14) Banco De Oro Savings and Mortgage Bank vs Equitable

Banking
FACTS
Equitable Bank drew six crossed managers check payable to
certain member establishments of Visa Card. Subsequently, the
checks were deposited with Banco De Oro (BDO) to the credit of
its depositor. Following normal procedures and after stamping at
the back of the checks the usual endorsements, BDO sent the
checks for clearing through the Philippine Clearing House
Corporation (PCHC). Accordingly, Equitable Banking paid the
checks; its clearing account was debited for the value of the
checks and BDOs clearing account was credited for the same
amount. Thereafter, Equitable Banking discovered that the
endorsements appearing at the back of the checks and purporting
to be that of the payees were forged and/or unauthorized or
otherwise belong to persons other than the payees. Equitable
Banking presented the checks directly to BDO for the purpose of
claiming reimbursement from the latter. However, BDO refused to
accept such direct presentation and to reimburse Equitable
Banking for the value of the checks.
ISSUES
(a) Whether or not BDO is estopped from claiming that checks
under consideration are non-negotiable instruments.
(b) Whether or not BDO can escape liability by reasons of forgery.
(c) Whether or not only negotiable checks are within the
jurisdiction of PCHC.
RULING
(a) YES. BDO having stamped its guarantee of all prior
endorsements and/or lack of endorsements is now estopped
from claiming that the checks under consideration are not
negotiable instruments. The checks were accepted for deposit by
the petitioner stamping thereon its guarantee, in order that it can
clear the said checks with the respondent bank. By such
deliberate and positive attitude of the petitioner it has for all legal
intents and purposes treated the said cheeks as negotiable
instruments and accordingly assumed the warranty of the
endorser when it stamped its guarantee of prior endorsements at
the back of the checks. It led the said respondent to believe that

it was acting as endorser of the checks and on the strength of this

guarantee said respondent cleared the checks in question and
credited the account of the petitioner. Petitioner is now barred
from taking an opposite posture by claiming that the disputed
checks are not negotiable instrument.
(b) NO. A commercial bank cannot escape the liability of an
endorser of a check and which may turn out to be a forged
endorsement. Whenever any bank treats the signature at the
back of the checks as endorsements and thus logically
guarantees the same as such there can be no doubt said bank
has considered the checks as negotiable. The collecting bank or
last endorser generally suffers the loss because it has the duty to
ascertain the genuineness of all prior endorsements considering
that the act of presenting the check for payment to the drawee is
an assertion that the party making the presentment has done its
duty to ascertain the genuineness of the endorsements.
(c) NO. PCHCs jurisdiction is not limited to negotiable checks
only. The term check as used in the said Articles of Incorporation
of PCHC can only connote checks in general use in commercial
and business activities. Thus, no distinction. Ubi lex non distinguit,
nec nos distinguere debemus. Checks are used between banks
and bankers and their customers, and are designed to facilitate
banking operations. It is of the essence to be payable on demand,
because the contract between the banker and the customer is
that the money is needed on demand.
15) Bank of Philippine Island vs CA
BANK OF THE PHILIPPINE ISLANDS, Petitioner,
vs.
COURT OF APPEALS, ANNABELLE A. SALAZAR, and JULIO R.
TEMPLONUEVO, Respondents
DECISION
AZCUNA, J.:
This is a petition for review under Rule 45 of the Rules of Court
seeking the reversal of the Decision1 dated April 3, 1998, and the
Resolution2 dated November 9, 1998, of the Court of Appeals in
CA-G.R. CV No. 42241.

The facts3 are as follows:

A.A. Salazar Construction and Engineering Services filed an action
for a sum of money with damages against herein petitioner Bank
of the Philippine Islands (BPI) on December 5, 1991 before Branch
156 of the Regional Trial Court (RTC) of Pasig City. The complaint
was later amended by substituting the name of Annabelle A.
Salazar as the real party in interest in place of A.A. Salazar
Construction and Engineering Services. Private respondent
Salazar prayed for the recovery of the amount of Two Hundred
Sixty-Seven Thousand, Seven Hundred Seven Pesos and Seventy
Centavos (P267,707.70) debited by petitioner BPI from her
account. She likewise prayed for damages and attorneys fees.
Petitioner BPI, in its answer, alleged that on August 31, 1991, Julio
R. Templonuevo, third-party defendant and herein also a private
respondent, demanded from the former payment of the amount of
Two Hundred Sixty-Seven Thousand, Six Hundred Ninety-Two
Pesos and Fifty Centavos (P267,692.50) representing the
aggregate value of three (3) checks, which were allegedly payable
to him, but which were deposited with the petitioner bank to
private respondent Salazars account (Account No. 0203-1187-67)
without his knowledge and corresponding endorsement.
Accepting that Templonuevos claim was a valid one, petitioner
BPI froze Account No. 0201-0588-48 of A.A. Salazar and
Construction and Engineering Services, instead of Account No.
0203-1187-67 where the checks were deposited, since this
account was already closed by private respondent Salazar or had
an insufficient balance.
Private respondent Salazar was advised to settle the matter with
Templonuevo but they did not arrive at any settlement. As it
appeared that private respondent Salazar was not entitled to the
funds represented by the checks which were deposited and
accepted for deposit, petitioner BPI decided to debit the amount
of P267,707.70 from her Account No. 0201-0588-48 and the sum
of P267,692.50 was paid to Templonuevo by means of a cashiers

check. The difference between the value of the checks

(P267,692.50) and the amount actually debited from her account
(P267,707.70) represented bank charges in connection with the
issuance of a cashiers check to Templonuevo.
In the answer to the third-party complaint, private respondent
Templonuevo admitted the payment to him of P267,692.50 and
argued that said payment was to correct the malicious deposit
made by private respondent Salazar to her private account, and
that petitioner banks negligence and tolerance regarding the
matter was violative of the primary and ordinary rules of banking.
He likewise contended that the debiting or taking of the
reimbursed amount from the account of private respondent
Salazar by petitioner BPI was a matter exclusively between said
parties and may be pursuant to banking rules and regulations, but
did not in any way affect him. The debiting from another account
of private respondent Salazar, considering that her other account
was effectively closed, was not his concern.
After trial, the RTC rendered a decision, the dispositive portion of
which reads thus:
WHEREFORE, premises considered, judgment is hereby rendered
in favor of the plaintiff [private respondent Salazar] and against
the defendant [petitioner BPI] and ordering the latter to pay as
follows:
1. The amount of P267,707.70 with 12% interest thereon from
September 16, 1991 until the said amount is fully paid;
2. The amount of P30,000.00 as and for actual damages;
3. The amount of P50,000.00 as and for moral damages;
4. The amount of P50,000.00 as and for exemplary damages;
5. The amount of P30,000.00 as and for attorneys fees; and
6. Costs of suit.

The counterclaim is hereby ordered DISMISSED for lack of factual

basis.
The third-party complaint [filed by petitioner] is hereby likewise
ordered DISMISSED for lack of merit.
Third-party defendants [i.e., private respondent Templonuevos]
counterclaim is hereby likewise DISMISSED for lack of factual
basis.
SO ORDERED.4
On appeal, the Court of Appeals (CA) affirmed the decision of the
RTC and held that respondent Salazar was entitled to the
proceeds of the three (3) checks notwithstanding the lack of
endorsement thereon by the payee. The CA concluded that
Salazar and Templonuevo had previously agreed that the checks
payable to JRT Construction and Trading5 actually belonged to
Salazar and would be deposited to her account, with petitioner
acquiescing to the arrangement.6
Petitioner therefore filed this petition on these grounds:
I.
The Court of Appeals committed reversible error in
misinterpreting Section 49 of the Negotiable Instruments Law and
Section 3 (r and s) of Rule 131 of the New Rules on Evidence.
II.
The Court of Appeals committed reversible error in NOT applying
the provisions of Articles 22, 1278 and 1290 of the Civil Code in
favor of BPI.
III.

The Court of Appeals committed a reversible error in holding,

based on a misapprehension of facts, that the account from which
BPI debited the amount of P267,707.70 belonged to a corporation
with a separate and distinct personality.
IV.
The Court of Appeals committed a reversible error in holding,
based entirely on speculations, surmises or conjectures, that
there was an agreement between SALAZAR and TEMPLONUEVO
that checks payable to TEMPLONUEVO may be deposited by
SALAZAR to her personal account and that BPI was privy to this
agreement.
V.
The Court of Appeals committed reversible error in holding, based
entirely on speculation, surmises or conjectures, that SALAZAR
suffered great damage and prejudice and that her business
standing was eroded.
VI.
The Court of Appeals erred in affirming instead of reversing the
decision of the lower court against BPI and dismissing SALAZARs
complaint.
VII.
The Honorable Court erred in affirming the decision of the lower
court dismissing the third-party complaint of BPI.7
The issues center on the propriety of the deductions made by
petitioner from private respondent Salazars account. Stated
otherwise, does a collecting bank, over the objections of its
depositor, have the authority to withdraw unilaterally from such
depositors account the amount it had previously paid upon
certain unendorsed order instruments deposited by the depositor
to another account that she later closed?

Petitioner argues thus:

1. There is no presumption in law that a check payable to order,
when found in the possession of a person who is neither a payee
nor the indorsee thereof, has been lawfully transferred for value.
Hence, the CA should not have presumed that Salazar was a
transferee for value within the contemplation of Section 49 of the
Negotiable Instruments Law,8 as the latter applies only to a
holder defined under Section 191of the same.9
2. Salazar failed to adduce sufficient evidence to prove that her
possession of the three checks was lawful despite her allegations
that these checks were deposited pursuant to a prior internal
arrangement with Templonuevo and that petitioner was privy to
the arrangement.
3. The CA should have applied the Civil Code provisions on legal
compensation because in deducting the subject amount from
Salazars account, petitioner was merely rectifying the undue
payment it made upon the checks and exercising its prerogative
to alter or modify an erroneous credit entry in the regular course
of its business.
4. The debit of the amount from the account of A.A. Salazar
Construction and Engineering Services was proper even though
the value of the checks had been originally credited to the
personal account of Salazar because A.A. Salazar Construction
and Engineering Services, an unincorporated single
proprietorship, had no separate and distinct personality from
Salazar.
5. Assuming the deduction from Salazars account was improper,
the CA should not have dismissed petitioners third-party
complaint against Templonuevo because the latter would have
the legal duty to return to petitioner the proceeds of the checks
which he previously received from it.
6. There was no factual basis for the award of damages to Salazar.

The petition is partly meritorious.

