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G.R. No. 131622 November 27, 1998LETICIA Y. MEDEL, DR. RAFAEL MEDEL and SERVANDO FRANCO, petitioners,vs.COURT OF APPEALS, SPOUSES VERONICA R. GONZALES and DANILO G. GONZALES, JR. doing lending business underthe trade name and style "GONZALES CREDIT ENTERPRISES", respondents.PARDO, J.:The case before the Court is a petition for review on certiorari, under Rule 45 of the Revised Rules of Court, seeking to set aside thedecision of the Court of Appeals, 1 and its resolution denying reconsideration, 2 the dispositive portion of which decision reads asfollows:

WHEREFORE, the appealed judgment is hereby MODIFIED such that defendants are hereby-ordered to pay the plaintiff: the sum ofP500,000.00, plus 5.5% per month interest and 2% service charge per annum effective July 23, 1986, plus 1% per month of thetotal amount due and demandable as penalty charges effective August 23, 1986, until the entire amount is fully paid.The award to the plaintiff of P50,000.00 as attorney's fees is affirmed. And so is the imposition of costs against the defendants.SO ORDERED. 3

The Court required the respondents to comment on the petition, 4 which was filed on April 3, 1998, 5 and the petitioners to replythereto, which was filed on May 29, 1998. 6 We now resolve to give due course to the petition and decide the case.The facts of the case, as found by the Court of Appeals in its decision, which are considered binding and conclusive on the partiesherein, as the appeal is limited to questions of law, are as follows:On November 7, 1985, Servando Franco and Leticia Medel (hereafter Servando and Leticia) obtained a loan from Veronica R.Gonzales (hereafter Veronica), who was engaged in the money lending business under the name "Gonzales Credit Enterprises", inthe amount of P50,000.00, payable in two months. Veronica gave only the amount of P47,000.00, to the borrowers, as she retainedP3,000.00, as advance interest for one month at 6% per month. Servando and Leticia executed a promissory note for P50,000.00,to evidence the loan, payable on January 7, 1986.On November 19, 1985, Servando and Liticia obtained from Veronica another loan in the amount of P90,000.00, payable in two

months, at 6% interest per month. They executed a promissory note to evidence the loan, maturing on Janaury 19, 1986. Theyreceived only P84,000.00, out of the proceeds of the loan.On maturity of the two promissory notes, the borrowers failed to pay the indebtedness.On June 11, 1986, Servando and Leticia secured from Veronica still another loan in the amout of P300,000.00, maturing in onemonth, secured by a real estate mortgage over a property belonging to Leticia Makalintal Yaptinchay, who issued a special power ofattorney in favor of Leticia Medel, authorizing her to execute the mortgage. Servando and Leticia executed a promissory note infavor of Veronica to pay the sum of P300,000.00, after a month, or on July 11, 1986. However, only the sum of P275.000.00, wasgiven to them out of the proceeds of the loan.Like the previous loans, Servando and Medel failed to pay the third loan on maturity.On July 23, 1986, Servando and Leticia with the latter's husband, Dr. Rafael Medel, consolidated all their previous unpaid loanstotaling P440,000.00, and sought from Veronica another loan in the amount of P60,000.00, bringing their indebtedness to a total ofP500,000.00, payable on August 23, 1986. They executed a promissory note, reading as follows:Baliwag, Bulacan July 23, 1986Maturity DateAugsut 23, 1986P500,000.00

FOR VALUE RECEIVED, I/WE jointly and severally promise to pay to the order of VERONICA R. GONZALES doing business in thebusiness style of GONZALES CREDIT ENTERPRISES, Filipino, of legal age, married to Danilo G. Gonzales, Jr., of Baliwag,Bulacan, the sum of PESOS . . . FIVE HUNDRED THOUSAND . . . (P500,000.00) Philippine Currency with interest thereon at therate of 5.5 PER CENT per month plus 2% service charge per annum from date hereof until fully paid according to the amortizationschedule contained herein. (Emphasis supplied)Payment will be made in full at the maturity date.Should I/WE fail to pay any amortization or portion hereof when due, all the other installments together with all interest accrued shalimmediately be due and payable and I/WE hereby agree to pay an additional amount equivalent to one per cent (1%) per month ofthe amount due and demandable as penalty charges in the form of liquidated damages until fully paid; and the furthersum oTWENTY FIVE PER CENT (25%) thereof in full, without deductions as Attorney's Fee whether actually incurred or not, of the totaamount due and demandable, exclusive of costs and judicial or extra judicial expenses. (Emphasis supplied).I, WE further agree that in the event the present rate of interest on loan is increased by law or the Central Bank of the Philippines,the holder shall have the option to apply and collect the increased interest charges without notice although the original interest havealready been collected wholly or partially unless the contrary is required by law.It is also a special condition of this contract that the parties herein agree that the amount of peso-obligation under this agreement isbased on the present value of the peso, and if there be any change in the value thereof, due to extraordinary inflation or deflation, orany other cause or reason, then the peso-obligation herein contracted shall be adjusted in accordance with the value of the pesothen prevailing at the time of the complete fulfillment of the obligation.Demand and notice of dishonor waived. Holder may accept partial payments and grant renewals of this note or extension ofpayments, reserving rights against each and all indorsers and all parties to this note.IN CASE OF JUDICIAL Execution of this obligation, or any part of it, the debtors waive all his/their rights under the provisions ofSection 12, Rule 39, of the Revised Rules of Court.On maturity of the loan, the borrowers failed to pay the indebtedness of P500,000.00, plus interests and penalties, evidenced by theabove-quoted promissory note.

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On February 20, 1990, Veronica R. Gonzales, joined by her husband Danilo G. Gonzales, filed with the Regional Trial Court ofBulacan, Branch 16, at Malolos, Bulacan, a complaint for collection of the full amount of the loan including interests and othercharges.In his answer to the complaint filed with the trial court on April 5, 1990, defendant Servando alleged that he did not obtain any loanfrom the plaintiffs; that it was defendants Leticia and Dr. Rafael Medel who borrowed from the plaintiffs the sum of P500,000.00, andactually received the amount and benefited therefrom; that the loan was secured by a real estate mortgage executed in favor of theplaintiffs, and that he (Servando Franco) signed the promissory note only as a witness.In their separate answer filed on April 10, 1990, defendants Leticia and Rafael Medel alleged that the loan was the transaction ofLeticia Yaptinchay, who executed a mortgage in favor of the plaintiffs over a parcel of real estate situated in San Juan, Batangas;that the interest rate is excessive at 5.5% per month with additional service charge of 2% per annum, and penalty charge of 1% per

month; that the stipulation for attorney's fees of 25% of the amount due is unconscionable, illegal and excessive, and thatsubstantial payments made were applied to interest, penalties and other charges.After due trial, the lower court declared that the due execution and genuineness of the four promissory notes had been duly provedand ruled that although the Usury Law had been repealed, the interest charged by the plaintiffs on the loans was unconscionableand "revolting to the conscience". Hence, the trial court applied "the provision of the New [Civil] Code" that the "legal rate of interestfor loan or forbearance of money, goods or credit is 12% per annum." 7

Accordingly, on December 9, 1991, the trial court rendered judgment, the dispositive portion of which reads as follows:WHEREFORE, premises considered, judgment is hereby rendered, as follows:1. Ordering the defendants Servando Franco and Leticia Medel, jointly and severally, to pay plaintiffs the amount of P47,000.00 plus12% interest per annum from November 7, 1985 and 1% per month as penalty, until the entire amount is paid in full.2. Ordering the defendants Servando Franco and Leticia Y. Medel to plaintiffs, jointly and severally the amount of P84,000.00 with12% interest per annum and 1% per cent per month as penalty from November 19, 1985 until the whole amount is fully paid;3. Ordering the defendants to pay the plaintiffs, jointly and severally, the amount of P285,000.00 plus 12% interest per annum and1% per month as penalty from July 11, 1986, until the whole amount is fully paid;4. Ordering the defendants to pay plaintiffs, jointly and severally, the amount of P50,000.00 as attorney's fees;

