credit transactions cases (1/2)

8/17/2019 Credit Transactions Cases (1/2)

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CREDIT TRANSACTIONS - LOAN

SPOUSES BARRERA vs. SPOUSES LORENZO

On December 4, 1990, spouses Felimon and Maria Barrera, petitioners,borrowed P230,000.00 rom spouses Mi!uel and Mar" #a$aro. %&e loan was

secured b" a real estate mort!a!eo'er petitioner(s residential lot consistin!o 432 s)uare meters located at Bunlo, Bocaue, Bulacan and re!istered int&eir names under %ranser *ertiicate o %itle +%*% %-42.33 +M o t&e/e!istr" o Deeds o Bulacan. mont& and a &al later, t&e #a$aro spousesneeded mone" and inormed petitioners t&at t&e" would transer t&e loan tospouses miliano and Maria *oncepcion #oren$o, respondents.*onse)uentl", on Ma" 14, 1991, petitioners eecuted anot&er real estatemort!a!eo'er t&eir lot, t&is time in a'or o t&e respondents to secure t&eloan o P32,000.00, w&ic& t&e latter claimed as t&e amount t&e" paidspouses #a$aro.%&e mort!a!e contract pro'ides, amon! ot&ers, t&at t&e newloan s&all be pa"able wit&in t&ree +3 mont&s, or until u!ust 14, 1991 t&at it

s&all earn interest at 5 per mont& and t&at s&ould petitioners ail to pa"t&eir loan wit&in t&e said period, t&e mort!a!e s&all be oreclosed.

6&en petitioners ailed to pa" t&eir loan in ull on u!ust 14, 1991,respondents allowed t&em to complete t&eir pa"ment until December 23,1993. On t&is date, t&e" made a total pa"ment o P78,000.00. On anuar"1, 1994, respondents wrote petitioners demandin! pa"ment oP32,000.00, plus interest, ot&erwise t&e" would oreclose t&e mort!a!e. :nturn, petitioners responded, claimin! t&at t&e" &a'e o'erpaid t&eir obli!ationand demandin! t&e return o t&eir land title and reund o t&eir ecesspa"ment. %&is prompted respondents to ile a petition or etra;udicialoreclosure o mort!a!e wit& t&e Oice o t&e -Oicio o. %-42.33 +M, sum o mone" and dama!es, wit& application or a temporar"restrainin! order and preliminar" in;unction, doc=eted as *i'il *ase >o. 17-M-94

:n t&eir opposition to t&e application or a preliminar" in;unction,respondents alle!ed t&at petitioners loan &as been restructured t&ree timesand t&at t&eir unpaid balance as o Marc& 14, 1994 was P43,722.00. ter&earin! petitioners application or a preliminar" in;unction, t&e /%* issued an

order, en;oinin! t&e s&eri rom proceedin! wit& t&e oreclosure o mort!a!e,upon t&eir postin! o a bond in t&e amount o P43,722.00. %&ereater, trial

on t&e merits ensued. On ul" 31, 199, t&e /%* rendered ;ud!ment, t&edispositi'e portion o w&ic& reads? 6@/FO/, premises considered,

;ud!ment is &ereb" rendered in a'or o t&e plaintis +now petitioners anda!ainst t&e deendants +now respondents, orderin! t&e latter? to return to t&eplaintis t&e amount o P21,0.00 representin! t&e o'erpaid amount toreturn to t&e plaintis t&e owners cop" o %*% >o. %-42.33 +M oered as

securit" to pa" P20,000.000 as attorne"s ees to pa" t&e costs o t&e suit.%&e writ o preliminar" in;unction issued on Marc& 21, 1994 is &ereb" madepermanent. o. 109, t&e *ourt o ppeals,in a Decision dated une 18, 199, &eld? 6e re'erse. %&e law and

;urisprudence clearl" pro'ide t&at i t&e debt produces interest, pa"ment ot&e principal s&all not be deemed to &a'e been made until t&e interests &a'e

been co'ered. +rticle 123, >ew *i'il *ode Gobonseng, Jr. vs. Court of Appeals,247


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ma=e contracts or +t&e parties. contract is t&e law between t&e partiesw&ic& not e'en t&is *ourt can interere wit&. %&e onl" re)uirement is t&at t&esame be not contrar" to law, morals and !ood customs +rticle 1307, >ew*i'il *ode. 6e ind t&e a!reement to pa" a 5 mont&l" interest until t&eloan is ull" paid to be reasonable and sanctioned b" re!ular usa!e andpractice.

%&e Barrera(s s&ould, t&ereore, be re)uired to pa" t&e balance o t&eirindebtedness, includin! t&e interests t&ereo. Failure to pa" t&e same s&ouldwarrant t&e oreclosure o t&eir mort!a!ed propert" to satis" t&eir obli!ationto t&e #oren$o spouses. Petitioners iled a motion or reconsideration but wasdenied, &ence t&is petition. %&e sole issue or our resolution is w&et&er t&e5 mont&l" interest on t&e loan was onl" or t&ree +3 mont&s, or rom Ma"14, 1991 up to u!ust 14, 1991, as maintained b" petitioners or until t&e loanwas ull" paid, as claimed b" respondents. 6&en t&e terms o a contract areclear and lea'e no doubt as to t&e intention o t&e contractin! parties, t&eliteral meanin! o its stipulations !o'erns. :n suc& cases, courts &a'e noaut&orit" to alter a contract b" construction or to ma=e a new contract or t&e

parties its dut" is conined to t&e interpretation o t&e one w&ic& t&e" &a'emade or t&emsel'es wit&out re!ard to its wisdom or oll" as t&e court cannotsuppl" material stipulations or read into t&e contract words w&ic& it does notcontain. :t is onl" w&en t&e contract is 'a!ue and ambi!uous t&at courts arepermitted to resort to construction o its terms and determine t&e intention ot&e parties t&erein.%&e salient pro'isions o t&e mort!a!e contract read?

a Ang sanglaang ito ay sa loob lamang ng tatlong (3) buwan, o hanggang sa Agosto 1, 1!!1.

b Ang tubo na aming napag"asun#uan ay $%, o &in&o por &iento isang buwan.c 'a sa"aling mabayaran "o ang aming pag"a"autang sa magasawa na

3*$,+++.++ ang "asulatang ito ay wala ng la"as at "abuluhan, subalit "ung

hin#i "o mabayaran ang aming pinag"a"autangan sa ta"#ang panahong 3

buwan sila ay binibigyan "o nang laya at "apangyarihan na masubasta nila ang

lupang aming ipinanagot sa labas ng hu"uman sa bisa ng atas lg. 313$ at

susog nito at a"ong may utang ang siyang sagot sa lahat ng gastos at pati

baya# sa aboga#o sa nasabing subasta sa labas ng hu"uman.

:t is clear rom t&e abo'e stipulations t&at t&e loan s&all be pa"able wit&int&ree +3 mont&s, or rom Ma" 14, 1991 up to u!ust 14, 1991.Durin! suc&period, t&e loan s&all earn an interest o 5 per mont&. Furt&ermore, t&econtract s&all &a'e no orce and eect once t&e loan s&all &a'e been ull"

paid wit&in t&e t&ree-mont& period, ot&erwise, t&e mort!a!e s&all beoreclosed etra;udiciall" under ct >o. 313.

/ecords s&ow t&at upon maturit" o t&e loan on u!ust 14, 1991,petitioners ailed to pa" t&eir entire obli!ation. :nstead o eercisin! t&eir ri!&tto &a'e t&e mort!a!e oreclosed, respondents allowed petitioners to pa" t&eloan on a mont&l" installment basis until December, 1993. :t bears emp&asist&at t&ere is no written a!reement between t&e parties t&at t&e loan willcontinue to bear 5 mont&l" interest be"ond t&e a!reed t&ree-mont&

period. /espondent Ma. *oncepcion #oren$o testiied as ollows?

tt". Marcos?E >ow, based on t&is document w&ic& was mar=ed as &. 1, t&ere is no dispute t&at t&e

mont&l" interest or t&e t&ree mont& period t&at is rom Ma" 14, 1991 to u!ust 14,1991 is 5 mont&l" interest, t&ere is no dispute about t&at. >ow, Miss 6itness, m")uestion is, could "ou !o o'er t&e entire document t&at &. 1 and please tell t&is@on. *ourt w&et&er t&ere is a pro'ision in clear and une)ui'ocal terms pro'idin! ort&at mont&l" interest ater u!ust 14, 1991

>o, sir, t&ere is none.E re "ou sure o t&at

Ges, sir.E Gou mean to sa" t&ere is no stipulation in t&at document pro'idin! or t&e 5 mont&l"

interest to t&e loan ater u!ust 14, 1991

Ges, sir, t&e" are supposed to return m" mone".*ourt?E ter t&e" ailed to compl" wit& t&at pro'ision, was t&ere an" subse)uent a!reement

between "ou and t&e plaintisE 6as t&ere an a!reement

%&ere was, "our @onor.E 6&at was t&at a!reement about

erbal a!reement, "our @onorE 6&" was t&at a!reement not reduced into writin!

:t was not reduced into writin!, "our @onor.E 6&"

: am in !ood ait&, "our @onor.

rticle 197 o t&e *i'il *ode mandates t&at no interest s&all be due unless it

&as been epressl" stipulated in writin!. ppl"in! t&is pro'ision, t&e trialcourt correctl" &eld t&at t&e mont&l" interest o 5 corresponds onl" to t&et&ree-mont& period o t&e loan, or rom Ma" 14, 1991 to u!ust 14, 1991, asa!reed upon b" t&e parties in writin!.%&ereater, t&e interest rate or t&e loan is 125 per annum. :n -asternhipping /ines, 0n&. vs. Court of Appeals, t&is *ourt laid down t&e ollowin!doctrine? 6&en t&e obli!ation is breac&ed, and it consists in t&e pa"ment o asum o mone", i.e., a loan or orbearance o mone", t&e interest due s&ouldbe t&at w&ic& ma" &a'e been stipulated in writin!. Furt&ermore, t&e interestdue s&all itsel earn le!al interest rom t&e time it is ;udiciall" demanded. :nt&e absence o stipulation, t&e rate o interest s&all be 125 per annum to becomputed rom deault, i.e., rom ;udicial or etra;udicial demand under and


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sub;ect to t&e pro'isions o rticle 1179 o t&e *i'il *ode. %&us, t&e *ourt o ppeals erred in re'ersin! t&e /%* Decision and &oldin! t&at t&e 5mont&l" interest s&ould be paid b" petitioners e'en be"ond u!ust 14, 1991.6@/FO/, t&e assailed Decision o t&e *ourt o ppeals dated une 18,199 and its /esolution dated October 1, 199 are //O i s&e would not compl" wit& &is demand. s all&er transactions wit& t&e P>O were sub;ect to t&e appro'al o petitioner ascomptroller o t&e P>O, and earin! t&at petitioner mi!&t bloc= or undul"inluence t&e pa"ment o &er 'ouc&ers in t&e P>O, s&e conceded. %&us, s&e

paid additional amounts in cas& and c&ec=s as interests or t&e loan.