First, the issue raised by petitioner requires an inquiry into the
factual findings made by the CA. The CAs conclusion that the
deductions from the bank account of A.A. Salazar Construction
and Engineering Services were improper stemmed from its finding
that there was no ineffective payment to Salazar which would call
for the exercise of petitioners right to set off against the formers
bank deposits. This finding, in turn, was drawn from the pleadings
of the parties, the evidence adduced during trial and upon the
admissions and stipulations of fact made during the pre-trial,
most significantly the following:
(a) That Salazar previously had in her possession the following
checks:
(1) Solid Bank Check No. CB766556 dated January 30, 1990 in the
amount of P57,712.50;
(2) Solid Bank Check No. CB898978 dated July 31, 1990 in the
amount of P55,180.00; and,
(3) Equitable Banking Corporation Check No. 32380638 dated
August 28, 1990 for the amount of P154,800.00;
(b) That these checks which had an aggregate amount of
P267,692.50 were payable to the order of JRT Construction and
Trading, the name and style under which Templonuevo does
business;
(c) That despite the lack of endorsement of the designated payee
upon such checks, Salazar was able to deposit the checks in her
personal savings account with petitioner and encash the same;
(d) That petitioner accepted and paid the checks on three (3)
separate occasions over a span of eight months in 1990; and

(e) That Templonuevo only protested the purportedly

unauthorized encashment of the checks after the lapse of one
year from the date of the last check.10
Petitioner concedes that when it credited the value of the checks
to the account of private respondent Salazar, it made a mistake
because it failed to notice the lack of endorsement thereon by the
designated payee. The CA, however, did not lend credence to this
claim and concluded that petitioners actions were deliberate, in
view of its admission that the "mistake" was committed three
times on three separate occasions, indicating acquiescence to the
internal arrangement between Salazar and Templonuevo. The CA
explained thus:
It was quite apparent that the three checks which appellee
Salazar deposited were not indorsed. Three times she deposited
them to her account and three times the amounts borne by these
checks were credited to the same. And in those separate
occasions, the bank did not return the checks to her so that she
could have them indorsed. Neither did the bank question her as to
why she was depositing the checks to her account considering
that she was not the payee thereof, thus allowing us to come to
the conclusion that defendant-appellant BPI was fully aware that
the proceeds of the three checks belong to appellee.
For if the bank was not privy to the agreement between Salazar
and Templonuevo, it is most unlikely that appellant BPI (or any
bank for that matter) would have accepted the checks for deposit
on three separate times nary any question. Banks are most finicky
over accepting checks for deposit without the corresponding
indorsement by their payee. In fact, they hesitate to accept
indorsed checks for deposit if the depositor is not one they know
very well.11
The CA likewise sustained Salazars position that she received the
checks from Templonuevo pursuant to an internal arrangement
between them, ratiocinating as follows:

If there was indeed no arrangement between Templonuevo and

the plaintiff over the three questioned checks, it baffles us why it
was only on August 31, 1991 or more than a year after the third
and last check was deposited that he demanded for the refund of
the total amount of P267,692.50.
A prudent man knowing that payment is due him would have
demanded payment by his debtor from the moment the same
became due and demandable. More so if the sum involved runs in
hundreds of thousand of pesos. By and large, every person, at the
very moment he learns that he was deprived of a thing which
rightfully belongs to him, would have created a big fuss. He would
not have waited for a year within which to do so. It is most
inconceivable that Templonuevo did not do this.12
Generally, only questions of law may be raised in an appeal by
certiorari under Rule 45 of the Rules of Court.13 Factual findings
of the CA are entitled to great weight and respect, especially
when the CA affirms the factual findings of the trial court.14 Such
questions on whether certain items of evidence should be
accorded probative value or weight, or rejected as feeble or
spurious, or whether or not the proofs on one side or the other are
clear and convincing and adequate to establish a proposition in
issue, are questions of fact. The same holds true for questions on
whether or not the body of proofs presented by a party, weighed
and analyzed in relation to contrary evidence submitted by the
adverse party may be said to be strong, clear and convincing, or
whether or not inconsistencies in the body of proofs of a party are
of such gravity as to justify refusing to give said proofs weight
all these are issues of fact which are not reviewable by the
Court.15
This rule, however, is not absolute and admits of certain
exceptions, namely: a) when the conclusion is a finding grounded
entirely on speculations, surmises, or conjectures; b) when the
inference made is manifestly mistaken, absurd, or impossible; c)
when there is a grave abuse of discretion; d) when the judgment
is based on a misapprehension of facts; e) when the findings of
fact are conflicting; f) when the CA, in making its findings, went

beyond the issues of the case and the same are contrary to the
admissions of both appellant and appellee; g) when the findings
of the CA are contrary to those of the trial court; h) when the
findings of fact are conclusions without citation of specific
evidence on which they are based; i) when the finding of fact of
the CA is premised on the supposed absence of evidence but is
contradicted by the evidence on record; and j) when the CA
manifestly overlooked certain relevant facts not disputed by the
parties and which, if properly considered, would justify a different
conclusion.16
In the present case, the records do not support the finding made
by the CA and the trial court that a prior arrangement existed
between Salazar and Templonuevo regarding the transfer of
ownership of the checks. This fact is crucial as Salazars
entitlement to the value of the instruments is based on the
assumption that she is a transferee within the contemplation of
Section 49 of the Negotiable Instruments Law.
Section 49 of the Negotiable Instruments Law contemplates a
situation whereby the payee or indorsee delivers a negotiable
instrument for value without indorsing it, thus:
Transfer without indorsement; effect of- Where the holder of an
instrument payable to his order transfers it for value without
indorsing it, the transfer vests in the transferee such title as the
transferor had therein, and the transferee acquires in addition,
the right to have the indorsement of the transferor. But for the
purpose of determining whether the transferee is a holder in due
course, the negotiation takes effect as of the time when the
indorsement is actually made. 17
It bears stressing that the above transaction is an equitable
assignment and the transferee acquires the instrument subject to
defenses and equities available among prior parties. Thus, if the
transferor had legal title, the transferee acquires such title and, in
addition, the right to have the indorsement of the transferor and
also the right, as holder of the legal title, to maintain legal action
against the maker or acceptor or other party liable to the

transferor. The underlying premise of this provision, however, is

that a valid transfer of ownership of the negotiable instrument in
question has taken place.
Transferees in this situation do not enjoy the presumption of
ownership in favor of holders since they are neither payees nor
indorsees of such instruments. The weight of authority is that the
mere possession of a negotiable instrument does not in itself
conclusively establish either the right of the possessor to receive
payment, or of the right of one who has made payment to be
discharged from liability. Thus, something more than mere
possession by persons who are not payees or indorsers of the
instrument is necessary to authorize payment to them in the
absence of any other facts from which the authority to receive
payment may be inferred.18
The CA and the trial court surmised that the subject checks
belonged to private respondent Salazar based on the pre-trial
stipulation that Templonuevo incurred a one-year delay in
demanding reimbursement for the proceeds of the same. To the
Courts mind, however, such period of delay is not of such
unreasonable length as to estop Templonuevo from asserting
ownership over the checks especially considering that it was
readily apparent on the face of the instruments19 that these were
crossed checks.
In State Investment House v. IAC,20 the Court enumerated the
effects of crossing a check, thus: (1) that the check may not be
encashed but only deposited in the bank; (2) that the check may
be negotiated only once - to one who has an account with a bank;
and (3) that the act of crossing the check serves as a warning to
the holder that the check has been issued for a definite purpose
so that such holder must inquire if the check has been received
pursuant to that purpose.
Thus, even if the delay in the demand for reimbursement is taken
in conjunction with Salazars possession of the checks, it cannot
be said that the presumption of ownership in Templonuevos favor
as the designated payee therein was sufficiently overcome. This is

consistent with the principle that if instruments payable to named

payees or to their order have not been indorsed in blank, only
such payees or their indorsees can be holders and entitled to
receive payment in their own right.21
The presumption under Section 131(s) of the Rules of Court
stating that a negotiable instrument was given for a sufficient
consideration will not inure to the benefit of Salazar because the
term "given" does not pertain merely to a transfer of physical
possession of the instrument. The phrase "given or indorsed" in
the context of a negotiable instrument refers to the manner in
which such instrument may be negotiated. Negotiable
instruments are negotiated by "transfer to one person or another
in such a manner as to constitute the transferee the holder
thereof. If payable to bearer it is negotiated by delivery. If payable
to order it is negotiated by the indorsement completed by
delivery."22 The present case involves checks payable to order.
Not being a payee or indorsee of the checks, private respondent
Salazar could not be a holder thereof.
It is an exception to the general rule for a payee of an order
instrument to transfer the instrument without indorsement.
Precisely because the situation is abnormal, it is but fair to the
maker and to prior holders to require possessors to prove without
the aid of an initial presumption in their favor, that they came into
possession by virtue of a legitimate transaction with the last
holder.23 Salazar failed to discharge this burden, and the return
of the check proceeds to Templonuevo was therefore warranted
under the circumstances despite the fact that Templonuevo may
not have clearly demonstrated that he never authorized Salazar
to deposit the checks or to encash the same. Noteworthy also is
the fact that petitioner stamped on the back of the checks the
words: "All prior endorsements and/or lack of endorsements
guaranteed," thereby making the assurance that it had
ascertained the genuineness of all prior endorsements. Having
assumed the liability of a general indorser, petitioners liability to
the designated payee cannot be denied.

Consequently, petitioner, as the collecting bank, had the right to

debit Salazars account for the value of the checks it previously
credited in her favor. It is of no moment that the account debited
by petitioner was different from the original account to which the
proceeds of the check were credited because both admittedly
belonged to Salazar, the former being the account of the sole
proprietorship which had no separate and distinct personality
from her, and the latter being her personal account.
The right of set-off was explained in Associated Bank v. Tan:24
A bank generally has a right of set-off over the deposits therein
for the payment of any withdrawals on the part of a depositor. The
right of a collecting bank to debit a client's account for the value
of a dishonored check that has previously been credited has fairly
been established by jurisprudence. To begin with, Article 1980 of
the Civil Code provides that "[f]ixed, savings, and current deposits
of money in banks and similar institutions shall be governed by
the provisions concerning simple loan."
Hence, the relationship between banks and depositors has been
held to be that of creditor and debtor. Thus, legal compensation
under Article 1278 of the Civil Code may take place "when all the
requisites mentioned in Article 1279 are present," as follows:
(1) That each one of the obligors be bound principally, and that he
be at the same time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due
are consumable, they be of the same kind, and also of the same
quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or
controversy, commenced by third persons and communicated in
due time to the debtor.

While, however, it is conceded that petitioner had the right of setoff over the amount it paid to Templonuevo against the deposit of
Salazar, the issue of whether it acted judiciously is an entirely
different matter.25 As businesses affected with public interest,
and because of the nature of their functions, banks are under
obligation to treat the accounts of their depositors with
meticulous care, always having in mind the fiduciary nature of
their relationship.26 In this regard, petitioner was clearly remiss in
its duty to private respondent Salazar as its depositor.
To begin with, the irregularity appeared plainly on the face of the
checks. Despite the obvious lack of indorsement thereon,
petitioner permitted the encashment of these checks three times
on three separate occasions. This negates petitioners claim that
it merely made a mistake in crediting the value of the checks to
Salazars account and instead bolsters the conclusion of the CA
that petitioner recognized Salazars claim of ownership of checks
and acted deliberately in paying the same, contrary to ordinary
banking policy and practice. It must be emphasized that the law
imposes a duty of diligence on the collecting bank to scrutinize
checks deposited with it, for the purpose of determining their
genuineness and regularity. The collecting bank, being primarily
engaged in banking, holds itself out to the public as the expert on
this field, and the law thus holds it to a high standard of
conduct.27 The taking and collection of a check without the
proper indorsement amount to a conversion of the check by the
bank.28
More importantly, however, solely upon the prompting of
Templonuevo, and with full knowledge of the brewing dispute
between Salazar and Templonuevo, petitioner debited the account
held in the name of the sole proprietorship of Salazar without
even serving due notice upon her. This ran contrary to petitioners
assurances to private respondent Salazar that the account would
remain untouched, pending the resolution of the controversy
between her and Templonuevo.29 In this connection, the CA cited
the letter dated September 5, 1991 of Mr. Manuel Ablan, Senior
Manager of petitioner banks Pasig/Ortigas branch, to private

respondent Salazar informing her that her account had been

frozen, thus:
From the tenor of the letter of Manuel Ablan, it is safe to conclude
that Account No. 0201-0588-48 will remain frozen or untouched
until herein [Salazar] has settled matters with Templonuevo. But,
in an unexpected move, in less than two weeks (eleven days to
be precise) from the time that letter was written, [petitioner] bank
issued a cashiers check in the name of Julio R. Templonuevo of
the J.R.T. Construction and Trading for the sum of P267,692.50
(Exhibit "8") and debited said amount from Ms. Arcillas account
No. 0201-0588-48 which was supposed to be frozen or controlled.
Such a move by BPI is, to Our minds, a clear case of negligence, if
not a fraudulent, wanton and reckless disregard of the right of its
depositor.
The records further bear out the fact that respondent Salazar had
issued several checks drawn against the account of A.A. Salazar
Construction and Engineering Services prior to any notice of
deduction being served. The CA sustained private respondent
Salazars claim of damages in this regard:
The act of the bank in freezing and later debiting the amount of
P267,692.50 from the account of A.A. Salazar Construction and
Engineering Services caused plaintiff-appellee great damage and
prejudice particularly when she had already issued checks drawn
against the said account. As can be expected, the said checks
bounced. To prove this, plaintiff-appellee presented as exhibits
photocopies of checks dated September 8, 1991, October 28,
1991, and November 14, 1991 (Exhibits "D", "E" and "F"
respectively)30
These checks, it must be emphasized, were subsequently
dishonored, thereby causing private respondent Salazar undue
embarrassment and inflicting damage to her standing in the
business community. Under the circumstances, she was clearly
not given the opportunity to protect her interest when petitioner
unilaterally withdrew the above amount from her account without
informing her that it had already done so.

