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G.R. No. 135384

April 4, 2001

MARIANO DE GUIA and APOLONIA DE GUIA, petitioners, vs. CIRIACO, LEON, VICTORINA, TOMASA and PABLO, all surnamed DE GUIA, respondents. PANGANIBAN, J.: Under the pre-1997 Rules of Civil Procedure, a notice of pretrial must be served separately on the counsel and the client. If served only on the counsel, the notice must expressly direct the counsel to inform the client of the date, the time and the place of the pretrial conference. The absence of such notice renders the proceedings void, and the judgment rendered therein cannot acquire finality and may be attacked directly or collaterally.1wphi1.nt The Case Before us is a Petition for Review under Rule 45 of the Rules of Court, 1 assailing the February 17, 1998 Decision of the Court of Appeals (CA) in CA-GR CV No. 42971. The dispositive portion of the CA Decision reads as follows: "WHEREFORE, without anymore touching on the merit of the judgment, we hereby SET ASIDE the default Order of June 18, 1992 which the lower court had improvidently issued as well as the ensuing judgment which suffers from the same fatal infirmity. Let the case be remanded to the lower court, which is directed to promptly set the case for pre-trial conference in accordance with 2 the present Rules, and for further proceedings." Also assailed is the September 11, 1998 CA Resolution which denied petitioners Motion for Reconsideration. The Facts The appellate court summarized the antecedents of the case as follows: "The record shows that on October 11, 1990, plaintiffs Mariano De Guia, Apolonia De Guia, Tomasa De Guia and Irene Manuel filed
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with the court below a complaint for partition against defendants Ciriaco, Leon, Victorina and Pablo De Guia. They alleged x x x that the real properties therein described were inherited by plaintiffs and defendants from their predecessors-in-interest, and that the latter unjustly refused to have the properties subdivided among them. Shortly after defendants filed their traverse, an amended complaint was admitted by the lower court, in which plaintiff Tomasa De Guia was impleaded as one of the defendants for the reason that she had become an unwilling co-plaintiff. "It is further shown in the record that on June 11, 1992, the Branch Clerk of Court issued a Notice setting the case for pre-trial conference on June 18, 1992 at 8:30 a.m. Copies of said notices were sent by registered mail to parties and their counsel. It turned out that both defendants and counsel failed to attend the pre-trial conference. Hence, upon plaintiffs motion, defendants were declared as in default and plaintiffs were allowed to present their evidence ex-parte. "It appears that on July 6, 1992, defendants filed their Motion for Reconsideration of the June 16, 1992 Order which declared them as in default. They explained therein that they received the Notice of pre-trial only in the afternoon of June 18, 1992, giving them no chance to appear for such proceeding in the morning of that day. The Motion was opposed by plaintiffs who pointed out that per Postal Delivery Receipt, defendants counsel actually received his copy of the Notice on June 17, 1992 or one day before the date of pre-trial. Citing Section 2, Rule 13 of the Rules of Court, plaintiffs further urged that counsels receipt of the said notice on June 17, 1992 was sufficient to bind defendants who received said notice on the next day. Finally, they faulted defendants for failing to support their Motion for Reconsideration with an affidavit of merit showing among others that they had a meritorious defense. "In an Order dated August 19, 1992, plaintiffs motion for reconsideration was denied and on June 11, 1993, judgment was 4 rendered ordering the partition of the controverted parcels of land." The CA Ruling The CA sustained respondents claim that the trial court had improperly declared them in default. It held that the Notice of pretrial received by their counsel a day before the hearing did not bind the clients, because the Rules

of Court in effect at the time mandated separate service of such Notice upon the parties and their counsel. Said the appellate court: "In fine, we hold that the lower court committed a reversible error in declaring appellants as in default for their failure to attend the pretrial conference [of] which they were not properly served x x x notice and in subsequently rendering the herein appealed judgment. And while we commend the lower court for its apparent interest in disposing of the case with dispatch, the imperatives of procedural due process constrain us to set aside the default order and the appealed judgment, both of which were entered in violation 5 of appellants right to notice of pre-trial as required by the Rules." Hence, this Petition.
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The Respondent Court gravely erred in not applying Rule 135, Section 8 as warranted by the facts, admission and the evidence of 7 the parties." In the main, petitioners raise the following core issues: (1) the propriety of the trial courts order declaring respondents in default; and (2) petitioners allegation of procedural prejudice. The Courts Ruling The Petition has no merit. First Issue: The Propriety of the Default Order

Issues Petitioners impute the following alleged errors to the CA: "I The Respondent Court of Appeals, with grave abuse of discretion, erred in not finding private respondents as in default despite the existence of fraud, for being contrary to law, and for being contrary to the findings of the trial court. "II The Respondent Court, with grave abuse of discretion, erred in reversing the trial courts Decision notwithstanding private respondents violations of Rule 15, Sections 4 and 5 and Administrative Circular No. 04-94 and Revised Circular No. 28-91. "III The Respondent Court of Appeals, with grave abuse of discretion, erred in not affirming the compromise agreement which has the effect and authority of res judicata even if not judicially approved. "IV

When the present dispute arose in 1992, the applicable rule was Section 1, Rule 20 of the pre-1997 Rules of Civil Procedure, which provided as follows: "SECTION 1. Pre-trial mandatory. -- In any action after the last pleading has been filed, the court shall direct the parties and their attorneys to appear before it for a conference to consider: xxx xxx x x x."

This provision mandated separate service of the notice of pretrial upon the 8 9 parties and their lawyers. In Taroma v. Sayo, the Court explained: "For the guidance of the bench and bar, therefore, the Court in reaffirming the ruling that notice of pre-trial must be served separately upon the party and his counsel of record, restates that while service of such notice to party may be made directly to the party, it is best that the trial courts uniformly serve such notice to party through or care of his counsel at counsels address with the express imposition upon counsel of the obligation of notifying the party of the date, time and place of the pre-trial conference and assuring that the party either appear thereat or deliver counsel a written authority to represent the party with power to compromise the case, with the warning that a party who fails to do so may be non-suited or declared in default." (emphasis supplied)