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:D and t&e assailed decision HisI

FF:/MD in toto.Petitioner iled a motion or reconsideration o t&e appellate court(sdecision but t&is was denied. @ence, petitioner lod!ed t&e instantpetition beore us assi!nin! t&e ollowin! errors?

:. %@ /%* >D %@ *O/% OF PP#< //D :>/#:>C %@% >O :>%//

::. %@ /%* >D %@ *O/% OF PP#< //D :> PP#G:>C %@ P/:>*:P# OF /20 0'4-00 .

:nterest is a compensation ied b" t&e parties or t&e use or orbearance o

mone". %&is is reerred to as monetar" interest. :nterest ma" also beimposed b" law or b" courts as penalt" or indemnit" or dama!es. %&is is

called compensator" interest. %&e ri!&t to interest arises onl" b" 'irtue o acontract or b" 'irtue o dama!es or dela" or ailure to pa" t&e principal loanon w&ic& interest is demanded.

rticle 197 o t&e *i'il *ode, w&ic& reers to monetar" interest, speciicall"mandates t&at no interest s&all be due unless it &as been epressl"stipulated in writin!. s can be !leaned rom t&e ore!oin! pro'ision,pa"ment o monetar" interest is allowed onl" i? +1 t&ere was an epress

stipulation or t&e pa"ment o interest and +2 t&e a!reement or t&e pa"mento interest was reduced in writin!. %&e concurrence o t&e two conditions isre)uired or t&e pa"ment o monetar" interest. %&us, we &a'e &eld t&atcollection o interest wit&out an" stipulation t&ereor in writin! is pro&ibited b"law.:t appears t&at petitioner and respondent did not a!ree on t&e pa"ment ointerest or t&e loan. >eit&er was t&ere con'incin! proo o written a!reementbetween t&e two re!ardin! t&e pa"ment o interest. /espondent testiied t&atalt&ou!& s&e accepted petitioners oer o loan amountin! to P40,000.00,t&ere was, nonet&eless, no 'erbal or written a!reement or &er to pa" intereston t&e loan.Petitioner presented a &andwritten promissor" note dated 12


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a!reed upon as in t&e present case and t&at it would be unair to allowrespondent to pa" onl" t&e loan w&en t&e latter 'er" well =new and e'enadmitted in t&e Batas Pambansa Bl!. 22 cases t&at t&ere was an a!reed 5rate o interest on t&e loan.6e &a'e careull" eamined t&e /%* Decision and ound t&at t&e /%* didnot ma=e a rulin! t&erein t&at petitioner and respondent a!reed on t&epa"ment o interest at t&e rate o 5 or t&e loan. %&e /%* clearl" stated t&at

alt&ou!& petitioner and respondent entered into a 'alid oral contract o loanamountin! to P40,000.00, t&e", nonet&eless, ne'er intended t&e pa"ment o interest t&ereon. 6&ile t&e *ourt o ppeals mentioned in its Decision t&at itconcurred in t&e /%*s rulin! t&at petitioner and respondent a!reed on acertain rate o interest as re!ards t&e loan, we consider t&is as merel" aninad'ertence because, as earlier elucidated, bot& t&e /%* and t&e *ourt o

ppeals ruled t&at petitioner is not entitled to t&e pa"ment o interest on t&eloan. %&e rule is t&at actual indin!s o t&e trial court deser'e !reat wei!&tand respect especiall" w&en airmed b" t&e appellate court. 6e ound nocompellin! reason to disturb t&e rulin! o bot& courts.Petitioners reliance on respondents alle!ed admission in t&e BatasPambansa Bl!. 22 cases t&at t&e" &ad a!reed on t&e pa"ment o interest at

t&e rate o 5 deser'es scant consideration. :n t&e said case, respondentmerel" testiied t&at ater pa"in! t&e total amount o loan, petitioner ordered&er to pa" interest.H28I /espondent did not cate!oricall" declare in t&e samecase t&at s&e and respondent made an e5press stipulation in writin! asre!ards pa"ment o interest at t&e rate o 5. s earlier discussed, monetar"interest is due onl" i t&ere was an e5press stipulation in writin! or t&epa"ment o interest.%&ere are instances in w&ic& an interest ma" be imposed e'en in t&eabsence o epress stipulation, 'erbal or written, re!ardin! pa"ment ointerest. rticle 2209 o t&e *i'il *ode states t&at i t&e obli!ation consists int&e pa"ment o a sum o mone", and t&e debtor incurs dela", a le!al interesto 125 per annum ma" be imposed as indemnit" or dama!es i nostipulation on t&e pa"ment o interest was a!reed upon. #i=ewise, rticle2212 o t&e *i'il *ode pro'ides t&at interest due s&all earn le!al interest romt&e time it is ;udiciall" demanded, alt&ou!& t&e obli!ation ma" be silent ont&is point. ll t&e same, t&e interest under t&ese two instances ma" beimposed onl" as a penalt" or dama!es or breac& o contractualobli!ations. :t cannot be c&ar!ed as a compensation or t&e use ororbearance o mone". :n ot&er words, t&e two instances appl" onl" tocompensator" interest and not to monetar" interest. %&e case at bar in'ol'espetitioners claim or monetar" interest. Furt&er, said compensator" interest isnot c&ar!eable in t&e instant case because it was not dul" pro'en t&atrespondent deaulted in pa"in! t&e loan. lso, as earlier ound, no interestwas due on t&e loan because t&ere was no written a!reement as re!ardspa"ment o interest.

Apropos t&e second assi!ned error, petitioner ar!ues t&at t&e principleo solutio in#ebiti does not appl" to t&e instant case. %&us, &e cannot becompelled to return t&e alle!ed ecess amount paid b" respondent asinterest. nder rticle 1970 o t&e *i'il *ode, i t&e borrower o loan pa"sinterest w&en t&ere &as been no stipulation t&ereor, t&e pro'isions o t&e*i'il *ode concernin! solutio in#ebiti s&all be applied. rticle 214 o t&e*i'il *ode eplains t&e principle o solutio in#ebiti .


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pa"ment as interest was presented b" respondent. O i s&e would not pa" interest. %&is orced respondent to pa" interestdespite lac= o a!reement t&ereto. %&us, t&e award o eemplar" dama!es isappropriate. %&e amount o P0,000.00 imposed as eemplar" dama!es b" t&e /%* and t&e *ourt isittin! so as to deter petitioner and ot&er lenders rom committin! similar andot&er serious wron!doin!s.urisprudence instructs t&at in awardin! attorne"s ees, t&e trial court muststate t&e actual, le!al or e)uitable ;ustiication or awardin! t&e same. :n t&ecase under consideration, t&e /%* stated in its Decision t&at t&e award o

attorne"(s ees e)ui'alent to 25 o t&e amount paid as interest b"respondent to petitioner is reasonable and moderate considerin! t&e etento wor= rendered b" respondents law"er in t&e instant case and t&e act t&atit dra!!ed on or se'eral "ears. Furt&er, respondent testiied t&at s&e a!reedto compensate &er law"er &andlin! t&e instant case suc& amount. %&eaward, t&ereore, o attorne"s ees and its amount e)ui'alent to 25 o t&eamount paid as interest b" respondent to petitioner is proper.

Finall", t&e /%* and t&e *ourt o ppeals imposed a 125 rate o le!alinterest on t&e amount reundable to respondent computed rom 3 Marc&1998 until its ull pa"ment. %&is is erroneous.6e &eld in -astern hipping /ines, 0n&. v. Court of Appeals, t&at w&en anobli!ation, not constitutin! a loan or orbearance o mone" is breac&ed, aninterest on t&e amount o dama!es awarded ma" be imposed at t&e rate o75 per annum. 6e urt&er declared t&at w&en t&e ;ud!ment o t&e courtawardin! a sum o mone" becomes inal and eecutor", t&e rate o le!alinterest, w&et&er it is a loanJorbearance o mone" or not, s&all be 125 perannum rom suc& inalit" until its satisaction, t&is interim period bein!deemed e)ui'alent to a orbearance o credit.:n t&e present case, petitioners obli!ation arose rom a )uasi-contracto

solutio in#ebiti and not rom a loan or orbearance o mone". %&us, an

interest o 75 per annum s&ould be imposed on t&e amount to be reundedas well as on t&e dama!es awarded and on t&e attorne"s ees, to becomputed rom t&e time o t&e etra-;udicial demand on 3 Marc& 1998, H47I upto t&e inalit" o t&is Decision. :n addition, t&e interest s&all become 125 perannum rom t&e inalit" o t&is Decision up to its satisaction.6@/FO/, t&e Decision o t&e *ourt o ppeals in *-C./. * >o.1814, dated 17 December 200, is &ereb" FF:/MD wit& t&eollowin! MOD:F:*%:O>


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until t&e interests &a'e been co'ered. %&is bein! t&e case, petitioners(principal obli!ation subsists but at a reduced amount oP8,901,7.73. %&e trial court urt&er &eld t&at :!nacio(s claim t&at &e si!nedt&e promissor" notes in blan= cannot ne!ate or miti!ate &is liabilit" since &eadmitted readin! t&e promissor" notes beore si!nin! t&em. :t also ruled t&atconsiderin! t&e substantial amount in'ol'ed, it is unbelie'able t&at petitionerst&rew all caution to t&e wind and simpl" si!ned t&e documents wit&out

readin! and understandin! t&e contents t&ereo. :t noted t&at t&e promissor"notes, includin! t&e terms and conditions, are pro orma and w&at appears to&a'e been let in blan= were t&e promissor" note number, date o t&einstrument, due date, amount o loan, and condition t&at interest will be at t&epre'ailin! rates. ll o t&ese details, t&e trial court added, were wit&in t&e=nowled!e o t&e petitioners.6&en t&e case was ele'ated to t&e *, t&e latter airmed t&e trial court(sdecision. %&e * reco!ni$ed respondent(s ri!&t to claim t&e deicienc" romt&e debtor w&ere t&e proceeds o t&e sale in an etra;udicial oreclosure omort!a!e are insuicient to co'er t&e amount o t&e debt. lso, it ound as'alid t&e stipulation in t&e promissor" notes t&at interest will be based on t&epre'ailin! rate. :t noted t&at t&e parties a!reed on t&e interest rate w&ic& wasnot unilaterall" imposed b" t&e ban= but was t&e rate oered dail" b" allcommercial ban=s as appro'ed b" t&e Monetar" Board.@a'in! si!ned t&e promissor" notes, t&e * ruled t&at petitioners are boundb" t&e stipulations contained t&erein. Petitioners are now beore t&is *ourtraisin! t&e sole issue o w&et&er t&e interest rates imposed upon t&em b"respondent are 'alid.Petitioners contend t&at t&e interest rates imposed b" respondent are not'alid as t&e" were not b" 'irtue o an" law or Ban!=o e'ert&eless, an escalation clause Kw&ic& !rants t&e creditor an unbridledri!&t to ad;ust t&e interest independentl" and upwardl", completel" depri'in!t&e debtor o t&e ri!&t to assent to an important modiication in t&ea!reementL is 'oid. stipulation o suc& nature 'iolates t&e principle omutualit" o contracts. %&us, t&is *ourt &as pre'iousl" nulliied t&e unilateraldetermination and imposition b" creditor ban=s o increases in t&e rate ointerest pro'ided in loan contracts.:n Banco Filipino a'arro,t&e escalation clause stated? K:J6e &ereb" aut&ori$e Banco Filipino tocorrespondin!l" increase t&e interest rate stipulated in t&is contract wit&outad'ance notice to meJus in t&e e'ent a law s&ould be enacted increasin! t&elawul rates o interest t&at ma" be c&ar!ed on t&is particular =ind o loan.L6&ile escalation clauses in !eneral are considered 'alid, we ruled t&atBanco Filipino ma" not increase t&e interest on respondent borrower(s loan,pursuant to *ircular >o. 494 issued b" t&e Monetar" Board on anuar" 2,197, because said circular is not a law alt&ou!& it &as t&e orce and eect o law and t&e escalation clause &as no pro'ision or reduction o t&e stipulatedinterest Kin t&e e'ent t&at t&e applicable maimum rate o interest is reducedb" law or b" t&e Monetar" BoardL +de-escalation clause.BI ma" adopt in t&e uture Pro'ided, t&at, t&e interest rate on t&isnote s&all be correspondin!l" decreased in t&e e'ent t&at t&e applicable


