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CONSOLIDATED BANK VS CAGR NO. 114286, 19 APRIL 2001

356 SCRA 671

FACTS

Continental Cement Corp obtained from Consolidated Bank letter of credit used to

purchased 500,000 liters of bunker fuel oil. Respondent Corporation made a marginaldeposit to petitioner. A trust receipt was executed by respondent corporation, withrespondent regory !im as signatory. Claiming that respondents failed to turn o"er thegoods or proceeds, petitioner filed a complaint for sum of money before the R#C of $anila.%n their answer, respondents a"er that the transaction was a simple loan and not a trustreceipt one, and tht the amount claimed by petitioner did not take into account paymentsalready made by them. #he court dismissed the complaint, CA affirmed the same.

ISSUE &hether or not the marginal deposit should not be deducted outright from theamount of the letter of credit.

ELD 'o. petitioner argues that the marginal deposit should be considered only aftercomputing the principal plus accrued interest and other charges. %t could be onerous tocompute interest and other charges on the face "alue of the letter of credit which a bank

issued, without first crediting or setting off the marginal deposit which the borrower paid to it(compensation is proper and should take effect by operation of law because the re)uisited inArt. *+- are present and should extinguish both debts to the concurrent amount. Unjustenrichment.

UNITED COCONUT PLANTERS BANK !". SPOUSES SA#UEL $%& ODETTE BELUSO

#his is a etition for Re"iew on Certiorariunder Rule /5 of the Rules of Court,which seeks to annul the Court of Appeals ecision1*2dated +* 3anuary +004 and itsResolution1+2dated - eptember +004 in CA(.R. C6 'o. 74*8. #he assailed Court ofAppeals ecision and Resolution affirmed in turn the ecision142dated +4 $arch +000 and9rder1/2dated 8 $ay +000 of the Regional #rial Court :R#C;, Branch 75 of $akati City, inCi"il Case 'o. --(4*/, declaring "oid the interest rate pro"ided in the promissory notesexecuted by the respondents pouses amuel and 9dette Beluso :spouses Beluso; in

fa"or of petitioner

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the spouses Beluso to secure their credit line, which, by that time, already balloonedto

4,8/,704.00.9n - >ebruary *---, the spouses Beluso filed a etition for Annulment,

Accounting and amages against #@ #R%A! C9%6@ #@ #R%A! C9 R9''# %'B#'

%6&@#@R 9R '9# #@ @9'9RAB! C9 AA!C9$$%## R%9>%R$ #@ C%%9' 9> #@ #R%A! C999R 6%9!A#%9' 9> #@ #R

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considered "oid, such a declaration would not ipso facto render the connecting clauseindicati"e of B retail rate "oid in "iew of the separability clause of the Credit Agreement,which reads=

ection -.08 eparability Clause. %f any one or more of the

pro"isions contained in this AR$'#, or documents executed inconnection herewith shall be declared in"alid, illegal or unenforceable

in any respect, the "alidity, legality and enforceability of the remainingpro"isions hereof shall not in any way be affected or impaired. 1*+2

According to

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#he interest rate pro"isions in the case at bar are illegal not only because of thepro"isions of the Ci"il Code on mutuality of contracts, but also, as shall be discussed later,because they "iolate the #ruth in !ending Act. 'ot disclosing the true finance charges inconnection with the extensions of credit is, furthermore, a form of deception which wecannot countenance. %t is against the policy of the tate as stated in the #ruth in !endingAct=

ec. +. Declaration of Policy. %t is hereby declared to be thepolicy of the tate to protect its citiMens from a lack of awareness ofthe true cost of credit to the user by assuring a full disclosure of suchcost with a "iew of pre"enting the uninformed use of credit to thedetriment of the national economy.1*-2

$oreo"er, while the spouses Beluso indeed agreed to renew the credit line, theoffending pro"isions are found in the promissory notes themsel"es, not in the credit line. %nfixing the interest rates in the promissory notes to co"er the renewed credit line,

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ection /8. Certificate not subject to collateral attack.Acertificate of title shall not be subect to collateral attack. %t cannot bealtered, modified or cancelled except in a direct proceeding inaccordance with law.

#he spouses Beluso retort that since they had the right to refuse payment of an

excessi"e demand on their account, they cannot be said to be in default for refusing to paythe same. Conse)uently, according to the spouses Beluso, the enforcement of such illegaland o"ercharged demand through foreclosure of mortgage should be "oided.

&e agree with

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payment of the finance charge is + eptember *--8, while the foreclosure was made on +8ecember *--8. #he filing of the case on - >ebruary *--- is therefore within the one(yearprescripti"e period.

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be allowed in the Regional #rial Court pro"ided one of the causes ofaction falls within the urisdiction of said court and the "enue liestherein.

>urthermore, opening a credit line does not create a credit transaction of loanor mutuum, since the former is merely a preparatory contract to the contract of loan

ormutuum.

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obligation consists in the payment of a sum of money, and the debtor incurs in delay, theindemnity for damages, there being no stipulation to the contrary, shall be the payment ofinterest agreed upon, and in the absence of stipulation, the legal interest which issix percent per annum. #he abo"e pro"ision remains untouched despite the grant ofauthority to the Central Bank by Act 'o.+755, as amended. #o make Central Bank Circular'o. /*7 applicable to any case other than those specifically pro"ided for by the9R, udgment is hereby rendered in fa"or of the plaintiffagainst the herein defendant ordering the latter :*; to pay plaintiff thesum of *00,000.00 representing the "alue of its time deposit togetherwith interest thereon at /(*F+ per annum from 'o"ember -, *-7/until the whole amount shall ha"e been fully paid? :+; to pay attomeyIsfees in the amount of *,000.00 it appearing that defendantIs unustand malicious refusal to pay has compelled plaintiff to litigate andsecure ser"ices of counsel? and to pay costs. :age ++, Record.;

Actually, this case is simple enough but of undoubtedly great interest and gra"e importanceto the banking community. %t was for this reason that after denying originally the hereinpetition, &e found it proper to gi"e the same due course after petitioner filed a forceful andwell(reasoned second motion for reconsideration.