Hence, before being declared non-suited or considered in default, parties and their counsel must be shown to have been served with notice of the 10 pretrial conference. Moreover, if served only on the counsel, the notice must expressly direct him or her to inform the client of the date, the time and the place of the pretrial conference. The absence of such notice renders the proceedings void, and the judgment rendered therein cannot acquire finality 11 and may be attacked directly or collaterally. In this case, respondents received the notice on the afternoon of June 18, 1992, or after the pretrial scheduled on the morning of that day. Moreover, although the Notice was also sent to their counsel, it did not contain any imposition or directive that he inform his clients of the pretrial conference. The Notice merely stated: "You are hereby notified that the above-entitled th case will be heard before this court on the 18 day of June, 1992, at 8:30 12 a.m. for pre-trial." Such belated receipt of the notice, which was not attributable to respondents, amounted to a lack of notice. Thus, the lower court erred in declaring them in default and in denying them the opportunity to fully ventilate and defend their claim in court. Of course, this situation would not have arisen under Section 3, Rule 18 of the 1997 Rules of Civil Procedure. It specifically provides that notice of pretrial shall be served on counsel, who is charged with the duty of notifying the client. Considering the milieu of the present case, however, such amended proviso is not applicable. Second Issue: Allegation of Procedural Bias Petitioners allege that, to their detriment, the appellate court disregarded established procedural precepts in resolving the case, and that it did so for three reasons. First, respondents Manifestation and Motion to Lift the Order of Default, filed with the trial court, was merely pro forma because the former lacked the requisite notice of hearing. Second, it also lacked an affidavit of merit. Third, respondents Appeal Brief did not contain a certificate of non forum shopping. Granting that respondents Manifestation and Motion to Lift the Order of Default was pro forma, this issue has become moot, not only because the trial court had denied such Motion, but also because what was appealed was the judgment rendered by the lower court. For the same reason, we must also reject petitioners insistence that an affidavit of merit was absent.
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In any case, there was no need to attach an affidavit of merit to the Motion, as the defenses of respondents had been set out in their Answer.1wphi1.nt With regard to the absence of a certification of non-forum shopping, substantial justice behooves us to agree with the disquisition of the appellate court. We do not condone the shortcomings of respondents counsel, but we simply cannot ignore the merits of their claim. Indeed, it has been held that "[i]t is within the inherent power of the Court to suspend its own rules in a 14 particular case in order to do justice." One last point. Petitioners fault the CA for remanding the case to the trial court, arguing that the appellate court should have resolved the case on its merit. We understand petitioners apprehension at the prospect of re -hearing the case; after all, it has been nine years since the filing of the Complaint. However, their claim and the evidence supporting it -- and respondents as well -- can be best threshed out and justly resolved in the lower court. In this regard, we cannot pass upon the validity of the Agreement of Partition between Mariano de Guia and Ciriaco de Guia, for such action would amount to a prejudgment of the case. WHEREFORE, the Petition is DENIED and the assailed Decision and Resolution AFFIRMED. No pronouncement as to costs. SO ORDERED. Melo, Vitug, Gonzaga-Reyes, Sandoval-Gutierrez, JJ., concur.

Footnote
1

Rollo, pp. 34-38; penned by Justice Godardo A. Jacinto, with the concurrence of Justices Artemon D. Luna (Division chairman) and Roberto A. Barrios.
2

CA Decision, p. 5; rollo, p. 38. Rollo, p. 42.

CA Decision, pp. 1-2; rollo, pp. 34-35. Ibid., p. 37.

The case was deemed submitted for decision on October 4, 2000, upon receipt by the Court of the Manifestation of respondents, signed by Atty. Edgardo V. Cruz, stating that they were adopting their Brief (should be Comment) as their Memorandum. Petitioners Memorandum, signed by Atty. Renato J. Santiago, was received by the Court on October 15, 1999.
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Petition, pp. 6-7; rollo, pp. 14-15; these are repeated in petitioners Memorandum.
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Ng v. Alfaro, 238 SCRA 486, December 1, 1994; Samson v. Court of Appeals, 105 SCRA 786, July 24, 1981; Patalinhug v. Peralta, 90 SCRA 51, May 5, 1979; Sagarino v. Pelayo, 77 SCRA 402, June 20, 1977; Lim v. Animas, 63 SCRA 409, April 18, 1975.
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67 SCRA 508, October 30, 1975, per Teehankee, J. (later CJ). See also Service Specialists v. Sheriff of Manila, 145 SCRA 139, October 17, 1986; Five Star Bus Co., Inc. v. Court of Appeals, 259 SCRA 120, July 17, 1996; Agravante v. Patriarca, 183 SCRA 113, March 14, 1990.
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Taroma v. Sayo, supra. Barde v. Posiquit, 164 SCRA 304, August 15, 1988. Rollo, p. 63.

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It reads: "SEC. 3. Notice of pre-trial. The notice of pre-trial shall be served on counsel, or on the party who has no counsel. The counsel served with such notice is charged with the duty of notifying the party represented by him."
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Anacleto v. Van Twest, GR No. 131411, August 29, 2000, per Mendoza, J. See also Villanueva v. CA, 285 SCRA 180, January 28, 1998; Ginete v. CA, 296 SCRA 38, September 24, 1998; Batara v. CA, 300 SCRA 237, December 16, 1998; Uy v. Land Bank of the Philippines, GR No. 136100, July 24, 2000.

FIRST DIVISION G.R. No. 130699 May 12, 2000 SPOUSES BERNARDO MERCADER and FLORINA M. MERCADER, and DR. JUAN Y. MADERAZO, petitioners, vs. DEVELOPMENT BANK OF THE PHILIPPINES (CEBU BRANCH), GELACIO, FELIPE, OSMUNDO all surnamed MANREAL, and RUFINA MANREAL VDA. DE ABALO, respondents.

copy of the lease contract for a right of way over the adjoining Lot No. 2985; (4) The lease contract for the right of way was for a twenty-year period commencing on 20 October 1966 which Maderazo executed with the spouses Gelacio and Vicenta Manreal, then the registered owners of Lot No. 2985; (5) Maderazo expended P10,000 for the construction of the five (5) meter right of way;

DAVIDE, JR., C.J.: In this petition for review, petitioners spouses Florina Maderazo-Mercader and Bernardo Mercader (hereafter MERCADERs) and Juan Y. Mederazo impugn the Court of Appeals' 5 February 1997 decision in CA-GR-CV No. 1 21846 ordering them to deliver the possession of Lot No. 2985 to the Development Bank of the Philippines, Cebu Branch (hereafter DBP) without right of reimbursements for the improvements introduced thereon, and the 13 August 1997 resolution denying the motion for reconsideration. Said decision and resolution reversed and set aside the 6 September 1988 2 decision of the Regional Trial Court of Cebu, Branch 15, in Civil Case No. 3 R-18521. Civil Case No. R-18521 was for specific performance filed on 28 September 4 1979. In their complaint, the MERCADERs alleged that: (1) In 1966, Juan Maderazo applied for a loan at the DBP secured by interior Lots Nos. 2993 and 2994 (TalisayMinglanilla estate); (2) The DPB required Maderazo to construct a five (5) meter wide road right of way over the adjoining Lot No. 2985; (3) The DBP approved Maderazo's loan application upon his submission of a