5. All counterclaims are hereby dismissed.With costs against the defendants. 8

In due time, both plaintiffs and defendants appealed to the Court of Appeals.In their appeal, plaintiffs-appellants argued that the promissory note, which consolidated all the unpaid loans of the defendants, isthe law that governs the parties. They further argued that Circular No. 416 of the Central Bank prescribing the rate of interest forloans or forbearance of money, goods or credit at 12% per annum, applies only in the absence of a stipulation on interest rate, butnot when the parties agreed thereon.The Court of Appeals sustained the plaintiffs-appellants' contention. It ruled that "the Usury Law having become 'legally inexistentwith the promulgation by the Central Bank in 1982 of Circular No. 905, the lender and borrower could agree on any interest that maybe charged on the loan". 9The Court of Appeals further held that "the imposition of 'an additional amount equivalent to 1% per monthof the amount due and demandable as penalty charges in the form of liquidated damages until fully paid' was allowed bylaw". 10

Accordingly, on March 21, 1997, the Court of Appeals promulgated its decision reversing that of the Regional Trial Court, disposingas follows:WHEREFORE, the appealed judgment is hereby MODIFIED such that defendants are hereby ordered to pay the plaintiffs the sum

of P500,000.00, plus 5.5% per month interest and 2% service charge per annum effective July 23, 1986, plus 1% per month of thetotal amount due and demandable as penalty charges effective August 24, 1986, until the entire amount is fully paid.The award to the plaintiffs of P50,000.00 as attorney's fees is affirmed. And so is the imposition of costs against the defendants.SO ORDERED. 11

On April 15, 1997, defendants-appellants filed a motion for reconsideration of the said decision. By resolution dated November 251997, the Court of Appeals denied the motion. 12

Hence, defendants interposed the present recourse via petition for review on certiorari. 13

We find the petition meritorious.Basically, the issue revolves on the validity of the interest rate stipulated upon. Thus, the question presented is whether or not thestipulated rate of interest at 5.5% per month on the loan in the sum of P500,000.00, that plaintiffs extended to the defendants isusurious. In other words, is the Usury Law still effective, or has it been repealed by Central Bank Circular No. 905, adopted onDecember 22, 1982, pursuant to its powers under P.D. No. 116, as amended by P.D. No. 1684?We agree with petitioners that the stipulated rate of interest at 5.5% per month on the P500,000.00 loan is excessive, iniquitous,unconscionable and exorbitant. 13 However, we can not consider the rate "usurious" because this Court has consistently held thaCircular No. 905 of the Central Bank, adopted on December 22, 1982, has expressly removed the interest ceilings prescribed by theUsury Law 14 and that the Usury Law is now "legally inexistent". 15

In Security Bank and Trust Company vs. Regional Trial Court of Makati, Branch 61 16 the Court held that CB Circular No. 905 "didnot repeal nor in anyway amend the Usury Law but simply suspended the latter's effectivity." Indeed, we have held that "a CentraBank Circular can not repeal a law. Only a law can repeal another law." 17 In the recent case ofFlorendo vs. Court of Appeals18, theCourt reiterated the ruling that "by virtue of CB Circular 905, the Usury Law has been rendered ineffective". "Usury has been legallynon-existent in our jurisdiction. Interest can now be charged as lender and borrower may agree upon." 19

Nevertheless, we find the interest at 5.5% per month, or 66% per annum, stipulated upon by the parties in the promissory noteiniquitous or unconscionable, and, hence, contrary to morals ("contra bonos mores"), if not against the law. 20 The stipulation isvoid. 21 The courts shall reduce equitably liquidated damages, whether intended as an indemnity or a penalty if they are iniquitous orunconscionable. 22

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Consequently, the Court of Appeals erred in upholding the stipulation of the parties. Rather, we agree with the trial court that, underthe circumstances, interest at 12% per annum, and an additional 1% a month penalty charge as liquidated damages may be morereasonable.WHEREFORE, the Court hereby REVERSES and SETS ASIDE the decision of the Court of Appeals promulgated on March 21,1997, and its resolution dated November 25, 1997. Instead, we render judgment REVIVING and AFFIRMING the decision datedDecember 9, 1991, of the Regional Trial Court of Bulacan, Branch 16, Malolos, Bulacan, in Civil Case No. 134-M-90, involving thesame parties.No pronouncement as to costs in this instance.SO ORDERED.Narvasa, C.J., Romero, Kapunan and Purisima, JJ., concur.

G.R. No. 97412 July 12, 1994EASTERN SHIPPING LINES, INC., petitioner,vs.HON. COURT OF APPEALS AND MERCANTILE INSURANCE COMPANY, INC., respondents.

Alojada & Garcia and Jimenea, Dala & Zaragoza for petitoner.Zapa Law Office for private respondent.VITUG, J.:The issues, albeitnot completely novel, are: (a) whether or not a claim for damage sustained on a shipment of goods can be asolidary, or joint and several, liability of the common carrier, the arrastre operator and the customs broker; (b) whether the paymentof legal interest on an award for loss or damage is to be computed from the time the complaint is filed or from the date the decisionappealed from is rendered; and (c) whether the applicable rate of interest, referred to above, is twelve percent (12%) or six percent(6%).

The findings of the court a quo, adopted by the Court of Appeals, on the antecedent and undisputed facts that have led to thecontroversy are hereunder reproduced:This is an action against defendants shipping company, arrastre operator and broker-forwarder for damages sustained by ashipment while in defendants' custody, filed by the insurer-subrogee who paid the consignee the value of such losses/damages.On December 4, 1981, two fiber drums of riboflavin were shipped from Yokohama, Japan for delivery vessel "SS EASTERNCOMET" owned by defendant Eastern Shipping Lines under Bill of LadingNo. YMA-8 (Exh. B). The shipment was insured under plaintiff's Marine Insurance Policy No. 81/01177 for P36,382,466.38.Upon arrival of the shipment in Manila on December 12, 1981, it was discharged unto the custody of defendant Metro Port Service,Inc. The latter excepted to one drum, said to be in bad order, which damage was unknown to plaintiff.On January 7, 1982 defendant Allied Brokerage Corporation received the shipment from defendant Metro Port Service, Inc., onedrum opened and without seal (per "Request for Bad Order Survey." Exh. D).On January 8 and 14, 1982, defendant Allied Brokerage Corporation made deliveries of the shipment to the consignee's warehouseThe latter excepted to one drum which contained spillages, while the rest of the contents was adulterated/fake (per "Bad OrderWaybill" No. 10649, Exh. E).Plaintiff contended that due to the losses/damage sustained by said drum, the consignee suffered losses totaling P19,032.95, due