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maimum interest rate is reduced b" law or b" t&e Monetar" Board.L %&is*ourt declared t&e increases +rom 185 to 325, t&en to 415 and t&en to485 unilaterall" imposed b" P>B to be in 'iolation o t&e principle omutualit" essential in contracts.29

similar rulin! was made in a 1994 case30 also in'ol'in! P>B w&ere t&ecredit a!reement pro'ided t&at KHP>BI reser'es t&e ri!&t to increase t&einterest rate wit&in t&e limits allowed b" law at an" time dependin! on

w&ate'er polic" it ma" adopt in t&e uture? Pro'ided, t&at t&e interest rate ont&is accommodation s&all be correspondin!l" decreased in t&e e'ent t&at t&eapplicable maimum interest is reduced b" law or b" t&e Monetar" Board.

!ain, in 1997, t&e *ourt in'alidated escalation clauses aut&ori$in! P>B toraise t&e stipulated interest rate at an" time wit&out notice, wit&in t&e limitsallowed b" law. %&e *ourt obser'ed t&at t&ere was no attempt made b" P>Bto secure t&e conormit" o respondent borrower to t&e successi'e increasesin t&e interest rate. %&e borrower(s assent to t&e increases cannot be impliedrom t&eir lac= o response to t&e letters sent b" P>B, inormin! t&em o t&eincreases. :n t&e more recent case o P&ilippine


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6eJ: s&all prepa" all amounts due under t&is >ote or #oan wit&in t&irt" +30da"s rom t&e receipt b" an"one o us o t&e written notice. Ot&erwise, 6eJ:s&all be deemed to &a'e !i'en our consent to t&e interest rate ad;ustment.L%&e stipulations on interest rate repricin! are 'alid because +1 t&e partiesmutuall" a!reed on said stipulations +2 repricin! ta=es eect onl" upon


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Based on t&e u!ust 29, 2000 demand letter o *&ina Ban=, petitioners( totalprincipal obli!ation under t&e two promissor" notes w&ic& t&e" ailed to settleis P10,3,000. @owe'er, due to *&ina Ban=(s unilateral increases in t&einterest rates rom 15 to as &i!& as 24.05 and penalt" c&ar!e o 1J10 o15 per da" or 37.5 per annum or t&e period >o'ember 4, 1999 toFebruar" 23, 2001, petitioners( balance ballooned to P19,201,7.73. >otet&at t&e ori!inal amount o principal loan almost doubled in onl" 17 mont&s.

%&e *ourt also inds t&e penalt" c&ar!es imposed ecessi'e and arbitrar",&ence t&e same is &ereb" reduced to 15 per mont& or 125 per annum.Petitioners( o. 80338 are &ereb"MOD:F:D. Petitioners o. 81J011 or P37,382,477.38. pon arri'al o t&es&ipment in Manila on December 12, 1981, it was disc&ar!ed unto t&ecustod" o deendant Metro Port


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notes, it is stated t&at w&en t&e s&ipment was Alanded on 'esselA to doc= oPier 1,


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%&e earl" case o ;alayan 0nsuran&e Co., 0n& ., vs. ;anila ortervi&e, decided on 1 Ma" 1979, in'ol'ed a suit or re&overy of moneyarising out of short #eliveries an# pilferage of goo#s. :n t&is case, appelleeMala"an :nsurance a'erred in its complaint t&at t&e total amount o its claimor t&e 'alue o t&e undeli'ered !oods amounted to P3,94.20. %&is demand,&owe'er, was neit&er establis&ed in its totalit" nor deinitel" ascertained. :nt&e stipulation o acts later entered into b" t&e parties, in lieu o proo, t&eamount o P1,44.1 was a!reed upon. %&e trial court rendered ;ud!mentorderin! t&e appellants +deendants Manila Port ury to erson an# /oss of roperty .A ter trial, t&e lowercourt decreed? 6@/FO/, ;ud!ment is &ereb" rendered in a'or o t&eplaintis and t&ird part" deendants and a!ainst t&e deendants and t&irdpart" plaintis as ollows? Orderin! deendants and t&ird part" plaintis


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failure to pay on su&h finality, twelve (1*%) per &ent interest per annum shallbe impose# upon aforementione# amounts from finality until pai# . u#gment for #amages. *learl", t&e" are not applicable to t&e instantcase.%&e subse)uent case o Ameri&an -5press 0nternational, 0n& .,vs. 0nterme#iate Appellate Court was a petition or re'iew on &ertiorari romt&e decision, dated 2 Februar" 198, o t&e t&en :ntermediate ppellate*ourt reducin! t&e amount o moral and eemplar" dama!es awarded b" t&etrial court, to P240,000.00 and P100,000.00, respecti'el", and its resolution,dated 29 pril 198, restorin! t&e amount o dama!es awarded b" t&e trialcourt, i .e., P2,000,000.00 as moral dama!es and P400,000.00 as eemplar"dama!es wit& interest thereon at 1*% per annum from noti&e of

>u#gment, plus costs o suit. :n a decision o 09 >o'ember 1988, t&is *ourt,w&ile reco!ni$in! t&e ri!&t o t&e pri'ate respondent to reco'er dama!es,&eld t&e award, &owe'er, or moral dama!es b" t&e trial court, later sustainedb" t&e :*, to be inconcei'abl" lar!e. %&e *ourt t&us set aside t&e decisiono t&e appellate court and rendered a new one, Aorderin! t&e petitioner to pa"pri'ate respondent t&e sum o One @undred %&ousand +P100,000.00 Pesosas moral dama!es, wit&si5 (8%) per&ent interest thereon &ompute# from the finality of this #e&isionuntil pai# ./eormina came into ore a!ain in t&e 21 Februar" 1989 case o


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:n t&e Airst !roupA, t&e basic issue ocuses on t&e application o eit&er t&e75 +under t&e *i'il *ode or 125 +under t&e *entral Ban= *ircularinterest per annum. :t is easil" discernible in t&ese cases t&at t&ere &as beena consistent &oldin! t&at t&e *entral Ban= *ircular imposin! t&e 125interest per annum applies onl" to loans or orbearance o mone", !oods orcredits, as well as to ;ud!ments in'ol'in! suc& loan or orbearance o mone",!oods or credits, and t&at t&e 75 interest under t&e *i'il *ode !o'erns w&ent&e transaction in'ol'es t&e pa"ment o indemnities in t&e concept o dama!earisin! rom t&e breac& or a dela" in t&e perormance o obli!ations in!eneral. Obser'e, too, t&at in t&ese cases, a common time rame in t&ecomputation o t&e 75 interest per annum&as been applied, i .e., rom t&etime t&e complaint is iled until t&e ad;ud!ed amount is ull" paid. %&eAsecond !roupA, did not alter t&e pronounced rule on t&e application o t&e75 or 125 interest per annum, dependin! on w&et&er or not t&e amountin'ol'ed is a loan or orbearance, on t&e one &and, or one o indemnit" ordama!e, on t&e ot&er &and. nli=e, &owe'er, t&e Airst !roupA w&ic&remained consistent in &oldin! t&at t&e runnin! o t&e le!al interest s&ould berom t&e time o t&e ilin! o t&e complaint until ull" paid, t&e Asecond !roupA'aried on t&e commencement o t&e runnin! o t&e le!al interest.Mala"an &eld t&at t&e amount awarded s&ould bear legal interest from the#ate of the #e&ision of the &ourt a quo, eplainin! t&at Ai t&e suit were ordama!es, unli)uidated and not =nown until deinitel" ascertained, assessedand determined b" t&e courts ater proo, t&en, interest s&ould be rom t&edate o t&e decision.A Ameri&an -5press 0nternational v . 0AC, introduced adierent time rame or rec=onin! t&e 75 interest b" orderin! it to beA&ompute# from the finality of (the) #e&ision until pai# .A %&e >a=pil and onet&eless, it ma" not be unwise, b" wa" o clariicationand reconciliation, to su!!est t&e ollowin! rules o t&umb or uture!uidance.

:. 6&en an obli!ation, re!ardless o its source, i .e., law, contracts,)uasi-contracts, delicts or )uasi-delicts is breac&ed, t&e contra'enorcan be &eld liable or dama!es. %&e pro'isions under %itle S::: onADama!esA o t&e *i'il *ode !o'ern in determinin! t&e measure oreco'erable dama!es.

::. 6it& re!ard particularl" to an award o interest in t&e concept oactual and compensator" dama!es, t&e rate o interest, as well ast&e accrual t&ereo, is imposed, as ollows?

1. 6&en t&e obli!ation is breac&ed, and it consists in t&e pa"ment o a sum o mone", i .e., a loan or orbearance o mone", t&e interest due s&ould be t&at

w&ic& ma" &a'e been stipulated in writin!.

Furt&ermore, t&e interest dues&all itsel earn le!al interest rom t&e time it is ;udiciall" demanded. :n t&e

absence o stipulation, t&e rate o interest s&all be 125 per annum to becomputed rom deault, rom ;udicial or etra;udicial demand under andsub;ect to t&e pro'isions o rticle 1179.