For the above reasons, the Court finds no reason to disturb the
award of damages granted by the CA against petitioner. This
whole incident would have been avoided had petitioner adhered
to the standard of diligence expected of one engaged in the
banking business. A depositor has the right to recover reasonable
moral damages even if the banks negligence may not have been
attended with malice and bad faith, if the former suffered mental
anguish, serious anxiety, embarrassment and humiliation.31
Moral damages are not meant to enrich a complainant at the
expense of defendant. It is only intended to alleviate the moral
suffering she has undergone. The award of exemplary damages is
justified, on the other hand, when the acts of the bank are
attended by malice, bad faith or gross negligence. The award of
reasonable attorneys fees is proper where exemplary damages
are awarded. It is proper where depositors are compelled to
litigate to protect their interest.32
WHEREFORE, the petition is partially GRANTED. The assailed
Decision dated April 3, 1998 and Resolution dated April 3, 1998
rendered by the Court of Appeals in CA-G.R. CV No. 42241 are
MODIFIED insofar as it ordered petitioner Bank of the Philippine
Islands to return the amount of Two Hundred Sixty-seven
Thousand Seven Hundred and Seven and 70/100 Pesos
(P267,707.70) to respondent Annabelle A. Salazar, which portion
is REVERSED and SET ASIDE. In all other respects, the same are
AFFIRMED.
16) Philippine Commercial Bank vs CA
350 SCRA 446 Mercantile Law Negotiable Instruments Law
Rights of the Holder What Constitutes a Holder in Due Course
Negligence of the Collecting Bank and the Drawee Bank
There are three cases consolidated here: G.R. No. 121413 (PCIB vs
CA and Ford and Citibank), G.R. No. 121479 (Ford vs CA and
Citibank and PCIB), and G.R. No. 128604 (Ford vs Citibank and
PCIB and CA).
G.R. No. 121413/G.R. No. 121479

In October 1977, Ford Philippines drew a Citibank check in the

amount of P4,746,114.41 in favor of the Commissioner of the
Internal Revenue (CIR). The check represents Fords tax payment
for the third quarter of 1977. On the face of the check was written
Payees account only which means that the check cannot be
encashed and can only be deposited with the CIRs savings
account (which is with Metrobank). The said check was however
presented to PCIB and PCIB accepted the same. PCIB then
indorsed the check for clearing to Citibank. Citibank cleared the
check and paid PCIB P4,746,114.41. CIR later informed Ford that it
never received the tax payment.
An investigation ensued and it was discovered that Fords
accountant Godofredo Rivera, when the check was deposited with
PCIB, recalled the check since there was allegedly an error in the
computation of the tax to be paid. PCIB, as instructed by Rivera,
replaced the check with two of its managers checks.
It was further discovered that Rivera was actually a member of a
syndicate and the managers checks were subsequently
deposited with the Pacific Banking Corporation by other members
of the syndicate. Thereafter, Rivera and the other members
became fugitives of justice.
G.R. No. 128604
In July 1978 and in April 1979, Ford drew two checks in the
amounts of P5,851,706.37 and P6,311,591.73 respectively. Both
checks are again for tax payments. Both checks are for Payees
account only or for the CIRs bank savings account only with
Metrobank. Again, these checks never reached the CIR.
In an investigation, it was found that these checks were
embezzled by the same syndicate to which Rivera was a member.
It was established that an employee of PCIB, also a member of
the syndicate, created a PCIB account under a fictitious name
upon which the two checks, through high end manipulation, were
deposited. PCIB unwittingly endorsed the checks to Citibank

which the latter cleared. Upon clearing, the amount was

withdrawn from the fictitious account by syndicate members.
ISSUE: What are the liabilities of each party?
HELD: G.R. No. 121413/G.R. No. 121479
PCIB is liable for the amount of the check (P4,746,114.41). PCIB,
as a collecting bank has been negligent in verifying the authority
of Rivera to negotiate the check. It failed to ascertain whether or
not Rivera can validly recall the check and have them be replaced
with PCIBs managers checks as in fact, Ford has no knowledge
and did not authorize such. A bank (in this case PCIB) which
cashes a check drawn upon another bank (in this case Citibank),
without requiring proof as to the identity of persons presenting it,
or making inquiries with regard to them, cannot hold the proceeds
against the drawee when the proceeds of the checks were
afterwards diverted to the hands of a third party. Hence, PCIB is
liable for the amount of the embezzled check.
G.R. No. 128604
PCIB and Citibank are liable for the amount of the checks on a 5050 basis.
As a general rule, a bank is liable for the negligent or tortuous act
of its employees within the course and apparent scope of their
employment or authority. Hence, PCIB is liable for the fraudulent
act of its employee who set up the savings account under a
fictitious name.
Citibank is likewise liable because it was negligent in the
performance of its obligations with respect to its agreement with
Ford. The checks which were drawn against Fords account with
Citibank clearly states that they are payable to the CIR only yet
Citibank delivered said payments to PCIB. Citibank however
argues that the checks were indorsed by PCIB to Citibank and that
the latter has nothing to do but to pay it. The Supreme Court cited
Section 62 of the Negotiable Instruments Law which mandates

the Citibank, as an acceptor of the checks, to engage in paying

the checks according to the tenor of the acceptance which is to
deliver the payment to the payees account only.
But the Supreme Court ruled that in the consolidated cases, that
PCIB and Citibank are not the only negligent parties. Ford is also
negligent for failing to examine its passbook in a timely manner
which could have avoided further loss. But this negligence is not
the proximate cause of the loss but is merely contributory.
Nevertheless, this mitigates the liability of PCIB and Citibank
hence the rate of interest, with which PCIB and Citibank is to pay
Ford, is lowered from 12% to 6% per annum.
17) GC Dalton vs Equitable PCI Bank
GC DALTON INDUSTRIES, INC., vs. EQUITABLE PCI BANK
FACTS: Equitable PCI Bank extended a P30-million credit line to
Camden Industries, Inc. (CII) allowing the latter to avail of several
loans (covered by promissory notes) and to purchase trust
receipts. To facilitate collection, CII executed a hold-out
agreement in favor of respondent authorizing it to deduct from its
savings account any amounts due. To guarantee payment,
petitioner GC Dalton Industries, Inc. executed a third-party
mortgage of its real properties in Quezon City and Malolos,
Bulacan] as security for CIIs loans. CII did not pay its obligations
despite respondents demands. Consequently, respondent filed a
petition for extrajudicial foreclosure of petitioners Bulacan
properties in RTC of Bulacan. On August 3, 2004, the mortgaged
properties were sold at a public auction where respondent was
declared the highest bidder. Consequently, a certificate of sale[6]
was issued in respondents favor on August 3, 2004. Thereafter
respondent filed the certificate of sale and an affidavit of
consolidation of ownership in the Register of Deeds of Bulacan
pursuant to Section 47 of the General Banking Law.[Hence,
petitioners TCTs covering the Bulacan properties were cancelled
and new ones were issued in the name of respondent.
Respondent filed an ex parte motion for the issuance of a writ of
possession] in the RTC Bulacan. Previously, however, CII had filed
an action for specific performance and damages in the RTC of
Pasig, asserting that it had allegedly paid its obligation in full to
respondent. CII sought to compel respondent to render an

accounting in order to prove that the bank fraudulently foreclosed

on petitioners mortgaged properties. Because respondent
allegedly failed to appear during the trial, the Pasig RTC rendered
a decision based on the evidence presented by CII. It found that,
while CIIs past due obligation amounted only to P14,426,485.66
as of November 30, 2002, respondent had deducted a total of
P108,563,388.06 from CIIs savings account. Respondent filed a
notice of appeal. CII, on the other hand, moved for the immediate
entry and execution of the abovementioned decision. Pasig RTC
DECISION: dismissed respondents notice of appeal due to its
failure to pay the appellate docket fees. It likewise found
respondent guilty of forum-shopping for filing the petition for the
issuance of a writ of possession in the Bulacan RTC. Thus, the
Pasig RTC ordered the immediate entry of its March 30, 2005
decision. Meanwhile, in view of the pending case in the Pasig RTC,
petitioner opposed respondents ex parte motion for the issuance
of a writ of possession in the Bulacan RTC. It claimed that
respondent was guilty of fraud and forum-shopping, and that it
was not informed of the foreclosure. Furthermore, respondent
fraudulently foreclosed on the properties since the Pasig RTC had
not yet determined whether CII indeed failed to pay its
obligations. Thereafter Bulacan RTC granted the motion and a writ
of possession was issued in respondents favor on December 19,
2005. Petitioner immediately assailed the order of the Bulacan RT.
It claimed that the order violated Section 14, Article VIII of the
Constitution[17] which requires that every decision must clearly
and distinctly state its factual and legal bases. CA dismissed the
petition for lack of merit on the ground that an order involving the
issuance of a writ of possession is not a judgment on the merits,
hence, not covered by the requirement of Section 14, Article VIII
of the Constitution.
ISSUES: 1. Petitioner likewise cites the conflict between the order
of the Bulacan RTC and order the Pasig RTC. Petitioner claims that,
since the Pasig RTC already ordered the entry of its March 30,
2005 decision (in turn ordering respondent to return TCT No.
351231 and all such other owners documents of title as may
have been placed in its possession by virtue of the subject trust
receipt and loan transactions), the same was already final and
executory. Thus, inasmuch as CII had supposedly paid respondent

in full, it was erroneous for the Bulacan RTC to order the issuance
of a writ of possession to respondent. Respondent, on the other
hand, asserts that petitioner is raising a question of fact as it
essentially assails the propriety of the issuance of the writ of
possession. It likewise points out that petitioner did not truthfully
disclose the status of the March 30, 2005 decision of the Pasig
RTC because, in an order dated April 4, 2006, the Pasig RTC
partially reconsidered its December 7, 2005 order and gave due
course to respondents notice of appeal. (The propriety of the said
April 4, 2006 order is still pending review in the CA.)
RULINGS: Denied Petition 1. The issuance of a writ of possession
to a purchaser in an extrajudicial foreclosure is summary and
ministerial in nature as such proceeding is merely an incident in
the transfer of title. The trial court does not exercise discretion in
the issuance thereof. For this reason, an order for the issuance of
a writ of possession is not the judgment on the merits
contemplated by Section 14, Article VIII of the Constitution. 2. The
mortgagor loses all legal interest over the foreclosed property
after the expiration of the redemption period. Under Section 47 of
the General Banking Law, if the mortgagor is a juridical person, it
can exercise the right to redeem the foreclosed property until, but
not after, the registration of the certificate of foreclosure sale
within three months after foreclosure, whichever is earlier.
Thereafter, such mortgagor loses its right of redemption.
Respondent filed the certificate of sale and affidavit of
consolidation with the Register of Deeds of Bulacan on September
13, 2004. This terminated the redemption period granted by
Section 47 of the General Banking Law. Because consolidation of
title becomes a right upon the expiration of the redemption
period,[23] respondent became the owner of the foreclosed
properties.[24]Therefore, when petitioner opposed the ex parte
motion for the issuance of the writ of possession on January 10,
2005 in the Bulacan RTC, it no longer had any legal interest in the
Bulacan properties. Nevertheless, even if the ownership of the
Bulacan properties had already been consolidated in the name of
respondent, petitioner still had, and could have availed of, the
remedy provided in Section 8 of Act 3135. It could have filed a
petition to annul the auction sale and to cancel the writ of
possession within 30 days after respondent was given possession.