to the fault and negligence of defendants. Claims were presented against defendants who failed and refused to pay the same (Exhs.H, I, J, K, L).As a consequence of the losses sustained, plaintiff was compelled to pay the consignee P19,032.95 under the aforestated marineinsurance policy, so that it became subrogated to all the rights of action of said consignee against defendants (per "Form ofSubrogation", "Release" and Philbanking check, Exhs. M, N, and O). (pp. 85-86, Rollo.)There were, to be sure, other factual issues that confronted both courts. Here, the appellate court said:Defendants filed their respective answers, traversing the material allegations of the complaint contending that: As for defendanEastern Shipping it alleged that the shipment was discharged in good order from the vessel unto the custody of Metro Port Serviceso that any damage/losses incurred after the shipment was incurred after the shipment was turned over to the latter, is no longer itsliability (p. 17, Record); Metroport averred that although subject shipment was discharged unto its custody, portion of the same wasalready in bad order (p. 11, Record); Allied Brokerage alleged that plaintiff has no cause of action against it, not having negligent oat fault for the shipment was already in damage and bad order condition when received by it, but nonetheless, it still exercised extraordinary care and diligence in the handling/delivery of the cargo to consignee in the same condition shipment was received by it.From the evidence the court found the following:The issues are:1. Whether or not the shipment sustained losses/damages;2. Whether or not these losses/damages were sustained while in the custody of defendants (in whose respective custody, ifdeterminable);3. Whether or not defendant(s) should be held liable for the losses/damages (see plaintiff's pre-Trial Brief, Records, p. 34; Allied'spre-Trial Brief, adopting plaintiff's Records, p. 38).As to the first issue, there can be no doubt that the shipment sustained losses/damages. The two drums were shipped in good ordeand condition, as clearly shown by the Bill of Lading and Commercial Invoice which do not indicate any damages drum that wasshipped (Exhs. B and C). But when on December 12, 1981 the shipment was delivered to defendant Metro Port Service, Inc., itexcepted to one drum in bad order.Correspondingly, as to the second issue, it follows that the losses/damages were sustained while in the respective and/osuccessive custody and possession of defendants carrier (Eastern), arrastre operator (Metro Port) and broker (Allied Brokerage)

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This becomes evident when the Marine Cargo Survey Report (Exh. G), with its "Additional Survey Notes", are considered. In thelatter notes, it is stated that when the shipment was "landed on vessel" to dock of Pier # 15, South Harbor, Manila on December 12,1981, it was observed that "one (1) fiber drum (was) in damaged condition, covered by the vessel's Agent's Bad Order Tally SheetNo. 86427." The report further states that when defendant Allied Brokerage withdrew the shipment from defendant arrastreoperator's custody on January 7, 1982, one drum was found opened without seal, cello bag partly torn but contents intact. Netunrecovered spillages was15 kgs. The report went on to state that when the drums reached the consignee, one drum was found with adulterated/fakedcontents. It is obvious, therefore, that these losses/damages occurred before the shipment reached the consignee while under thesuccessive custodies of defendants. Under Art. 1737 of the New Civil Code, the common carrier's duty to observe extraordinarydiligence in the vigilance of goods remains in full force and effect even if the goods are temporarily unloaded and stored in transit in

the warehouse of the carrier at the place of destination, until the consignee has been advised and has had reasonable opportunityto remove or dispose of the goods (Art. 1738, NCC). Defendant Eastern Shipping's own exhibit, the "Turn-Over Survey of Bad OrderCargoes" (Exhs. 3-Eastern) states that on December 12, 1981 one drum was found "open".and thus held:WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered:A. Ordering defendants to pay plaintiff, jointly and severally:1. The amount of P19,032.95, with the present legal interest of 12% per annum from October 1, 1982, the date of filing of thiscomplaints, until fully paid (the liability of defendant Eastern Shipping, Inc. shall not exceed US$500 per case or the CIF value of theloss, whichever is lesser, while the liability of defendant Metro Port Service, Inc. shall be to the extent of the actual invoice value ofeach package, crate box or container in no case to exceed P5,000.00 each, pursuant to Section 6.01 of the Management Contract);2. P3,000.00 as attorney's fees, and3. Costs.B. Dismissing the counterclaims and crossclaim of defendant/cross-claimant Allied Brokerage Corporation.SO ORDERED. (p. 207, Record).Dissatisfied, defendant's recourse to US.

The appeal is devoid of merit.After a careful scrutiny of the evidence on record. We find that the conclusion drawn therefrom is correct. As there is sufficientevidence that the shipment sustained damage while in the successive possession of appellants, and therefore they are liable to theappellee, as subrogee for the amount it paid to the consignee. (pp. 87-89, Rollo.)The Court of Appeals thus affirmed in toto the judgment of the courta quo.In this petition, Eastern Shipping Lines, Inc., the common carrier, attributes error and grave abuse of discretion on the part of theappellate court when I. IT HELD PETITIONER CARRIER JOINTLY AND SEVERALLY LIABLE WITH THE ARRASTRE OPERATOR AND CUSTOMSBROKER FOR THE CLAIM OF PRIVATE RESPONDENT AS GRANTED IN THE QUESTIONED DECISION;II. IT HELD THAT THE GRANT OF INTEREST ON THE CLAIM OF PRIVATE RESPONDENT SHOULD COMMENCE FROM THEDATE OF THE FILING OF THE COMPLAINT AT THE RATE OF TWELVE PERCENT PER ANNUMINSTEAD OF FROM THEDATE OF THE DECISION OF THE TRIAL COURT AND ONLY AT THE RATE OF SIX PERCENT PER ANNUM, PRIVATERESPONDENT'S CLAIM BEING INDISPUTABLY UNLIQUIDATED.The petition is, in part, granted.

In this decision, we have begun by saying that the questions raised by petitioner carrier are not all that novel. Indeed, we do have afairly good number of previous decisions this Court can merely tack to.The common carrier's duty to observe the requisite diligence in the shipment of goods lasts from the time the articles aresurrendered to or unconditionally placed in the possession of, and received by, the carrier for transportation until delivered to, ountil the lapse of a reasonable time for their acceptance by, the person entitled to receive them (Arts. 1736-1738, Civil Code;Ganzon vs. Court of Appeals, 161 SCRA 646; Kui Bai vs. Dollar Steamship Lines, 52 Phil. 863). When the goods shipped either arelost or arrive in damaged condition, a presumption arises against the carrier of its failure to observe that diligence, and there neednot be an express finding of negligence to hold it liable (Art. 1735, Civil Code; Philippine National Railways vs. Court of Appeals, 139SCRA 87; Metro Port Service vs. Court of Appeals, 131 SCRA 365). There are, of course, exceptional cases when suchpresumption of fault is not observed but these cases, enumerated in Article 1734 1of the Civil Code, are exclusive, not one of whichcan be applied to this case.The question of charging both the carrier and the arrastre operator with the obligation of properly delivering the goods to theconsignee has, too, been passed upon by the Court. In Fireman's Fund Insurance vs. Metro Port Services (182 SCRA 455), wehave explained, in holding the carrier and the arrastre operator liable in solidum,thus:The legal relationship between the consignee and the arrastre operator is akin to that of a depositor and warehouseman (Lua Kianv. Manila Railroad Co., 19 SCRA 5 [1967]. The relationship between the consignee and the common carrier is similar to that of theconsignee and the arrastre operator (Northern Motors, Inc. v. Prince Line, et al., 107 Phil. 253 [1960]). Since it is the duty of theARRASTRE to take good care of the goods that are in its custody and to deliver them in good condition to the consignee, suchresponsibility also devolves upon the CARRIER. Both the ARRASTRE and the CARRIER are therefore charged with the obligationto deliver the goods in good condition to the consignee.We do not, of course, imply by the above pronouncement that the arrastre operator and the customs broker are themselves alwaysand necessarily liable solidarily with the carrier, orvice-versa, nor that attendant facts in a given case may not vary the rule. Theinstant petition has been brought solely by Eastern Shipping Lines, which, being the carrier and not having been able to rebut thepresumption of fault, is, in any event, to be held liable in this particular case. A factual finding of both the court a quo and theappellate court, we take note, is that "there is sufficient evidence that the shipment sustained damage while in the successive