(6) This lease contract was however not registered for Gelacio Manreal's failure, "for one reason or another," to deliver the Certificate of Title (TCT) of Lot No. 2985 to Maderazo; (7) About nine years later or on 6 January 1976, Maderazo's children, the spouses Florina Maderazo-Mercader and Bernardo Mercader executed a contract of lease with the Manreals for a period of twenty years and four months over the remaining portion of Lot No. 2985; (8) Despite repeated requests for the delivery of the TCT of Lot No. 2985 for the purpose of annotating the lease contract, the Manreals, "for one reason or another," failed to do so; however, the Manreals assured the Mercaders "not to worry since nothing will go wrong"; (9) Believing in the Manreals' assurances, Bernardo Mercader intensively cultivated Lot No. 2985, "planted in good faith 600 calamansi fruit trees, fenced the lot with barbed wires, constructed canals and

drainages, spent wages for several farm workers and introduced several improvements including a vegetable garden all in the sum of not less that P25,000"; (10) The MERCADERs subsequently discovered that the reason why the Manreals failed to deliver the TCT of Lot No. 2985 [now registered in the names of spouses Felipe and Florentina Manreal, children of Gelacio and Vicenta Manreal] was because they offered said lot including the improvements introduced by the former thereon as "collateral" for a P150,000 deep-sea fishing loan with the DBP; (11) That despite the lack of registration and/or annotation of the respective interests of the MERCADERs on the TCT over Lot No. 2985, the DBP knew and should know of their existence considering the several ocular inspection and investigation conducted over the property; the DBP's actual knowledge of these unregistered 5 interests has the effect of registration. Since the Manreals defaulted in the payment of their obligation to the DBP, and that the latter had taken steps to foreclose Lot No. 2985 including all the improvements thereon, the MERCADERs prayed among others, for the DBP to "respect their interests by excluding these from the foreclosure proceedings, or if the foreclosure takes place, declare the same null and void or in the alternative, order the DBP to reimburse them the cost of the improvements and loss of expected income amounting to P210,000 for the duration of the unexpired term of their respective contracts." The MERCADERs also prayed for the annotation of their interests in the TCT of Lot No. 2985. In their answer, the Manreals only admitted the existence of the two unregistered contracts of lease and the calamansi trees planted on Lot No. 2985. They then denied any knowledge or information sufficient to form a

belief on the other allegations of the MERCADERs. They then claimed that Felipe Manreal informed Juan Maderazo of the intention to offer as security Lot No. 2985 for the deep sea-fishing loan with the DBP. They also justified their inability to present to the MERCADERs the TCT over Lot No. 2985 on the fact that at the time the latter were soliciting the title's delivery, it was still in the hands of the lawyer who was preparing the Extrajudicial Settlement and Partition of the Estate left by the deceased Vicenta Manreal. The Manreals then prayed for the dismissal of the complaint for being utterly 6 groundless. In its answer, the DBP admitted: (1) the loan of spouses Juan and Juana Maderazo; and (2) the deep-sea fishing loan of spouses Felipe and Florentina Manreal which was secured among others, by a first mortgage over Lot No. 2985 evidenced by a TCT already registered in their names, free from any lien or encumbrance. It denied any knowledge or information of: (1) any flaw or infirmity in the TCT over Lot No. 2985; (2) any interest in Lot No. 2985 other than and adverse to the spouses Felipe and Florentina Manreal as registered owners and mortgagors; and (3) the existence of the lease contract for right of way over a portion of Lot No. 2985 because it was not registered and that the spouses Gelacio and Vicenta Manreal were not the ones who mortgaged said Lot No. 2985 to the DBP but their children, the spouses Felipe and Florentina Manreal. The DBP maintained that the alleged unregistered interests of the MERCADERs did not and could not bind the DBP per Art. 1648 of the Civil 7 8 Code and Section 64 of Act 496. It then prayed for the dismissal of the complaint for being premature and for lack of cause of action as it never dealt with Gelacio Manreal and there was as yet no foreclosure. Besides, the 9 DBP was a mortgagee in good faith. In the meantime or on 26 November 1979, Lot No. 2985 was sold, among the other mortgaged lots, on public auction to the DBP as the highest bidder.
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During the pre-trial stage, the trial court acknowledged the possibility of a compromise agreement, gave time to the parties to study their proposals and counterproposals and ordered the documents pertinent thereto deemed 11 parts of the record of the case. Orders were further issued "giving the parties more time to continue with their negotiations and re-setting the 12 hearing of the case." Several communications were thereafter exchanged, to wit: (1) a letter dated 24 June 1981 wherein the MERCADERs proposed that Maderazo's contract of lease for right of way be registered, and respect be accorded to the contract of lease the MERCADERs executed with the Manreals, or as an alternative allow the MERCADERs to purchase Lot No. 2985 on installment basis at the price of 1 P6.00 per square meter; (2) a letter dated 22 July 1982 wherein the DBP through its Manager (Mr. Manuel Roa) offered the MERCADERs three options by which they could amicably settle subject to the approval of the Board of Governors of the Bank to 14 wit: a. First Option Sale P96,200.00 Purchase price 19,200.00 Down payment 77,000.00 Balance payable in 10 years at 15% interest per annum 1, 242.28 Monthly amortization b. Second Option Lease-Purchase

P132,598.84 Consideration 1,105.00 Monthly lease-purchase for 10 years c. Third Option Lease P14,430.00 Equivalent to 15% annual interest of P96,200 1,202.50 Monthly lease (3) a letter dated 18 November 1982 whereby the MERCADERs chose option 15 2 (lease-purchase); (4) a letter dated 23 November 1982 whereby the MERCADERs informed the DBP's Manager that they were "depositing P3,315.00 with the bank" pursuant to said Manager's proposal that a three-month advance payment should be deposited while the MERCADERs await the final decision of 16 the bank on the proposed settlement. The DBP issued an official receipt for the payment of P3,315 as "earnest 17 money, deposit to purchase lot 2985." With this development, on 9 December 1982, the trial court directed the parties to submit "their compromise agreement which required the approval 18 of the Board of Governors." The DBP and the MERCADERs thereafter again exchanged a series of correspondences. In his 13 January 1983 letter to the DBP (through Mr. Ruben Carpio), Bernardo Mercader requested for a grace period in the 19 payment of the amortization for the lease-purchase option. In response, the DBP wrote a letter dated 19 January 1983 informing Bernardo Mercader that it had already "prepared [its] recommendation to the head office, . . . rejected the request for a grace period but informed [him] to respond soon or 20 visit the bank for a possible conference." Bernardo Mercader replied through a letter dated 5 October 1983 reiterating his accord to the lease-