But it did not. Thus, inasmuch as the 30-day period to avail of the
said remedy had already lapsed, petitioner could no longer assail
the validity of the sale. Any question regarding the validity of the
mortgage or its foreclosure cannot be a legal ground for the
refusal to issue a writ of possession. Regardless of whether or not
there is a pending suit for the annulment of the mortgage or the
foreclosure itself, the purchaser is entitled to a writ of possession,
without prejudice, of course, to the eventual outcome of the
pending annulment case[ Needless to say, petitioner committed a
misstep by completely relying and pinning all its hopes for relief
on its complaint for specific performance and damages in the
Pasig RTC,[29] instead of resorting to the remedy of annulment (of
the auction sale and writ of possession) under Section 8 of Act
3135 in the Bulacan RTC.
18) Equitable PCI Bank vs Ngor
Facts: On October 7, 2001, respondents Ngor and Go filed an
action for amendment and/or reformation of documents and
contracts against Equitable and its employees. They claimed that
they were induced by the bank to avail of its peso and dollar
credit facilities by offering low interests so they accepted and
signed Equitables proposal. They alleged that they were unaware
that the documents contained escalation clauses granting
equitable authority to increase interest without their consent.
These were rebutted by the bank. RTC ordered the use of the
1996 dollar exchange rate in computing respondents dollardenominated loans. CA granted the Banks application for
injunction but the properties were sold to public auction.
Issue: Whether or not there was an extraordinary deflation.
Ruling: Extraordinary inflation exists when there is an unusual
decrease in the purchasing power of currency and such decrease
could not be reasonably foreseen or was beyond the
contemplation of the parties at the time of the obligation.
Deflation is an inverse situation.
Despite the devaluation of the peso, BSP never declared a
situation of extraordinary inflation. Respondents should pay their
dollar denominated loans at the exchange rate fixed by the BSP
on the date of maturity.

Decision of lower courts are reversed and set aside.

19) Floirendo vs Metropolitan Bank and Trust
G.R. No. 174433
February 24, 2014
PHILIPPINE NATIONAL BANK, Petitioner,
vs.
SPOUSES ENRIQUE MANALO & ROSALINDA JACINTO, ARNOLD J.
MANALO, ARNEL J. MANALO, and ARMA J. MANALO, Respondents.
DECISION
BERSAMIN, J.:
Although banks are free to determine the rate of interest they
could impose on their borrowers, they can do so only reasonably,
not arbitrarily. They may not take advantage of the ordinary
borrowers' lack of familiarity with banking procedures and jargon.
Hence, any stipulation on interest unilaterally imposed and
increased by them shall be struck down as violative of the
principle of mutuality of contracts.
Antecedents
Respondent Spouses Enrique Manalo and Rosalinda Jacinto
(Spouses Manalo) applied for an All-Purpose Credit Facility in the
amount of P1,000,000.00 with Philippine National Bank (PNB) to
finance the construction of their house. After PNB granted their
application, they executed a Real Estate Mortgage on November
3, 1993 in favor of PNB over their property covered by Transfer
Certificate of Title No. S- 23191 as security for the loan.1 The
credit facility was renewed and increased several times over the
years. On September 20, 1996, the credit facility was again
renewed for P7,000,000.00. As a consequence, the parties
executed a Supplement to and Amendment of Existing Real Estate
Mortgage whereby the property covered by TCT No. 171859 was
added as security for the loan.

The additional security was registered in the names of

respondents Arnold, Arnel, Anthony, and Arma, all surnamed
Manalo, who were their children.2
It was agreed upon that the Spouses Manalo would make monthly
payments on the interest. However, PNB claimed that their last
recorded payment was made on December, 1997. Thus, PNB sent
a demand letter to them on their overdue account and required
them to settle the account. PNB sent another demand letter
because they failed to heed the first demand.3
After the Spouses Manalo still failed to settle their unpaid account
despite the two demand letters, PNB foreclose the mortgage.
During the foreclosure sale, PNB was the highest bidder for
P15,127,000.00 of the mortgaged properties of the Spouses
Manalo. The sheriff issued to PNB the Certificate of Sale dated
November 13, 2000.4
After more than a year after the Certificate of Sale had been
issued to PNB, the Spouses Manalo instituted this action for the
nullification of the foreclosure proceedings and damages. They
alleged that they had obtained a loan for P1,000,000.00 from a
certain Benito Tan upon arrangements made by Antoninus
Yuvienco, then the General Manager of PNBs Bangkal Branch
where they had transacted; that they had been made to
understand and had been assured that the P1,000,000.00 would
be used to update their account, and that their loan would be
restructured and converted into a long-term loan;5 that they had
been surprised to learn, therefore, that had been declared in
default of their obligations, and that the mortgage on their
property had been foreclosed and their property had been sold;
and that PNB did not comply with Section 3 of Act No. 3135, as
amended.6
PNB and Antoninus Yuvienco countered that the P1,000,000.00
loan obtained by the Spouses Manalo from Benito Tan had been
credited to their account; that they did not make any assurances
on the restructuring and conversion of the Spouses Manalos loan
into a long-term one;7 that PNBs right to foreclose the mortgage

had been clear especially because the Spouses Manalo had not
assailed the validity of the loans and of the mortgage; and that
the Spouses Manalo did not allege having fully paid their
indebtedness.8
Ruling ofthe RTC
After trial, the RTC rendered its decision in favor of PNB, holding
thusly:
In resolving this present case, one of the most significant matters
the court has noted is that while during the pre-trial held on 8
September 2003, plaintiff-spouses Manalo with the assistance
counsel had agreed to stipulate that defendants had the right to
foreclose upon the subject properties and that the plaintiffs[]
main thrust was to prove that the foreclosure proceedings were
invalid, in the course of the presentation of their evidence, they
modified their position and claimed [that] the loan document
executed were contracts of adhesion which were null and void
because they were prepared entirely under the defendant banks
supervision. They also questioned the interest rates and penalty
charges imposed arguing that these were iniquitous,
unconscionable and therefore likewise void.
Not having raised the foregoing matters as issues during the pretrial, plaintiff-spouses are presumably estopped from allowing
these matters to serve as part of their evidence, more so because
at the pre-trial they expressly recognized the defendant banks
right to foreclose upon the subject property (See Order, pp. 193195).
However, considering that the defendant bank did not interpose
any objection to these matters being made part of plaintiffs
evidence so much so that their memorandum contained
discussions rebutting plaintiff spouses arguments on these issues,
the court must necessarily include these matters in the resolution
of the present case.9

The RTC held, however, that the Spouses Manalos "contract of

adhesion" argument was unfounded because they had still
accepted the terms and conditions of their credit agreement with
PNB and had exerted efforts to pay their obligation;10 that the
Spouses Manalo were now estopped from questioning the interest
rates unilaterally imposed by PNB because they had paid at those
rates for three years without protest;11 and that their allegation
about PNB violating the notice and publication requirements
during the foreclosure proceedings was untenable because
personal notice to the mortgagee was not required under Act No.
3135.12
The Spouses Manalo appealed to the CA by assigning a singular
error, as follows:
THE COURT A QUO SERIOUSLY ERRED IN DISMISSING PLAINTIFFAPPELLANTS COMPLAINT FOR BEING (sic) LACK OF MERIT
NOTWITHSTANDING THE FACT THAT IT WAS CLEARLY SHOWN
THAT THE FORECLOSURE PROCEEDINGS WAS INVALID AND
ILLEGAL.13
The Spouses Manalo reiterated their arguments, insisting that: (1)
the credit agreements they entered into with PNB were contracts
of adhesion;14 (2) no interest was due from them because their
credit agreements with PNB did not specify the interest rate, and
PNB could not unilaterally increase the interest rate without first
informing them;15 and (3) PNB did not comply with the notice and
publication requirements under Section 3 of Act 3135.16 On the
other hand, PNB and Yuvienco did not file their briefs despite
notice.17
Ruling ofthe CA
In its decision promulgated on March 28, 2006,18 the CA affirmed
the decision of the RTC insofar as it upheld the validity of the
foreclosure proceedings initiated by PNB, but modified the
Spouses Manalos liability for interest. It directed the RTC to see to
the recomputation of their indebtedness, and ordered that should
the recomputed amount be less than the winning bid in the

foreclosure sale, the difference should be immediately returned to

the Spouses Manalo.
The CA found it necessary to pass upon the issues of PNBs failure
to specify the applicable interest and the lack of mutuality in the
execution of the credit agreements considering the earlier cited
observation made by the trial court in its decision. Applying
Article 1956 of the Civil Code, the CA held that PNBs failure to
indicate the rate of interest in the credit agreements would not
excuse the Spouses Manalo from their contractual obligation to
pay interest to PNB because of the express agreement to pay
interest in the credit agreements. Nevertheless, the CA ruled that
PNBs inadvertence to specify the interest rate should be
construed against it because the credit agreements were clearly
contracts of adhesion due to their having been prepared solely by
PNB.
The CA further held that PNB could not unilaterally increase the
rate of interest considering that the credit agreements specifically
provided that prior notice was required before an increase in
interest rate could be effected. It found that PNB did not adduce
proof showing that the Spouses Manalo had been notified before
the increased interest rates were imposed; and that PNBs
unilateral imposition of the increased interest rate was null and
void for being violative of the principle of mutuality of contracts
enshrined in Article 1308 of the Civil Code. Reinforcing its
"contract of adhesion" conclusion, it added that the Spouses
Manalos being in dire need of money rendered them to be not on
an equal footing with PNB. Consequently, the CA, relying on
Eastern Shipping Lines, v. Court of Appeals,19 fixed the interest
rate to be paid by the Spouses Manalo at 12% per annum,
computed from their default.
The CA deemed to be untenable the Spouses Manalos allegation
that PNB had failed to comply with the requirements for notice
and posting under Section 3 of Act 3135. The CA stated that
Sheriff Norberto Magsajos testimony was sufficient proof of his
posting of the required Notice of Sheriffs Sale in three public
places; that the notarized Affidavit of Publication presented by

Sheriff Magsajo was prima facie proof of the publication of the

notice; and that the Affidavit of Publication enjoyed the
presumption of regularity, such that the Spouses Manalos bare
allegation of non-publication without other proof did not overcome
the presumption.
On August 29, 2006, the CA denied the Spouses Manalos Motion
for Reconsideration and PNBs Partial Motion for
Reconsideration.20
Issues
In its Memorandum,21 PNB raises the following issues:
I
WHETHER OR NOT THE COURT OF APPEALS WAS CORRECT IN
NULLIFYING THE INTEREST RATES IMPOSED ON RESPONDENT
SPOUSES LOAN AND IN FIXING THE SAME AT TWELVE PERCENT
(12%) FROM DEFAULT, DESPITE THE FACT THAT (i) THE SAME WAS
RAISED BY THE RESPONDENTS ONLY FOR THE FIRST TIME ON
APPEAL (ii) IT WAS NEVER PART OF THEIR COMPLAINT (iii) WAS
EXLUDED AS AN ISSUE DURING PRE-TRIAL, AND WORSE, (iv)
THERE WAS NO FORMALLY OFFERED PERTAINING TO THE SAME
DURING TRIAL.
II
WHETHER OR NOT THE COURT OF APPEALS CORRECTLY RULED
THAT THERE WAS NO MUTUALITY OF CONSENT IN THE IMPOSITION
OF INTEREST RATES ON THE RESPONDENT SPOUSES LOAN
DESPITE THE EXISTENCE OF FACTS AND CIRCUMSTANCES CLEARLY
SHOWING RESPONDENTS ASSENT TO THE RATES OF INTEREST
SO IMPOSED BY PNB ON THE LOAN.
Anent the first issue, PNB argues that by passing upon the issue
of the validity of the interest rates, and in nullifying the rates
imposed on the Spouses Manalo, the CA decided the case in a
manner not in accord with Section 15, Rule 44 of the Rules of

Court, which states that only questions of law or fact raised in the
trial court could be assigned as errors on appeal; that to allow the
Spouses Manalo to raise an issue for the first time on appeal
would "offend the basic rules of fair play, justice and due
process;"22 that the resolution of the CA was limited to the issues
agreed upon by the parties during pre-trial;23 that the CA erred in
passing upon the validity of the interest rates inasmuch as the
Spouses Manalo did not present evidence thereon; and that the
Judicial Affidavit of Enrique Manalo, on which the CA relied for its
finding, was not offered to prove the invalidity of the interest
rates and was, therefore, inadmissible for that purpose.24
As to the substantive issues, PNB claims that the Spouses
Manalos continuous payment of interest without protest indicated
their assent to the interest rates imposed, as well as to the
subsequent increases of the rates; and that the CA erred in
declaring that the interest rates and subsequent increases were
invalid for lack of mutuality between the contracting parties.
Ruling
The appeal lacks merit.
1.
Procedural Issue
Contrary to PNBs argument, the validity of the interest rates and
of the increases, and on the lack of mutuality between the parties
were not raised by the Spouses Manalos for the first time on
appeal. Rather, the issues were impliedly raised during the trial
itself, and PNBs lack of vigilance in voicing out a timely objection
made that possible.
It appears that Enrique Manalos Judicial Affidavit introduced the
issues of the validity of the interest rates and the increases, and
the lack of mutuality between the parties in the following manner,
to wit:

5. True to his words, defendant Yuvienco, after several days, sent

us a document through a personnel of defendant PNB, Bangkal,
Makati City Branch, who required me and my wife to affix our
signature on the said document;
6. When the document was handed over me, I was able to know
that it was a Promissory Note which was in ready made form and
prepared solely by the defendant PNB;
xxxx
21. As above-noted, the rates of interest imposed by the
defendant bank were never the subject of any stipulation between
us mortgagors and the defendant PNB as mortgagee;
22. The truth of the matter is that defendant bank imposed rate of
interest which ranges from 19% to as high as 28% and which
changes from time to time;
23. The irregularity, much less the invalidity of the imposition of
iniquitous rates of interest was aggravated by the fact that we
were not informed, notified, nor the same had our prior consent
and acquiescence therefor. x x x25
PNB cross-examined Enrique Manalo upon his Judicial Affidavit.
There is no showing that PNB raised any objection in the course of
the cross examination.26 Consequently, the RTC rightly passed
upon such issues in deciding the case, and its having done so was
in total accord with Section 5, Rule 10 of the Rules of Court, which
states:
Section 5. Amendment to conform to or authorize presentation of
evidence. When issues not raised by the pleadings are tried with
the 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 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 with liberality
if the presentation of the merits of the action and the ends of
substantial justice will be subserved thereby. The court may grant
a continuance to enable the amendment to be made.
In Bernardo Sr. v. Court of Appeals,27 we held that:
It is settled that even if the complaint be defective, but the
parties go to trial thereon, and the plaintiff, without objection,
introduces sufficient evidence to constitute the particular cause of
action which it intended to allege in the original complaint, and
the defendant voluntarily produces witnesses to meet the cause
of action thus established, an issue is joined as fully and as
effectively as if it had been previously joined by the most perfect
pleadings. Likewise, 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.
The RTC did not need to direct the amendment of the complaint
by the Spouses Manalo. Section 5, Rule 10 of the Rules of Court
specifically declares that the "failure to amend does not affect the
result of the trial of these issues." According to Talisay-Silay
Milling Co., Inc. v. Asociacion de Agricultores de Talisay-Silay,
Inc.:28
The failure of a party to amend a pleading to conform to the
evidence adduced during trial does not preclude an adjudication
by the court on the basis of such evidence which may embody
new issues not raised in the pleadings, or serve as a basis for a
higher award of damages. 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 basis of issues discussed and
the assertions of fact proved in the course of trial.1wphi1 The
court may treat the pleading as if it had been amended to
conform to the evidence, although it had not been actually so
amended. Former Chief Justice Moran put the matter in this way:

When evidence is presented by one party, with the expressed or

implied consent of the adverse party, as to issues not alleged in
the pleadings, judgment may be rendered validly as regards those
issues, which shall be considered as if they have been raised in
the pleadings. There is implied, consent to the evidence thus
presented when the adverse party fails to object thereto."
(Emphasis supplied)
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 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.
There is also no merit in PNBs contention that the CA should not
have considered and ruled on the issue of the validity of the
interest rates because the Judicial Affidavit of Enrique Manalo had
not been offered to prove the same but only "for the purpose of
identifying his affidavit."29 As such, the affidavit was inadmissible
to prove the nullity of the interest rates.
We do not agree.
Section 5, Rule 10 of the Rules of Court is applicable in two
situations.1wphi1 The first is when evidence is introduced on an
issue not alleged in the pleadings and no objection is interposed
by the adverse party. The second is when evidence is offered on
an issue not alleged in the pleadings but an objection is raised
against the offer.30 This case comes under the first situation.
Enrique Manalos Judicial Affidavit would introduce the very issues
that PNB is now assailing. The question of whether the evidence
on such issues was admissible to prove the nullity of the interest
rates is an entirely different matter. The RTC accorded credence to

PNBs evidence showing that the Spouses Manalo had been

paying the interest imposed upon them without protest. On the
other hand, the CAs nullification of the interest rates was based
on the credit agreements that the Spouses Manalo and PNB had
themselves submitted.
Based on the foregoing, the validity of the interest rates and their
increases, and the lack of mutuality between the parties were
issues validly raised in the RTC, giving the Spouses Manalo every
right to raise them in their appeal to the CA. PNBs contention was
based on its wrong appreciation of what transpired during the
trial. It is also interesting to note that PNB did not itself assail the
RTCs ruling on the issues obviously because the RTC had decided
in its favor. In fact, PNB did not even submit its appellees brief
despite notice from the CA.
2.
Substantive Issue
The credit agreement executed succinctly stipulated that the loan
would be subjected to interest at a rate "determined by the Bank
to be its prime rate plus applicable spread, prevailing at the
current month."31 This stipulation was carried over to or adopted
by the subsequent renewals of the credit agreement. PNB thereby
arrogated unto itself the sole prerogative to determine and
increase the interest rates imposed on the Spouses Manalo. Such
a unilateral determination of the interest rates contravened the
principle of mutuality of contracts embodied in Article 1308 of the
Civil Code.32
The Court has declared that a contract where there is no
mutuality between the parties partakes of the nature of a contract
of adhesion,33 and any obscurity will be construed against the
party who prepared the contract, the latter being presumed the
stronger party to the agreement, and who caused the obscurity.34
PNB should then suffer the consequences of its failure to
specifically indicate the rates of interest in the credit agreement.
We spoke clearly on this in Philippine Savings Bank v. Castillo,35
to wit:

The unilateral determination and imposition of the increased rates

is violative of the principle of mutuality of contracts under Article
1308 of the Civil Code, which provides that [t]he contract must
bind both contracting parties; its validity or compliance cannot be
left to the will of one of them. A perusal of the Promissory Note
will readily show that the increase or decrease of interest rates
hinges solely on the discretion of petitioner. It does not require
the conformity of the maker before a new interest rate could be
enforced. Any contract which appears to be heavily weighed in
favor of one of the parties so as to lead to an unconscionable
result, thus partaking of the nature of a contract of adhesion, is
void. Any stipulation regarding the validity or compliance of the
contract left solely to the will of one of the parties is likewise
invalid. (Emphasis supplied)
PNB could not also justify the increases it had effected on the
interest rates by citing the fact that the Spouses Manalo had paid
the interests without protest, and had renewed the loan several
times. We rule that the CA, citing Philippine National Bank v. Court
of Appeals,36 rightly concluded that "a borrower is not estopped
from assailing the unilateral increase in the interest made by the
lender since no one who receives a proposal to change a contract,
to which he is a party, is obliged to answer the same and said
partys silence cannot be construed as an acceptance thereof."37
Lastly, the CA observed, and properly so, that the credit
agreements had explicitly provided that prior notice would be
necessary before PNB could increase the interest rates. In failing
to notify the Spouses Manalo before imposing the increased rates
of interest, therefore, PNB violated the stipulations of the very
contract that it had prepared. Hence, the varying interest rates
imposed by PNB have to be vacated and declared null and void,
and in their place an interest rate of 12% per annum computed
from their default is fixed pursuant to the ruling in Eastern
Shipping Lines, Inc. v. Court of Appeals.38
The CAs directive to PNB (a) to recompute the Spouses Manalos
indebtedness under the oversight of the RTC; and (b) to refund to

them any excess of the winning bid submitted during the

foreclosure sale over their recomputed indebtedness was
warranted and equitable. Equally warranted and equitable was to
make the amount to be refunded, if any, bear legal interest, to be
reckoned from the promulgation of the CAs decision on March 28,
2006.39 Indeed, the Court said in Eastern Shipping Lines, Inc. v.
Court of Appeals40 that interest should be computed from the
time of the judicial or extrajudicial demand. However, this case
presents a peculiar situation, the peculiarity being that the
Spouses Manalo did not demand interest either judicially or
extrajudicially. In the RTC, they specifically sought as the main
reliefs the nullification of the foreclosure proceedings brought by
PNB, accounting of the payments they had made to PNB, and the
conversion of their loan into a long term one.41 In its judgment,
the RTC even upheld the validity of the interest rates imposed by
PNB.42 In their appellants brief, the Spouses Manalo again
sought the nullification of the foreclosure proceedings as the main
relief.43 It is evident, therefore, that the Spouses Manalo made no
judicial or extrajudicial demand from which to reckon the interest
on any amount to be refunded to them. Such demand could only
be reckoned from the promulgation of the CAs decision because
it was there that the right to the refund was first judicially
recognized. Nevertheless, pursuant to Eastern Shipping Lines, Inc.
v. Court of Appeals,44 the amount to be refunded and the interest
thereon should earn interest to be computed from the finality of
the judgment until the full refund has been made.
Anent the correct rates of interest to be applied on the amount to
be refunded by PNB, the Court, in Nacar v. Gallery Frames45 and
S.C. Megaworld Construction v. Parada,46 already applied
Monetary Board Circular No. 799 by reducing the interest rates
allowed in judgments from 12% per annum to 6% per annum.47
According to Nacar v. Gallery Frames, MB Circular No. 799 is
applied prospectively, and judgments that became final and
executory prior to its effectivity on July 1, 2013 are not to be
disturbed but continue to be implemented applying the old legal
rate of 12% per annum. Hence, the old legal rate of 12% per
annum applied to judgments becoming final and executory prior

to July 1, 2013, but the new rate of 6% per annum applies to

judgments becoming final and executory after said dater.
Conformably with Nacar v. Gallery Frames and S.C. Megaworld
Construction v. Parada, therefore, the proper interest rates to be
imposed in the present case are as follows:
1. Any amount to be refunded to the Spouses Manalo shall bear
interest of 12% per annum computed from March 28, 2006, the
date of the promulgation of the CA decision, until June 30, 2013;
and 6% per annum computed from July 1, 2013 until finality of
this decision; and
2. The amount to be refunded and its accrued interest shall earn
interest of 6% per annum until full refund.
WHEREFORE, the Court AFFIRMS the decision promulgated by the
Court of Appeals on March 28, 2006 in CA-G.R. CV No. 84396,
subject to the MODIFICATION that any amount to be refunded to
the respondents shall bear interest of 12% per annum computed
from March 28, 2006 until June 30, 2013, and 6% per annum
computed from July 1, 2013 until finality hereof; that the amount
to be refunded and its accrued interest shall earn interest at 6o/o
per annum until full refund; and DIRECTS the petitioner to pay the
costs of suit.
SO ORDERED.
20) Trade & Investment vs Roblett Industrial
Under consideration are the motion for reconsideration1 dated 23
December 2005 and supplemental motion for reconsideration2
dated 23 January 2006, both filed by respondent Paramount
Insurance Corporation (Paramount) with regard to our Decision3
dated 11 November 2005 which disposed of the case as follows:
WHEREFORE, premises considered, the petition is hereby
GRANTED. The Decision of the Court of Appeals is REVERSED and
the judgment of the Regional Trial Court is REINSTATED with the
following modifications:

a) ordering respondents Roblett, the Abieras, and Paramount,

jointly and severally, to pay petitioner Philguarantee the amount
of P11,775,611.25, with the following rates of interest and penalty
charge, to wit:
i. for respondent Paramount, eighteen percent (18%) interest per
annum from 5 June 1990 until fully paid;
ii. for respondents Roblett and the Abieras, sixteen percent (16%)
interest per annum from 5 June 1990 until fully paid; and penalty
charge of sixteen percent (16%) per annum compounded monthly
from 5 June 1990 until fully paid;
b) ordering respondents Roblett and the Abieras, jointly and
severally, to pay petitioner Philguarantee the amount of
P18,029,219.78 plus 12% interest thereon from the time of finality
of judgment until fully paid;
c) ordering respondents Roblett and the Abieras, jointly and
severally, to pay petitioner Philguarantee ten percent (10%) of
P11,775,611.25, as attorney's fees, plus the costs of suit;
d) ordering respondent Paramount, jointly and severally with
respondents Roblett and the Abieras, to pay petitioner
Philguarantee P100,000.00 as reasonable attorney's fees;
e) ordering respondents Roblett and Benlot, jointly and severally,
to reimburse respondent Paramount whatever amount it would
pay petitioner Philguarantee including all interests, attorney's fees
and the costs; and
f) ordering all the respondents, jointly and severally, and the
third-party defendants, also jointly and severally, to pay petitioner
Philguarantee legal interest of 12% per annum on the judgment
awards respectively against them from the time of finality of
judgment until fully paid.
SO ORDERED.4