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possession of appellants" (the herein petitioner among them). Accordingly, the liability imposed on Eastern Shipping Lines, Inc., thesole petitioner in this case, is inevitable regardless of whether there are others solidarily liable with it.It is over the issue of legal interest adjudged by the appellate court that deserves more than just a passing remark.Let us first see a chronological recitation of the major rulings of this Court:The early case of Malayan Insurance Co., Inc ., vs. Manila PortService, 2decided 3on 15 May 1969, involved a suit forrecovery of money arising out of short deliveries and pilferage of goods. Inthis case, appellee Malayan Insurance (the plaintiff in the lower court) averred in its complaint that the total amount of its claim forthe value of the undelivered goods amounted to P3,947.20. This demand, however, was neither established in its totality nordefinitely ascertained. In the stipulation of facts later entered into by the parties, in lieu of proof, the amount of P1,447.51 wasagreed upon. The trial court rendered judgment ordering the appellants (defendants) Manila Port Service and Manila Railroad

Company to pay appellee Malayan Insurance the sum of P1,447.51 with legal interest thereon from the date the complaint was filedon 28 December 1962 until full payment thereof. The appellants then assailed, inter alia, the award of legal interest. In sustainingthe appellants, this Court ruled:Interest upon an obligation which calls for the payment of money, absent a stipulation, is the legal rate. Such interest normally isallowable from the date of demand, judicial or extrajudicial. The trial court opted for judicial demand as the starting point.But then upon the provisions of Article 2213 of the Civil Code, interest "cannot be recovered upon unliquidated claims or damages,except when the demand can be established with reasonable certainty." And as was held by this Court in Rivera vs. Perez, 4L-6998February 29, 1956, if the suit were for damages, "unliquidated and not known until definitely ascertained, assessed and determinedby the courts after proof (Montilla c .Corporacion de P.P. Agustinos, 25 Phil. 447; Lichauco v. Guzman,38 Phil. 302)," then, interest"should be from the date of the decision." (Emphasis supplied)The case ofReformina vs. Tomol, 5rendered on 11 October 1985, was for "Recovery of Damages for Injury to Person and Loss ofProperty."After trial, the lower court decreed:WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and third party defendants and against the defendants and thirdparty plaintiffs as follows:Ordering defendants and third party plaintiffs Shell and Michael, Incorporated to pay jointly and severally the following persons:

xxx xxx xxx(g) Plaintiffs Pacita F. Reformina and Francisco Reformina the sum of P131,084.00 which is the value of the boat F B Pacita IIItogether with its accessories, fishing gear and equipment minus P80,000.00 which is the value of the insurance recovered and theamount of P10,000.00 a month as the estimated monthly loss suffered by them as a result of the fire of May 6, 1969 up to the timethey are actually paid or already the total sum of P370,000.00 as of June 4, 1972 with legal interest from the filing of the complainuntil paidand to pay attorney's fees of P5,000.00 with costs against defendants and third party plaintiffs. (Emphasis supplied.)On appeal to the Court of Appeals, the latter modified the amount of damages awarded but sustained the trial court inadjudging legal interest from the filing of the complaint until fully paid. When the appellate court's decision became final, the casewas remanded to the lower court for execution, and this was when the trial court issued its assailed resolution which applied the 6%interestper annum prescribed in Article 2209 of the Civil Code. In their petition for review on certiorari, the petitioners contendedthat Central Bank CircularNo. 416, providing thus By virtue of the authority granted to it under Section 1 of Act 2655, as amended, Monetary Board in its Resolution No. 1622 datedJuly 29, 1974, has prescribed that the rate of interest for the loan, or forbearance of any money, goods, or credits and the rateallowed in judgments, in the absence of express contract as to such rate of interest, shall be twelve (12%) percent per annum. This

Circular shall take effect immediately. (Emphasis found in the text) should have, instead, been applied. This Court 6ruled:The judgments spoken of and referred to are judgments in litigations involving loans or forbearance of any money, goods or credits.Any other kind of monetary judgment which has nothing to do with, nor involving loans or forbearance of any money, goods ocredits does not fall within the coverage of the said law for it is not within the ambit of the authority granted to the Central Bank.xxx xxx xxxComing to the case at bar, the decision herein sought to be executed is one rendered in an Action for Damages for injury to personsand loss of property and does not involve any loan, much less forbearances of any money, goods or credits. As correctly argued bythe private respondents, the law applicable to the said case is Article 2209 of the New Civil Code which reads Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for damagesthere being no stipulation to the contrary, shall be the payment of interest agreed upon, and in the absence of stipulation, the legalinterest which is six percent per annum.The above rule was reiterated in Philippine Rabbit Bus Lines, Inc., v. Cruz, 7promulgated on 28 July 1986. The case was fodamages occasioned by an injury to person and loss of property. The trial court awarded private respondent Pedro Manabat actualand compensatory damages in the amount of P72,500.00 with legal interest thereon from the filing of the complaint until fully paidRelying on the Reformina v. Tomolcase, this Court 8modified the interest award from 12% to 6% interest per annum but sustainedthe time computation thereof, i.e., from the filing of the complaint until fully paid.In Nakpil and Sons vs. Court of Appeals, 9the trial court, in an action for the recovery of damages arising from the collapse of abuilding, ordered,inter alia, the "defendant United Construction Co., Inc. (one of the petitioners). . . to pay the plaintiff, . . . , the sum of P989,335.68 with interest at the legal rate from November 29, 1968, the date of the filing ofthe complaint until full payment. . . ." Save from the modification of the amount granted by the lower court, the Court of Appealssustained the trial court's decision. When taken to this Court for review, the case, on 03 October 1986, was decided, thus:WHEREFORE, the decision appealed from is hereby MODIFIED and considering the special and environmental circumstances ofthis case, we deem it reasonable to render a decision imposing, as We do hereby impose, upon the defendant and the third-partydefendants (with the exception of Roman Ozaeta) a solidary (Art. 1723, Civil Code, Supra.

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p. 10) indemnity in favor of the Philippine Bar Association of FIVE MILLION (P5,000,000.00) Pesos to cover all damages (with theexception to attorney's fees) occasioned by the loss of the building (including interest charges and lost rentals) and an additionalONE HUNDRED THOUSAND (P100,000.00) Pesos as and for attorney's fees, the total sum being payable upon the finality of thisdecision. Upon failure to pay on such finality, twelve (12%) per cent interest per annum shall be imposed upon aforementionedamounts from finality until paid. Solidary costs against the defendant and third-party defendants (Except Roman Ozaeta). (Emphasissupplied)A motion for reconsideration was filed by United Construction, contending that "the interest of twelve (12%) per cent perannum imposed on the total amount of the monetary award was in contravention of law." The Court 10ruled out the applicability othe Reformina and Philippine Rabbit Bus Lines cases and, in its resolution of 15 April 1988, it explained:There should be no dispute that the imposition of 12% interest pursuant to Central Bank Circular No. 416 . . . is applicable only in

the following: (1) loans; (2) forbearance of any money, goods or credit; and(3) rate allowed in judgments (judgments spoken of refer to judgments involving loans or forbearance of any money, goods orcredits. (Philippine Rabbit Bus Lines Inc. v. Cruz, 143 SCRA 160-161 [1986]; Reformina v. Tomol, Jr., 139 SCRA 260 [1985]). It istrue that in the instant case, there is neither a loan or a forbearance, but then no interest is actually imposed provided the sumsreferred to in the judgment are paid upon the finality of the judgment. It is delay in the payment of such final judgment, that willcause the imposition of the interest.It will be noted that in the cases already adverted to, the rate of interest is imposed on the total sum, from the filing of the complaintuntil paid; in other words, as part of the judgment for damages. Clearly, they are not applicable to the instant case. (Emphasissupplied.)The subsequent case ofAmerican Express International, Inc., vs. Intermediate Appellate Court11was a petition for reviewon certiorarifrom the decision, dated 27 February 1985, of the then Intermediate Appellate Court reducing the amount of moral andexemplary damages awarded by the trial court, to P240,000.00 and P100,000.00, respectively, and its resolution, dated 29 Apri1985, restoring the amount of damages awarded by the trial court, i.e., P2,000,000.00 as moral damages and P400,000.00 asexemplary damages with interest thereon at 12% per annum from notice of judgment, plus costs of suit. In a decision of 09November 1988, this Court, while recognizing the right of the private respondent to recover damages, held the award, however, fo