2. 6&en an obli!ation, not constitutin! a loan or orbearance o mone", isbreac&ed, an interest on t&e amount o dama!es awarded ma" beimposed at t&e #is&retion of the &ourt at t&e rate o 75 per annum. >ointerest, &owe'er, s&all be ad;ud!ed on unli)uidated claims or dama!esecept w&en or until t&e demand can be establis&ed wit& reasonablecertaint". ccordin!l", w&ere t&e demand is establis&ed wit& reasonablecertaint", t&e interest s&all be!in to run rom t&e time t&e claim is made

;udiciall" or etra;udiciall" +rt. 1179, *i'il *ode but w&en suc& certaint"cannot be so reasonabl" establis&ed at t&e time t&e demand is made, t&einterest s&all be!in to run onl" rom t&e date t&e ;ud!ment o t&e court ismade +at w&ic& time t&e )uantiication o dama!es ma" be deemed to&a'e been reasonabl" ascertained. %&e actual base or t&e computation o le!al interest s&all, in an" case, be on t&e amount inall" ad;ud!ed.

3. 6&en t&e ;ud!ment o t&e court awardin! a sum o mone" becomes inaland eecutor", t&e rate o le!al interest, w&et&er t&e case alls underpara!rap& 1 or para!rap& 2, abo'e, s&all be 125 per annum rom suc&inalit" until its satisaction, t&is interim period bein! deemed to be b" t&enan e)ui'alent to a orbearance o credit.

6@/FO/, t&e petition is partl" C/>%D. %&e appealed decision is FF:/MD wit& t&e MOD:F:*%:O> t&at t&e le!al interest to be paid is % +75 on t&e amount due computed rom t&e decision, dated 03

Februar" 1988, o t&e court a quo. %6# P/*>% +125 interest, inlieu o % +75, s&all be imposed on suc& amount upon inalit" o t&is decision until t&e pa"ment t&ereo.

TOLEDO VS HYDEN:t is true t&at t&e imposition o an unconscionable rate o interest on a mone" debt isimmoral and un;ust and t&e court ma" come to t&e aid o t&e a!!rie'ed part" to t&atcontract. @owe'er, beore doin! so, courts &a'e to consider t&e settled principle t&att&e law will not relie'e a part" rom t&e eects o an unwise, oolis& or disastrouscontract i suc& part" &ad ull awareness o w&at s&e was doin!.%&is Petition or /e'iew on Certiorari assails t&e Decision dated u!ust 24, 200 ot&e *ourt o ppeals +* in *-C./. * >o. 980, w&ic& airmed t&e Decision

dated Marc& 10, 2003 o t&e /e!ional %rial *ourt +/%*, Branc& 22, *ebu *it" in*i'il *ase >o. *B-2287. lso assailed is t&e /esolution dated Marc& 8, 2007den"in! t&e motion or reconsideration.Factual AntecedentsPetitioner ocel"n M. %oledo +ocel"n, w&o was t&en t&e ice-President o t&e*olle!e ssurance Plan +*P P&ils., :nc., obtained se'eral loans rom respondentMarilou M. @"den +Marilou. %&e transactions are briel" summari$ed below? t&e totalamount o loan o 29, 000.00.From u!ust 1, 1993 up to December 31, 199, ocel"n &ad been reli!iousl"pa"in! Marilou t&e stipulated mont&l" interest b" issuin! c&ec=s and depositin!sums o mone" in t&e ban= account o t&e latter. @owe'er, t&e total principal amounto P290,000.00 remained unpaid. %&us, in pril 1998, Marilou 'isited ocel"n in &er

oice at *P in *ebu *it" and as=ed ocel"n and t&e ot&er emplo"ees w&o wereli=ewise indebted to &er to ac=nowled!e t&eir debts. document entitled


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c=nowled!ment o DebtHI or t&e amount o P290,000.00 was si!ned b" ocel"nwit& two o &er subordinates as witnesses. %&e said amount represents t&e principalconsolidated amount o t&e aorementioned pre'ious debts due on December 2,1998. lso on said occasion, ocel"n issued i'e c&ec=s to Marilou representin!renewal pa"ment o &er i'e pre'ious loans.:n une 1998, ocel"n as=ed Marilou or t&e recall o *&ec= >o. 001071 in t&eamount o P30,000.00 and replaced t&e same wit& si c&ec=s, in sta!!eredamounts.

ter &onorin! *&ec= >os. 0010494, 001049 and 0010497, ocel"n ordered t&estop pa"ment on t&e remainin! c&ec=s and on October 2, 1998, iled wit& t&e /%*o *ebu *it" a complaint a!ainst Marilou or Declaration o >ullit" and Pa"ment,

nnulment, %:FF is&ereb" ordered to pa" DF>D>% t&e amount o %6O @>D/D %GO> %@OD O> @>D/D +P21,100.00 Po. *B-2287 are&ereb" AFFIRMED. >o pronouncement as to costs.%&e Motion or /econsideration iled b" ocel"n was denied b" t&e *t&rou!& its /esolution dated Marc& 8, 2007.Issues 6&et&er t&e * !ra'el" erred w&en it &eld t&at t&e imposition o interest at t&e rate o si percent +75 to se'en percent +5 is not contrar"to law, morals, !ood customs, public order or public polic" 6&et&er t&e *!ra'el" erred w&en it ailed to declare t&at t&e c=nowled!ment o Debt isan ineistent contract t&at is 'oid rom t&e 'er" be!innin! pursuant to rticle1409 o t&e >ew *i'il *ode.Petitioners Argumentsocel"n posits t&at t&e * erred w&en it &eld t&at t&e imposition o interestat t&e rates o 75 to 5 per mont& is not contrar" to law, notunconscionable and not contrar" to morals.


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act, in ;e#el v. Court of Appeals, we annulled a stipulated .5 per mont& or 775per annum interest wit& additional ser'ice c&ar!e o 25 per annum and penalt"c&ar!e o 15 per mont& on a P00,000.00 loan or bein! ecessi'e, ini)uitous,unconscionable and eorbitant.:n t&is case, &owe'er, we cannot consider t&e disputed 75 to 5 mont&l" interestrate to be ini)uitous or unconscionable t&e principle laid down in ;e#el. >otewort&"is t&e act t&at in ;e#el , t&e deendant-spouses were ne'er able to pa" t&eir indebtedness rom t&e 'er" be!innin! and w&en t&eir obli!ations ballooned into asta!!erin! sum, t&e creditors iled a collection case a!ainst t&em. :n t&is case, t&erewas no ur!enc" o t&e need or mone" on t&e part o ocel"n, t&e debtor, w&ic&compelled &er to enter into said loan transactions.


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amounts. ll t&ese are in#i&ia t&at ocel"n treated t&e c=nowled!ment o Debt as a'alid and bindin! contract. More si!niicantl", ocel"n alread" a'ailed &ersel o t&ebeneits o t&e c=nowled!ment o Debt, t&e 'alidit" o w&ic& s&e now impu!ns. saptl" ound b" t&e /%* and t&e *, ocel"n was ma=in! a business out o t&eloaned amounts. o. 980 dated u!ust 24, 200 airmin! t&e Decisiondated Marc& 10, 2003 o t&e /e!ional %rial *ourt, Branc& 22, *ebu *it", in *i'il*ase >o. *B-2287 is AFFIRMED.

MALLARI vs. PRUDENTIAL BANKBeore us is a Petition or /e'iew on *ertiorari under /ule 4, assailin! t&eDecision 1 dated une 1, 2010 and t&e /esolution2 dated ul" 20, 2011 ot&e *ourt o ppeals +* in *-C./. * >o. 7993.%&e antecedent acts are as ollows? On December 11, 1984, petitionerFlorentino %. Mallari +Florentino obtained rom respondent Prudenti?Tl Ban=-%arlac Branc& +respondent ban=, a loan in t&e amount o as e'idenced b"Promissor" >ote +P> >o. BD 84-0. nder t&e promissor" note, t&e loanwas sub;ect to an interest rate o 215 per annum +p.a., attorne"s eese)ui'alent to 15 o t&e total amount due but not less t&an P200.00 and, incase o deault, a penalt" and collection c&ar!es o 125 p.a. o t&e total

amount due. %&e loan &ad a maturit" date o anuar" 10, 198, but wasrenewed up to Februar" 1, 198. Petitioner Florentino eecuted a Deed o

ssi!nment4 w&erein &e aut&ori$ed t&e respondent ban= to pa" &is loan wit&&is time deposit wit& t&e latter in t&e amount o P300,000.00. On December22, 1989, petitioners spouses Florentino and urea Mallari +petitionersobtained a!ain rom respondent ban= anot&er loan o P1. million ase'idenced b" P> >o. BD< 707-89 wit& a maturit" date o Marc& 22, 1990.%&e" stipulated t&at t&e loan will bear 235 interest p.a., attorne"s eese)ui'alent to 15 p.a. o t&e total amount due, but not less t&an P200.00,and penalt" and collection c&ar!es o 125 p.a. Petitioners eecuted a Deedo /eal state Mort!a!e7 in a'or o respondent ban= co'erin! petitionerspropert" under %ranser *ertiicate o %itle +%*% >o. %-211 o t&e

/e!ister o Deeds o %arlac to answer or t&e said loan. Petitioners ailed to

settle t&eir loan obli!ations wit& respondent ban=, t&us, t&e latter, t&rou!& itslaw"er, sent a demand letter to t&e ormer or t&em to pa" t&eir obli!ations,w&ic& w&en computed up to anuar" 31, 1992, amounted to P1,218.4 orP> >o. BD 84-0 and P2,991,294.82 or P> >o. BD< 707-89. On Februar"2, 1992, respondent ban= iled wit& t&e /e!ional %rial *ourt +/%* o %arlac,a petition or t&e etra;udicial oreclosure o petitioners mort!a!ed propert"or t&e satisaction o t&e latters obli!ation o P1,00,000.00 secured b" suc&mort!a!e, t&us, t&e auction sale was set b" t&e Pro'incial >o. 84-0. :n an Order8 dated>o'ember 10, 1992, t&e /%* denied t&e pplication or a 6rit o Preliminar":n;unction. @owe'er, in petitioners


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ban= bein! t&e &i!&est bidder in t&e amount o P3,00,000.00.


