner admitted at the time of trial that she owned the property described in the TCT,35 the Court must stress that the Trans fer Certificate of Title No. 38253236 on its face shows that the owner of the pr operty which admittedly forms the subject matter of the Deed of Absolute Sale re fers neither to the petitioner nor to her father, Teodorico Doles, the alleged c o-owner. Rather, it states that the property is registered in the name of "House hold Development Corporation." Although there is an entry to the effect that the petitioner had been granted a special power of attorney "covering the shares of Teodorico Doles on the parcel of land described in this certificate,"37 it cann ot be inferred from this bare notation, nor from any other evidence on the recor d, that the petitioner or her father held any direct interest on the property in question so as to validly constitute a mortgage thereon38 and, with more reason , to effect the delivery of the object of the sale at the consummation stage.39 What is worse, there is a notation that the TCT itself has been "cancelled."40 In view of these anomalies, the Court cannot entertain the possibility that respondent agreed to assume the balance of the mortgage loan wh ich petitioner allegedly owed to the NHMFC, especially since the record is beref t of any factual finding that petitioner was, in the first place, endowed with a ny ownership rights to validly mortgage and convey the property. As the complain ant who initiated the case, respondent bears the burden of proving the basis of her complaint. Having failed to discharge such burden, the Court has no choice b ut to declare the sale void for lack of cause. And since the sale is void, the C ourt finds it unnecessary to dwell on the issue of whether duress or intimidatio n had been foisted upon petitioner upon the execution of the sale. Moreover, even assuming the mortgage validly exists, the Court notes respondents allegation that the mortgage with the NHMFC was for 25 years which began Septemb er 3, 1994. Respondent filed her Complaint for Specific Performance in 1997. Sin ce the 25 years had not lapsed, the prayer of respondent to compel petitioner to execute necessary documents to effect the transfer of title is premature. WHEREFORE, the petition is granted. The Decision and Resolution of the Court of Appeals are REVERSED and SET ASIDE. The complaint of respondent in Civil Case No . 97-82716 is DISMISSED. SO ORDERED. G.R. No. 138703 June 30, 2006 DEVELOPMENT BANK OF THE PHILIPPINES1 and PRIVATIZATION AND MANAGEMENT OFFICE (fo rmerly ASSET PRIVATIZATION TRUST), Petitioners, vs. HON. COURT OF APPEALS, PHILIPPINE UNITED FOUNDRY AND MACHINERY CORP. and PHILIPP INE IRON MANUFACTURING CO., INC., Respondents.

D E C I S I O N AZCUNA, J.: This is a petition for review on certiorari under Rule 45 of the Rules of Court of the decision of the Court of Appeals (CA) dated May 7, 1999 in CA-G.R. CV No. 49239 entitled "Philippine United Foundry and Machinery Corp. and Philippine Ir on Manufacturing Co., Inc. v. Development Bank of the Philippines and Asset Priv atization Trust" which upheld the decision of the Regional Trial Court (RTC), Br anch 98 of Quezon City in Civil Case No. Q-49650. Sometime in March 1968, the Development Bank of the Philippines (DBP) granted to respondents Philippine United Foundry and Machineries Corporation and Philippin e Iron Manufacturing Company, Inc. an industrial loan in the amount of P2,500,00 0 consisting of P500,000 in cash and P2,000,000 in DBP Progress Bonds. The loan was evidenced by a promissory note2 dated June 26, 1968 and secured by a mortgag e3 executed by respondents over their present and future properties such as buil dings, permanent improvements, various machineries and equipment for manufacture . Subsequently, DBP granted to respondents another loan in the form of a five-year revolving guarantee amounting to P1,700,000 which was reflected in the amended mortgage contract4 dated November 20, 1968. According to respondents, the loan g uarantee was extended to them when they encountered difficulty in negotiating th e DBP Progress Bonds. Respondents were only able to sell the bonds in 1972 or ab out five years from its issuance for an amount that was 25% less than its face v alue.5 On September 10, 1975, the outstanding accounts of respondents with DBP were res tructured in view of their failure to pay. Thus, the outstanding principal balan ce of the loans and advances amounting to P4,655,992.35 were consolidated into a single account. The restructured loan was evidenced by a new promissory note6 d ated November 12, 1975 payable within seven years, with partial payments on the principal to be made beginning on the third year plus a 12% interest per annum p ayable every month. The following paragraph appears at the bottom portion of the note: This promissory note represents the consolidation into one account of the outsta nding principal balance of PHILIMCO and PHUMACOs account, and is prepared pursuan t to Res. No. 228, dated September 10, 1975, approved by the Executive Committee pursuant to Bd. Res. No. 3577, s. of 1975. This note is secured by mortgages on the existing assets of the firms.7 On the other hand, all accrued interest and charges due amounting to P3,074,672. 21 were denominated as "Notes Taken for Interests" and evidenced by a separate p romissory note8 dated November 12, 1975. The following annotation appears at the bottom portion of the note: This promissory note represents all accrued interests and charges which are take n up as "NOTES TAKEN FOR INTEREST" due on the accounts of PHILIMCO and PHUMACO a pproved under Bd. Res. No. 3577, s. of 1975. This note is secured by (a) mortgag e on the existing assets of the firm.9 Both notes provided for the following additional charges and penalties: (1) 12% interest per annum on unpaid amortizations10 ; (2) 10% penalty charge per annum on the total amortizations past due effective 3 0 days from the date respondents failed to comply with any of the terms stipulat ed in the notes11 ; and, (3) Bank advances for insurance premiums, taxes, rentals, litigation and acquire d assets expenses, collection and other out-of-pocket expenses not covered by in spection and processing fees subject to the following charges12 : (a) One time service charge of % on the amount advanced to be included in the rec eivable account; (b) Penalty charge of 8% per annum on past due advances; and (c) Interest at 12% per annum. Notwithstanding the restructuring, respondents were still unable to comply with the terms and conditions of the new promissory notes. As a result, respondents r equested DBP to refinance the matured obligation. The request was granted by DBP , pursuant to which three foreign currency denominated loans sourced from DBPs ow

n foreign borrowings were extended to respondents on various dates between 1980 and 1981.13 These loans were secured by mortgages14 on the properties of respond ents and were evidenced by the following promissory notes: Face Value Maturity Date Interest Rate Per Annum (1) Promissory Note15 dated December 11, 1980 $661,330 December 15, 1990 3% over DBPs borr owing rate16 (2) Promissory Note17 dated June 5, 1981 $666,666 te18 June 23, 1991 3% over DBPs borrowing ra

(3) Promissory Note19 dated December 16, 1981 $486,472.37 December 31, 1982 4% over DBPs borr owing cost Apart from the interest, the promissory notes imposed additional charges and pen alties if respondents defaulted on their payments. The notes dated December 11, 1980 and June 5, 1981 specifically provided for a 2% annual service fee computed on the outstanding principal balance of the loans as well as the following addi tional interest and penalty charges on the loan amortizations or portions in arr ears: (a) If in arrears for thirty (30) days or less: i. Additional interest at the basic loan interest rate per annum computed on tot al amortizations past due, irrespective of age. ii. No penalty charge (b) If in arrears for more than thirty (30) days: i. Additional interest at the basic loan interest rate per annum computed on tot al amortizations past due, irrespective of age, plus, ii. Penalty charge of 16% per annum computed on amortizations or portions thereo f in arrears for more than thirty (30) days counted from the date the amount in arrears becomes liable to this charge.20 Under these two notes, respondents also bound themselves to pay bank advances fo r insurance premiums, taxes, litigation and acquired assets expenses and other o ut-of-pocket expenses not covered by inspection and processing fees as follows: (a) One-time service charge of 2% of the amount advanced, same to be included in the receivable account. (b) Interest at 16% per annum. (c) Penalty charge from date of advance at 16% per annum. The note dated December 16, 1981, on the other hand, provided for the interest a nd penalty charges on loan amortizations or portions of it in arrears as follows : (a) Additional interest at the basic loan interest per annum computed on total a mortizations past due irrespective of age; plus (b) Penalty charges of 8% per annum computed on total amortizations in arrears, irrespective of age.21 Respondents were likewise bound to pay bank advances for insurance premiums, tax es, litigation and acquired assets expenses and other out-of-pocket expenses not covered by inspection and processing fees as follows: (a) One-time service charge of 2% of (the) amount advanced, same to be included and debited to the advances account; (b) Interest at the basic loan interest rate; and (c) Penalty charge from date of advance at 8% per annum.22 Sometime in October 1985, DBP initiated foreclosure proceedings upon its computa tion that respondents loans were in arrears by P62,954,473.68.23 According to DBP , this figure already took into account the intermittent payments made by respon dents between 1968 and 1981 in the aggregate amount of P5,150,827.71.24 However, the foreclosure proceedings were suspended on twelve separate occasions from October 1985 to December 1986 upon the representations of respondents that a financial rehabilitation fund arising from a contract with the military was f orthcoming. On December 23, 1986, before DBP could proceed with the foreclosure