moral damages by the trial court, later sustained by the IAC, to be inconceivably large. The Court12

thus set aside the decision othe appellate court and rendered a new one, "ordering the petitioner to pay private respondent the sum of One Hundred Thousand(P100,000.00) Pesos as moral damages, withsix (6%) percent interest thereon computed from the finality of this decision until paid. (Emphasis supplied)Reformina came into fore again in the 21 February 1989 case ofFlorendo v. Ruiz13which arose from a breach of employmencontract. For having been illegally dismissed, the petitioner was awarded by the trial court moral and exemplary damages without,however, providing any legal interest thereon. When the decision was appealed to the Court of Appeals, the latter held:WHEREFORE, except as modified hereinabove the decision of the CFI of Negros Oriental dated October 31, 1972 is affirmed in alrespects, with the modification that defendants-appellants, except defendant-appellant Merton Munn, are ordered to pay, jointly andseverally, the amounts stated in the dispositive portion of the decision, including the sum of P1,400.00 in concept of compensatorydamages, with interest at the legal rate from the date of the filing of the complaint until fully paid(Emphasis supplied.)The petition for review to this Court was denied. The records were thereupon transmitted to the trial court, and an entry of judgmentwas made. The writ of execution issued by the trial court directed that only compensatory damages should earn interest at 6% perannum from the date of the filing of the complaint. Ascribing grave abuse of discretion on the part of the trial judge, a petitionforcertiorariassailed the said order. This Court said:

. . . , it is to be noted that the Court of Appeals ordered the payment of interest "at the legal rate" from the time of the filing of thecomplaint. . . Said circular [Central Bank Circular No. 416] does not apply to actions based on a breach of employment contract likethe case at bar. (Emphasis supplied)The Court reiterated that the 6% interest per annum on the damages should be computed from the time the complaint was filed untithe amount is fully paid.Quite recently, the Court had another occasion to rule on the matter. National Power Corporation vs. Angas, 14decided on 08 May1992, involved the expropriation of certain parcels of land. After conducting a hearing on the complaints for eminent domain, the triacourt ordered the petitioner to pay the private respondents certain sums of money as just compensation for their lands soexpropriated "with legal interest thereon . . . until fully paid." Again, in applying the 6% legal interest per annum under the Civil Codethe Court 15declared:. . . , (T)he transaction involved is clearly not a loan or forbearance of money, goods or credits but expropriation of certain parcels ofland for a public purpose, the payment of which is without stipulation regarding interest, and the interest adjudged by the trial courtis in the nature of indemnity for damages. The legal interest required to be paid on the amount of just compensation for theproperties expropriated is manifestly in the form of indemnity for damages for the delay in the payment thereof. Therefore, since thekind of interest involved in the joint judgment of the lower court sought to be enforced in this case is interest by way of damagesand not by way of earnings from loans, etc. Art. 2209 of the Civil Code shall apply.Concededly, there have been seeming variances in the above holdings. The cases can perhaps be classified into two groupsaccording to the similarity of the issues involved and the corresponding rulings rendered by the court. The "first group" would consistof the cases of Reformina v. Tomol(1985), Philippine Rabbit Bus Lines v. Cruz(1986), Florendo v. Ruiz(1989)and National Power Corporation v. Angas (1992). In the "second group" would be Malayan Insurance Company v.Manila PorService (1969), Nakpil and Sons v. Court of Appeals (1988), andAmerican Express International v.Intermediate AppellateCourt(1988).In the "first group", the basic issue focuses on the application of either the 6% (under the Civil Code) or 12% (under the CentralBank Circular) interestper annum. It is easily discernible in these cases that there has been a consistent holding that the CentraBank Circular imposing the 12% interest per annum applies only to loans or forbearance 16of money, goods or credits, as well as tojudgments involving such loan or forbearance of money, goods or credits, and that the 6% interest under the Civil Code governs

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when the transaction involves the payment of indemnities in the concept of damage arising from the breach or a delay in theperformance of obligations in general. Observe, too, that in these cases, a common time frame in the computation of the 6%interest per annum has been applied, i.e., from the time the complaint is filed until the adjudged amount is fully paid.The "second group", did not alter the pronounced rule on the application of the 6% or 12% interest per annum, 17depending onwhether or not the amount involved is a loan or forbearance, on the one hand, or one of indemnity for damage, on the other hand.Unlike, however, the "first group" which remained consistent in holding that the running of the legal interest should be from the timeof the filing of the complaint until fully paid, the "second group" varied on the commencement of the running of the legal interest.Malayan held that the amount awarded should bear legal interest from the date of the decision of the court a quo, explaining that "ithe suit were for damages, 'unliquidated and not known until definitely ascertained, assessed and determined by the courts afterproof,' then, interest 'should be from the date of the decision.'" American Express International v. IAC, introduced a different time

frame for reckoning the 6% interest by ordering it to be "computed from the finality of (the) decision until paid." The Nakpil and Sonscase ruled that 12% interest per annum should be imposed from the finality of the decision until the judgment amount is paid.The ostensible discord is not difficult to explain. The factual circumstances may have called for different applications, guided by therule that the courts are vested with discretion, depending on the equities of each case, on the award of interest. Nonetheless, it maynot be unwise, by way of clarification and reconciliation, to suggest the following rules of thumb for future guidance.I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts 18is breached, thecontravenor can be held liable for damages. 19The provisions under Title XVIII on "Damages" of the Civil Code govern indetermining the measure of recoverable damages. 20

II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as welas the accrual thereof, is imposed, as follows:1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, theinterest due should be that which may have been stipulated in writing. 21Furthermore, the interest due shall itself earn legal interesfrom the time it is judicially demanded. 22In the absence of stipulation, the rate of interest shall be 12% per annum to be computedfrom default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 23of the Civil Code.2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded

may be imposed at the discretion of the court24

at the rate of 6% per annum.25

No interest, however, shall be adjudged onunliquidated claims or damages except when or until the demand can be established with reasonable certainty. 26Accordinglywhere the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judiciallyor extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand ismade, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification ofdamages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in anycase, be on the amount finally adjudged.3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether thecase falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interimperiod being deemed to be by then an equivalent to a forbearance of credit.WHEREFORE, the petition is partly GRANTED. The appealed decision is AFFIRMED with the MODIFICATION that the legalinterest to be paid is SIX PERCENT (6%) on the amount due computed from the decision, dated03 February 1988, of the court a quo. A TWELVE PERCENT (12%) interest, in lieu of SIX PERCENT (6%), shall be imposed onsuch amount upon finality of this decision until the payment thereof.SO ORDERED.

NEW SAMPAGUITA BUILDERS G.R. No. 148753CONSTRUCTION, INC. (NSBCI)and Spouses EDUARDO R. DEE Present:and ARCELITA M. DEE,

Petitioners, Panganiban, J,Chairman,

Sandoval-Gutierrez,Corona,* and

- versus - Carpio Morales, JJ

PHILIPPINE NATIONAL BANK, Promulgated:Respondent.

July 30, 2004x -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- x

DECISION

PANGANIBAN, J.:

ourts have the authority to strike down or to modify provisions in promissory notes that grant the lenders unrestrained power toincrease interest rates, penalties and other charges at the latters sole discretion and without giving prior notice

to and securing the consent of the borrowers. This unilateral__________________* On leave.