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mont& and &i!&er are ecessi'e, unconscionable and eorbitant, &ence, t&estipulation was 'oid or bein! contrar" to morals. :n t&is case, t&e interest rate a!reed upon b" t&e parties was onl" 235 p.a.,or less t&an 25 per mont&, w&ic& are muc& lower t&an t&ose interest ratesa!reed upon b" t&e parties in t&e abo'e-mentioned cases. %&us, t&ere is nosimilarit" o actual milieu or t&e application o t&ose cases. 6e do notconsider t&e interest rate o 235 p.a. a!reed upon b" petitioners andrespondent ban= to be unconscionable. :n illanue'a '. *ourt o ppeals,2w&ere t&e issue raised was w&et&er t&e 245 p.a. stipulated interest rate isunreasonable under t&e circumstances, we answered in t&e ne!ati'e and&eld? :n ote wit& *&attel Mort!a!e in a'or o *itimotors, :nc.%&e contract pro'ides, amon! ot&ers, t&at? or recei'in! t&e amount oP&p834, 78.00, petitioners s&all pa" P&p 1,391.00 e'er" 1111 da" oeac& succeedin! mont& until ull" paid t&e loan is secured b" a 2001Mitsubis&i d'enture


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court(s decision and, subse)uentl", denied t&e motion or reconsideration&ence, t&is petition.Beore t&is *ourt, petitioners ar!ue t&at? +1 respondent &as no cause oaction, because t&e Deed o ssi!nment eecuted in its a'or did notspeciicall" mention B> M/O(s account recei'able rom petitioners +2petitioners cannot be considered to &a'e deaulted in pa"ment or lac= ocompetent proo t&at t&e" recei'ed t&e demand letter and +3 respondent(sremed" o resortin! to bot& actions o reple'in and collection o sum omone" is contrar" to t&e pro'ision o rticle 14849 o t&e *i'il *ode and t&elisco %ool Manuacturin! *orporation '. *ourt o ppeals rulin!. %&econtentions are untenable.6it& respect to t&e irst issue, it would be suicientto state t&at t&e matter surroundin! t&e Deed o ssi!nment &ad alread"been considered b" t&e trial court and t&e *. #i=ewise, it is an issue o actt&at is not a proper sub;ect o a petition or re'iew under /ule 4. n issue isactual w&en t&e doubt or dierence arises as to t&e trut& or alse&ood oalle!ed acts, or w&en t&e )uer" in'ites calibration o t&e w&ole e'idence,considerin! mainl" t&e credibilit" o witnesses, eistence and rele'anc" ospeciic surroundin! circumstances, t&eir relation to eac& ot&er and to t&ew&ole, and t&e probabilities o t&e situation.11 %ime and a!ain, 6e stresst&at t&is *ourt is not a trier o acts and !enerall" does not wei!& anewe'idence w&ic& lower courts &a'e passed upon.

s to t&e second issue, records bear t&at bot& 'erbal and written demandswere in act made b" respondent prior to t&e institution o t&e case a!ainstpetitioners. 'en assumin!, or ar!ument(s sa=e, t&at no demand letter wassent b" respondent, t&ere is reall" no need or it because petitioners le!all"wai'ed t&e necessit" o notice or demand in t&e Promissor" >ote wit&*&attel Mort!a!e, w&ic& t&e" 'oluntaril" and =nowin!l" si!ned in a'or orespondent(s predecessor-in-interest. eit&er &a'e t&e" demonstrated an" written re)ueststo respondent to urnis& t&em wit& oicial receipts or a statement o account.6orse, petitioners were not able to ma=e a ormal oer o e'idenceconsiderin! t&at t&e" &a'e not mar=ed an" documentar" e'idence durin! t&epresentation o Deo !ner(s testimon".urisprudence abounds t&at, in ci'il cases, one w&o pleads pa"ment &as t&eburden o pro'in! it t&e burden rests on t&e deendant to pro'e pa"ment,rat&er t&an on t&e plainti to pro'e non-pa"ment.20 6&en t&e creditor is inpossession o t&e document o credit, proo o non-pa"ment is not needed or it is presumed.21 /espondents possession o t&e Promissor" >ote wit&

*&attel Mort!a!e stron!l" buttresses its claim t&at t&e obli!ation &as not


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been etin!uis&ed. s &eld in Ban= o t&e P&ilippine :slands '.


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t&e principle w&ic& t&is *ourt &as airmed in a number o cases t&atstipulated interest rates o t&ree percent +35 per mont& and &i!&er areecessi'e, ini)uitous, unconscionable, and eorbitant.31 6&ile *entral Ban=*ircular >o. 90-82, w&ic& too= eect on anuar" 1, 1983, eecti'el"remo'ed t&e ceilin! on interest rates or bot& secured and unsecured loans,re!ardless o maturit", not&in! in t&e said circular could possibl" be read as!rantin! carte blanc&e aut&orit" to lenders to raise interest rates to le'elsw&ic& would eit&er ensla'e t&eir borrowers or lead to a &emorr&a!in! o t&eir assets.32 os. %-31193 and /%-373 +331.@owe'er, despite pa"ment Hrespondent ban=I proceeded to oreclose t&e realestate mort!a!e, particularl" wit& respect to t&e t&ree +3 parcels o landco'ered b" %*% >os. %-741, %-3203 and %-1730.

public auction sale o t&e properties proceeded, wit& t&e Hrespondent ban=Iemer!in! as t&e &i!&est and winnin! bidder. ccordin!l", on u!ust 30,2002, a certiicate o sale o t&e properties in'ol'ed was issued. H/espondentban=I consolidated its owners&ip o'er t&e said properties and %*% >os. %-2889, %-2890, and %-2891 were issued in lieu o t&e cancelled %*%. %&isprompted Hpetitioners-spousesI to ile a complaint or annulment o mort!a!e,s&eri(s certiicate o sale, declaration o nullit" o t&e increased interest ratesand penalt" c&ar!es plus dama!es, wit& t&e /%* o Batan!as *it".:n t&eir amended complaint, Hpetitioners-spousesI alle!ed t&at t&e" tried to

reli!iousl" pa" t&eir loan obli!ation to Hrespondent ban=I, but t&e eorbitantrate o interest unilaterall" determined and imposed b" t&e latter pre'entedt&e ormer rom pa"in! t&eir obli!ation. HPetitioners-spousesI also alle!edt&at t&e" si!ned t&e promissor" notes in blan=, rel"in! on t&e representationo Hrespondent ban=I t&at t&e" were merel" proorma HsicI ban= re)uirements.Furt&er, Hpetitioners-spousesI alle!ed t&at t&e unilateral increase o interestrates and eorbitant penalt" c&ar!es are a=in to un;ust enric&ment at t&eirepense, !i'in! Hrespondent ban=I no ri!&t to oreclose t&eir mort!a!edproperties.On u!ust 2, 2004 P>B iled its answer, den"in! t&e alle!ations in t&ecomplaint. P>B alle!ed t&at? t&e penalt" c&ar!es imposed on t&e loan wasepressl" stipulated under t&e credit a!reements and in t&e promissor"

notes alt&ou!& Hpetitioners-spousesI paid to P>B P14,800,000.00 on ul"10, 2001, t&e ormer was still indebted to t&e latter in t&e amounto P33,970,733.8 assumin! ar!uendo t&at t&e imposition was improper, t&eoreclosure o t&e mort!a!ed properties is in order since Hrespondent ban=(sIbid in t&e amount o P28,97,100.00 was based on t&e a!!re!ate appraisedrates o t&e oreclosed properties.

ter trial, t&e /%* rendered ;ud!ment in a'or o petitioners-spouses anda!ainst respondent ban=, orderin! t&at?

1. %&e rate o interest s&ould be reduced as it is &ereb" reduced to 75 in accordancewit& rticle 2209 o t&e *i'il *ode eecti'e t&e net 30, 31 and 180 da"s respecti'el"rom t&e date o t&e twel'e +12 promissor" notes co'ered b" t&e real estate mort!a!es, to be applied on a declinin! balance o t&e principal ater t&e partialpa"ments o P14,800,00.00 +paid ul" 1, 2001 and P2,000,000.007 +pa"ments

o P300,000.00 on October 1, 1999, P1,800,000.00 as HoI December 1,1999, P00,000.00 HonI anuar" 31, 2000 per certiication o Hrespondent ban=I to be

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rec=oned at +sic t&e dates t&e said pa"ments were made, t&us t&e corrected amountso t&e liabilit" or principal balance and t&e said 75 c&ar!es per annum s&all be t&enew basis or t&e Hpetitioners-spousesI to ma=e pa"ments to t&e Hrespondent ban=w&ic& s&all automaticall" etin!uis& and release t&e mort!a!e contracts and t&eoutstandin! liabilities o t&e Hpetitioners-spousesI Hrespondent ban=I s&all t&ensurrender t&e new transer certiicates o title in its name to t&e court cancellin! t&epenalt" c&ar!es.

2. Declarin! as ille!al and 'oid t&e oreclosure sales t&e *ertiicates o os. %-741, %-3203 and %-1730 in t&e names o t&eHpetitioners-spousesI t&e latter acts to be eecuted b" t&e /e!ister o Deeds oBatan!as *it".

%&e ore!oin! disposition o t&e /%* was based on t&e ollowin! indin!s oact? s o t&is writin! t&e HrespondentI ban= &a'e +sic not complied wit& t&esaid orders as to t&e interest rates it &ad been usin! on t&e loan oHpetitioners-spousesI and t&e mont&l" computation o interest 'is a 'is +sict&e total s&own in t&e statement o account as o u! 30, 2002.


25/41

customs, public order or public polic". Pursuant to rticle 119 o t&e *i'il*ode, t&ese obli!ations arisin! rom suc& contracts &a'e t&e orce o lawbetween t&e parties and s&ould be complied wit& in !ood ait&.:n t&e case at bar, Hrespondent ban=I and Hpetitioners-spousesI epressl"stipulated in t&e promissor" notes t&e rate o interest to be applied to t&e loanobtained b" t&e latter rom t&e ormer, P>B insists t&at Hpetitioner-spousesIa!reed to t&e interest rates stated in t&e promissor" notes since t&e latter'oluntaril" si!ned t&e same. @owe'er, we ind more credible and belie'ablet&e 'ersion o Hpetitioners-spousesI t&at t&e" were made to si!n t&e saidpromissor" notes in blan= wit& respect to t&e rate o interest and penalt"c&ar!es, and subse)uentl", HrespondentI ban= illed in t&e blan=s, imposin!&i!& interest rate be"ond w&ic& t&e" were made to understand at t&e time ot&e si!nin! o t&e promissor" notes.%&e si!nin! b" Hpetitioners-spousesI o t&e promissor" notes in blan=enabled HrespondentI ban= to impose interest rates on t&e loan obli!ationwit&out prior notice to Hpetitioners-spousesI. %&e unilateral determination andimposition o interest rates b" HrespondentI ban= wit&out Hpetitioners-spouses(I assent is ob'iousl" 'iolati'e o t&e principle o mutualit" ocontracts ordained in rticle 1308 o t&e *i'il *ode. P>B act con'erted t&eloan a!reement into a contract o ad&esion w&ere t&e parties do not bar!ain

on e)ual ootin!, t&e wea=er part"(s participation, &erein Hpetitioners-spousesI, bein! reduced to t&e alternati'e to ta=e it or lea'e it. H/espondentIban= tried to sidestep t&is issue b" a'errin! t&at Hpetitioners-spousesI, asbusinessmen, were on e)ual ootin! wit& Hrespondent ban=I as ar as t&esub;ect loan a!reements are concerned. %&at ma" be true insoar as enterin!into t&e ori!inal loan a!reements and mort!a!e contracts are concerned.@owe'er, t&at does not &old true w&en it comes to t&e unilateraldetermination and imposition o t&e escalated interest rates imposed b"HrespondentI ban=.%&e *ourt urt&er notes t&at in t&e case at bar, HrespondentI ban= imposeddierent rates in t&e twel'e +12 promissor" notes? interest rate o 185 in i'e+ promissor" notes 1.5 in two +2 promissor" notes 235 in one +1