purchase option but suggesting this time that the amortization be paid on a 21 quarterly basis. In its 29 February 1984 letter, the DBP "noted" Mercader's suggestion as "counter-proposals or counter-offers which [it find un]acceptable and made dimmer the realization of [their] mutual desire for an early amicable settlement." The DBP reasoned that "the original conditions packaged in [its] proposal [were] no longer applicable" 22 considering that the market value of the property increased. With this, the trial court ordered the termination of the pre-trial and set the case for hearing in its 18 September 1995 order, thus: As manifested by the plaintiffs, they have alread[y] agreed with the defendant bank that they will pay the property at P132, 598 payable in ten (10) years in quarterly basis. However, the counsel of defendant manifested that it was only a proposal. The plaintiff spouses requested for a longer period of fifteen (15) years which the bank did not agree. The only issue[s] to be resolved in this case are as follows: 1. Whether the plaintiff [are] entitled to specific performance of said agreement; 2. Whether the defendant bank can be compelled to recognize the lease contract entered into between the spouses plaintiff Bernardo Mercader and Gelacio Manreal; and 3. Whether the foreclosure proceedings of the contract between the defendant bank is null and void. The pre-trial in this case is already closed and terminated.
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Trial proceeded with the parties presenting evidence tending to establish their respective allegations. On 29 May 1987, the trial court ordered the Manreals dropped from the case. The MERCADERs offered no objection. In its decision of 6 September 1988, the trial court reiterated the three issues ascertained in the pre-trial order and resolved all of them in favor of the MERCADERs. On the first issue, the trial court found that the "DBP had unnecessarily and unjustifiably made . . . [Bernardo] Mercader understand that his second option [lease-purchase] would be more or less approved, 26 except that the approval will come from Manila." Anent the second issue, the trial court also believed "quite firmly" that the "DBP could not have escaped having a foreknowledge of the existence of the prior unrecorded lease" as the "possession and cultivation of Bernardo Mercader . . . [was] a matter of open, notorious and public knowledge in the area." In resolving the third issue, the court first acknowledged that it is a "court of equity and not merely a court of law" and the "DBP is not authorized to keep real propert[y] longer than ten years or so;" then the court "required [the] DBP to set aside the area affected by the prior unregistered lease, known to [it], when [it] 27 accepted the mortgage." It then decreed as follows: WHEREFORE, finding the preponderance of evidence to be in favor of plaintiffs, judgment is hereby rendered as follows: 1) ordering the defendant DBP and its successors-ininterest to respect and preserve the Contracts of Lease between the Manreals and the Mercaders until December 31, 1994; 2) ordering the DBP to exclude from the foreclosure proceedings the rights of the plaintiffs as covered by the Contract of Lease;

On 7 November 1985, the MERCADERs filed a Supplemental Pleading insisting the consummation of the lease-purchase option with the payment of 24 the earnest money. The DBP filed its Opposition to the Supplemental 25 Pleading.

3) requiring the defendant DBP to cause the annotation of the Contracts of Lease of plaintiffs on TCT No. T-40396 of . . . Lot No. 2985 . . . and amend Entry No. 4980-V-14-D-B, by excluding the improvements of Mercader as guarantee or collateral for defendant Felipe Manreal's deep-sea fishing loan; 4) ordering the DBP to execute the deed of sale subject to the approval of the Manila Office of the DBP as to the mode of payment, there being no agreement thereon; 5) requiring the defendant DBP to pay attorney's fees of P5,000, for making it necessary for the plaintiffs to litigate, in order to protect their rights to the Lease Contract with the Manreals and to compel DBP to act on the proposals of Mercader as promised 28 by DBP. On appeal, the Court of Appeals found that the trial court erred in treating the lease-purchase option as a controversial issue considering that it was

"outside the parties' pleadings." But invoking the Supreme Court's decision 29 in Castro v. Court of Appeals in that "the improvements introduced [into the mortgaged property] are to be considered so incorporated [in the mortgage] only if so owned by the mortgagor," the Court of Appeals declared that the improvements introduced on Lot No. 2985 had been improperly included in the foreclosure sale since they were not owned by the mortgagors. But since the improvements were already included in the foreclosure sale and the MERCADERs continued the possession and collection of income from the lot, the Court of Appeals, as already earlier adverted to, reversed and set aside the appealed judgment. It entered a new one declaring that the MERCADERs were not entitled to any compensation from the DBP. It also ordered the MERCADERs to immediately turn over the 30 possession of Lot No. 2985 to the DBP. In this petition for review, the MERCADERs assert that in issuing the challenged decision, the Court of Appeals contravened Section 4, Rule 20 and Section 5, Rule 10 of the Rules of Court by holding that the trial court should not have taken cognizance of the lease-purchase option as a controversial issue since it was not raised in the pleadings. They maintain that the trial court correctly took cognizance of the lease-purchase option because it was part and parcel of the pre-trial stages, the determination of which will prevent future litigation thereon. They also pray that in the event of a favorable judgment, this Court should refer the case back to the Court of Appeals for a determination of whether the trial court erred in finding that the lease-purchase option was already consummated. For its part, the DBP contends that the MERCADERs raise questions of facts which are not reviewable on appeal and that it had opposed and objected to in and at all stages of the trial, all attempts by the MERCADERs to introduce evidence on the lease-purchase option. This Court agrees with the MERCADERs and finds that the Court of Appeals erred in disregarding as material the lease-purchase option on the ground that it was not raised in the pleadings. If the Court of Appeals adverts to the lack of reference to the lease-purchase option in the initiatory pleadings, this can be simply explained by the fact that the trial court only took cognizance thereof when it became an integral component of the pre-trial proceedings. That is why the lease-purchase option was included firstly, in the pre-trial order as one of the issues to be resolved at trial and secondly, in the supplemental pleading subsequently filed by the MERCADERs on 7 31 November 1985. As a supplemental pleading, it served to aver supervening facts which were then not ripe for judicial relief when the original pleading was filed. As such, it was meant to supply deficiencies in 32 aid of the original pleading, and not to dispense with the latter. Hence, it

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was patently erroneous for the Court of Appeals to pronounce that the leasepurchase option was not raised in the pleadings. The DBP was even quite aware and knowledgeable of the supplemental pleading because it filed an 3 opposition thereto. The records however reveal that the trial court did not promptly rule on the motion to admit the supplemental pleading. And during trial, the trial court also failed to rule on the prompt objection interposed by the DBP's counsel to the MERCADERs' introduction of evidence relative to said lease-purchase option. But undisputed is the trial court's eventual admission in open court of the MERCADERs' supplemental pleading, thus: ATTY. GARLITOS

what transpired during the pre-trial. As a matter of fact the pre-trial order is very material to the case. There is a pre-trial that such an offer and three options made by DBP, and that plaintiff selected the second option and that he deposited earnest money with the bank. COURT In other words there is no supplemental complaint. ATTY. GARLITOS

Probably, I did not make myself quite clear, Your honor. What I mean is during the pre-trial stage the parties were encourage to negotiate for a settlement. So they made an offer to DBP and DBP gave them an option. COURT Those three options and chose the second one. ATTY. GARLITOS We interposed an objection on this option, Your Honor, because any evidence which will be presented or which transpired during the pre-trial is objectionable. So we interposed an objection to prevent the witness from testifying on transactions which were referred to while the parties were negotiating during the pre-trial stage. ATTY. MERCADER

It is good that they brought that out because we had an opposition and this is what I am referring to. COURT What is your opposition, the price agreed upon? ATTY. GARLITOS We objected to the filing of the supplemental complaint and to all evidence presented in regard to that supplemental complaint. COURT It's too late now for you to make an objection. This supplemental pleading has been admitted by the court. That has become final. ATTY. GARLITOS