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authority is anathema to the mutuality of contracts and enable lenders to take undue advantage of borrowers. Although the UsuryLaw has been effectively repealed, courts may still reduce iniquitous or unconscionable rates charged for the use omoney. Furthermore, excessive interests, penalties and other charges not revealed in disclosure statements issued by banks, even istipulated in the promissory notes, cannot be given effect under the Truth in Lending Act.The Case

Before us is a Petition for Review [1]under Rule 45 of the Rules of Court, seeking to nullify the June 20, 2001 Decision [2] o

the Court of Appeals[3](CA) in CA-GR CV No. 55231. The decretal portion of the assailed Decision reads as follows:

WHEREFORE, the decision of the Regional Trial Court of Dagupan City, Branch 40 dated December 28, 1995is REVERSED and SET ASIDE. The foreclosure proceedings of the mortgaged properties of defendants-appellees[4]andthe February 26, 1992 auction sale are declared legal and valid and said defendants-appellees are ordered to pay plaintiff-appellant PNB,[5] jointly and severally[,] the amount of deficiency that will be computed by the trial court based on theoriginal penalty of 6% per annum as explicitly stated in the loan documents and to pay attorneys fees in an amountequivalent to x x x 1% of the total amount due and the costs of suit and expenses of litigation. [6]

The Facts

The facts are narrated by the CA as follows:On February 11, 1989, Board Resolution No. 05, Series of 1989 was approved by [Petitioner] NSBCI [1)]

authorizing the company to x x x apply for or secure a commercial loan with the PNB in an aggregate amount of P8.0M,under such terms agreed by the Bank and the NSBCI, using or mortgaging the real estate properties registered in the

name of its President and Chairman of the Board [Petitioner] Eduardo R. Dee as collateral; [and] 2) authorizing [petitioner-spouses] to secure the loan and to sign any [and all] documents which may be required by [Respondent] PNB[,] and that[petitioner-spouses] shall act as sureties or co-obligors who shall be jointly and severally liable with [Petitioner] NSBCI forthe payment of any [and all] obligations.

On August 15, 1989, Resolution No. 77 was approved by granting the request of [Respondent] PNB thru its

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

1) MWSS Watermain;2) NEA-Liberty farm;3) Olongapo City Pag-Asa Public Market;4) Renovation of COA-NCR Buildings 1, 2 and 9;Dupels, Inc., Extensive prawn farm development project;6) Banawe Hotel Phase II;

7) Clark Air Base -- Barracks and Buildings; andOthers: EDSA Lighting, Roxas Blvd. Painting NEA Sapang Palay and Angeles City.

The loan of [Petitioner] NSBCI was secured by a first mortgage on the following: a) three (3) parcels of residential

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

The loan was further secured by the joint and several signatures of [Petitioners] Eduardo Dee and Arcelita

Marquez Dee, who signed as accommodation-mortgagors since all the collaterals were owned by them and registered intheir names.

Moreover [Petitioner] NSBCI executed the following documents, viz: a) promissory note dated June 29, 1989 in

the amount of P5,000,000.00 with due date on October 27, 1989; [b)] promissory note dated September 1, 1989 in theamount of P2,700,000.00 with due date on December 30, 1989; and c) promissory note dated September 6, 1989 in theamount of P300,000.00 with maturity date on January 4, 1990.

In addition, [petitioner] corporation also signed the Credit Agreement dated August 31, 1989 relating to the

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

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On August 31, 1989, [petitioner-spouses] executed a Joint and Solidary Agreement (JSA) in favor of[Respondent] PNB unconditionally and irrevocably binding themselves to be jointly and severally liable with the borrowerfor the payment of all sums due and payable to the Bank under the Credit Document.

Later on, [Petitioner] NSBCI failed to comply with its obligations under the promissory notes.On June 18, 1991, [Petitioner] Eduardo R. Dee on behalf of [Petitioner] NSBCI sent a letter to the Branch

Manager of the PNB Dagupan Branch requesting for a 90-day extension for the payment of interests and restructuring ofits loan for another term.

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

In a meeting held on August 12, 1991, [Respondent] PNBs representative[,] Mr. Rolly Cruzabra, was informed by

[Petitioner] Eduardo Dee of his intention to remit to [Respondent] PNB post-dated checks covering interests, penalties andpart of the loan principals of his due account.

On August 22, 1991, [Respondent] banks Crispin Carcamo wrote [Petitioner] Eduardo Dee[,] informing him that

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

On September 6, 1991, [Petitioner] Eduardo Dee wrote the PNB Branch Manager reiterating his proposals for the

settlement of [Petitioner] NSBCIs past due loan account amounting to P7,019,231.33.

[Petitioner] Eduardo Dee later tendered four (4) post-dated Interbank checks aggregating P1,111,306.67 in favor

of [Respondent] PNB, viz:

Check No. Date Amount

03500087 Sept. 29, 1991 P277,826.7003500088 Oct. 29, 1991 P277,826.7003500089 Nov. 29, 1991 P277,826.7003500090 Dec. 20, 1991 P277,826.57

Upon presentment[,] however, x x x check nos. 03500087 and 03500088 dated September 29 and October 29,

1991 were dishonored by the drawee bank and returned due [to] a stop payment order from [petitioners].On November 12, 1991, PNBs Mr. Carcamo wrote [Petitioner] Eduardo Dee informing him that unless the

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

[Petitioners] nevertheless failed to pay their loan obligations within the [timeframe] given them and as a result,

[Respondent] PNB filed with the Provincial Sheriff of Pangasinan at Lingayen a Petition for Sale under Act 3135, asamended[,] and Presidential Decree No. 385 dated January 30, 1992.

The notice of extra-judicial sale of the mortgaged properties relating to said PNBs [P]etition for [S]ale waspublished in the February 8, 15 and 22, 1992 issues of the Weekly Guardian, allegedly a newspaper of general circulationin the Province of Pangasinan, including the cities of Dagupan and San Carlos. In addition[,] copies of the notice wereposted in three (3) public places[,] and copies thereof furnished [Petitioner] NSBCI at 1611 [ERDC Building,] E. RodriguezSr. Avenue, Quezon City, [and at] 555 Shaw Blvd., Mandaluyong[, Metro Manila;] and [Petitioner] Sps. Eduardo andArcelita Dee at 213 Wilson St., San Juan, Metro Manila.

On February 26, 1992, the Provincial Deputy Sheriff Cresencio F. Ferrer of Lingayen, Pangasinan foreclosed thereal estate mortgage and sold at public auction the mortgaged properties of [petitioner-spouses,] with [Respondent] PNBbeing declared the highest bidder for the amount of P10,334,000.00.

On March 2, 1992, copies of the Sheriffs Certificate of Sale were sent by registered mail to [petitioner]corporations address at 1611 [ERDC Building,] E. Rodriguez Sr. Avenue, Quezon City and [petitioner-spouses] address at213 Wilson St., San Juan, Metro Manila.

On April 6, 1992, the PNB Dagupan Branch Manager sent a letter to [petitioners] at their address at 1611 [ERDCBuilding,] E. Rodriguez Sr. Avenue, Quezon City[,] informing them that the properties securing their loan account [had]

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been sold at public auction, that the Sheriffs Certificate of Sale had been registered with the Registry of Deeds ofPangasinan on March 13, 1992[,] and that a period of one (1) year therefrom [was] granted to them within which to redeemtheir properties.

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

On August 4, 1992, [Respondent] PNB informed [Petitioner] NSBCI that the proceeds of the sale conducted onFebruary 26, 1992 were not sufficient to cover its total claim amounting to P12,506,476.43[,] and thus demanded from the

latter the deficiency of P2,172,476.43 plus interest and other charges[,] until the amount [was] fully paid.[Petitioners] refused to pay the above deficiency claim which compelled [Respondent] PNB to institute the instant

[C]omplaint for the collection of its deficiency claim.Finding that the PNB debt relief package automatically [granted] to [Petitioner] NSBCI the benefits under the

program, the court a quo ruled in favor of [petitioners] in its Decision dated December 28, 1995, the fallo of which reads:In view of the foregoing, the Court believes and so holds that the [respondent] has no cause of action

against the [petitioners].