promissor" note and 25 in t&ree +3 promissor" notes. Ob'iousl", t&einterest rates are ecessi'e and arbitrar". %&us, t&e ore!oin! interest ratesimposed on Hpetitioners-spouses(I loan obli!ation wit&out t&eir =nowled!eand consent s&ould be disre!arded, not onl" or bein! ini)uitous andeorbitant, but also or bein! 'iolati'e o t&e principle o mutualit" ocontracts. @owe'er, we do not a!ree wit& t&e trial court in iin! t&e rate ointerest o 75. :t is well-settled t&at w&en an obli!ation is breac&ed andconsists in t&e pa"ment o a sum o mone", i.e., loan or orbearance omone", t&e interest due s&all be t&at w&ic& ma" &a'e been stipulated inwritin!. :n t&e absence o stipulation, t&e rate o interest s&all be 125 interestper annum to be computed rom deault, i.e., rom ;udicial or etra-;udicialdemand and sub;ect to t&e pro'isions o rticle 1179 o t&e *i'il *ode. int& Di'ision o t&e * ruled t&at under t&e doctrine ooperati'e acts, no interest is due ater t&e auction sale because t&e loan ispaid in =ind b" t&e auction sale, and interest s&all commence to run a!ainupon inalit" o t&e ;ud!ment declarin! t&e auction sale null and 'oid.%&e * denied respondent ban=(s Motion or /econsideration or lac= omerit. :t li=ewise ound no merit in petitioners-spouses( contention t&at no

interest is due on t&eir principal loan obli!ation rom t&e time o oreclosureuntil inalit" o t&e ;ud!ment annullin! t&e oreclosure sale. ccordin! to t&e*? >otabl", t&is *ourt disre!arded t&e stipulated rateHsI o interest on t&esub;ect promissor" notes ater indin! t&at t&e same are ini)uitous andeorbitant, and or bein! 'iolati'e o t&e principle o mutualit" o contracts.>e'ert&eless, in )uitable P*: Ban= '. >! !or, t&e


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t&e o. 194174, t&e *ourt denied&erein respondent ban=(s appeal in a /esolution dated 10 anuar" 2011. %&e/esolution became inal and eecutor" on 20 Ma" 2011. :n addition,pursuant to *ircular >o. 99, series o 2013, issued b" t&e Oice o t&eCo'ernor o t&e Ban!=o


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#and Ban= is a !o'ernment inancial institution created under /epublic ct>o. 3844. From 198 to 1980, OWate opened and maintained se'en trustaccounts wit& #and Ban=, more particularl" described as ollowsac& trust account was co'ered b" an :n'estment Mana!ement ccount+:M wit& Full Discretion1 and &as a correspondin! passboo= w&eredeposits and wit&drawals were recorded. Pertinent portions common to t&e:Ms read?Gou H#and Ban=I are appointed as m" a!ent wit& ull powers and discretion,sub;ect onl" to t&e ollowin! pro'isions?

1. Gou are aut&ori$ed to &old, in'est and rein'est t&e Fund and =eep t&e same in'ested,in "our sole discretion, wit&out distinction between principal and income, in an" assetsw&ic& "ou deem ad'isable, wit&out bein! restricted to t&ose o t&e c&aracteraut&ori$ed or iduciaries under an" present or uture law.

2. Gou s&all &a'e ull power and aut&orit"? to treat all t&e Fund as one a!!re!ate amountor purposes o in'estment, and to deposit all or an" part t&ereo wit& a reputable ban=includin! "our own commercial ban=in! department to pa" all costs, epenses andc&ar!es incurred in connection wit& t&e administration, preser'ation, maintenance andprotection o t&e Fund and to c&ar!e t&e same to t&e Fund to 'ote in person or b"pro" on an" stoc=s, bonds or ot&er securities &eld b" "ou, or m"Jour account toborrow mone" or t&e Fund +rom "our ban=in! department or rom ot&ers wit& orwit&out !i'in! securities rom t&e Fund to cause an" asset o t&e Fund to be issued,&eld or re!istered in "our name or in t&e name o "our nominee, or in suc& orm t&attitle will pass b" deli'er", pro'ided "our records s&all indicate t&e true owners&ip osuc& assets to &old t&e Fund in cas& and to in'est t&e same in ied incomeplacements traded and sold b" "our own Mone" Mar=et Di'ision and to si!n alldocuments pertinent to t&e transaction w&ic& "ou will ma=e in be&al o t&is ccount.

3. ll actions ta=en b" "ou &ereunder s&all be or m" account and ris=. cept or willuldeault or !ross misconduct, "ou s&all not be liable or an" loss or depreciation in t&e'alue o t&e assets o t&e Fund arisin! rom an" cause w&atsoe'er.

4. Gou s&all maintain accurate records o all in'estments, receipts, disbursements andot&er transactions o t&e ccount. /ecords relatin! t&ereto s&all be open at allreasonable times to inspection and audit b" me eit&er personall" or t&rou!& dul"aut&ori$ed representati'es. o. 01-12 as &is additional unds but actuall" represents

t&e total amount o t&e c&ec=s issued to #and Ban= b" its corporateborrowers as pa"ment or t&eir pre-terminated loans. OWate reused. %o settle

t&e matter, a meetin! was &eld, but t&e parties ailed to reac& an a!reement.DB>N in'ested P4 Million o t&e trust accounts o P% and P%B,t&rou!& a direct lendin! sc&eme to t&e ollowin! companies? +a /epublic%elep&one *ompan", :nc. +/%#*O, under Promissor" >ote >o. 114

dated October 10, 1980, or P1,021,20.00 wit& maturit" date on >o'ember24, 1980, sub;ect to automatic roll-o'er up to October 10, 1981 at 15interest per annum. +b P&ilippine Bloomin! Mills *ompan", :nc. +PBM,under Promissor" >ote +unnumbered dated October 10, 1980,or P1,021,20.00, wit& maturit" date on >o'ember 24, 1980, sub;ect toautomatic roll-o'er up to October 10, 1981, at 15 interest per annum +c*&en! Ban Ge= +*BG, under Promissor" >ote +unnumbered dated October10, 1980, orP1,023,138.89, wit& maturit" date on >o'ember 28, 1980,sub;ect to automatic roll-o'er up to October 10, 1981, at 15 interest perannum +d P&ilippine %obacco Filters *orporation +P@:#%OF:#, underPromissor" >ote +unnumbered dated October 10, 1980, or P1,021,20.00,wit& maturit" date on >o'ember 24, 1980, sub;ect to automatic roll-o'er up to

October 10, 1981, at 15 interest per annum.. Pursuant to suc& direct loan transactions !ranted to t&e aorementionedcompanies, #>DB>N issued our +4 cas&ier(s c&ec=s or P1 Million eac&pa"able to /%#*O, PBM, *BG, and P@:#%OF:#8. On or about >o'ember 24 and 28, 1980, t&e aoresaid borrowers+/%#*O, PBM, *BG, >D P@:#%OF:#, pre-terminated t&eircorrespondin! loans and paid t&eir respecti'e obli!ations in t&e orm oc&ec=s pa"able to #>DB>N and deli'ered b" HOWate(sI representati'e, Mr.duardo Polonio.9. 6&en t&e c&ec=s were deli'ered, HOWateI raudulentl" misrepresented to#>DB>N t&at t&e" were HOWate(sI additional capital contribution to &ispersonal trust account. On t&e basis o t&is misrepresentation, #>DB>N

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credited t&e pa"ments made b" t&e aorementioned corporate borrowers toHOWate(sI %rust ccount >o. 01-12.10. ter t&e pa"ments were credited to &is personal trust account, OWateproceeded to wit&draw t&e same, to t&e dama!e and pre;udice o#>DB>N as t&e owner t&ereo .23

:n &is nswer +6it& *ompulsor" *ounterclaim,24 OWate asserted t&at t&eseto was wit&out le!al and actual bases. @e speciicall" denied an"=nowled!e or in'ol'ement in t&e transaction between #and Ban= and itsclients P&ilippine ir!inia %obacco dministration +P% and P&ilippineir!inia %obacco Board +P%B. @e also denied t&at &e made raudulentmisrepresentation to induce t&e ban= to deposit to &is %rust ccount >o. 01-12 as &is additional capital t&e pa"ments alle!edl" tendered b" t&e ban=(scorporate borrowers. @e maintained t&at all t&e unds in &is accounts camerom le!itimate sources and t&at &e was totall" unaware o and &ad not&in!to do wit& t&e alle!ed Amiscreditin!.A 6&ile OWate admitted &a'in! recei'edt&e October 8, 1981 demand letter, &e ar!ued t&at &e did not ac)uiescet&ereto and, in act, disputed t&e same durin! a meetin! wit& an oicer o#and Ban=. @e also reuted #and Ban=(s claim t&at it ormall" demanded ort&e return o t&e disputed amount as t&e o. 01-014

+w&ic& is or an Andisclosed PrincipalA rom t&e period ul"-


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ccount >o. 01-089, t&ere was a total wit&drawal wit&out wit&drawal slips int&e amount oP,04,809.00 but t&e report indicated t&at t&ere was ane!ati'e balance o P1,297,441.92. :n %rust ccount >o. 01-12, t&ere was atotal wit&drawal wit&out wit&drawal slips in t&e amount oP4,740,1.34 andt&ere was a ne!ati'e balance o P8,32,49.23.34

On e'en date, t&e Board also submitted a Maniestation3 inormin! t&e /%*t&at its indin!s as to t&e outstandin! balance o eac& trust account ma" notbe accurate considerin! t&at it was not !i'en ample opportunit" to collate and

sort out t&e documents related to eac& trust account and t&at t&ere ma" &a'ebeen double ta=e up o accounts since t&e documents pre'iousl" re'iewedma" &a'e been considered a!ain in subse)uent reports. :n &is*omment,37 OWate asserted t&at t&e undocumented wit&drawals mentionedin t&e consolidated report s&ould not be considered as cas& outlows. /at&er,t&e" s&ould be treated as unaut&ori$ed transactions and t&e amounts sub;ectt&ereo must be credited bac= to &is accounts.#and Ban= did not ile an"comment or ob;ection to t&e Board(s consolidated comment. Durin! t&e pre-trial conerence, t&e parties a!reed t&at t&e" would submit t&e case ordecision based on t&e reports o t&e Board ater t&e" &a'e submitted t&eirrespecti'e memoranda.%&e" also stipulated on t&e ollowin! issues or resolution o t&e /%*?