In support of its motion for reconsideration, Paramount submits

the following grounds: (1) Paramount issued a bidders bond and
not a performance or guarantee bond so that when respondent
Roblett Industrial Construction Corporation (Roblett) executed the
sub-contract agreement, Paramount was released from liability
thereunder; (2) petitioner is guilty of misrepresentation and
concealment in securing Paramounts continuing commitment to
answer for Robletts repayment scheme; (3) petitioner and Roblett
entered into a rehabilitation program which novated the principal
obligation of the parties resulting in the discharge of Paramount;
(4) the subject surety bond expired without any claim being made
against the same; and (5) Paramount is not liable for attorneys
fees.
The supplemental motion for reconsideration essentially
reiterates the allegations and arguments found in the motion for
reconsideration with the additional contention that the interest
charge on the principal debt is unconscionable.
We have perused the instant motions and find no new substantial
arguments to warrant the reversal or modification of our Decision.
Respondents motion essentially concerns issues that have been
passed upon and fully considered by the Court in the decision
sought to be reconsidered. Thus, we find no cogent reason to
depart from the ruling subject of this recourse. The only matter
left to be resolved is the validity of the interest charge against the
principal amount involved in this case.
Under the surety bond,5 Paramount bound itself jointly and
severally with Roblett to pay petitioner to the extent of
P11,775,611.35 for whatever damages and liabilities the latter
may suffer by virtue of its counterguarantee. Paramount further
agreed to pay petitioner interest thereon at the rate of 18% per
annum from the date of receipt of petitioners first demand letter
up to the date of actual payment.
In our Decision, we found that none of the parties questioned the
validity of the stipulated interest rate. Finding the same legal, we
upheld its validity. With the suspension of the Usury Law and the

removal of interest ceiling, the parties are free to stipulate the

interest to be imposed on monetary obligations. Absent any
evidence of fraud, undue influence, or any vice of consent
exercised by one party against the other, the interest rate agreed
upon is binding upon them.6 Nevertheless, we ruled that
Paramounts liability therefor should commence from the date of
judicial demand, or on 5 June 1990, and not from the date
petitioner made a formal notice of demand to Paramount. This is
but fair as the delay in the performance of Paramount is
attributable to the failure of petitioner to inform the former of the
developments in the negotiations with Roblett.
Paramount argues that it is made liable for approximately P48
million, the bulk of which is the interest charge and not the
principal amount. It then submits that the interest is clearly
iniquitous, unconscionable and exorbitant, thus contrary to
morals,7 citing our ruling in Medel v. Court of Appeals.8 In the
said case, we held as void the stipulation on interest at the rate of
5.5% per month or 66% per annum, on a P500,000.00 loan, the
same being "excessive, iniquitous, unconscionable and exorbitant,
hence, contrary to morals ("contra bonos mores"), if not against
the law."9
It would seem that Paramounts opposition to the interest
awarded herein does not spring from the invalidity of the
stipulated interest rate but rather on the resulting amount of
interest charge alone, which if counted from the date of judicial
demand would come to roughly P32 million which is thrice the
amount of the principal debt of P11,775,611.35.
While the Court recognizes the right of the parties to enter into
contracts and who are expected to comply with their terms and
obligations, this rule is not absolute. Stipulated interest rates are
illegal if they are unconscionable10 and the Court is allowed to
temper interest rates when necessary.11 In exercising this vested
power to determine what is iniquitous and unconscionable, the
Court must consider the circumstances of each case.12 What may
be iniquitous and unconscionable in one case, may be just in
another. In a number of cases,13 this Court equitably reduced the

interest rate agreed upon by the parties for being iniquitous,

unconscionable, and/or exhorbitant.
Notably in the case of Development Bank of the Philippines v.
Court of Appeals14, while this Court held that respondents were
liable for the stipulated interest rate of 18% per annum, we
equitably reduced the same to 10% per annum after finding that
the interests and penalty charges alone exceeded the amount of
the principal debt. As such, the interests were found to be
excessive. We further held that the additional penalty charge of
8% per annum would sufficiently cover whatever else damages
petitioner may have incurred such as attorneys fees and litigation
expenses.
In the instant case, the resulting interest charge has turned out to
be excessive in the context of its base computation period, and
hence, unwarranted in fact and in operation. We are not
unmindful of the length of time this case has been pending in
court for which the amount involved has ballooned to the
outrageous amount of more than P45 million which is four times
the principal debt.
While we have sustained the validity of much higher interest rates
of 21% per annum in Bautista v. Pilar Development Corporation15
and 24% per annum in Garcia v. Court of Appeals16 as the factual
circumstances therein warrant, it is well to note that compared to
the instant case, the said cases were litigated for a shorter period
of time12 years and 3 years, respectively. Development Bank of
the Philippines17 was finally decided after only 10 years of
litigation. Here, the complaint was filed in the lower court on 5
June 1990 or sixteen (16) years ago. Consequently, the already
huge principal debt swelled to a considerably disproportionate
sum. Thus, we deem an interest rate of 12% per annum is more
reasonable under the circumstances.
WHEREFORE, premises considered, respondent Paramounts
motion for reconsideration and supplemental motion for
reconsideration are GRANTED IN PART and our assailed Decision
dated 11 November 2005 is hereby MODIFIED. The interest rate of

18% per annum as stipulated in the surety bond is equitably

reduced to 12% per annum. The Decision is AFFIRMED WITH
FINALITY in all other respects.
SO ORDERED.
21) New Sampaguita Builders vs PNB
Mini digest: Sampaguita loaned money from PNB. PNB unilaterally
increased rates of interest in the loan w/o informing Sampaguita.
PNB claimed they were authorized to do it as there was a clause
in the agreement that they may do so. Besides, Usury law was no
longer in force = SC said NO! PNB cannot do so; it will violate
mutuality of contracts under 1308. Besides, SC may intervene
when amount of interest is unconscionable.
Facts:
Sampaguita secured a loan from PNB in an aggregate amount of
8M pesos, mortgaging the properties of Sampaguitas president
and chairman of the board. Sampaguita also executed several
promissory notes due on different dates (payment dates). The
first promissory note had 19.5% interest rate. The 2nd and 3rd
had 21.5%. a uniform clause therein permitted PNB to increase
the rate within the limits allowed by law at any time depending
on whatever policy it may adopt in the future x x x, without even
giving prior notice to petitioners. There was also a clause in the
promissory note that stated that if the same is not paid 2 years
after release then it shall be converted to a medium term loan
and the interest rate for such loan would apply.
Later on, Sampaguita defaulted on its payments and failed to
comply with obligations on promissory notes. Sampaguita thus
requested for a 90 day extension to pay the loan. Again they
defaulted, so they asked for loan restructuring. It partly paid the
loan and promised to pay the balance later on. AGAIN they failed
to pay so PNB extrajudicially foreclosed the mortgaged properties.
It was sold for 10M. PNB claimed that Sampaguita owed it 12M so
they filed a case in court asking sampaguita to pay for deficiency.
RTC found that Sampaguita was automatically entitled to the debt
relief package of PNB and ruled that the latter had no cause of

action against the former. CA reversed, saying Sampaguita was

not entitled, thus ordered them to pay the deficiency Appeal =
Went to SC. Sampaguita claims the loan was bloated so they dont
really owe PNB anymore, but it just overcharged them!
Issues/Ruling:
W/N the loan accounts are bloated: YES. There is no deficiency;
there is actually an overpayment of more than 3M based on the
computation of the SC.
Whether PNB could unilaterally increase interest rates: NO
Ratio:
Sampaguitas accessory duty to pay interest did not give PNB
unrestrained freedom to charge any rate other than that which
was agreed upon. No interest shall be due, unless expressly
stipulated in writing. It would be the zenith of farcicality to specify
and agree upon rates that could be subsequently upgraded at
whim by only one party to the agreement.
The unilateral determination and imposition of increased rates
is violative of the principle of mutuality of contracts ordained in
Article 1308 of the Civil Code. One-sided impositions do not have
the force of law between the parties, because such impositions
are not based on the parties essential equality.
Although escalation clauses are valid in maintaining fiscal stability
and retaining the value of money on long-term contracts, giving
respondent an unbridled right to adjust the interest independently
and upwardly would completely take away from petitioners the
right to assent to an important modification in their agreement
and would also negate the element of mutuality in their contracts.
The clause cited earlier made the fulfillment of the contracts
dependent exclusively upon the uncontrolled will of respondent
and was therefore void. Besides, the pro forma promissory notes
have the character of a contract dadhsion, where the parties
do not bargain on equal footing, the weaker partys [the debtors]
participation being reduced to the alternative to take it or leave
it.

Circular that lifted the ceiling of interest rates of usury law did not
authorize either party to unilaterally raise the interest rate
without the others consent.
the interest ranging from 26 percent to 35 percent in the
statements of account -- must be equitably reduced for being
iniquitous, unconscionable and exorbitant. Rates found to be
iniquitous or unconscionable are void, as if it there were no
express contract thereon. Above all, it is undoubtedly against
public policy to charge excessively for the use of money.
It cannot be argued that assent to the increases can be implied
either from the June 18, 1991 request of petitioners for loan
restructuring or from their lack of response to the statements of
account sent by respondent. Such request does not indicate any
agreement to an interest increase; there can be no implied waiver
of a right when there is no clear, unequivocal and decisive act
showing such purpose. Besides, the statements were not letters
of information sent to secure their conformity; and even if we
were to presume these as an offer, there was no acceptance. No
one receiving a proposal to modify a loan contract, especially
interest -- a vital component -- is obliged to answer the
proposal.
Besides, PNB did not comply with its own stipulation that should
the loan not be paid 2 years after release of money then it shall
be converted to a medium term loan.
*Court applied 12% interest rate instead for being a forbearance
of money
(there were some pieces of evidence presented by PNB in court
that sampaguita objected to. Lower courts overruled the
objections but SC said the objections were correct and the
evidence should not have been admitted. i.e. contract wasnt
signed by the parties, a part of the contract wasnt properly
annexed/no reference was made in the main contract.)