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WHEREFORE, the case is hereby DISMISSED, without costs.[9]

On appeal, respondent assailed the trial courts Decision dismissing its deficiency claim on the mortgage debt. It alsochallenged the ruling of the lower court that Petitioner NSBCIs loan account was bloated, and that the inadequacy of the bid pricewas sufficient to set aside the auction sale.Ruling of the Court of Appeals

Reversing the trial court, the CA held that Petitioner NSBCI did not avail itself of respondents debt relief package (DRP) or

take steps to comply with the conditions for qualifying under the program. The appellate court also ruled that entitlement to theprogram was not a matter of right, because such entitlement was still subject to the approval of higher bank authorities, based ontheir assessment of the borrowers repayment capability and satisfaction of other requirements.

As to the misapplication of loan payments, the CA held that the subsidiary ledgers of NSBCIs loan accounts with

respondent reflected all the loan proceeds as well as the partial payments that had been applied either to the principal or to theinterests, penalties and other charges. Having been made in the ordinary and usual course of the banking business of respondentits entries were presumed accurate, regular and fair under Section 5(q) of Rule 131 of the Rules of Court. Petitioners failed to rebuthis presumption.

The increases in the interest rates on NSBCIs loan were also held to be authorized by law and the Monetary Board and --like the increases in penalty rates -- voluntarily and freely agreed upon by the parties in the Credit Agreements theyexecuted. Thus, these increases were binding upon petitioners.

However, after considering that two to three of Petitioner NSBCIs projects covered by the loan were affected by the

economic slowdown in the areas near the military bases in the cities of Angeles and Olongapo, the appellate court annulled anddeleted the adjustment in penalty from 6 percent to 36 percent per annum. Not only did respondent fail to demonstrate theexistence of market forces and economic conditions that would justify such increases; it could also have treated petitioners requestfor restructuring as a request for availment of the DRP. Consequently, the original penalty rate of 6 percent per annum was used tocompute the deficiency claim.

The auction sale could not be set aside on the basis of the inadequacy of the auction price, because in sales made atpublic auction, the owner is given the right to redeem the mortgaged properties; the lower the bid price, the easier it is to effectredemption or to sell such right. The bid price ofP10,334,000.00 vis--vis respondents claim of P12,506,476.43 was found to beneither shocking nor unconscionable.

The attorneys fees were also reduced by the appellate court from 10 percent to 1 percent of the total indebtedness. Firstthere was no extreme difficulty in an extrajudicial foreclosure of a real estate mortgage, as this proceeding was merelyadministrative in nature and did not involve a court litigation contesting the proceedings prior to the auction sale. Second, theattorneys fees were exclusive of all stipulated costs and fees. Third, such fees were in the nature of liquidated damages that did

not inure to respondents salaried counsel.

Respondent was also declared to have the unquestioned right to foreclose the Real Estate Mortgage. It was allowed torecover any deficiency in the mortgage account not realized in the foreclosure sale, since petitioner-spouses had agreed to besolidarily liable for all sums due and payable to respondent.

Finally, the appellate court concluded that the extrajudicial foreclosure proceedings and auction sale were valid for thefollowing reasons: (1) personal notice to the mortgagors, although unnecessary, was actually made; (2) the notice of extrajudicialsale was duly published and posted; (3) the extrajudicial sale was conducted through the deputy sheriff, under the direction of theclerk of court who was concurrently the ex-oficio provincial sheriff and acting as agent of respondent; (4) the sale was conductedwithin the province where the mortgaged properties were located; and (5) such sale was not shown to have been attended by fraud.

Hence this Petition.[10]

Issues

Petitioners submit the following issues for our consideration:

I

Whether or not the Honorable Court of Appeals correctly ruled that petitioners did not avail of PNBs debt relief packageand were not entitled thereto as a matter of right.

II

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Whether or not petitioners have adduced sufficient and convincing evidence to overthrow the presumption of regularity andcorrectness of the PNB entries in the subsidiary ledgers of the loan accounts of petitioners.

III

Whether or not the Honorable Court of Appeals seriously erred in not holding that the Respondent PNB bloated the loanaccount of petitioner corporation by imposing interests, penalties and attorneys fees without legal, valid and equitablejustification.IV

Whether or not the auction price at which the mortgaged properties was sold was disproportionate to their actual fairmortgage value.VWhether or not Respondent PNB is not entitled to recover the deficiency in the mortgage account not realized in theforeclosure sale, considering that:

A. Petitioners are merely guarantors of the mortgage debt of petitioner corporation which has a separate personalityfrom the [petitioner-spouses].

B. The joint and solidary agreement executed by [petitioner- spouses] are contracts of adhesion not binding on

them;

C. The NSBCI Board Resolution is not valid and binding on [petitioner-spouses] because they were compelled toexecute the said Resolution[;] otherwise[,] Respondent PNB would not grant petitioner corporation the loan;

D. The Respondent PNB had already in its possession the properties of the [petitioner-spouses] which served as a

collateral to the loan obligation of petitioner corporation[,] and to still allow Respondent PNB to recover thedeficiency claim amounting to a very substantial amount of P2.1 million would constitute unjust enrichment on thepart of Respondent PNB.

VIWhether or not the extrajudicial foreclosure proceedings and auction sale, including all subsequent proceedings[,] are nulland void for non-compliance with jurisdictional and other mandatory requirements; whether or not the petition forextrajudicial foreclosure of mortgage was filed prematurely; and whether or not the finding of fraud by the trial court isamply supported by the evidence on record.[11]

The foregoing may be summed up into two main issues: first, whether the loan accounts are bloated; and second, whethethe extrajudicial foreclosure and subsequent claim for deficiency are valid and proper.The Courts Ruling

The Petition is partly meritorious.

First Main Issue:Bloated Loan Accounts

At the outset, it must be stressed that only questions of law[12] may be raised in a petition for review on certiorari under Rule45 of the Rules of Court. As a rule, questions of fact cannot be the subject of this mode of appeal,[13]for [t]he Supreme Court is noa trier of facts.[14]As exceptions to this rule, however, factual findings of the CA may be reviewed on appeal [15] when, inter alia, thefactual inferences are manifestly mistaken;[16] the judgment is based on a misapprehension of facts;[17]or the CA manifestlyoverlooked certain relevant and undisputed facts that, if properly considered, would justify a different legal conclusion .[18] In thepresent case, these exceptions exist in various instances, thus prompting us to take cognizance of factual issues and to decideupon them in the interest of justice and in the exercise of our sound discretion. [19]

Indeed, Petitioner NSBCIs loan accounts with respondent appear to be bloated with some iniquitous imposition ointerests, penalties, other charges and attorneys fees. To demonstrate this point, the Court shall take up one by one the promissorynotes, the credit agreements and the disclosure statements.

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Increases in Interest Baseless

Promissory Notes. In each drawdown, the Promissory Notes specified the interest rate to be charged: 19.5 percent in thefirst, and 21.5 percent in the second and again in the third. However, a uniform clause therein permitted respondent to increase therate within the limits allowed by law at any time depending on whatever policy it may adopt in the future x x x, [20] without evengiving prior notice to petitioners. The Court holds that petitioners accessory duty to pay interest[21]did not give respondenunrestrained freedom to charge any rate other than that which was agreed upon. No interest shall be due, unless expresslystipulated in writing.[22] It would be the zenith of farcicality to specify and agree upon rates that could be subsequently upgraded atwhim by only one party to the agreement.