proceedings, respondents instituted the present suit for injunction. On January 6, 1987, the complaint was amended to include the annulment of mortga ge. On December 15, 1987, the complaint was amended a second time to implead the Asset Privatization Trust (APT) (now the Privatization and Management Office [P MO])25 as a party defendant. Respondents cause of action arose from their claim that DBP was collecting from t hem an unconscionable if not unlawful or usurious obligation of P62,954,473.68 a s of September 30, 1985, out of a mere P6,200,000 loan. Primarily, respondents c ontended that the amount claimed by DBP is erroneous since they have remitted to DBP approximately P5,300,000 to repay their original debt. Additionally, respon dents assert that since the loans were procured for the Self-Reliant Defense Pos ture Program of the Armed Forces of the Philippines (AFP), the latters breach of its commitment to purchase military armaments and equipment from respondents amo unts to a failure of consideration that would justify the annulment of the mortg age on respondents properties.26 On December 24, 1986, the RTC issued a temporary restraining order. A Writ of Pr eliminary Injunction was subsequently issued on May 4, 1987. After trial on the merits, the court rendered a decision in favor of respondents,27 the dispositive portion of which reads: WHEREFORE, in view of the foregoing consideration, judgment is hereby rendered i n favor of the [respondents] and against the defendants [DBP and APT], ordering that: (1) The Writ of Preliminary Injunction already issued be made permanent; (2) The [respondents] be made to pay the original loans in the aggregate amount of Six Million Two Hundred Thousand (P6,200,000) Pesos; (3) The [respondents] payment in the amount of Five Million Three Hundred ThirtyFive Thousand, Eight Hundred Twenty-seven Pesos and Seventy-one Centavos (P5,335 ,827.71) be applied to payment for interest and penalties; and (4) No further interest and/or penalties on the aforementioned principal obligat ion of P6.2 million shall be imposed/charged upon the [respondents] for failure of the military establishment to honor their commitment to a valid and consummat ed contract with the former. Costs against the defendants. SO ORDERED. Both DBP and PMO appealed the decision to the CA. The CA, however, affirmed the decision of the RTC. Aggrieved, DBP filed with the CA a motion for a reconsidera tion28 dated May 26, 1999, which motion has not been resolved by the CA to date. PMO, on the other hand, sought relief directly with the Court by filing this pr esent petition upon the following grounds: I. THE CA DISREGARDED THE BINDING AND OBLIGATORY FORCE OF CONTRACTS WHICH IS THE LAW BETWEEN THE PARTIES. x x x II. THE CA VIOLATED THE PRINCIPLE OF LAW THAT CONTRACTS TAKE EFFECT ONLY BETWEEN THE PARTIES AS IT LINKED RESPONDENTS CONTRACTS WITH THE AFP WITH RESPONDENTS LOAN S WITH DBP. x x x III. THE CA ERRED IN PERMANENTLY ENJOINING THE DBP AND APT FROM FORECLOSING THE MORTGAGES ON RESPONDENTS PROPERTIES THEREBY VIOLATING THE PROVISIONS OF P[RESIDEN TIAL] D[ECREE NO.] 385 AND PROCLAMATION NO. 50.29 On the first issue, PMO asserts that the CA erred in declaring that the interest rate on the loans had been unilaterally increased by DBP despite the evidence o n record (consisting of promissory notes and testimonies of witnesses for DBP) s howing otherwise. PMO also claims that the CA failed to take into account the ef fect of the restructuring and refinancing of the loans granted by DBP upon the r equest of respondents. Anent the second issue, PMO argues that the failure of the AFP to honor its comm itment to respondents should have had no bearing on respondents loan obligations to DBP as DBP was not a party to their contract. Hence, PMO contends that the CA ran afoul of the principle of relativity of contracts when it ruled that no fur ther interest could be imposed on the loans. Finally, PMO claims that DBP, being a government financial institution, could no

t be enjoined by any restraining order or injunction, whether permanent or tempo rary, from proceeding with the foreclosure proceedings mandated under Section 1 of Presidential Decree No. 385. For their part, respondents moved for the denial of the petition in their commen t dated October 27, 1999,30 stating that (1) the petition merely raises question s of fact and not of law; (2) PMO is engaged in forum shopping considering that the motion for reconsideration filed by its co-defendant, DBP, against the CA de cision was still pending before the appellate court; and, (3) the petition is fa tally defective because the attached certification against non-forum shopping do es not conform to the requirements set by law. After PMO filed its reply denying the foregoing allegations, the parties submitted their respective memoranda. The petition is partly meritorious. Prefatorily, it bears stressing that only questions of law may be raised in a pe tition for review on certiorari under Rule 45 of the Rules of Court. This Court is not a trier of facts, its jurisdiction in such a proceeding being limited to reviewing only errors of law that may have been committed by the lower courts. C onsequently, findings of fact of the trial court and the CA are final and conclu sive, and cannot be reviewed on appeal.31 It is not the function of the Court to reexamine or reevaluate evidence, whether testimonial or documentary, adduced b y the parties in the proceedings below.32 Nevertheless, the rule admits of certa in exceptions and has, in the past, been relaxed when the lower courts findings w ere not supported by the evidence on record or were based on a misapprehension o f facts,33 or when certain relevant and undisputed facts were manifestly overloo ked that, if properly considered, would justify a different conclusion.34 The resolution of the present controversy turns on the issue regarding the preci se amount of respondents principal obligation under the series of mortgages which DBP, as mortgagee-creditor, attempted to foreclose. In this case, the total amo unt of respondents indebtedness is not simply a question of fact but is a questio n of law, one requiring the application of legal principles for the computation of the amount owed, and is thus a matter that can be properly brought up for the Courts determination.35 PMO claims that the total outstanding obligation of respondents reached P62.9 Mi llion on September 30, 1985. This amount was purportedly the peso equivalent of the foreign-currency denominated loans granted to respondents to refinance the o riginal loans they procured, and is inclusive of interest, penalties and other s urcharges incurred from that date as a result of respondents past defaults. Respo ndents contend, on the other hand, that DBP grossly misstated the extent of thei r obligation, and insist that they should be made liable only for the amount of P6.2 Million which they actually received from DBP. As mentioned, the RTC ultimately sustained respondents and made permanent the wr it of preliminary injunction it issued to enjoin the foreclosure proceedings. Re spondents were directed to pay only the amount of the original loans, that is, P 6.2 Million, with the P5.3 Million which they previously paid to be applied as i nterest and penalties. The RTC did not find respondents culpable for defaulting on their loan obligations and passed the blame to the AFP for not fulfilling its contractual obligations to respondents. The CA affirmed the RTC decision and agreed that DBP cannot be allowed to forecl ose on the mortgage securing respondents loan. The CA surmised that since DBP fai led to adequately explain how it arrived at P62.9 Million, the original loan amo unt of P6.2 Million could only have been "blatantly enlarged or erroneously comp uted" by DBP through the imposition of an "unconscionable rate of interest and c harges." The CA also agreed with the trial court that there was no consideration for the mortgage contracts executed by respondents considering the proceeds fro m the alleged foreign currency loans were never actually received by the latter. This view is untenable and lacks foundation. As correctly pointed out by PMO, the original loans alluded to by respondents ha d been refinanced and restructured in order to extend their maturity dates. Refi nancing is an exchange of an old debt for a new debt, as by negotiating a differ ent interest rate or term or by repaying the existing loan with money acquired f rom a new loan.36 On the other hand, restructuring, as applied to a debt, implie