In addition to the preceding discussion, it is then useless to labor

the point that the increase in rates violates the impairment clause
of the Constitution, because the sole purpose of this provision is
to safeguard the integrity of valid contractual agreements against
unwarranted interference by the State in the form of laws. Private
individuals intrusions on interest rates is governed by statutory
enactments like the Civil Code
22) Rural Bank of San Miguel vs Monetary Board
It is well-settled that the closure of a bank may be considered as
an exercise of police power. The action of the MB on this matter is
final and executory. Such exercise may nonetheless be subject to
judicial inquiry and can be set aside if found to be in excess of
jurisdiction or with such grave abuse of discretion as to amount to
lack or excess of jurisdiction.
Facts: Monetary Board (MB), the governing board of respondent
Bangko Sentral ng Pilipinas (BSP), issued Resolution No. 105
prohibiting RBSM from doing business in the Philippines, placing it
under receivership and designating respondent Philippine Deposit
Insurance Corporation (PDIC) as receiver on the basis of the
comptrollership reports of the banks supervising head. To assist
its impaired liquidity and operations, the RBSM was granted
emergency loans on different occasions in the aggregate amount
of P375. As early as November 18, 1998, Land Bank of the
Philippines (LBP) advised RBSM that it will terminate the clearing
of RBSMs checks in view of the latters frequent clearing losses
and continuing failure to replenish its Special Clearing Demand
Deposit with LBP. The BSP interceded with LBP not to terminate
the clearing arrangement of RBSM to protect the interests of
RBSMs depositors and creditors. On the basis of reports prepared
by PDIC stating that RBSM could not resume business with
sufficient assurance of protecting the interest of its depositors,
creditors and the general public, the MB passed Resolution No.
966 directing PDIC to proceed with the liquidation of RBSM under
Section 30 of RA 7653.
Issue: Whether or not the Monetary Board can unilaterally close a
bank without prior hearing

Held: No. It is well-settled that the closure of a bank may be

considered as an exercise of police power. The action of the MB on
this matter is final and executory. Such exercise may nonetheless
be subject to judicial inquiry and can be set aside if found to be in
excess of jurisdiction or with such grave abuse of discretion as to
amount to lack or excess of jurisdiction.
This case essentially boils down to one core issue: whether
Section 30 of RA 7653 (also known as the New Central Bank Act)
and applicable jurisprudence require a current and complete
examination of the bank before it can be closed and placed under
receivership. The actions of the Monetary Board taken under this
section or under Section 29 of this Act shall be final and
executory, and may not be restrained or set aside by the court
except on petition for certiorari on the ground that the action
taken was in excess of jurisdiction or with such grave abuse of
discretion as to amount to lack or excess of jurisdiction. The
petition for certiorari may only be filed by the stockholders of
record representing the majority of the capital stock within ten
(10) days from receipt by the board of directors of the institution
of the order directing receivership, liquidation or conservatorship.
23) Banco Filipino Savings Bank vs Ybanez
Petition for Review on Certiorari under Rule 45 of the 1997 Rules
of Civil Procedure, as amended, assailing the Decision 1 of the
Court of Appeals in CA-G.R. CV No. 47732 promulgated on
February 23, 2001 and its Resolution dated May 30, 2001.
On February 11, 1982, spouses Zacarias and Catherine Bacolor,
herein petitioners, obtained a loan of P244,000.00 from Banco
Filipino Savings and Mortgage Bank, Dagupan City Branch,
respondent. They executed a promissory note providing that the
amount shall be payable within a period of ten (10) years with a
monthly amortization of P5,380.00 beginning March 11, 1982 and
every 11th day of the month thereafter; that the interest rate
shall be twenty-four percent (24%) per annum, with a penalty of
three percent (3%) on any unpaid monthly amortization; that
there shall be a service charge of three percent (3%) per annum
on the loan; and that in case respondent bank seeks the
assistance of counsel to enforce the collection of the loan,

petitioners shall be liable for ten percent (10%) of the amount due
as attorneys fees and fifteen percent (15%) of the amount due as
liquidated damages.
As security for the loan, petitioners mortgaged with respondent
bank their parcel of land located in Dagupan City, Pangasinan,
registered under Transfer Certificate of Title No. 40827.
From March 11, 1982 to July 10, 1991, petitioners paid respondent
bank P412, 199.36. Thereafter, they failed to pay the remaining
balance of the loan.
On August 7, 1992, petitioners received from respondent bank a
statement of account stating that their indebtedness as of July 31,
1992 amounts to P840,845.61.
In its letter dated January 13, 1993, respondent bank informed
petitioners that should they fail to pay their loan within fifteen
(15) days from notice, appropriate action shall be taken against
them.
Due to petitioners failure to settle their obligation, respondent
instituted, on March 5, 1993, an action for extra-judicial
foreclosure of mortgage.
Prior thereto, or on February 1, 1993, petitioners filed with Branch
40 of the same RTC, a complaint for violation of the Usury Law
against respondent, docketed as Civil Case No. D-10480. They
alleged that the provisions of the promissory note constitute a
usurious transaction considering the (1) rate of interest, (2) the
rate of penalties, service charge, attorneys fees and liquidated
damages, and (3) deductions for surcharges and insurance
premium. In their amended complaint, petitioners further alleged
that, during the closure of respondent bank, it ceased to be a
banking institution and, therefore, could not charge interests and
institute foreclosure proceeding.
On August 25, 1994, the RTC rendered its decision dismissing
petitioners complaint, holding that:

(1) The terms and conditions of the Deed of Mortgage and the
Promissory Note are legal and not usurious.
The plaintiff freely signed the Deed of Mortgage and the
Promissory Note with full knowledge of its terms and conditions.
The interest rate of 24% per annum is not usurious and does not
violate the Usury Law (Act 2655) as amended by P.D. No. 166.
The rate of interest, including commissions, premiums, fees and
other charges, on a loan or forbearance of any money etc.,
regardless of maturity x x x, shall not be subject to any ceiling
under or pursuant to the Usury Law, as amended (CB Circular no.
905). Hence, the 24% interest per annum is allowed under P.D.
No. 166.
For sometime now, usury has been legally non-existent. Interest
can now be as lender and borrower may agree upon (Verdejo v.
CA, Jan. 29, 1988. 157 SCRA 743).
The imposition of penalties in case the obligation is not fulfilled is
not prohibited by the Usury Law. Parties to a contract of loan may
validly agree upon the imposition of penalty charges in case of
delay or non-payment of the loan. The purpose is to compel the
debtor to pay his debt on time (Go Chioco v. Martinez, 45 Phil.
256, 265).
(2) The closure of Banco Filipino did not suspend or stop its usual
and normal banking operations like the collection of loan
receivables and foreclosures of mortgages.
In view of the foregoing, plaintiffs failed to substantiate their
cause of action against the defendant. 2
On appeal, the Court of Appeals rendered its Decision affirming
the Decision of the trial court. Petitioners subsequent motion for
reconsideration was denied.

Hence, this present petition for review on certiorari raising this

lone issue: whether the interest rate is "excessive and
unconscionable."
It is the petitioners contention that while the Usury Law ceiling on
interest rates was lifted by Central Bank Circular No. 905, there is
nothing in the said circular which grants respondent bank carte
blanche authority to raise interest rates to levels which "either
enslave the borrower or lead to a hemorrhaging of their assets." 3
In its comment 4 , respondent bank maintained that petitioner, by
signing the Deed of Mortgage and Promissory Note, knowingly
and freely consented to its terms and conditions. A contract
between the parties must not be impaired. The interest rate of
24% per annum is not usurious and does not violate the Usury
Law. 5
The petition lacks merit.
Article 1956 of the Civil Code provides that no interest shall be
due unless it has been expressly stipulated in writing. Here, the
parties agreed in writing on February 11, 1982 that the rate of
interest on the petitioners loan shall be 24% per annum.
At the time the parties entered into the loan transaction, the
applicable law was the Usury Law (Act 2655), as amended by P.D.
No. 166, which provides that the rate of interest for the
forbearance of money when secured by a mortgage upon real
estate, should not be more than 6% per annum or the maximum
rate prescribed by the Monetary Board of the Central Bank of the
Philippines in force at the time the loan was granted. Central Bank
Circular No. 783, which took effect on July 1, 1981, removed the
ceiling on interest rates on a certain class of loans, thus:
SECTION 2. The interest rate on a loan forbearance of any money,
goods, or credits with a maturity of more than seven hundred
thirty (730) days shall not be subject to any ceiling. 6

In the present case, the term of the subject loan is for a period of
10 years. Considering that its maturity is more than 730 days, the
interest rate is not subject to any ceiling following the above
provision. Therefore, the 24% interest rate agreed upon by parties
does not violate the Usury Law, as amended by P.D. 116.
This Court has consistently held that for sometime now, usury has
been legally non-inexistent and that interest can now be charged
as lender and borrower may agree upon. 7 As a matter of fact,
Section 1 of Central Bank Circular No. 905 states that:
SECTION 1. The rate of interest, including commissions,
premiums, fees and other charges , on a loan or forbearance of
any money, goods, or credits, regardless of maturity and whether
secured or unsecured, that may be charged or collected by any
person, whether natural or judicial, shall not be subject to any
ceiling prescribed under or pursuant to the Usury Law, as
amended. 8
Moreover, in Trade & Investment Development Corporation of the
Philippines v. Roblett Industrial Construction Corporation, 9 this
Court has ruled that:
With the suspension of the Usury Law and the removal of interest
ceiling, the parties are free to stipulate the interest to be imposed
on monetary obligations. Absent any evidence of fraud, undue
influence, or any vice of consent exercised by one party against
the other, the interest rate agreed upon is binding upon them.
There is no indication in the records that any of the incidents
which vitiate consent on the part of petitioners is present. Indeed,
the interest rate agreed upon is binding on them. With respect to
the penalty and service charges, the same are unconscionable or
excessive.
Petitioners invoke this Courts rulings in Almeda vs. Court of
Appeals 10 and Medel vs. Court of Appeals 11 to show that the
interest rate in the subject promissory note is unconscionable.
Their reliance on these cases is misplaced. In Almeda, what this

Court struck down as being unconscionable and excessive was

the unilateral increase in the interest rates from 18% to 68%. This
Court ruled thus:
It is plainly obvious, therefore, from the undisputed facts of the
case that respondent bank unilaterally altered the terms of its
contract by increasing the interest rates of the loan without the
prior assent of the latter. In fact, the manner of agreement is itself
explicitly stipulated by the Civil Code when it provides, in Article
1956, that "No interest shall be due unless it has been expressly
stipulated in writing." What has been "stipulated in writing" from a
perusal of the interest rate provision of the credit agreement
signed between the parties is that petitioners were bound merely
to pay 21% interest x x x.
Petitioners also cannot find refuge in Medel. In this case, what this
Court declared as unconscionable was the imposition of a 66%
interest rate per annum. In the instant case, the interest rate is
only 24% per annum, agreed upon by both parties. By no means
can it be considered unconscionable or excessive.1awphi1.net
Verily, petitioners cannot now renege on their obligation to
comply with what is incumbent upon them under the loan
agreement. A contract is the law between the parties and they
are bound by its stipulations. 12
Petitioners further contend that during the closure of respondent
bank (from January 1, 1985 to July 1, 1994), it lost its function as a
banking institution and, therefore, could no longer charge
interests and institute foreclosure proceedings.
In the case of Banco Filipino Savings & Mortgage Bank vs.
Monetary Board, Central Bank of the Philippines, 13 this Court
ruled that the banks closure did not diminish the authority and
powers of the designated liquidator to effectuate and carry on the
administration of the bank, thus:
x x x. We did not prohibit however acts such as receiving
collectibles and receivables or paying off creditors claims and

other transactions pertaining to the normal operations of a bank.

There is no doubt that that the prosecution of suits for collection
and the foreclosure of mortgages against debtors of the bank by
the liquidator are among the usual and ordinary transactions
pertaining to the administration of a bank. x x x.
Likewise, in Banco Filipino Savings and Mortgage Bank vs. Ybaez,
14 where one of the issues was whether respondent bank can
collect interest on its loans during its period of liquidation and
closure, this Court held:
In Banco Filipino Savings and Mortgage Bank v. Monetary Board,
the validity of the closure and receivership of Banco Filipino was
put in issue. But the pendency of the case did not diminish the
authority of the designated liquidator to administer and continue
the banks transactions. The Court allowed the bank liquidator to
continue receiving collectibles and receivables or paying off
creditors claims and other transactions pertaining to normal
operations of a bank. Among these transactions were the
prosecution of suits against debtors for collection and for
foreclosure of mortgages. The bank was allowed to collect
interests on its loans while under liquidation, provided that the
interests were legal.
In fine, we hold that the interest rate on the loan agreed upon
between the parties is not excessive or unconscionable; and that
during the closure of respondent bank, it could still function as a
bonding institution, hence, could continue collecting interests
from petitioners.
WHEREFORE, we DENY the petition and AFFIRM the challenged
Decision and Resolution of the Court of Appeals in CA-G.R. CV No.
47732. Costs against petitioners.
SO ORDERED.
26) JOSEPH VICTOR G. EJERCITO v. SANDIGANBAYAN
509 SCRA 190 (2006), EN BANC (Carpio Morales, J.)