I wish to correct counsel. Records will show that there was no objection on

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There is no showing that it has been admitted by the court. COURT It has been admitted by the court. (Emphasis supplied)
34

trial court of its definitive ruling admitting the supplemental pleading, (4) own introduction of evidence related thereto, and finally, by its (5) intensive participation in the direct and cross-examination of witnesses whose testimonies included said topic. In any case, the filing and consequent admission of the supplemental pleading by the trial court validated the issues embraced in the pre-trial order. Assuming arguendo that the MERCADERs failed to file the supplemental pleading, evidence relative to the lease-purchase option may be legitimately admitted by the trial court in conformity with Section 5, Rule 10 of the Rules of Court which states: Sec. 5. Amendment to conform to or authorize presentation of evidence. When issues not raised by the pleadings are tried by express or implied consent of the parties, they shall be treated in all respects, as if they had been raised in the pleadings. Such amendment of the pleadings as may be necessary to cause them to conform to the evidence and to raise these issues may be made upon motion of any party at any time, even after judgment; but failure so to amend does not affect the result of the trial of these issues. If evidence is objected to at the trial on the ground that it is not within the issues made by the pleadings, the court may allow the pleadings to be amended and shall do so freely when the presentation of the merits of the action will be subserved thereby and the objecting party fails to satisfy the court that the admission of such evidence would prejudice him in maintaining his action or defense upon the merits. The court may grant a continuance to enable the objecting party to meet such evidence. (emphasis supplied). This provision envisions two scenarios first, when evidence is introduced on an issue not alleged in the pleadings and no objection was interjected and second, when evidence is offered again, on an issue not alleged in the pleadings but this time an objection was interpolated. We are concerned with the second scenario. In Co Tiamco v. Diaz, the Court held that "when evidence is offered on a matter not alleged in the pleadings, the court may admit it even against the objection of the adverse party, where the latter fails to satisfy the court that the admission of the evidence would prejudice him in maintaining his defense upon the merits, and the court may grant him a continuance to enable him to meet the new situation created by the evidence. Of course, the court, before allowing the evidence, as a matter of formality, should allow an amendment of the pleading, . . . And, furthermore,

The records also show that not only did the DBP's counsel began to rigorously cross-examine Bernardo Mercader on the lease-purchase option, he also subjected his witness Mr. Ruben Carpio, then Chief of the Collection Department, DBP to an intensive direct examination covering said subject 35 matter. He also offered as evidence the DBP's letter indicating the three options to the MERCADERs as Exhibit "1" and the lease-purchase option 36 contained therein as Exhibit "1-A." The DBP is undoubtedly estopped from questioning the trial court's inclusion of the lease-purchase option as a controversial issue. This action of the trial court finds anchor on Section 4, Rule 20 of the Rules of Court which reads: Sec. 4. Record of pre-trial results. After the pre-trial the court shall make an order which recites the action taken at the conference, the amendments allowed to the pleadings, and the agreements made by the parties as to any of the matters considered. Such order shall limit the issues for trial to those not disposed of by admissions or agreements of counsel and when entered controls the subsequent course of the action, unless modified before trial to prevent manifest injustice. Indeed, the pre-trial is primarily intended to make certain that all issues necessary to the disposition of a case are properly raised. The purpose is to obviate the element of surprise, hence, the parties are expected to disclose at the pre-trial conference all issues of law and fact which they intend to raise at the trial, except such as may involve privileged or impeaching 37 matter. In the case at bar, the pre-trial order included as integral to the complete adjudication of the case the issue of whether the MERCADERs can demand specific performance from the DBP relative to the leasepurchase option. Thus, the element of surprise that the provision on pre-trial attempts to preclude was satisfied. The surprise factor was further eliminated, as already earlier mentioned and merely to reiterate here, with the DBP's (1) motion to oppose the supplemental pleading, (2) objection to the introduction of evidence connected thereto, (3) later information from the

12

where the failure to order an amendment does not appear to have caused surprise or prejudice to the objecting party, it may be allowed as a harmless error. Well-known is the rule that departures from procedure may be forgiven where they do not appear to have impaired the substantial rights of the 38 parties." More recently, in Bank of America v. American Realty Corporation citing Talisay-Silay Milling Co., Inc. v. Asociacion de Agricultores de Talisay-Silay, 40 Inc., the Court reinforces the Co Tiamco ruling on the application of Section 5, Rule 10 of the Rules of Court in this wise: The failure of a party to amend a pleading to conform to the evidence adduced during trial does not preclude adjudication by the court on the basis of such evidence which may embody new issues not raised in the pleadings. . . . Although, the pleading may not have been amended to conform to the evidence submitted during trial, judgment may nonetheless be rendered, not simply on the basis of the issues alleged but also on the issues discussed and the assertions of fact proved in the course of the trial. The court may treat the pleading as if it had been amended to conform to the evidence, although it had not been actually amended. . . . Clearly, a court may rule and render judgment on the basis of the evidence before it even though the relevant pleading had not been previously amended, so long as no surprise or prejudice is thereby caused to the adverse party. Put a little differently, so long as the basic requirements of fair play had been met, as where the litigants were given full opportunity to support their respective contentions and to object to or refute each other's evidence, the court may validly treat the pleadings as if they had been amended to conform to the evidence and proceed to adjudicate on the basis of all the evidence before it. As already enunciated, the DBP was not and would not be prejudiced by the incorporation of the lease-purchase option as one of the controverted issues. Moreover, it had been afforded ample opportunity to refute and object to the evidence germane thereto, thus, the rudiments of fair play had been properly observed. Since we agree with the MERCADERs' contention that the Court of Appeals contravened Section 4, Rule 20 and Section 5, Rule 10 of the Rules of Court
39

in promulgating the questioned decision, we have to grant their prayer to refer the matter back to said court for a determination of the question of whether the lease-purchase option was already consummated and for a complete ascertainment of the rights and obligations of the parties. WHEREFORE, IN VIEW OF ALL THE FOREGOING, the instant petition is GRANTED DUE COURSE and the 5 February 1997 judgment and 13 August 1995 resolution of the Court of Appeals in CA-GR-CV No. 21846 are hereby SET ASIDE. The case is REFERRED BACK to the Court of Appeals for a determination of whether the lease-purchase option was consummated with the end view of ascertaining the rights and obligations of the parties. SO ORDERED. Puno, Kapunan, Pardo and Ynares-Santiago, JJ., concur. Footnotes
1

Per Gutierrez, A., J., with Purisima, F. and Vasquez, Jr., C. JJ., concurring. Rollo, 19-32.
2

Per Judge German G. Lee, Jr.

Entitled Spouses Bernardo Mercader and Florina M. Mercader, and Dr. Juan Y. Maderazo v. Development Bank of the Philippines (Cebu Branch), FELIPE, GELACIO, OSMUNDO, all surnamed MANREAL, and Rufina Manreal vda. de Abalo.
4

Original Record (OR), 1-7. OR, 2-7. OR, 28-31.