1. 6&et&er OWate could claim on %rust ccount >os. 01-014 and 01-01w&ic& were opened or an undisclosed principal2. 6&et&er t&e undocumented wit&drawals and drawin!s are considered'alid and re!ular and, con'ersel", i in t&e ne!ati'e, w&et&er suc& amountss&all be credited Hbac=I to t&e accounts.3

:n &is Memorandum38 iled on ul" 12, 200, OWate reiterated t&at #and Ban=s&ould be &eld liable or t&e undocumented wit&drawals and drawin!s. For itspart, #and Ban= posited, inter alia, t&at %rust ccount >os. 01-014 and 01-01 s&ould be ecluded rom t&e computation o OWate(s counterclaimconsiderin! &is alle!ation t&at said accounts are owned b" an undisclosedprincipal w&omJw&ic& &e ailed to ;oin as indispensable part". #and Ban=urt&er t&eori$ed t&at OWate must answer or t&e ne!ati'e balances as

re'ealed b" t&e Board(s reports. %&ereater, t&e case was submitted ordecision./ulin! o t&e /e!ional %rial *ourtOn Ma" 31, 2007, t&e /%* rendered a Decision40 dismissin! #and Ban=(s*omplaint or its ailure to establis& t&at t&e amount o P4,087,888.89alle!edl" AmiscreditedA to OWate(s %rust ccount >o. 01-12 actuall" camerom t&e in'estments o P% and P%B. @ence, t&e /%* ordered #andBan= to restore t&e total amount oP1,41,417.2 w&ic& t&e ban= unilaterall"debited rom OWate(s i'e trust accounts.41 6it& re!ard to OWate(scounterclaim or t&e reco'er" o P220,999,42.37, as well as t&e alle!edo. 01-014,t&e /%* ruled t&at under t&e :Ms, #and Ban= &ad t&e aut&orit" to wit&draw

unds +as in act it was at all times in possession o t&e passboo=s rom

OWate(s accounts e'en wit&out a letter o instruction or wit&drawal slipcomin! rom OWate. :t t&us !a'e wei!&t to t&e entries in t&e passboo=s sincet&e same were made in t&e ordinar" course o business. %&e /%* also ruledt&at OWate is deemed to &a'e appro'ed t&e entries in t&e statements oaccount t&at were sent to &im as &e ne'er interposed an" ob;ection t&eretowit&in t&e period !i'en &im to do so. nent #and Ban=(s claim or t&ene!ati'e balances, t&e /%* li=ewise denied t&e same or #and Ban= ne'ersou!&t t&em in its *omplaint. Moreo'er, bein! t&e mana!er o t&e unds and

=eeper o t&e records, t&e /%* &eld t&at #and Ban= s&ould not &a'e allowedurt&er wit&drawals i t&ere were no more unds.%&e /%* li=ewise debun=ed #and Ban=(s ar!ument t&at OWate(scounterclaim wit& respect to %rust ccount >os. 01-014 and 01-01 s&ouldbe dismissed or &is ailure to ;oin &is undisclosed principal. ccordin! to t&e/%*, #and Ban= s&ould &a'e earlier in'o=ed suc& deense w&en it iled itsanswer to t&e counterclaim. lso, i it is true t&at said accounts are not ownedb" OWate, t&en t&e ban= &ad no ri!&t to appl" t&e unds in said accounts aspa"ment or t&e alle!ed personal indebtedness o OWate.%&e dispositi'e portion o t&e /%*(s Decision reads? 6@/FO/, in 'iewo all t&e ore!oin!, decision is &ereb" rendered dismissin! t&e complaint andorderin! H#and Ban=I to pa" HOWateI t&e total amount o P1,41,417.2

representin! t&e total amount o unds debited rom t&e i'e + trust accountso t&e deendant wit& le!al rate o interest o 125 per annum, compounded"earl", eecti'e on 21 une 1991 until ull" paid. >o pronouncement as tocosts.


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appellant mmanuel OWate is &ereb" partiall" C/>%D. ccordin!l", t&eMa" 31, 2007 Decision o t&e /e!ional %rial *ourt, Branc& 141, Ma=ati *it"is &ereb" MOD:F:D in t&at, in addition to t&e pre'ious !ranto P1,41,417.2 representin! t&e total amount o unds debited romdeendant-appellant OWate(s trust accounts, plainti-appellant #and Ban= is&ereb" ordered to pa" deendant-appellant OWate t&e sum oP70,773,488.11and Q3,210,222.8 representin! t&e undocumented wit&drawals it debitedrom t&e latter(s trust account wit& interest at t&e rate o 125 per annum,

compounded "earl" rom une 21, 1991 until ull" paid.#and Ban= iled a Motion or /econsideration.48 :n a /esolution49 dated Ma"2, 2010, &owe'er, t&e * denied its motion. @ence, #and Ban= iled t&einstant Petition or /e'iew on *ertiorari based on t&e ollowin! issues?

:. 6@%@/ %@ >%/:< :> %@ P% +:M 6:%@ F## D: / % %O M% %@ A/#O> P/ OF /C#/:%G OF >%/:< :> %@ *O/O%P#DD < *O>%/*#:M :> @:< >%:%#D %O %@ 6/D OF P70,773,488.11 >DQ3,210,222.8 /P/%:>C %@ ##CD >DO*M>%D 6:%@D/6#<

DB:%D F/OM @:< %/%< O> %@ C/O>D OF #BP(< ##CDF:#/ %O M% %@ D/D< D/ %@ 2008 M># O>/C#%:O>< FO/ B>N< +MO/B : >D::>C @:< >D:%/% +125 P/ >>M, *OMPO>DD G/#G F/OM > 21, 1991 >%:#F##G P:D, :< :O#%: OF /%:*# 199 OF %@ *::# *OD. 0

#and Ban=(s r!uments? #and Ban= disputes t&e rulin! o bot& lower courtst&at it ailed to pro'e t&e act o Amiscreditin!A t&e amount oP4,087,888.89 toOWate(s %rust ccount >o. 01-12 as t&e deposit slips pertainin! t&eretowere not presented. #and Ban= maintains t&at in trust accounts t&epassboo=s are alwa"s in t&e ban=(s possession so t&at it can record t&e cas&

inlows and outlows e'en wit&out t&e correspondin! deposit or wit&drawalslips. *itin!


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in t&e absence o stipulation, t&e applicable rate o interest is onl" 75 perannum. #and Ban= claims t&at t&e * urt&er erred w&en it compounded t&e125 interest e'en in t&e absence o an" suc& stipulation.OWate(s r!uments? :n opposin! t&e Petition, OWate ar!ues t&at t&e issuesraised b" #and Ban= in'ol'e actual matters not proper in a petition or re'iewon certiorari. @e posits t&at t&e Petition does not all under an" o t&eeceptions w&ere t&is *ourt could re'iew actual issues.

s to #and Ban=(s alle!ation t&at &e cannot claim t&e unds wit&out di'ul!in!

and impleadin! as an indispensable part" &is undisclosed principal, OWatepoints out t&at in &is nswer +6it& *ompulsor" *ounterclaim &e alle!ed t&at%rust ccount >os. 01-014 and 01-01 were opened or an Aundisclosedprincipal.A Get #and Ban= did not contro'ert &is alle!ation. :t is, t&ereore, toolate in t&e da" or #and Ban= to in'o=e non-;oinder o principal as anindispensable part". Besides, w&en &e eecuted t&e :Ms, &e was actin! or&imsel and on be&al o an undisclosed principal. @ence, &e could claim andreco'er t&e amounts owin! not onl" to &imsel but also to &is undisclosedprincipal. OWate li=ewise asserts t&at #and Ban=, as uniorml" ound b" bot&lower courts, ailed to pro'e b" preponderance o e'idence t&e act oAmiscreditin!.A s to t&e demand letters ad'erted to b" #and Ban=, OWateasserts t&at t&e lower courts did not consider t&e same because t&e" were

not ormall" oered. #and Ban= also ailed to present competent andsuicient e'idence t&at &e admitted &is indebtedness on account o t&eAmiscreditin!A o unds. ow, #and Ban= practicall"beseec&es us to assess t&e probati'e wei!&t o t&e documentar" e'idenceon record to resol'e t&e same basic issues o +i w&et&er #and Ban=AmiscreditedA P4,087,888.89 to %rust ccount >o. 01-12 and +ii Aw&et&er t&e undocumented wit&drawals and drawin!s are considered 'alid andre!ular and, con'ersel", i in t&e ne!ati'e, w&et&er suc& amounts s&allbe credited to t&e accounts.A70

%&ese issues could be resol'ed b" consultin! t&e e'idence etant onrecords, suc& as t&e :Ms, t&e passboo=s, t&e letters o instructions,wit&drawal and deposit slips, statements o account, and t&e Board(s reports.#and Ban=(s &ea'" reliance on


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issue must rest solel" on w&at t&e law pro'ides on t&e !i'en set ocircumstances. Once it is clear t&at t&e issue in'ites a re'iew o t&e e'idencepresented, t&e )uestion posed is one o act. %&us, t&e test o w&et&er a)uestion is one o law or o act is not t&e appellation !i'en to suc& )uestionb" t&e part" raisin! t&e same rat&er, it is w&et&er t&e appellate court candetermine t&e issue raised wit&out re'iewin! or e'aluatin! t&e e'idence, inw&ic& case, it is a )uestion o law ot&erwise, it is a )uestion o act. 6&ilet&ere are reco!ni$ed eceptions74 to t&is rule, none eists in t&is case.

nent #and Ban=(s contention t&at t&e determination o w&et&er t&e * erredin retroacti'el" appl"in! t&e 2008 MO/B poses a le!al )uestion, t&e samedeser'es scant consideration. %rue, t&e * included in its ratio decidendi adiscussion on t&e 2008 MO/B to !i'e emp&asis to t&e duties o ban=s to=eep an accurate record and re!ularl" apprise t&eir clients o t&e status ot&eir accounts. But t&e issue o w&et&er #and Ban= ailed to compl" wit&t&ose duties can be resol'ed e'en wit&out t&e MO/B as t&e same duties arealso imposed on #and Ban= b" t&e :Ms, t&e contract t&at primaril" !o'ernst&e parties in t&is case. As a !eneral rule, a contract is t&e law between t&eparties. %&us, Yrom t&e moment t&e contract is perected, t&e parties arebound not onl" to t&e ulilment o w&at &as been epressl" stipulated butalso to all conse)uences w&ic&, accordin! to t&eir nature, ma" be in =eepin!

wit& !ood ait&, usa!e and law.( lso, Yt&e stipulations o t&e contract bein!t&e law between t&e parties, courts &a'e no alternati'e but to enorce t&emas t&e" were a!reed HuponI and written( .A7