s not only a postponement of the maturity37 but also a modification of the essen tial terms of the debt (e.g., conversion of debt into bonds or into equity,38 or a change in or amendment of collateral security) in order to make the account o f the debtor current.39 In this instance, it is important to note that DBP accommodated respondents reque st to restructure and refinance their account twice in view of the financial dif ficulties the latter were experiencing. The first restructuring/refinancing was granted in 1975 while the second one was undertaken sometime in the early 1980s. Pursuant to the restructuring schemes, respondents executed promissory notes an d mortgage contracts in favor of DBP,40 the second restructuring being evidenced by three promissory notes dated December 11, 1980, June 5, 1981 and December 16 , 1981 in the total amount of $1.8 Million. The reason respondents seek to be ex cused from fulfilling their obligation under the second batch of promissory note s is that first, they allegedly had "no choice" but to sign the documents in ord er to have the loan restructured41 and thus avert the foreclosure of their prope rties, and second, they never received any proceeds from the same. This reasonin g cannot be sustained. Respondents allegation that they had no "choice" but to sign is tantamount to say ing that DBP exerted undue influence upon them. The Court is mindful that the la w grants an aggrieved party the right to obtain the annulment of a contract on a ccount of factors such as mistake, violence, intimidation, undue influence and f raud which vitiate consent.42 However, the fact that the representatives were "f orced" to sign the promissory notes and mortgage contracts in order to have resp ondents original loans restructured and to prevent the foreclosure of their prope rties does not amount to vitiated consent. The financial condition of respondents may have motivated them to contract with DBP, but undue influence cannot be attributed to DBP simply because the latter h ad lent money. The concept of undue influence is defined as follows: There is undue influence when a person takes improper advantage of his power ove r the will of another, depriving the latter of a reasonable freedom of choice. T he following circumstances shall be considered: the confidential, family, spirit ual and other relations between the parties or the fact that the person alleged to have been unduly influenced was suffering from mental weakness, or was ignora nt or in financial distress.43 While respondents were purportedly financially distressed, there is no clear sho wing that those acting on their behalf had been deprived of their free agency wh en they executed the promissory notes representing respondents refinanced obligat ions to DBP. For undue influence to be present, the influence exerted must have so overpowered or subjugated the mind of a contracting party as to destroy the l atters free agency, making such party express the will of another rather than its own. The alleged lingering financial woes of a debtor per se cannot be equated with the presence of undue influence.44 Corollarily, the threat to foreclose the mortgage would not in itself vitiate co nsent as it is a threat to enforce a just or legal claim through competent autho rity.45 It bears emphasis that the foreclosure of mortgaged properties in case o f default in payment of a debtor is a legal remedy given by law to a creditor.46 In the event of default by the mortgage debtor in the performance of the princi pal obligation, the mortgagee undeniably has the right to cause the sale at publ ic auction of the mortgaged property for payment of the proceeds to the mortgage e.47 It is likewise of no moment that respondents never physically received the proce eds of the foreign currency loans. When the loan was refinanced and restructured , the proceeds were understandably not actually given by DBP to respondents sinc e the transaction was but a renewal of the first or original loan and the suppos ed proceeds were applied as payment for the latter. It also bears emphasis that the second set of promissory notes executed by respo ndents must govern the contractual relation of the parties for they unequivocall y express the terms and conditions of the parties loan agreement, which are bindi ng and conclusive between them. Parties are free to enter into stipulations, cla uses, terms and conditions they may deem convenient; that is, as long as these a

re not contrary to law, morals, good customs, public order or public policy.48 W ith the signatures of their duly authorized representatives on the subject notes and mortgage contracts, the genuineness and due execution of which having been admitted,49 respondents in effect freely and voluntarily affirmed all the concur rent rights and obligations flowing therefrom. Accordingly, respondents are barr ed from claiming the contrary without transgressing the principle of estoppel an d mutuality of contracts. Contracts must bind both contracting parties; their va lidity or compliance cannot be left to the will of one of them.50 The significance of the promissory notes should not have been overlooked by the trial court and the CA. By completely disregarding the promissory notes, the low er courts unilaterally modified the contractual obligations of respondents after the latter already benefited from the extension of the maturity date on their o riginal loans, to the damage and prejudice of PMO which steps into the shoes of DBP as mortgagee-creditor. At this juncture, it must be emphasized that a party to a contract cannot deny i ts validity after enjoying its benefits without outrage to ones sense of justice and fairness. Where parties have entered into a well-defined contractual relatio nship, it is imperative that they should honor and adhere to their rights and ob ligations as stated in their contracts because obligations arising from it have the force of law between the contracting parties and should be complied with in good faith.51 As a rule, a court in such a case has no alternative but to enforce the contract ual stipulations in the manner they have been agreed upon and written. Courts, w hether trial or appellate, generally have no power to relieve parties from oblig ations voluntarily assumed simply because their contract turned out to be disast rous or unwise investments.52 Thus, respondents cannot be absolved from their loan obligations on the basis of the failure of the AFP to fulfill its commitment under the manufacturing agreem ent53 entered by them allegedly upon the prompting of certain AFP and DBP offici als. While it is true that the DBP representatives appear to have been aware tha t the proceeds from the sale to the AFP were supposed to be applied to the loan, the records are bereft of any proof that would show that DBP was a party to the contract itself or that DBP would condone respondents credit if the contract did not materialize. Even assuming that the AFP defaulted in its obligations under the manufacturing agreement, respondents cause of action lies with the AFP, and n ot with DBP or PMO. The loan contract of respondents is separate and distinct fr om their manufacturing agreement with the AFP. Incidentally, the CA sustained the validity of a loan obligation but annulled th e mortgage securing it on the ground of failure of consideration. This is errone ous. A mortgage is a mere accessory contract and its validity would depend on th e validity of the loan secured by it.54 Hence, the consideration of the mortgage contract is the same as that of the principal contract from which it receives l ife, and without which it cannot exist as an independent contract. 55 The debtor cannot escape the consequences of the mortgage contract once the validity of th e loan is upheld. Again, as a rule, courts cannot intervene to save parties from disadvantageous p rovisions of their contracts if they consented to the same freely and voluntaril y.56 Thus, respondents cannot now protest against the fact that the loans were d enominated in foreign currency and were to be paid in its peso equivalent after they had already given their consent to such terms.57 There is no legal impedime nt to having obligations or transactions paid in a foreign currency as long as t he parties agree to such an arrangement. In fact, obligations in foreign currenc y may be discharged in Philippine currency based on the prevailing rate at the t ime of payment.58 For this reason, it was improper for the CA to reject outright DBPs claim that the conversion of the remaining balance of the foreign currency loans into peso accounted for the considerable differential in the total indebte dness of respondents mainly because the exchange rates at the time of demand had been volatile and led to the depreciation of the peso.59 PMO also denies that a unilateral increase in the interest rates on the loans ca used the substantial increase in the indebtedness of respondents and points out