Every lease of real estate may be recorded in the Registry of Property. Unless a lease is recorded, it shall not be binding upon third persons.

13

Sec. 64. Lease of registered land shall be registered in the manner provided in section fifty-two of this Act, in lieu of recording. A lessee's duplicate certificate may be issued to the lessee upon his request subject to the provisions hereinbefore made in regard to a mortagee's duplicate certificate, as far as the same are applicable. (The issuance of mortgagee's or lessee's duplicate copy has been done away with under Sec. 60 of P.D. 1529).
9

23

Rollo, 160. See OR, 204-205. Id., 209-210. Rollo, 157. Rollo, 157-159. Id., 159. 250 SCRA 661, 665-666 [1995]. Rollo, 30-31. See OR, 204-205.

24

25

26

OR, 17-19. See Sheriff's Certificate of Sale, Exh. "9," OR, 328. See RTC order dated 24 July 1981, OR, 64.

27

10

28

11

29

12

Order dated 29 April 1982, OR, 98; See also the orders issued on 30 June 1982, OR, 111; 11 August 1982, OR, 114; 30 September 1982, OR, 119; 15 October 1982, OR, 126; 16 November 1982, OR, 131; 14 March 1985, OR, 173.
13

30

31

32

OR, 61-62. Id., 22, 178. Id., 179. Id., 180. OR, 181. Id., 134. Id., 188. Id., 189. Id., 190. Rollo, 191.

14

See Shoemart, Inc. v. Court of Appeals, 190 SCRA 189, 196 [1990] citing Pasay City Government v. CFI of Manila, Br. X, 132 SCRA 156 [1984]; British Traders' Insurance Co., Ltd. v. Commissioner of Internal Revenue, 13 SCRA 719 [1965].
33

15

See OR, 209-210. TSN, 27 March 1987, 55-58. See TSN, 13 May 1987, 3-29. TSN, 7 April 1987, 4.

16

34

17

35

18

36

19

37

20

See De la Paz v. Panis, 245 SCRA 242, 248-249 [1995], citing Permanent Concrete Products, Inc. v. Teodoro, 26 SCRA 332, 336 [1968].
38

21

22

75 Phil. 672, 679-680 [1946] citing Alonso v. Villamor, 16 Phil., 315; Banco Espaol Filipino v. Palanca, 37 Phil. 921.

14

39

G.R. No. 133876, 29 December 1999.

40

247 SCRA 375, 377-378 [1995]; See also Northern Cement Corporation v. Intermediate Appellate Court, 158 SCRA 408, 417 [1988]; Cruz v. Court of Appeals, 192 SCRA 209, 222-223 [1990]; Jacinto v. Court of Appeals, 198 SCRA 211, 217-218 [1991]; Pilapil v. Court of Appeals, 216 SCRA 33, 49 [1992]; Universal Motors Corporation v. Court of Appeals, 205 SCRA 449, 456 [1992].

15

G.R. No. 152202

July 28, 2006

CRISOSTOMO ALCARAZ, petitioner, vs. COURT OF APPEALS and EQUITABLE CREDIT CARD NETWORK, INC., respondents. DECISION PUNO, J.: Assailed before this Court in a Petition for Review on Certiorari is the decision of the Court of Appeals in CA-G.R. CV No. 65911, entitled "Equitable Credit Card Network, Inc. v. Crisostomo Alcaraz," affirming the decision of Branch 147 of the Regional Trial Court of Makati City. The case stemmed from an action for the collection of sum of money. The facts of this case are undisputed. Private respondent, Equitable Credit Card Network, Inc. (Equitable), is a company engaged in the business of extending credit accommodations/facilities through the use of the credit cards issued to its clientele. Through these credit cards, cash advances may be availed from automated teller machines or ATMs, and goods or services may be purchased on credit from accredited merchant shops.1 In May 1995, private respondent Equitable issued a credit card, Equitable Visa Gold International Card with card number 4921-0100-0743-2013 and account base number 4921-01000743-2005 with peso and dollar accounts/facilities, to petitioner Crisostomo Alcaraz. The petitioner through the use

of the said credit card secured cash advances and purchased goods and services on credit with private respondent Equitable's affiliated merchant establishments.2 Thus, the petitioner accumulated unpaid credit with private respondent and despite the receipt of several demand letters, failed to pay his outstanding obligations.3 In its complaint before the lower court, private respondent Equitable sought the payment of the accumulated outstanding balance including interest of 2.5% per month as well as a monthly late penalty/surcharge of 1.5% for the peso account, and 1.5% monthly interest and 1% late penalty/surcharge per month for the dollar account until full payment thereof as provided in the "Terms and Conditions Governing the Issuance and Use of Equitable Visa Card" (hereinafter referred to as the Terms and Conditions). The private respondent also prayed for liquidated damages of 25% of the total amount of both accounts and attorney's fees at the same rate allegedly also in accordance with the Terms and Conditions.4 Private respondent Equitable claims petitioner Alcaraz has an accumulated outstanding balance of US$8,970.54 in his dollar account as of February 18, 1999, and P192,500.00 on his peso account as of February 28, 1999 inclusive of interest and surcharges.5 The petitioner admitted he had made use of the credit card issued in his name by private respondent Equitable, but contested the amount of his liability. Petitioner alleged that he was issued the credit card as an "honorary member." As such, he was not required to submit any application or sign any document prior to the issuance of the card and he was entitled to pay on an installment basis without any interest. He denied signing the document Terms and Conditions Governing the Issuance and Use of Equitable Visa Card. Petitioner Alcaraz

16

further alleged that prior to the filing of the complaint, he formally requested for a reconciliation of his accounts with the private respondent but the same has remained unanswered until the present day. Thus, the case filed against him was premature. After several postponements of the pretrial conference, the trial court declared petitioner Alcaraz as in default upon motion of private respondent Equitable and allowed the latter to present its evidence ex parte.6 After the private respondent's presentation of evidence which included the testimony of its sole witness, one of its collection officers, and the submission of documents, the court ruled in favor of private respondent Equitable. It, however, rejected private respondent Equitable's claim for liquidated and exemplary damages.7 Petitioner Alcaraz filed a Motion for New Trial which was denied.8 The petitioner elevated the case to the appellate court. The Court of Appeals partially affirmed the decision of the trial court. It modified the trial court's judgment by ordering petitioner Alcaraz to pay private respondent Equitable "the principal amount of P81,000.00, on his peso account, and the amount of US$4,397.34 or its peso equivalent, on his dollar account" with 12% annual interest from June 25, 1996 until full payment thereof. The appellate court likewise reduced the amount of attorney's fees to P20,000.00.9 Undaunted, petitioner comes to this Court via a petition for review on certiorari raising the following issues: (1) whether the trial court violated the petitioner's right to due process when the private respondent was allowed to present its evidence ex parte; and (2) whether the monetary award ordered