The Ombudsman has the power to issue subpoena duces

tecum/ad testificandum in relation to cases pending before it.
FACTS: The Office of the Ombudsman requested the
Sandiganbayan to issue subpoena duces tecum against the Urban
Bank relative to the case against President Joseph Estrada.
Ms. Dela Paz, receiver of the Urban Bank, furnished the Office of
the Ombudsman certified copies of manager checks detailed in
thesubpoena duces tecum. The Sandiganbayan granted the
same.
However, Ejercito claims that the subpoenas issued by the
Sandiganbayan are invalid and may not be enforced because the
information found therein, given their extremely detailed
character and could only have been obtained by the Special
Prosecution Panel through an illegal disclosure by the bank
officials. Ejercito thus contended that, following the fruit of the
poisonous tree doctrine, the subpoenas must be quashed.
Moreover, the extremely-detailed information obtained by the
Ombudsman from the bank officials concerned during a previous
investigation of the charges against him, such inquiry into his
bank accounts would itself be illegal.
ISSUE: Whether or not subpoena duces tecum/ad testificandum
may be issued to order the production of statement of bank
accounts even before a case for plunder is filed in court
HELD: The Supreme Court held that plunder is analogous to
bribery, and therefore, the exception to R.A. 1405 must also apply
to cases of plunder. The court also reiterated the ruling in
Marquez v. Desierto that before an in camera inspection may be
allowed there must be a pending case before a court of
competent jurisdiction. Further, the account must be clearly
identified, the inspection limited to the subject matter of pending
case before the court of competent jurisdiction.
As no plunder case against then President Estrada had yet been
filed before a court of competent jurisdiction at the time the

Ombudsman conducted an investigation, he concludes that the

information about his bank accounts were acquired illegally,
hence, it may not be lawfully used to facilitate a subsequent
inquiry into the same bank accounts. Thus, his attempt to make
the exclusionary rule applicable to the instant case fails.
The high Court, however, rejected the arguments of the petitioner
Ejercito that the bank accounts which where demanded from
certain banks even before the case was filed before the proper
court is inadmissible in evidence being fruits of poisonous tree.
This is because the Ombudsman issued the subpoenas bearing on
the bank accounts of Ejercito about four months before Marquez
was promulgated on June 27, 2001. While judicial interpretations
of statutes, such as that made in Marquez with respect to R.A. No.
6770 or the Ombudsman Act of 1989, are deemed part of the
statute as of the date it was originally passed, the rule is not
absolute. Thus, the Court referred to the teaching of Columbia
Pictures Inc., v. Court of Appeals, that: It is consequently clear
that a judicial interpretation becomes a part of the law as of the
date that law was originally passed, subject only to the
qualification that when a doctrine of this Court is overruled and a
different view is adopted, and more so when there is a reversal
thereof, the new doctrine should be applied prospectively and
should not apply to parties who relied on the old doctrine and
acted in good faith.
25) Development Bank vs Arcilla
DBP v. ARCILLA - compliance with Truth-in-lending act (but more
on Estoppel)
F: Arcilla was an employee of DBP. He availed of a loan under the
INDIVIDUAL HOUSING PROJECT of the bank for the purchase of a
lot and the construction of the house therein for P160k. They
executed a DEED OF CONDITIONAL SALE.
ARCILLA:
-Borrow P160k
-pay the loan in 25 years, with a monthly amortization of
P1,417.91, w/ 9% interest per annum, to be deducted from his
monthly salary
DBP:

-transfer title of propery UPON PAYMENT of the loan, including any

increments thereof
-if Arcilla availed of optional retirement, he could elect to continue
paying the loan, provided that the loan/amount would be
converted into a regular real estate loan w/ prevailing interest
assigned on real estate loans, payable w/n remaining term of the
loan account
-Arcilla opted to resign from the bank in December 1986. So bank
informed him that the balance of his loan account had been
converted to a regular housing loan.
-Arcilla signed PNs, total amount of which is P186, 364.15.
-Arcilla also agreed to pay to DBP insurance premiums, taxes, etc.
-Arcilla also agreed to the reservation of DBP of its RIGHT TO
INCREASE (W/NOTICE TO ARCILLA) the rate of interest on the
loan, as well as all other fees and charges on loans and advances
pursuant to such policy as it may adopt from time to time during
the period of the loan; Provided, that the rate of interest on the
loan shall be reduced by law or by the Monetary Board; Provided,
further, that the adjustment in the rate of interest shall take effect
on or after the effectivity of the increase or decrease in the
maximum rate of interest.
-An additional cash advance of P32k was granted to Arcilla.
-BUT ARCILLA FAILED TO PAY total obligation due: P241,940.93.
>DBP rescinded the Deed of Conditional Sale by notarial act. DBP
tried to give Arcilla a chance to repurchase the property but
Arcilla did not respond. Property was advertised for sale at public
bidding.
Arcilla filed complaint vs. DBP for failure to furnish him with the
disclosure statement required by RA 3765 and CB Circular No. 158
prior to the execution of the deed of conditional sale and the
conversion of his loan w/ the bank into a regular housing loan.
>DBP still immediately deducted the account from his salary as
early as 1984.
>Morever, the bank applied its own formula and imposed its
usurious interests, penalties and charges on his loan and
advances.
DBP: Substantial compliance
>details required were particularly disclosed in the:
-PNs

-Deed of Conditional Sale

-Required notices sent to Arcilla
+failure to comply strictly with RA 3765 did not affect the validity
and enforcement of the subject contract or transactions.
-Arcilla estopped from invoking RA 3765 because he failed to
demand compliance before consummation of the loan transaction,
until the time his complaint was filed in court.
RTC: for Arcilla
CA: for DBP (If so, bakit DBP ang petitioner????)
WON DBP COMPLIED W/ DISCLOSURE REQUIREMENT? Yes
RA 3765, Section 1:
-before consummation of loan transaction,
the bank, as creditor
is obliged to furnish a client with
A CLEAR STATEMENT, IN WRITING, setting forth to the extent
applicable and in accordance with the rules and regulations
prescribed by the Monetary Board of the CBP, the following
information:
(1) the cash price or delivered price of the property or service to
be acquired;
(2) the amounts, if any, to be credited as down payment and/or
trade-in;
(3) the difference between the amounts set forth under clauses
(1) and (2);
(4) the charges, individually itemized, which are paid or to be paid
by such person in connection with the transaction but which are
not incident to the extension of credit;
(5) the total amount to be financed;
(6) the finance charges expressed in terms of pesos and centavos;
and
(7) the percentage that the finance charge bears to the total
amount to be financed expressed as a simple annual rate on the
outstanding unpaid balance of the obligation.
CBP Circular No. 3765
-the information required by RA 3765 shall be included in
the contract covering the credit transaction
or any document to be acknowledged and signed by the debtor
-if the borrower is not duly informed of the data required by law
prior to consummation of the availment or drawdown, the lender

will have no right to collect such charge or increases thereof, even

if stipulated in the PN
-BUT failure such not affect the validity or enforcement of any
contract or transaction.
IN this case:
*DBP failed to disclose the requisite information in the disclosure
statement form authorized by CB - but did so in the LOAN
TRANSACTION DOCUMENTS BETWEEN DBP AND ARCILLA. NO
evidence that DBP would collect other charges other than those
disclosed in the deeds.
*Claim of Arcilla a mere afterthought
*Arcilla is a lawyer, so he would not be so gullible to sign
documents w/o knowing fully well the legal implications and
consequences of his actions
*Arcilla is also a former employee so he is presumed to know
DBP's business, terms of the loan applied for, including the
charges that had to be paid.
(DBP's counterclaim that Arcilla vacate property + pay rentals
after notarial rescission of the deed of conditional sale was
remanded, DBP not showing evidence on the reasonable amount
of rentals for Arcilla's occupancy)
26) United Coconut Planters Bank vs Beluso
Facts: In 1996, UCPB granted the spouses Beluso a Promissory
Notes Line under a Credit Agreement whereby the latter could
avail from the former credit of up to a maximum amount of P1.2
Million pesos for a term ending in April 1997. In addition to the
promissory notes, the spouses Beluso also constituted a real
estate mortgage over parcels of land in Roxas City. Subsequently,
the said Credit Arrangement was amended to extend the amount
of the Promissory Notes Line to a maximum of P2.35 Million pesos
and to extend the term thereof to February 1998.
The spouses executed three promissory notes which were
renewed several times. In 1997, the payment of the principal and
interest of the latter two promissory notes were debited from the
spouses Belusos account with UCPB; yet, a consolidated loan for
P1.3 Million was again released to the spouses Beluso under one
promissory note with a due date of 28 February 1998.

To completely avail themselves of the P2.35 Million credit line

extended to them by UCPB, the spouses Beluso executed two
more promissory notes for a total of P350 thousand. However, the
spouses Beluso alleged that the amounts covered by these last
two promissory notes were never released or credited to their
account and, thus, claimed that the principal indebtedness was
only P2 Million.
In any case, UCPB applied interest rates on the different
promissory notes ranging from 18% to 34%. During the term of
these promissory notes, the Belusos were able to pay the total
sum of about P760 thousand. However, they failed to pay for the
interest and penalty on their obligations. As a result, UCPB
demanded that they pay their total obligation of P2.9 millionbut
the spouses Beluso failed to comply therewith. Thereafter, UCPB
foreclosed the properties mortgaged by the spouses Beluso to
secure their credit line, which, by that time, already ballooned to
nearly P3.8 million.
Two months after the foreclosure, the spouses Beluso filed a
Petition for Annulment, Accounting and Damages against UCPB
with the RTC of Makati City. UCPB moved to dismiss the case on
the ground that the spouses Beluso instituted another case before
the RTC of Roxas City, involving the same parties and issues.
UCPB claims that while the Roxas City case initially appears to be
a different action, as it prayed for the issuance of a temporary
restraining order and/or injunction to stop foreclosure of spouses
Belusos properties, it poses issues which are similar to those of
the present case.
The spouses Beluso claim that the issue in the Roxas City case is
the propriety of the foreclosure before the true account of
spouses Beluso is determined. On the other hand, the issue in the
Makati case is the validity of the interest rate provision. The
spouses Beluso claim that the Roxas City case has become moot
because, before RTC Roxas City could act on the restraining order,
UCPB proceeded with the foreclosure and auction sale. As the act
sought to be restrained has already been accomplished, the

spouses Beluso had to file a different action, that of Annulment of

the Foreclosure Sale with RTC Makati.
RTC ruled in favor of the Belusos. CA affirmed.
Issue: Whether or not the case should be dismissed due to forum
shopping
Held: YES. Even if it is assumed for the sake of argument,
however, that only one cause of action is involved in the two civil
actions, namely, the violation of the right of the spouses Beluso
not to have their property foreclosed for an amount they do not
owe, the Rules of Court nevertheless allows the filing of the
second action. The case in Roxas City was dismissed before the
filing of the case with RTC Makati, since the venue of litigation as
provided for in the Credit Agreement is in Makati City.
Rule 16, Section 5 bars the refiling of an action previously
dismissed only in the following instances:
(a) That the cause of action is barred by a prior judgment or by
the statute of limitations;
(b) That the claim or demand set forth in the plaintiffs pleading
has been paid, waived, abandoned, or otherwise extinguished;
and
(c) That the claim on which the action is founded is unenforceable
under the provisions of the statute of frauds.
When an action is dismissed on the motion of the other party, it is
only when the ground for the dismissal of an action is either of
those aforementioned that the action cannot be refiled. As
regards all the other grounds, the complainant is allowed to file
same action, but should take care that, this time, it is filed with
the proper court or after the accomplishment of the erstwhile
absent condition precedent, as the case may be.

The MR filed by the Belusos in the Roxas City case that has not
yet been resolved upon the filing of the Makati case does not
change the SCs findings. It is indeed the general rule that in
cases where there are two pending actions between the same
parties on the same issue, it should be the later case that should
be dismissed. However, this rule is not absolute. In the case of
Allied Banking v. CA, it was ruled that: Even if this is not the
purpose for the filing of the first action, it may nevertheless be
dismissed if the later action is the more appropriate vehicle for
the ventilation of the issues between the parties.
Applying the said ruling in the case at bar, the Court found that
the Makati City case is the more proper action in view of the
execution of the foreclosure sale. Moreover, Makati is the proper
venue of the action as mandated by the Credit Agreement.
Hence, the Court deemed that the Makati Case is the more
appropriate vehicle for litigating the issues between the parties,
as compared to the Roxas City case.