that the promissory notes themselves specifically provided for the rates of inte rest as well as penalty and other charges which were merely applied on responden ts outstanding obligations. It should be noted, however, that at the time of the transaction, Act No. 2655, as amended by Presidential Decree No. 116 (Usury Law) , was still in full force and effect. Basic is the rule that the laws in force a t the time the contract is made governs the effectivity of its provisions.60 Sec tion 2 of the Usury Law specifically provides as follows: Sec. 2. No person or corporation shall directly or indirectly take or receive in money or other property, real or personal, or choses in action, a higher rate o f interest or a greater sum or value, including commissions, premiums, fines and penalties, for the loan or renewal thereof or forbearance of money, goods, or c redits, where such loan or renewal or forbearance is secured in whole or in part by a mortgage upon real estate the title to which is duly registered, or by any document conveying such real estate or interest therein, than twelve per centum per annum or the maximum rate prescribed by the Monetary Board and in force at the time the loan or renewal thereof or forbearance is granted: Provided, that t he rate of interest under this section or the maximum rate of interest that may be prescribed by the monetary board under this section may likewise apply to loa ns secured by other types of security as may be specified by the Monetary Board. A perusal of the promissory notes reveals that the interest charged upon the not es is dependent upon the borrowing cost of DBP which, however, would be pegged a t a fixed rate assuming certain factors. The notes dated December 11, 1980 and J une 5, 1981, for example, had a per annum interest rate of 3% over DBPs borrowing rate that will become 1 % per annum in the event the loan is drawn under the Cen tral Banks Jumbo Loan. These were further subject to the condition that should th e loan from where they were drawn be fully repaid, the interest to be charged on respondents remaining dollar obligation would be pegged at 16% per annum.61 The promissory note dated December 16, 1981, on the other hand, had a per annum inte rest rate of 4% over DBPs borrowing rate. This rate would also become 1 % per annu m in the event the loan is drawn under the Central Banks Jumbo Loan. However, sho uld the loan from where respondents foreign currency loan was drawn be fully repa id, the interest to be charged on their remaining dollar obligation would be peg ged at 18% per annum.62 Due to the variable factors mentioned above, it cannot be determined whether DBP did in fact apply an interest rate higher than what is prescribed under the law . It appears on the records, however, that DBP attempted to explain how it arriv ed at the amount stated in the Statement of Account63 it submitted in support of its claim but was not allowed by the trial court to do so citing the rule that the best evidence of the same is the document itself. 64 DBP should have been gi ven the opportunity to explain its entries in the Statement of Account in order to place the figures that were cited in the proper context. Assuming the interes t applied to the principal obligation did, in fact, exceed 12%, in addition to t he other penalties stipulated in the note, this should be stricken out for being usurious. In usurious loans, the entire obligation does not become void because of an agre ement for usurious interest; the unpaid principal debt still stands and remains valid but the stipulation as to the interest is void. The debt is then considere d to be without stipulation as to the interest. In the absence of an express sti pulation as to the rate of interest, the legal rate of 12% per annum shall be im posed.65 As to the issue raised by PMO that the injunction issued by the lower courts vio lated Presidential Decree No. 385, the Court agrees with the ruling of the CA. P residential Decree No. 385 was issued primarily to see to it that government fin ancial institutions are not denied substantial cash inflows which are necessary to finance development projects all over the country, by large borrowers who, wh en they become delinquent, resort to court actions in order to prevent or delay the governments collection of their debts and loans.66 The government, however, is bound by basic principles of fairness and decency un der the due process clause of the Bill of Rights. Presidential Decree No. 385 do es not provide the government blanket authority to unqualifiedly impose the mand

atory provisions of the decree without due regard to the constitutional rights o f the borrowers. In fact, it is required that a hearing first be conducted to de termine whether or not 20% of the outstanding arrearages has been paid, as a pre requisite for the issuance of a temporary restraining order or a writ of prelimi nary injunction. Hence, the trial court can, on the basis of the evidence then i n its possession, make a provisional determination on the matter of the actual e xistence of the arrearages and the amount on which the 20% requirement is to be computed. Consequently, Presidential Decree No. 385 cannot be invoked where the extent of the loan actually received by the borrower is still to be determined.6 7 Finally, respondents allegation that PMO is engaged in forum shopping is untenabl e. Forum shopping is the act of a party, against whom an adverse judgment has be en rendered in one forum, of seeking another and possibly favorable opinion in a nother forum by appeal or a special civil action of certiorari.68 As correctly p ointed out by PMO, the present petition is merely an appeal from the adverse dec ision rendered in the same action where it was impleaded as co-defendant with DB P. That DBP opted to file a motion for reconsideration with the CA rather than a direct appeal to this Court does not bar PMO from seeking relief from the judgm ent by taking the latter course of action. It must be remembered that PMO was impleaded as party defendant through the amen ded complaint69 dated November 25, 1987. Persons made parties-defendants via a s upplemental complaint possess locus standi or legal personality to seek a review by the Court of the decision by the CA which they assail even if their co-defen dants did not appeal the said ruling of the appellate court.70 Even assuming tha t separate actions have been filed by two different parties involving essentiall y the same subject matter, no forum shopping is committed where the parties did not resort to multiple judicial remedies. 71 In any event, the Court deems it fit to put an end to this controversy and to fi nally adjudicate the rights and obligations of the parties in the interest of a speedy dispensation of justice, taking into account the length of time this acti on has been pending with the courts as well as in light of the fact that PMO is the real party-in-interest in this case, being the successor-in-interest of DBP. WHEREFORE, the petition is PARTLY GRANTED and the assailed Decision dated May 7, 1999 rendered by the Court of Appeals in CA-G.R. CV No. 49239 is REVERSED AND S ET ASIDE. The case is hereby remanded to the trial court for determination of th e total amount of the respondents obligation based on the promissory notes dated December 11, 1980, June 5, 1981 and December 16, 1981 according to the interest rate agreed upon by the parties or the interest rate of 12% per annum, whichever is lower. No costs. SO ORDERED. SECOND DIVISION KOJI YASUMA, Petitioner, PUNO, J., Chairperson, SANDOVAL-GUTIERREZ, - v e r s u s GARCIA, JJ. HEIRS OF CECILIO S. DE VILLA and EAST CORDILLERA MINING CORPORATION, Respondents. Promulgated: CORONA, AZCUNA* and G.R. No. 150350 Present:

August 22, 2006 x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x D E C I S I O N CORONA, J.: This is a petition for review on certiorari of a decision of the Court of Appeals (CA) dated October 18, 2001 in CA-G.R. CV No. 61755. The antecedent facts follow. On September 15, 1988, October 21, 1988 and December 5, 1988, Cecilio S. de Vill a obtained loans from petitioner Koji Yasuma in the amounts of P1,100,000, P100, 000 and P100,000, respectively, for the total amount of P1.3 million. These loa ns were evidenced by three promissory notes signed by de Villa as borrower. The last promissory note in the amount of P1,300,000 cancelled the first two notes.

The loans were initially secured by three separate real estate mortgages on a pa rcel of land with Transfer Certificate of Title No. 176575 in the name of respon dent East Cordillera Mining Corporation. The deeds of mortgage were executed on the dates the loans were obtained, signed by de Villa as president of respondent corporation. The third real estate mortgage later cancelled the first two. For failure of de Villa to pay, petitioner filed a collection suit in the Regional Trial Court of Makati City, Branch 148 (RTC-Br. 148) against de Vil la and respondent corporation. The RTC-Br. 148 declared de Villa and respondent corporation in default and resolved the case in favor of petitioner. On appeal, however, the judgment of RTC-Br. 148 was annulled on the ground of improper ser vice of summons. Thus, the case was remanded for retrial. During the pendency of the case in the RTC-Br. 148, de Villa died. Petitioner co nsequently amended the complaint and impleaded the heirs of de Villa as defendan ts. After the case was re-heard, the RTC of Makati City, Branch 139 (RTC-Br. 139) re ndered judgment on November 13, 1998 in favor of petitioner and against responde nt corporation. It ordered respondent corporation to pay petitioner P1.3 million plus legal interest, attorneys fees, liquidated damages and costs of suit. The c omplaint was dismissed against respondent heirs. On appeal, the CA reversed and set aside the decision of RTC-Br. 139. It held t hat the loan was personal to de Villa and that the mortgage was null and void fo r lack of authority from the corporation. Petitioner is now before this Court with the following assignment of errors: 1. THE [CA], WITH ALL DUE RESPECT, COMMITTED PALPABLE AND REVERSIBLE ERROR OF LAW WHEN IT DECLARED THAT THE CORPORATION DID NOT RATIFY THE ACT OF ITS PRESI