The unilateral determination and imposition[23]

of increased rates is violative of the principle of mutuality of contractsordained in Article 1308[24] of the Civil Code.[25] One-sided impositions do not have the force of law between the parties, becausesuch impositions are not based on the parties essential equality.

Although escalation clauses[26]are valid in maintaining fiscal stability and retaining the value of money on long-termcontracts,[27]giving respondent an unbridled right to adjust the interest independently and upwardly would completely take awayfrom petitioners the right to assent to an important modification in their agreement [28] and would also negate the element omutuality in their contracts. The clause cited earlier made the fulfillment of the contracts dependent exclusively upon theuncontrolled will[29]of respondent and was therefore void. Besides, the pro forma promissory notes have the character of a contracdadhsion,[30]where the parties do not bargain on equal footing, the weaker partys [the debtors] participation being reduced to thealternative to take it or leave it.[31]

While the Usury Law[32] ceiling on interest rates was lifted by [Central Bank] Circular No. 905, [33] nothing in the said Circula

grants lenderscarte blanche authority to raise interest rates to levels which will either enslave their borrowers or lead to ahemorrhaging of their assets.[34] In fact, we have declared nearly ten years ago that neither this Circular nor PD 1684, which further

amended the Usury Law,

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authorized either party to unilaterally raise the interest rate without the others consent. [35]

Moreover, a similar case eight years ago pointed out to the same respondent (PNB) that borrowing signified a capitaltransfusion from lending institutions to businesses and industries and was done for the purpose of stimulating their growth; yetrespondents continued unilateral and lopsided policy [36] of increasing interest rates without the prior assent [37] of the borrower noonly defeats this purpose, but also deviates from this pronouncement. Although such increases are not usurious, since the UsuryLaw is now legally inexistent[38] -- the interest ranging from 26 percent to 35 percent in the statements of account [39] -- must beequitably reduced for being iniquitous, unconscionable and exorbitant.[40] Rates found to be

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iniquitous or unconscionable are void, as if it there were no express contract thereon. [41]Above all, it is undoubtedlyagainst public policy to charge excessively for the use of money. [42]

It cannot be argued that assent to the increases can be implied either from the June 18, 1991 request of petitioners for loan

restructuring or from their lack of response to the statements of account sent by respondent. Such request does not indicate anyagreement to an interest increase; there can be no implied waiver of a right when there is no clear, unequivocal and decisive acshowing such purpose.[43] Besides, the statements were not letters of information sent to secure their conformity; and even if wewere to presume these as an offer, there was no acceptance. No one receiving a proposal to modify a loan contract, especiallyinterest -- a vital component -- is obliged to answer the proposal. [44]

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Furthermore, respondent did not follow the stipulation in the Promissory Notes providing for the automatic conversion of theportion that remained unpaid after 730 days -- or two years from date of original release -- into a medium-term loan, subject to theapplicable interest rate to be applied from the dates of original release.[45]

In the first,[46] second[47] and third[48]Promissory Notes, the amount that remained unpaid as of October 27, 1989, Decembe

1989 and January 4, 1990 -- their respective due dates -- should have been automatically converted by respondent into medium-term loans on June 30, 1991, September 2, 1991, and September 7, 1991, respectively. And on this unpaid amount should havebeen imposed the same interest rate charged by respondent on other medium-term loans; and the rate applied from June 29, 1989,September 1, 1989 and September 6, 1989 -- their respective original release -- until paid. But these steps were not taken. Asidefrom sending demand letters, respondent did not at all exercise its option to enforce collection as of these Notes due dates. Neithe

did it renew or extend the account.In these three Promissory Notes, evidently, no complaint for collection was filed with the courts. It was not until January 30

1992 that a Petition for Sale of the mortgaged properties was filed -- with the provincial sheriff, instead. [49] Moreover, respondent didnot supply the interest rate to be charged on medium-term loans granted by automatic conversion. Because of this deficiency, weshall use the legal rate of 12 percent per annum on loans and forbearance of money, as provided for by CB Circular 416 .[50]

Credit Agreements. Aside from the promissory notes, another main document involved in the principal obligation is the se

of credit agreements executed and their annexes.

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

First, it was not signed by respondent through its branch manager. [52]Apparently it was surreptitiously acknowledged beforerespondents counsel, who unflinchingly declared that it had been signed by the parties on every page, although respondents

signature does not appear thereon.[53]

Second, it was objected to by petitioners, [54] contrary to the trial courts findings. [55] However, it was not the Agreement, but the

revolving credit line[56]of P5,000,000, that expired one year from the Agreements date of implementation. [57]

Third, there was no attached annex that contained the General Conditions .[58] Even the Acknowledgment did not allude to its

existence.[59] Thus, no terms or conditions could be added to the Agreement other than those already stated therein.

Since the first Credit Agreement cannot be given weight, the interest rate on the first availment pegged at 3 percent over andabove respondents prime rate[60]on the date of such availment[61]has no bearing at all on the loan. After the first Notes due datethe rate

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of 19 percent agreed upon should continue to be applied on the availment, until its automatic conversion to a medium-term loan.

The second Credit Agreement[62] dated August 31, 1989, provided for interest -- respondents prime rate, plus the applicablespread[63] in effect as of the date of each availment,[64] on a revolving credit line of P7,700,000 [65] -- but did not state any provision onits increase or decrease.[66] Consequently, petitioners could not be made to bear interest more than such prime rate plusspread. The Court gives weight to this second Credit Agreement for the following reasons.

First, this document submitted by respondent was admitted by petitioners. [67] Again, contrary to their assertion, it was nothe Agreement -- but the credit line -- that expired one year from the Agreements date of implementation. [68] Thus, the terms andconditions continued to apply, even if drawdowns could no longer be made.

Second, there was no 7-page annex [69]offered in evidence that contained the General Conditions,[70] notwithstanding theAcknowledgment of its existence by respondents counsel. Thus, no terms or conditions could be appended to the Agreement otherthan those specified therein.

Third, the 12-page General Conditions[71]offered and admitted in evidence had no probative value. There was no reference toit in the Acknowledgment of the Agreement; neither was respondents signature on any of the pages thereof. Thus, the GeneraConditions stipulations on interest adjustment,[72] whether on a fixed or a floating scheme, had no effect whatsoever on theAgreement. Contrary to the trial courts findings,[73]the General Condition were correctly objected to by petitioners. [74] The rate o21.5 percent agreed upon in the second Note thus continued to apply to the second availment, until its automatic conversion into amedium-term loan.

The third Credit Agreement[75] dated September 5, 1989, provided for the same rate of interest as that in the secondAgreement. This rate was to be applied to availments of an unadvised line of P300,000. Since there was no mention in the thirdAgreement, either, of any stipulation on increases or decreases [76] in interest, there would be no basis for imposing amounts highe

than the prime rate plus spread. Again, the 21.5 percent rate agreed upon would continue to apply to the third availment indicatedin the third Note, until such amount was automatically converted into a medium-term loan.

The Court also finds that, first, although this document was admitted by petitioners,[77] it was the credit line that expired oneyear from the implementation of the Agreement. [78] The terms and conditions therein continued to apply, even if availments could nolonger be drawn after expiry.

Second, there was again no 7-page annex[79]offered that contained the General Conditions,[80]regardless of theAcknowledgment by the same respondents counsel affirming its existence. Thus, the terms and conditions in this Agreemenrelating to interest cannot be expanded beyond that which was already laid down by the parties.

Disclosure Statements. In the present case, the Disclosure Statements[81]furnished by respondent set forth the sameinterest rates as those respectively indicated in the Promissory Notes. Although no method of computation was provided showinghow such rates were arrived at, we will nevertheless take up the Statements seriatim in order

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