by the Court of Appeals is in accord with the evidence, and applicable law and jurisprudence. The petition is without merit. Petitioner Alcaraz laments that the trial court did not postpone and reschedule the pretrial conference on February 23, 1999 despite the manifestation of petitioner's wife that petitioner Alcaraz suffered a stroke which rendered him paralyzed while Atty. Ben Ibuyan, the petitioner's counsel, suffered from a "lingering gall bladder ailment." Instead, upon motion of private respondent Equitable, the trial court declared the petitioner as in default and allowed the private respondent to present its evidence ex-parte.10 Petitioner Alcaraz also charge the trial court with arbitrariness and of depriving him of the right to have the case against him heard before an impartial judge or tribunal. In support of his allegations, he maintains that, aside from brushing aside the clearly meritorious reasons for his and his counsel's absence on the February 23, 1999 pretrial conference, the trial court judge and its personnel have shown their bias against him in several occasions such as the alleged difficulty his counsel encountered in filing a Motion for New Trial.11 With regard to the first issue, it is well-settled that this Court is not a trier of facts. This Court accords due respect to the findings of the trial court and the appellate court save in clearly exceptional cases.12 This case, however, does not fall within those exceptions. The trial court clearly has the discretion on whether to grant or deny a motion to postpone and/or reschedule the pretrial conference in accordance with the circumstances then obtaining in the case.13 This must be so as it is the trial court which was able to witness firsthand the events

17

as they unfolded in the trial of a case. Postponements, while permissible, must not be countenanced except for clearly meritorious grounds and in light of the attendant circumstances.14 The trial court's discretion on this matter, however, is not unbridled. The trial courts are well advised to reasonably and wisely exercise such discretion. This Court will not hesitate to strike down clearly arbitrary acts or orders of the lower court. This, however, is not the situation in this case. While it is true that private respondent Equitable and inclement weather have on occasion caused the postponement of the pretrial conference, the repeated resetting of the pretrial conference was primarily due to the petitioner. As to the reasons proffered by the petitioner's wife at the February 23, 1999 pretrial conference, we agree with the findings of the trial court and the Court of Appeals. Under the Rules of Court, both the parties and their counsels are mandated to appear in the pretrial conference.15 If the parties opt not to be present, their counsel must be armed with a special power of attorney specifically for the purpose. This must be so as the pretrial conference is primarily for the purpose of exploring the possibility of a compromise, or on the failure thereof, for the parties to make certain admissions and stipulations in order to facilitate a more efficient proceeding at the trial proper.16 In the case at bar, both petitioner Alcaraz and his counsel did not appear at the scheduled pretrial. Instead, it was the petitioner's wife alone who made the verbal manifestation on behalf of her husband and his counsel while presenting an unverified medical certificate on the latter's behalf. As correctly observed by the Court of Appeals, the records are bereft of any medical certificate, verified or unverified, in the name of petitioner Alcaraz to establish the cause of his absence at the pretrial conference.17 Even

assuming arguendo that petitioner Alcaraz and Atty. Ibuyan's absence on the February 23, 1999 pretrial conference is due to justifiable causes, the petitioner is represented by a law firm and not by Atty. Ibuyan alone. As such, any of the latter's partners or associates could have appeared before the court and participate in the pretrial or at least make the proper motion for postponement if necessary. A charge of arbitrariness and bias against the trial court, in this case against the judge as well as all the court personnel, is a serious charge that must be substantiated. Bare allegations of partiality will not suffice. It must be shown that the trial court committed acts or engaged in conduct clearly indicative of bias or pre-judgment against a party. The petitioner failed to do so in this case. The disallowance of a motion for postponement is not sufficient to show arbitrariness and partiality of the trial court. As this Court ruled in the case of Gochan v. Gochan,18 to wit: . . . . A motion for continuance or postponement is not a matter of right, but a request addressed to the sound discretion of the court. Parties asking for postponement have absolutely no right to assume that their motions would be granted. Thus, they must be prepared on the day of the hearing. Given this rule, the question of the correctness of the denial of respondents' requests for postponements was addressed to the sound discretion of Judge Dicdican. His action thereon cannot be disturbed by appellate courts in the absence of any clear and manifest abuse of discretion resulting in a denial of substantial justice. Since there was no such finding

18

with regard to the disallowance of the requests for postponement, the CA [Court of Appeals] cannot overturn the decision of the judge. Much less can it assume his bias and partiality based merely on the denial of the requests for postponement.19 With regard to the second issue, the petitioner never disputed his use of the credit card issued to him by the private respondent. While he maintains that there is a "great disparity" between the amount of credit he availed of and what was actually being collected from him by the private respondent, nowhere in the records of this case, however, did petitioner Alcaraz contest any specific purchase or cash advance charged to the credit card, whether the peso or the dollar account. While the petitioner did request the private respondent in writing for a computation of his outstanding balance, the petitioner likewise in the very same letter offered to pay his outstanding obligations in twelve (12) equal monthly installments.20 Private respondent Equitable responded by proposing that the amount due as stated in the statement of accounts sent to the petitioner instead be paid in six (6) equal monthly installments.21 Petitioner Alcaraz likewise made partial payments before and after he made the proposed payment scheme to the private respondent. Clearly, what the petitioner contests is the application of the interests, penalties and other charges as provided for in the Terms and Conditions when he never signed nor conformed to the said document. Petitioner Alcaraz likewise claims that the contested provisions are not applicable to him because he was considered an honorary member who is entitled to pay for his credit purchases and cash advances on an installment basis free of any interest. The petitioner asserts that the "honorary" status given to him was evidenced by the fact that private respondent Equitable issued the credit card in his

name without the necessity of any application or document submitted and signed by him prior to such issuance.22 Private respondent Equitable, on the other hand, avers that while petitioner Alcaraz did not file or sign an application for the credit card, this did not exempt him from the provisions of the Terms and Conditions. Petitioner's claim of honorary membership which allegedly entitles him to pay his obligations on an interest-free installment basis is fallacious and groundless.23 Private respondent Equitable contends that the waiver of the filing of an application simply means that petitioner Alcaraz has been pre-screened. Such a status is conferred on a person by virtue of his good credit standing or upon recommendation of a reputable client or officer of private respondent Equitable. It is private respondent Equitable's assertion that by signing the credit card and subsequently using the same, the petitioner has agreed to the Terms and Conditions and any amendment thereto as stated in the back of the credit card itself.24 Except from his bare assertions that the non-filing of application entitles him to pay for his credit card obligations free of interest on an installment basis, the petitioner was not able to show that it was in fact the agreement between him and the private respondent or that the same is the policy and/or practice of the latter. The evidence sustains the claim of private respondent Equitable that petitioner Alcaraz is what is known as a prescreened client. When a client is classified as pre-screened, the usual screening procedures of prospective cardholders, such as the filing of an application form and submission of other relevant documents prior to the issuance of a credit card, are dispensed with and the credit card is issued outright. Upon receipt of the card, the pre-screened client has the option of