DENT IN OBTAINING LOANS FROM PETITIONER DESPITE ITS ADMISSION THAT IT RECEIVED T HE MONEY OF THE PETITIONER. 2. THE [CA], WITH ALL DUE RESPECT, COMMITTED PALPABLE AND REVERSIBLE ERROR OF LAW WHEN IT TOTALLY DISREGARDED THE ADMITTED FACTS AND ISSUES AGREED UPON BY THE PARTIES AND APPROVED BY THE TRIAL COURT DURING THE PRE-TRIAL. 3. THE [CA], WITH ALL DUE RESPECT, COMMITTED PALPABLE AND REVERSIBLE ERROR OF LAW WHEN IT SET ASIDE THE REAL ESTATE MORTGAGE AND THE AWARD OF ATTORNEYS FEES , 10% LIQUIDATED DAMAGES AND THE COSTS OF SUIT. 4. THE [CA], WITH ALL DUE RESPECT, COMMITTED PALPABLE AND REVERSIBLE ERROR OF LAW WHEN IT SET ASIDE THE AWARD OF INTEREST BY WAY OF DAMAGES IN FAVOR OF PET ITIONER. The issues to be resolved are the following: 1) whether the loans were personal liabilities of de Villa or de bts of respondent corporation and 2) whether the mortgage on respondent corporations property was n ull and void for having been executed without its authority. We begin with a brief study of some well-settled legal doctrines relevant to the disposition of this case. PERSONAL OR CORPORATE LIABILITY? A corporation is a juridical person, separate and distinct from its stockholders . Being a juridical entity, a corporation may act through its board of director s, as provided in Section 23 of the Corporation Code of the Philippines: Sec. 23. The Board of Directors or Trustees. Unless otherwise provided in this Code, the corporate powers of all corporations formed under this Code shall be e xercised, all business conducted and all property of such corporations controlle d and held by the board of directors or trustees xxx xxx xxx

The corporation can also act through its corporate officers who may be authorize d either expressly by the by-laws or board resolutions or impliedly such as by g eneral practice or policy or as are implied from express powers. The general pri nciples of agency govern the relation between the corporation and its officers o r agents. When authorized, their acts can bind the corporation. Conversely, whe n unauthorized, their acts cannot bind it. However, the corporation may ratify the unauthorized act of its corporate office r. Ratification means that the principal voluntarily adopts, confirms and gives sanction to some unauthorized act of its agent on its behalf. It is this volun tary choice, knowingly made, which amounts to a ratification of what was thereto fore unauthorized and becomes the authorized act of the party so making the rati fication. The substance of the doctrine is confirmation after conduct, amountin g to a substitute for a prior authority. Ratification can be made either expres sly or impliedly. Implied ratification may take various forms like silence or ac quiescence, acts showing approval or adoption of the act, or acceptance and rete ntion of benefits flowing therefrom.

The power to borrow money is one of those cases where corporate officers as agen ts of the corporation need a special power of attorney. In the case at bar, no special power of attorney conferring authority on de Villa was ever presented. The promissory notes evidencing the loans were signed by de Villa (who was the p resident of respondent corporation) as borrower without indicating in what capac ity he was signing them. In fact, there was no mention at all of respondent corp oration. On their face, they appeared to be personal loans of de Villa. Petitioner, however, contends that respondent corporations admission that it rece ived the total amount of P1.3 million was effectively a ratification of the act of its former president. It appears that, in the pre-trial order dated March 4, 1997 issued by RTC-Br. 139, respondent corporation indeed admitted the followin g: xxx xxx xxx

3. Defendants ADMIT that the total amount of P1.3 Million subject matter of the Promissory Notes was RECEIVED by the Defendant-Corporation; (emphasis s upplied) xxx xxx xxx

In its answer, respondent corporation stated: 7. The sum of money which [petitioner] sought to recover form herein [responden ts] is not really a loan but his investment to the mining project of [respondent ] corporation which unfortunately did not succeed due to the delays caused by ty phoons and bad rainy season in the Benguet mountains causing landslides in the m ining and milling site during the latter part of 1988, and the killer earthquake of 1990 which destroyed the mining area. As investment to a losing business ve nture, he is not entitled to claim payment neither could he treat it as a loan. The CA held that this admission was not tantamount to ratification because what respondent corporation admitted was that the money was in fact received as an in vestment. It concluded that: even if the [respondent corporation] received the money, it cannot be held respo nsible for not knowing the preceding transaction between the [p]resident and the [petitioner] as in fact there was a misrepresentation made to the [respondent c orporation], to the effect that the money was an investment and not a loan. Th e alleged investment is actually a personal loan of Cecilio de Villa.

Petitioners contention has no merit. There was no showing that respond ent corporation ever authorized de Villa to obtain the loans on its behalf. The notes did not show that de Villa acted on behalf of the corporation. Actually, the corporation would not have figured in the transaction at all had it not been for its admission that it received the amount of P1.3 million. As could be gle aned from the promissory notes, it was a stranger to the transaction. Thus, we conclude that petitioner himself did not consider the corporation to be his debtor for if he really knew that de Villa was obtaining the loan on behalf of the corporation, then why did he allow the notes to reflect only the persona l liability of de Villa? Even the demand letters of petitioner were personally

addressed to de Villa and not to respondent corporation. Undoubtedly, petitioner dealt with de Villa purely in his personal capacity. Respondent corporation could not have ratified the act of de Villa because there was no proof that it knew that he took out a loan on its behalf. As stated ear lier, ratification is a voluntary choice that is knowingly made. The corporatio n could not have ratified an act it had no knowledge of: xxx xxx xxx Ordinarily, the principal must have full knowledge at the time of ratification o f all the material facts and circumstances relating to the unauthorized act of t he person who assumed to act as agent. Thus, if material facts were suppressed or unknown, there can be no valid ratification . The fact that the corporation admitted receiving the proceeds of the loan did no t amount to ratification of the loan. It accepted the amount from de Villa, its president at that time, in good faith. Good faith is always presumed. Petition er did not show that the corporation acted in bad faith. It follows that respondent corporation was not liable for the subsequent loss of the money which it accepted as an investment. It could not be faulted for not knowing that it was the proceeds of a loan obtained by de Villa. It was under n o obligation to check the source of the investments which went into its coffers. As long as the investment was used for legitimate corporate purposes, the inves tor bore the risk of loss. Therefore, on the first issue, the loan was personal to de Villa. There was no basis to hold the corporation liable since there was no authority, express, impl ied or apparent, given to de Villa to borrow money from petitioner. Neither was there any subsequent ratification of his act.

WAS THE MORTGAGE VALID OR VOID? Petitioner insists that the mortgage executed by de Villa, as president of the c orporation, was ratified by the latter since the mortgage was an accessory contr act of the loan. We disagree. A special power of attorney is necessary to create or convey real rights over im movable property. Furthermore, the special power of attorney must appear in a pu blic document. In the absence of a special power of attorney in favor of de Vil la as president of the corporation, no valid mortgage could have been executed b y him. Since the mortgage was void, it could not be ratified. Petitioner cannot blame anyone but himself. He did not check if the person he w as dealing with had the authority to mortgage the property being offered as coll ateral. Given that the loan and mortgage were not binding on respondent corpor ation, the latter cannot be held liable for interest, attorneys fees and liquidat

ed damages arising from the loan.