Based on t&e actual milieu o t&is case e'en wit&out touc&in! on t&e MO/B,we ound t&at #and Ban= still ailed to perorm its bounden duties to =eepaccurate records and render re!ular accountin!. 6e also ound no co!entreason to disturb t&e ot&er actual indin!s o t&e *.#and Ban= ailed to pro'e t&at t&e AmiscreditedA unds came rom t&eproceeds o t&e pre-terminated loans o its corporate borrowers. #and Ban= ar!ues t&at t&e entries in t&e passboo=swere made in t&e re!ular course o business and s&ould be accepted asprima acie e'idence o t&e acts stated t&erein. But beore entries made in

t&e course o business ma" )uali" under t&e eception to t&e &earsa" ruleand !i'en wei!&t, t&e part" oerin! t&em must establis& t&at? +1 t&e personw&o made t&ose entries is dead, outside t&e countr", or unable to testi" +2t&e entries were made at, or near t&e time o t&e transaction to w&ic& t&e"reer +3 t&e entrant was in a position to =now t&e acts stated t&erein +4 t&eentries were made in t&e proessional capacit" or in t&e course o dut" o t&eentrant and, + t&e entries were made in t&e ordinar" or re!ular course obusiness or dut".77 @ere, #and Ban= &as neit&er identiied t&e persons w&omade t&e entries in t&e passboo=s nor establis&ed t&at t&e" are alread" deador unable to testi" as re)uired b" o.01-12. s a ban= and custodian o records, #and Ban= could &a'e easil"produced documents s&owin! t&at its borrowers pre-terminated t&eir loans,t&e c&ec=s t&e" issued as pa"ment or suc& loans, and t&e deposit slips usedin depositin! t&ose c&ec=s. But it did not.#and Ban= did not also bot&er to eplain &ow OWate or &is representati'e,duardo Polonio +Polonio, obtained possession o t&e c&ec=s w&en,accordin! to it, t&e corporate borrowers issued t&e c&ec=s in its name aspa"ment or t&eir loans.79 nder para!rap& 8 o its *omplaint, #and Ban=alle!ed t&at its corporate borrowers Apaid t&eir respecti'e obli!ations in t&e

orm o c&ec=s pa"able to #>DB>N A.0 : it is true, t&en w&" were t&ec&ec=s credited to OWate(s account nless subse)uentl" endorsed toOWate, said c&ec=s can onl" be deposited in t&e account o t&e pa"eeappearin! t&erein. 6e cannot t&us lend credence to #and Ban=(s ecuse t&att&e proimate cause o t&e alle!ed Amiscreditin!A was t&e raudulentrepresentation o Polonio, or assumin! t&at t&e latter indeed emplo"edraudulent mac&inations, wit& t&e de!ree o prudence epected o ban=s,#and Ban= and its tellers could &a'e easil" detected t&at OWate was not t&eintended pa"ee. :n %raders /o"al Ban= '. /adio P&ilippines >etwor=,:nc.,1 we &eld t&at petitioner ban= was remiss in its dut" and obli!ation oracceptin! and pa"in! a c&ec= to a person ot&er t&an t&e pa"ee appearin! ont&e ace o t&e c&ec= sans 'alid endorsement. *onse)uentl", it was made

liable or its own ne!li!ence and in disre!ardin! establis&ed ban=in! rulesand procedures.6e are also !ropin! in t&e dar= as to t&e number o c&ec=s alle!edl"deposited b" Polonio to OWate(s %rust ccount >o. 01-12. ccordin! to#and Ban=, t&e entire amount o P4,087,888.89 represents t&e proceeds ot&e pre-terminated loans o our o its clients, namel", /%#*O, PBM, *BGand P@:#%OF:#. But it could onl" point to two entries made on two separatedates in t&e passboo=.6ere t&ere onl" two c&ec=s issued as pa"ment or t&e separate loans ot&ese our dierent entities %&ese &an!in! )uestions onl" conirm t&ecorrectness o t&e lower courts( uniorm conclusion t&at #and Ban= ailed topro'e t&at t&e amount alle!edl" AmiscreditedA to OWate(s account came rom

t&e proceeds o t&e pre-terminated loans o its clients. :t is wort&

http://www.lawphil.net/judjuris/juri2014/jan2014/gr_192371_2014.html#fnt64http://www.lawphil.net/judjuris/juri2014/jan2014/gr_192371_2014.html#fnt65http://www.lawphil.net/judjuris/juri2014/jan2014/gr_192371_2014.html#fnt66http://www.lawphil.net/judjuris/juri2014/jan2014/gr_192371_2014.html#fnt66http://www.lawphil.net/judjuris/juri2014/jan2014/gr_192371_2014.html#fnt67http://www.lawphil.net/judjuris/juri2014/jan2014/gr_192371_2014.html#fnt67http://www.lawphil.net/judjuris/juri2014/jan2014/gr_192371_2014.html#fnt68http://www.lawphil.net/judjuris/juri2014/jan2014/gr_192371_2014.html#fnt69http://www.lawphil.net/judjuris/juri2014/jan2014/gr_192371_2014.html#fnt69http://www.lawphil.net/judjuris/juri2014/jan2014/gr_192371_2014.html#fnt70http://www.lawphil.net/judjuris/juri2014/jan2014/gr_192371_2014.html#fnt71http://www.lawphil.net/judjuris/juri2014/jan2014/gr_192371_2014.html#fnt71http://www.lawphil.net/judjuris/juri2014/jan2014/gr_192371_2014.html#fnt64http://www.lawphil.net/judjuris/juri2014/jan2014/gr_192371_2014.html#fnt65http://www.lawphil.net/judjuris/juri2014/jan2014/gr_192371_2014.html#fnt66http://www.lawphil.net/judjuris/juri2014/jan2014/gr_192371_2014.html#fnt67http://www.lawphil.net/judjuris/juri2014/jan2014/gr_192371_2014.html#fnt68http://www.lawphil.net/judjuris/juri2014/jan2014/gr_192371_2014.html#fnt69http://www.lawphil.net/judjuris/juri2014/jan2014/gr_192371_2014.html#fnt70http://www.lawphil.net/judjuris/juri2014/jan2014/gr_192371_2014.html#fnt71


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emp&asi$in! t&at in ci'il cases, t&e part" ma=in! t&e alle!ations &as t&eburden o pro'in! t&em b" preponderance o e'idence. Mere alle!ation is notsuicient.3

s a conse)uence o its ailure to pro'et&e source o t&e claimedAmiscreditedA unds, #and Ban= &ad no ri!&t to debitt&e total amounto P1,41,417.2 and must, t&ereore, restore t&e same. :n 'iew o t&eabo'e, #and Ban=(s ar!ument t&at t&e lower courts erred in orderin! t&ereturn o t&e amount oP1,41,417.2 it debited rom OWate(s i'e trust

accounts since &e did not see= suc& relie in &is nswer as a counterclaim,alls lat on its ace. %&e order to restore t&e debited amount is consistentwit& t&e lower courts( rulin! t&at #and Ban= ailed to pro'e t&at t&e amounto P4,087,888.89 was AmiscreditedA to OWate(s account and, &ence, it &ad nori!&t to see= reimbursement or debit an" amount rom &is accounts inpa"ment t&ereor.6it&out suc& ri!&t, #and Ban= s&ould return t&e amount o P1,41,417.2 itdebited rom OWate(s accounts in its attempt to recoup w&at it alle!edl" lostdue to Amiscreditin!.A Moreo'er, contrar" to #and Ban=(s assertion, OWatecontested t&e ban=(s application o t&e balance o &is trust accounts inpa"ment or t&e alle!edl" AmiscreditedA amount in &is nswer +6it&*ompulsor" *ounterclaim or bein! Awit&out an" actual and le!al HbasesI.A4

#and Ban= was remiss in perormin! its duties under t&e :Ms and as aban=in! institution.%&e contractual relation between #and Ban= and OWate in t&is case isprimaril" !o'erned b" t&e :Ms. Para!rap& 4 t&ereo epressl" imposed on#and Ban= t&e dut" to maintain accurate records o all &is in'estments,receipts, disbursements and ot&er transactions relatin! to &is accounts. :talso obli!ed #and Ban= to pro'ide OWate wit& )uarterl" balance s&eets,statements o income and epenses, summar" o in'estments, etc. %&us?Gou s&all maintain accurate records o all in'estments, receipts,disbursements and ot&er transactions o t&e ccount. /ecords relatin!t&ereto s&all be open at all reasonable times to inspection and audit b" meeit&er personall" or t&rou!& dul" aut&ori$ed representati'es.


34/41

treat it as competent and suicient e'idence o w&at are stated t&erein. terall, t&e deart& o e'identiar" documents t&at could &a'e s&ed li!&t on t&ealle!ed unintended creditin! and uneplained wit&drawals was brou!&t aboutb" #and Ban=(s ailure to maintain accurate records as re)uired b" t&e :Ms.:n ationalBan= '. *ourt o ppeals,83 we &eld t&at Aas between parties w&erene!li!ence is imputable to one and not to t&e ot&er, t&e ormer must perorcebear t&e conse)uences o its ne!lect.A :n t&is case, t&e Board could &a'esubmitted a more accurate report &ad #and Ban= ait&ull" complied wit& itsdut" o maintainin! a complete and accurate record o OWate(s accounts. Butt&e Board could not ind and present t&e correspondin! slips or t&ewit&drawals relected in t&e passboo=s. :n addition, and as earlier mentioned,#and Ban= was less t&an cooperati'e w&en t&e Board was eaminin! t&erecords o OWate(s accounts. :t did not !i'e t&e Board enou!& leewa" to !oo'er t&e records s"stematicall" or in orderl" as&ion. @ence, we cannot allow#and Ban= to beneit rom possible inaccuracies in t&e reports.

>eit&er does OWate(s ailure to eercise &is ri!&ts to inspect t&e records andaudit &is accounts ecuse t&e ban= rom sendin! t&e re)uired notices, orunder t&e :Ms it be&oo'ed upon #and Ban= to =eep &im ull" inormed ot&e status o &is in'estments b" sendin! &im re!ular reports and statements.OWate(s ailure to inspect t&e record o &is accounts s&ould neit&er beconstrued as &is wai'er to be urnis&ed wit& updates on &is accounts noraut&orit" or t&e ban= to ma=e undocumented wit&drawals. s aptl" opinedb" t&e *?

%&e least t&at #and Ban= could &a'e done was to =eep a detailed )uarterl"report on HitsI ile. :n t&is case, #and Ban= did awa" wit& t&is procedure t&atmade HitsI records a complete mess o 'oluminous and meanin!less recordso numerous olders containin! more t&an ,700 lea'esJpa!es and some 90passboo=s, wit& 1,3 lea'esJpa!es o entries, correspondin! to t&e se'en+ %rust ccounts.%&e passboo= entries alone are insuicient compliancewit& #and Ban=(s dut" to =eep Aaccurate records o all in'estments, receipts,disbursements and ot&er transactions o t&e ccount.A %&ese passboo=s donot inorm w&at in'estments were made on t&e unds wit&drawn. Moreo'er,t&ese passboo= entries do not s&ow i t&e amounts purported to &a'e beenin'ested were indeed recei'ed b" t&e concerned entit", acilit", or borrower.From t&ese entries alone, OWate would &a'e no wa" o =nowin! w&ere &is

mone" went.84 But #and Ban= net postulates t&at i OWate is entitled to t&eundocumented wit&drawals on t&e basis o t&e reports

credit transactions cases (1/2)

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