19

accepting or rejecting the credit card. In the case at bar, petitioner Alcaraz signified his acceptance of the credit card by signing and subsequently using the same. This, however, without more, does not confer "honorary membership" status to the petitioner. We come now to the application of the provisions of the Terms and Conditions, particularly the interest rates, penalties and surcharges, to petitioner Alcaraz. It is the petitioner's contention that since he never signed an application form or any other document containing the Terms and Conditions, the same should not be applied to him as it violates one of the most essential and basic tenets of contract law which is consent. It is petitioner Alcaraz's position that he is not bound by the Terms and Conditions as he never signed it. Private respondent Equitable, on the other hand, claims that at the back of the credit card itself the following is stated: By signing or using this card, the holder agrees to be bound by Equitable Bank's Credit Card Agreement, all future amendments thereto. . . .25 The private respondent maintains that the above stipulation is a standard clause printed at the back of each credit card that it issued and that the Agreement mentioned therein refers to the Terms and Conditions which governs the use of the credit card as contained in private respondent Equitable's standard application form.26 Thus, by signing the back of the credit card, petitioner Alcaraz has explicitly consented to the Terms and Conditions including the applicable interests, service fees, attorney's fees and liquidated damages in the event of

nonpayment within the period stated in the statements of account regularly sent every month to the petitioner. It is a basic rule of evidence that a party has the burden of proving his own affirmative allegations.27 In the instant case, private respondent Equitable has the burden of proving the material allegations of its complaint with the requisite quantum of evidence. One such material allegation is the applicability of the provisions of the Terms and Conditions to petitioner Alcaraz. In support thereof private respondent Equitable presented a copy of the Terms and Conditions as contained in its standard application form28 and a copy of its "Visa Card" issued to another client in order to show the alleged standard stipulation printed at the back of the card.29 The standard application form presented to the court does not bear the signature of the petitioner. In fact, as admitted by private respondent Equitable, petitioner Alcaraz, as a pre-screened client, did not submit or sign any application form or document prior to the issuance of the credit card. Neither is there any evidence on record that the petitioner was shown a copy of the Terms and Conditions before or after the issuance of the credit card in his name, much less that he has given his consent thereto. As correctly pointed out by the Court of Appeals, the petitioner should not be condemned to pay the interests and charges provided in the Terms and Conditions on the mere claim of the private respondent without any proof of the former's conformity and acceptance of the stipulations contained therein.30 Even if we are to accept the private respondent's averment that the stipulation quoted earlier is printed at the back of each and every credit card issued by private respondent Equitable, such stipulation is not sufficient to bind the petitioner to the Terms and Conditions without a clear showing that the petitioner was aware of and consented to

20

the provisions of this document. This, the private respondent failed to do. It is, however, undeniable that petitioner Alcaraz accumulated unpaid obligations both in his peso and dollar accounts through the use of the credit card issued to him by private respondent Equitable. As such, petitioner Alcaraz is liable for the payment thereof. Since the provisions of the Terms and Conditions are inapplicable to petitioner Alcaraz, the legal interest on obligations consisting of loan or forbearance of money shall apply. As this Court ruled in the landmark case of Eastern Shipping Lines, Inc. v. Court of Appeals,31 to wit: 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, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code.32 .... 3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being

deemed to be by then an equivalent to a forbearance of credit.33 In the present case, the records reveal that the principal amount of the obligation on the peso account of the subject credit card as of March 17, 1996 is P81,000.00,34 while the dollar account of the same credit card has an unpaid balance of $4,397.34 exclusive of any interests, penalties and other charges as of March 3, 1996.35 The extrajudicial demand for payment for the dollar account was made on June 25, 1996 by virtue of a letter sent to and duly received by the petitioner. The June 25, 1996 demand letter was, however, silent on the unpaid balance on the peso account. The records likewise reveal that it was only on October 5, 1996 that private respondent Equitable may be deemed to have extrajudicially demanded payment of the outstanding obligation of petitioner Alcaraz on his peso account. Hence, it is only from the aforesaid dates that the legal rate of interest shall apply on the dollar and peso accounts, respectively, until full payment thereof. IN VIEW WHEREOF, the petition is DISMISSED and the February 11, 2002 decision of the Court of Appeals is AFFIRMED with MODIFICATIONS and the petitioner is ordered to pay the following: 1. on the peso account of Equitable Visa Gold International Card with card number 4921-0100-0743-2013 and account base number 4921-0100-0743-2005, the principal amount of P81,000.00 with interests thereon at the rate of 12% per annum from October 5, 1996 until full payment thereof; 2. on the dollar account of Equitable Visa Gold International Card with card number 4921-0100-0743-2013 and account

21

base number 4921-0100-0743-2005, the principal amount of $4,397.34 with interests thereon at the rate of 12% per annum from June 25, 1996 until the said amount is paid in full; and 3. the amount of P20,000.00 as and by way of attorney's fees. No costs.

10

Id. at 13-14. Id. at 16-18.

11

12

Rosario Textile Mills, Inc. v. Court of Appeals, G.R. No. 137326, August 25, 2003, 409 SCRA 515.
13

SO ORDERED. Sandoval-Gutierrez, Corona, Azcuna, Garcia, Jr., J.J., concur.

Domingo Padua v. Vicente Ericta, G.R. No. L-38570, May 24, 1988, 161 SCRA 458, 459.
14

Producer's Bank of the Philippines v. Court of Appeals, G.R. No. 125468, October 9, 2000, 342 SCRA 327.
15

Footnotes
1

Revised Rules of Court, Rule 18, Section 4. Id. Rollo, pp. 33-34.

Rollo, p. 136. Id. at 136 and 165. Id. at 47-49. Id. at 42-43. Id. at 136. Id. at 60-61. Id. Id. at 16-18. Id. at 26-39.

16

17

18

G.R. No. 143089, February 27, 2003, 398 SCRA 323.

19

Id., citing Republic v. Sandiganbayan, 301 SCRA 237, January 20, 1999; Iriga Telephone Co., Inc. v. NLRC, 286 SCRA 600, February 27, 1998; emphases supplied, caption supplied.
20

Rollo, p. 27. Id. Id. at 185-187.

21

22

22

23

Id. at 150-151.

24

Id. at 152; Transcript of Stenographic Notes (TSN), February 23, 1999, pp. 22-24.
25

Rollo, p. 139, citing TSN, February 23, 1999, pp. 2224; Records, Plaintiff's Exhibits, pp. 67-110.
26

Id. at 45 and 139. Revised Rules of Court, Rule 131, Section 1. Rollo, p. 45. Id. at 37. Id. at 38. G.R. No. 97412, July 12, 1994, 234 SCRA 78, 95.

27

28

29

30

31

32

Eastern Shipping Lines, Inc. v. Court of Appeals, G.R. No. 97412, July 12, 1994, 234 SCRA 78, 95; emphases supplied.
33

Id. at p. 97. Records, Plaintiff's Exhibits, p. 67. Records, Plaintiff's Exhibits, p. 68.

34

35