PERSONAL LIABILITY OF DE VILLA The liability arising from the loan was the sole indebtedness of de Vi lla (or of his estate after his death). Petitioner vigorously sought to make re spondent corporation liable but exerted no effort at all to argue for the liabil ity of respondent heirs. The trial court correctly dismissed the case against th e latter. Petitioners remedy now is to file a money claim in the settlement pro ceedings of de Villas estate, if not too late, as indicated in Rule 86 of the Rules of Court. WHEREFORE, the petition is hereby DENIED. The October 18, 2001 decision of th e Court of Appeals in CA-G.R. CV No. 61755 is AFFIRMED. G.R. No. 163712, November 30, 2006 METROPOLITAN BANK AND TRUST COMPANY AND ROGELIO T. UY, PETITIONERS, VS. JOSE B. TAN AND ELIZA GO TAN, RESPONDENTS. DECISION Carpio Morales, J.: On the application for extra-judicial foreclosure of mortgage filed by herein pe titioners Metropolitan Bank and Trust Company (Metrobank) and its Vice President Rogelio T. Uy (Uy), the Office of the Provincial Sheriff of Misamis Oriental is sued a Sheriffs Notice of Sale[1] setting on April 17, 1998 the sale at public auct ion of four mortgaged parcels of land including that covered by Transfer Certifi cate of Title No. T-53267 (the title in question) registered in the name of here in respondent Jose B. Tan who was referred to in the title as JOSE B. TAN, of leg al age, Filipino, married to Eliza Go Tan. . . .[2] A day before the scheduled public auction of the mortgaged properties or on Apri l 16, 1998, respondent spouses Jose B. Tan and Eliza Go Tan filed a complaint[3] against petitioners, along with Albano L. Cuarto, Sheriff IV of the Office of t he Provincial Sheriff of Misamis Oriental, for removal of cloud on the title in question and injunction before the Regional Trial Court of Misamis Oriental. The complaint was docketed as Civil Case No. 98-225. Respondents cited the following grounds-bases of their complaint: 1. Respondent Eliza Go Tan never gave her consent or conformity to encumber the title in question; 2. The real estate mortgages, annotated as Entries No. 142475, 146789, 174644, 2 13699, 247803, and 246959 at the back of TCT No. 52367 covering the questioned l and are null and void because respondent Jose B. Tan had already fully paid the obligations secured by the mortgages annotated as Entries No. 14275, 146789, and 174644; while the mortgages registered as Entry No. 213699 (amendment of mortga ge, amending a previous loan of P15,000,000 to P25,000,000) and Entry No. 246959 (amendment of mortgage amending a previous loan of P25,000,000 to P40,000,000), as well as any mortgage prior to that registered as Entry No. 213699 was not ex ecuted and signed by [respondent Jose B. Tan]. (Underscoring supplied) As scheduled, the public auction of the foreclosed properties took place on Apri l 17, 1998 following which the Office of the Provincial Sheriff of Misamis Orien tal issued a Sheriffs Certificate of Sale[4] in the name of petitioner Metrobank, the highest bidder. In their Answer[5] to the Complaint, petitioners alleged that: Plaintiffs [herein respondents], together with their two sons, Ariel and Rey Joh n, obtained a credit line from the defendant bank from which they made availment s from time to time. In time and always upon their plea, the line was gradually increased until it reached P40 million. There was no separate or distinct loan to speak of; all availments or r

eleases were taken from one and the same line. In the same token, the mortgage constituted on the four lots, TCT No. T-53267 in cluded, was for the entire credit line and not for any particular availment or f or a determinate portion of the credit. As such, the mortgage will be discharged and the four lots released only upon the termination of the line, which means f ull payment of the entire loan which plaintiffs never did.[6] (Emphasis and unde rscoring supplied) Petitioners further alleged that the deeds of real estate mortgage,[7] promissor y notes,[8] and credit line agreements[9] bore the signature of respondent Jose B. Tan either for himself or as attorney-in-fact of his son Ariel Tan and, in on e of them, his wife-co-respondent Eliza Go Tans signature appeared. By way of Counterclaim, petitioners prayed for the award of attorneys fees, compe nsatory and/or moral damages, exemplary damages, and other reliefs.[10] Crediting the testimony of respondent Jose B. Tan denying having 1) executed and signed the two amendments of the mortgage, 2) received the amount of P40,000,00 0, and 3) appeared before Notary Public Joel Pearanda who notarized[11] the mortg age for P40,000.00, and likewise crediting the testimony of respondent Eliza Go Tan denying that the signature ap pearing on the real estate mortgage dated November 5, 1992 was hers,[12] and fin ding that . . . the existing loans covered by real estate mortgages annotated at the back of subject TCT No. T-53267 of the Registry of Deeds for Cagayan de Oro, had been fully paid as of July 1, 1997, defendant Metrobank had no basis to be paid agai n through the extra-judicial foreclosure proceedings[13] (underscoring supplied) [,] Branch 38 of the Misamis Oriental RTC, by Decision of March 5, 2001, rendered ju dgment in favor of respondents, disposing as follows: WHEREFORE, premises considered, this Court hereby renders judgment in favor of t he plaintiffs spouses Jose B. Tan and Eliza G. Tan and against the defendants, a s follows: a) Declaring that, because of the fact that the plaintiff Eliza G. Tan did not g ive her consent to all the real estate mortgages annotated at the back of her ti tle, TCT No. T-53267, of the Registry of Deeds for Cagayan de Oro, all said mort gages are null and void ab initio; b) Declaring that, because plaintiff Jose B. Tan did not execute the real estate mortgages annotated at the back of his title, TCT No. T-53267, of the Registry of Deeds for Cagayan de Oro, all said mortgages are null and void ab initio; c) Declaring the extra-judicial foreclosure proceedings taken by the defendant s heriff , including the sheriffs certificate of sale as null and void; d) Making permanent the writ of preliminary injunction against the defendant she riff, and the Office of the Provincial Sheriff of Misamis Oriental enjoining and restraining them, their agents, and representatives from issuing a final certif icate of sale in favor of defendant Metrobank covering the parcel of land covere d by TCT No. T-53267; e) Ordering the removal of the cloud on the title, TCT No. T-53267, of the Regis try of Deeds for Cagayan de Oro, and the cancellation of all the entries of the real estate mortgages and amendment of mortgages annotated at the back of TCT No . T-53267, of the Registry of Deeds for Cagayan de Oro City; f) Absolving the plaintiffs spouses from financial liability from the null and v oid real estate mortgages; g) Declaring the principal obligations obtained by Rey John Tan through the annu lled real estate mortgages as FULLY PAID by him; h) Ordering defendant Metrobank to pay attorneys fee and expenses of litigation i n the amount of P100,000 and the costs. SO ORDERED.[14] (Emphasis and underscoring supplied) Petitioners appealed the trial courts decision before the Court of Appeals. By Decision of November 21, 2003,[15] the Court of Appeals affirmed the trial co urts decision and accordingly dismissed petitioners appeal. And it denied petition ers Motion for Reconsideration.[16] Hence, the present Petition for Review on Certiorari filed on July 7, 2004.[17]

The petition is impressed with merit. Petitioners assail, in the main, the appellate courts affirmance of the trial cou rts decision absolving respondents from liability for the principal obligation ob tained by their son Rey John Tan which was secured by real estate mortgages, inc luding that covered by the title in question, and declaring such principal oblig ation of Rey John Tan, who is not a party to the case, to have been fully paid b y him as of July 1, 1997, before the questioned extra-judicial foreclosure and p ublic auction sale conducted on April 17, 1998.[18] Respondent Jose B. Tan[19] insisted that he was not a party to the documents bea ring on the grant of the credit line, he pointing to the absence of his signatur e above his typewritten name on the Credit Line Agreements, promissory notes, di sclosure statements, and an Amendment of Real Estate Mortgage. Respondents prese nted in evidence Promissory Notes Exhibits B-2 and B-4 dated July 1, 1997 and June 2 4, 1997, respectively; three Credit Line Agreements Exhibits B-6, B-7, and B-8,[20] d ted May 2, 1997; and the Agreement amending the real estate mortgage Exhibit B-9,[ 21] all dated May 2, 1997. Petitioners, on the other hand, presented six Promissory Notes dated February 26 , 1996, May 8, 1996, August 27, 1996, October 8, 1996, October 25, 1996, and Nov ember 18, 1996;[22] five Credit Line Agreements dated September 9, 1991, Septemb er 24, 1992, September 2, 1993, November 3, 1994, and April 25, 1996;[23] an Ame ndment of Real Estate Mortgage from P15,000,000 to P25,000,000; and October 29, 1996[24] Amendment of Real Estate Mortgage from P25,000,000 to P40,000,000. All document-exhibits of petitioners which are original copies bear the signatur e of respondent Jose B. Tan, however, as solidary co-debtor of his sons Rey John Tan and Ariel Tan.[25] And these documents were annotated at the back of the ti tle in question.[26] In the absence of proof, nay allegation, that the signatures of respondent Jose B. Tan on the abovementioned documents were forged, this Court is constrained to uphold their genuineness.[27] As for the claim that respondent Eliza Go Tan did not give her consent to the mo rtgage of the title in question, the same is belied by her signature[28] on Exhi bit 18-Real Estate Mortgage which is annotated as Entry No. 174644 at the back of the title. Her bare denial that the signature was forged, without more, does not lie. In any event, lack of respondent Eliza Go Tans consent to the mortgage covering t he title in question would not render the encumbrance void under the second para graph of Article 124 of the Family Code.[29] For proof is wanting that the prope rty covered by the title is conjugal that it was acquired during respondents marr iage which is what would give rise to the presumption that it is conjugal proper ty.[30] The statement in the title that the property is registered in accordance with the provisions of Section 103 of the Property Registration Decree in the na me of JOSE B. TAN, of legal age, married to Eliza Go Tan[31] does not prove or in dicate that the property is conjugal. So Ruiz v. Court of Appeals[32] instructs: The property subject of the mortgage is registered in the name of Corazon G. Ruiz , of legal age, married to Rogelio Ruiz, Filipinos. Thus, title is registered in the name of Corazon alone because the phrase married to Rogelio Ruiz is merely des criptive of the civil status of Corazon and should not be construed to mean that her husband is also a registered owner. Furthermore, registration of the proper ty in the name of Corazon G. Ruiz, of legal age, married to Rogelio Ruiz is not pr oof that such property was acquired during the marriage, and thus, is presumed t o be conjugal. The property could have been acquired by Corazon while she was st ill single, and registered only after her marriage to Rogelio Ruiz. Acquisition of title and registration thereof are two different acts. The presumption under Article 116 of the Family Code that properties acquired during the marriage are presumed to be conjugal cannot apply in the instant case. Before such presumptio n can apply, it must first be established that the property was in fact acquired during the marriage. In other words, proof of acquisition during the marriage i s a condition sine qua non for the operation of the presumption in favor of conj ugal ownership. No such proof was offered nor presented in the case at bar.[33] (Emphasis and underscoring supplied)

On respondents claim of payment, they presented debit memo-Exhibits G to G-11[34] (of which only Exhibits G-6 to G-11[35] are relevant to the issues) and certificationsExhibits H and H-1[36] issued by an accountant, one Glenn Cabading. Rebutting Exhibits G to G-11 inclusive, petitioners presented credit memos[37] which , to them, cancelled respondents debit memos. From a comparison of the credit and debit memos with the bank ledgers[38] and especially considering the unquestion ed explanation of petitioner Uy on the reason behind the issuance of these memos , viz: ATTY. DEL CASTILLO: Q You said, when a loan is renewed you credit a certain amount. Can you expound that a little bit? A Actually, the Banco Central punish[es] if the loan cannot be renewed for sever al years without payment. Just to circumvent that policy, we do the credit first and the debit just for the renewal. Q Why is that? A To show that amount is fully paid and we avail. Q How is that done? A We credit first the renewed amount and we debit the old promissory note. Q When you credit, there were other papers accomplished? A Yes. Q What are these papers called? A Credit Memos on loan release. Q Where do you credit this? A It is credited on their accounts. Q On the existing accounts? A Yes, deposit account. Q And what is debit memos? A Debit memos are ones that liquidate the loan so that the whole promissory note will be distinguished [sic].[39] (Emphasis and underscoring supplied), this Court is persuaded by petitioners claim that the debit memos represented paym ent only in the banks book entries but did not actually involve payment/settlement of the original obligation. In fine, the extra-judicial foreclosure and subsequent sale of the mortgaged pro perty covered by the title in question was valid. WHEREFORE, the petition is GRANTED. The assailed decision of the appellate court is SET ASIDE. Civil Case No. 98-225, Jose B. Tan and Eliza Go Tan v. Metropolita n Bank and Trust Company, et al., filed before and raffled to Branch 38 of the Re gional Trial Court of Misamis Oriental, is DISMISSED. SO ORDERED. EMILIO Y. TAEDO, petitioner, vs. ALLIED BANKING CORPORATION, respondent. D E C I S I O N PARDO, J.: Appeal via certiorari from the decision of the Court of Appeals reversing the ru ling of the trial court and holding petitioner liable solidarily with defendant Cheng Ban Yek Co., Inc. for all items of the money judgment and costs of suit. The Facts The facts, as found by the Court of Appeals, are as follows: Appeal by both the plaintiff Allied Banking Corporation and the defendant Cheng B an Yek & Co., Inc. from the Order, as summary judgment, of the Regional Trial Co urt (Branch XLIV, Manila), the decretal part whereof reads: WHEREFORE, and in view of the foregoing considerations, summary judgment is hereb y rendered in favor of the plaintiff, Allied Banking Corporation, and against de fendant Cheng Ban Yek and Co., Inc. as follows: 1. On the first cause of action: Ordering the defendant Cheng Ban Yek Co., Inc. to pay plaintiff the sum of P2,000 ,000.00, plus interest thereon at 14% per annum, 2% per annum as service charge, and penalty charge of 1% per month from February 11, 1981 until fully paid; 2. On the second cause of action: Ordering the defendant Cheng Ban Yek Co., Inc. to pay plaintiff the sum of P2,500 ,000.00, plus interest thereon at 14% per annum, service charge of 2% per ann

um, and penalty charge of 1 % per month, from February 3, 1981 until fully paid; 3. On the third cause of action: Ordering the defendant Cheng Ban Yek Co., Inc. to pay plaintiff the sum of P1,000 ,000.00 plus interest thereon at 14% per annum, service charge of 2% per annum, and penalty charge of 1 % per month, from February 12, 1981 until fully paid; 4. On the fourth cause of action: Ordering the defendant Cheng Ban Yek Co., Inc. to pay plaintiff the sum of P1,000 ,000.00 plus interest thereon at 14% per annum, service charge of 2% per annum, and penalty charge of 1 % per month, from February 12, 1981 until fully paid; 5. On the fifth cause of action: Ordering the defendant Cheng Ban Yek Co., Inc. to pay plaintiff the sum of P1,000 ,000.00 plus interest thereon at 14% per annum, service charge of 2% per annum, and penalty charge of 1% per month, from February 12, 1981 until fully paid; 6. On the sixth cause of action: Ordering the defendant Cheng Ban Yek Co., Inc. to pay plaintiff the sum of P1,00 0,000.00 plus interest thereon at 14% per annum, service charge of 2% per annum , and penalty charge of 1% per month, from February 12, 1981 until fully paid; 7. On the seventh cause of action: Ordering the defendant Cheng Ban Yek Co., Inc. to pay plaintiff the sum of P1,5 00,000.00 plus interest thereon at 14% per annum, service charge of 2% per annum , and penalty charge of 1% per month, from February 12, 1981 until fully paid; 8. On all the causes of action: Ordering the defendant Cheng Ban Yek Co., Inc. to pay plaintiff the sum equivalen t to 25% of the amount due and demandable as and for attorneys fees; 9. Declaring the Continuing Guaranty as having been extinguished after plaintiff b randed it as a worthless security and preferred to avail, as it did avail, of the provisional remedy of attachment; and declaring defendants Alfredo Ching and Emi lio Taedo relieved of their obligation under the said continuing Guaranty; and 10. Ordering the defendant Cheng Ban Yek Co., Inc. to pay the costs of suit. SO ORDERED. The foregoing summary judgment has its roots in a complaint with preliminary atta chment filed by plaintiff bank to recover sums of money from defendant corporati on on its seven past due promissory notes with principal amounts totaling P10,00 0,000.00, from defendants Alfredo Ching and Emilio Taedo under a Continuing Guara nty providing for joint and several liability relative to the said promissory no tes. The preliminary attachment sought was granted upon the required bond and wa s thereafter maintained despite defendant corporations efforts to have it dischar ged. The appeal of plaintiff bank is limited to paragraph 9 of the summary judgment (s upra, p. 3) which declared defendants Aldredo Ching and Emilio Taedo as free from any liability under the Continuing Guaranty since their respective liabilities thereunder became extinguished when plaintiff bank in its pleading branded the C ontinuing Guaranty as worthless security. On the other hand, defendant corporations appeal is an attack on the summary natur e of the proceeding adopted by the lower court since, according to defendant cor poration, there was a petition for suspension of payment filed by it with the Se curities and Exchange Commission which, although dismissed, was duly appealed to the Court of Appeals. x x x Defendant corporations petition for suspension of payment was dismissed by the Sec urities and Exchange Commission for lack of quorum. At the creditors meeting call ed and accordingly held to approve the corporations petition for suspension of pa yment, out of outstanding liabilities of P237,718,426.00, only the creditors rep resenting P110,355,607.37 thereof attended. This was far short of the three-fif ths quorum unqualifiedly required by law which should have been P142,631,055.60 (Act No. 1956, Sec. 8) x x x . On October 16, 1984, the trial court rendered a summary judgment, as quoted abov e. Both plaintiff Allied Banking Corporation and the defendant Cheng Ban Yek & Co ., Inc. appealed from the summary judgment to the Court of Appeals.

On March 27, 1990, the Court of Appeals promulgated a decision, the dispositive portion of which reads: WHEREFORE, the Order appealed from is in part REVERSED and MODIFIED by deleting p aragraph 9 from the dispositive portion thereof, and declaring the defendants Alfredo Ching and Emilio Taedo solidarily liable with defendant Cheng Ban Yek Co ., Inc. for all items of the money judgment set forth in paragraphs one 91) to e ight (8) inclusive, and paragraph ten (10), of said dispositive portion. The Ord er is AFFIRMED in its other aspects. No costs in this instance. SO ORDERED. On April 11, 1990, petitioner Emilio Y. Taedo filed a motion for reconsideration of the decision, contending that while the case was pending before the Court of Appeals the Allied Bank and Cheng Ban Yek & Co., Inc. agreed to extend the time of payment of the indebtedness, without the consent of petitioner, thereby relie ving him of his obligation as guarantor or surety of such obligation. On November 27, 1998, the Court of Appeals denied the motion for lack of merit. Hence, this appeal. The Issues The basic issues raised are (a) whether the execution by the respondent Bank of the Fourth Amendatory Agreement extinguished petitioners obligations as surety, a nd (b) whether the continuing guarantee executed by the petitioner is a contract o f (surety) adhesion. The Courts Ruling We find the petition without merit. Resolving the first issue, we note that the amendatory agreement between the res pondent Allied Banking Corporation and Cheng Ban Yek & Co., Inc. extended the ma turity of the promissory notes without notice or consent of the petitioner as su rety of the obligations. However, the continuing guarantee executed by the petitio ner provided that he consents and agrees that the bank may, at any time or from time to time extend or change the time of payments and/or the manner, place or t erms of payment of all such instruments, loans, advances, credits or other oblig ations guaranteed by the surety. Hence, the extensions of the loans did not rele ase the surety. As to the second issue, even if the continuing guarantee were considered as one of adhesion, we find the contract of surety valid because petitioner was free to reje ct it entirely. Petitioner was a stockholder and officer of Cheng Ban Yek and Co ., Inc. and it was common business and banking practice to require sureties to gua rantee corporate obligations. The Fallo IN VIEW WHEREOF, the Court DENIES the petition and AFFIRMS the decision of the C ourt of Appeals. No costs in this instance. BPI Investment Corp. v. CA G.R. No. 133632. February 15, 2002 credit transactions: Loan (Mutuum): A loan contract is not a consensual contract but a real contract. It is perfected upon delivery of the object of the contrac t. obligations and contracts: Reciprocal Obligations: It is a basic principle in re ciprocal obligations that neither party incurs in delay, if the other does not c omply or is not ready to comply in a proper manner with what is incumbent upon h im. FACTS: Frank Roa obtained a loan at 16 1/4% interest rate per annum from Ayala Investme nt and Development Corporation. For security, Roa's house and lot were mortgaged . Later, Roa sold the house and lot to ALS and Antonio Litonjua, who assumed Roa 's debt to Ayala Investment. Ayala Investment, however, granted a new loan to be applied to Roa's debt, secured by the same property at a different interest rat e of 20% per annum.

When ALS and Litonjua failed to pay, BPIIC, successor to Ayala Investment, filed for foreclosure of mortgage. ISSUE: W/N a contract of loan is a consensual contract HELD: A loan contract is not a consensual contract but a real contract. It is perfecte d upon delivery of the object of the contract. Although a perfected consensual c ontract can give rise to an action for damages, it does not constitute a real co ntract which requires delivery for perfection. A perfected real contract gives r ise only to obligations on the part of the borrower. In the present case, the loan contract was only perfected on the date of the sec ond release of the loan. A contract of loan involves a reciprocal obligation, wherein the obligation or p romise of each party is the consideration for that of the other. It is a basic p rinciple in reciprocal obligations that neither party incurs in delay, if the ot her does not comply or is not ready to comply in a proper manner with what is in cumbent upon him. Only when a party has performed his part of the contract can h e demand that the other party also fulfills his own obligation and if the latter fails, default sets in. DECISION: The payment of amortization should accrue from the time BPIIC released the loan amount to ALS and Litonjua because it was only at that time (the delivery of the amount -- the object of the contract) that the loan contract was perfected. Carlos vs Abelardo Carlos vs. Abelardo GR No. 146504, April 4, 2002 FACTS: Honorio Carlos filed a petition against Manuel Abelardo, his son-in-law for reco very of the $25,000 loan used to purchase a house and lot located at Paranaque. It was in October 1989 when the petitioner issued a check worth as such to assi st the spouses in conducting their married life independently. The seller of th e property acknowledged receipt of the full payment. In July 1991, the petition er inquired from spouses status of the amount loaned from him, the spouses plead ed that they were not yet in position to make a definite settlement. Thereafter , respondent expressed violent resistance to the extent of making various death threats against petitioner. In 1994, petitioner made a formal demand but the sp ouses failed to comply with the obligation. The spouses were separated in fact for more than a year prior the filing of the complaint hence spouses filed separ ate answers. Abelardo contended that the amount was never intended as a loan bu t his share of income on contracts obtained by him in the construction firm and that the petitoner could have easily deducted the debt from his share in the pro fits. RTC decision was in favor of the petitioner, however CA reversed and set aside trial courts decision for insufficiency of evidence. Evidently, there was a check issued worth $25,000 paid to the owner of the Paranaque property which b ecame the conjugal dwelling of the spouses. The wife executed an instrument ack nowledging the loan but Abelardo did not sign. ISSUE: WON a loan obtained to purchase the conjugal dwelling can be charged agai nst the conjugal partnership.

HELD: Yes, as it has redounded to the benefit of the family. They did not deny that t he same served as their conjugal home thus benefiting the family. Hence, the sp ouses are jointly and severally liable in the payment of the loan. Abelardos con tention that it is not a loan rather a profit share in the construction firm is untenable since there was no proof that he was part of the stockholders that wil l entitle him to the profits and income of the company.