%n petitionerIs counselIs Jtatement of the Case and of $atters %n"ol"edJ, it is stated that=

ri"ate respondent #9'D . #A%A, in his capacity as attorney(in(factof 'R%K

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Resolution dated 'o". 4, *-8, Appendix IBI, p.E6%%.;

%t must be noted that the said resolutions of the Central Bank wereheld by this @onorable upreme Court to ha"e been Jadopted inabuse of discretion e)ui"alent to excess of urisdictionJ :Ramos "s.

Central Bank, /* CRA 575;. )ually noteworthy, howe"er, is that theCB resolution suspending #9B$Is business operations had actuallybeen implemented starting + August *-78, : i#.; before it was annulled,and that as of this writing #9B$ has yet to resume operations inaccordance with the aforesaid program of rehabilitation appro"ed bythis @onorable upreme Court.

%n the decision it rendered in the instant case, :C.A. ecision,Appendix JAJ, p. 6; the Court of Appeals affirmed in toto the trialcourtIs udgment, which, as aforeseen, orders #9B$, among otherthings, to pay plaintiff the sum of *00,000.00 representing the "alueof its time deposit together with interest thereon at /(*F+ per annumuntil the whole amount shall ha"e been fully paid.

#9B$ mo"ed respondent Court of Appeals to reconsider its udgmenton two grounds, namely, :a; the suspension of operations of #9B$ bythe Central Bank likewise suspends payment of accrued interest, and:b; respondent CourtIs udgment must conform to the program ofrehabilitation of #9B$ appro"ed by this upreme Court. #he Court ofAppeals, acting on the motion for reconsideration, issued its resolution:Appendix IBI hereto dated 'o"ember 4, *-8, declaring

%n as much as a rogram of Rehabilitation of the#9B$ has been appro"ed by the upremeCourt as abo"e(mentioned, the execution of thedecision in )uestion should be made inaccordance with the pro"ision thereof, especially

paragraph 4, sub(paragraph /, hase *(Rehabilitation.

&@R>9R, the motion for reconsideration isgranted, and the dispositi"e portion of thedecision, dated eptember *-, *-8, is herebyamended, so as to read as follows=

&@R>9R, theudgment appealed from ishereby affirmed in totobut

the execution thereofshould be in accordancewith the pro"ision of therogram of Rehabilitationof #9B$ as appro"ed bythe upreme Court in itsresolution in .R. 'o. !(+-45+ dated 9ctober +4,*-/ :70 CRA +8;especially paragraph 4,ubparagraph /, hase *,Rehabilitation, to )uote=

4/ etitioners shall effectan agreement with 9B$Isdepositors and creditors,singly or collecti"ely, forthe con"ersion of theirdeposits and claims intobills payable under plans

mutually acceptable to theparties concerned, with theend in "iew that paymentsof all deposits and claimsagainst 9B$ may bemade after a period three:4; years from date ofsuspension of normalbanking operations.

@owe"er, in the e"ent that said program ofrehabilitation is re"oked or failed to materialiMe,the execution of the udgment is further subectto any subse)uent de"elopment or charge that

will be taken and considered by the upremeCourt andFor Central Bank in the premises,regarding the payments of deposits and claimsagainst the 9"erseas Bank of $anila. :pp. EE,Court of AppealsI Resolution dated 'o". 4, *-8,Appendix JBJ hereof;.

#hus, while the resolution purports to grant #9B$Is motion forreconsideration, actually it reiterates its affirmance of the trial courtIsudgment in toto and reects #9B$Is prayer to be declared exemptfrom liability for interest on the deposit during the suspension of itsbusiness operations by the Central Bank, declaring=

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interest on his deposit that accrues during all the period from the bankIs factual closure to itsactual reopening for normal businessN #o make this statement of the issue more complete,it may be added that although pri"ate respondent does not dispute that there was completeparaliMation of the bank from August *4, *-78, he insists that since technically the bank wasnot placed under li)uidation because of the decision of the upreme Court, its obligation,contractual in nature, to pay him interest may not be deemed excused and should beenforced. ri"ate respondent admits though that in cases of actual li)uidation of a bank, it isustifiable for it not to pay interest of the nature here in dispute.

#hus, 9ur task is narrowed down to the resolution of the legal problem of whether or not, forpurposes of the payment of the interest here in )uestion, stoppage of the operations of abank by a legal order of li)uidation may be e)uated with actual cessation of the bankIsoperation, not different, factually speaking, in its effects, from legal li)uidation, the factualcessation ha"ing been ordered by the Central Bank.

%n the case of Chinese 'rocer+s Association et al vs. American Apothecaries, 75 hil. 4-5,this Court held=

As to the second assignment of error, this court, in .R. 'o. /478+, %n

re !i)uidation of the $ercantile Bank of China, #an #iong #ick,claimant and appellant, "s. American Apothecaries, C., et al, claimantsand appellees, through 3ustice %mperial, held the following=

/. #he court held that the appellant is notentitled to charge interest on the amounts of hisclaims, and this is the obect of the secondassignment of error.

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normaliMation and stabiliMation was placed by the resolution of the upreme Court of>ebruary +/, *-+ in the hands of the Central Bank, for it Jto seek practical solutions in allgood faith for such rehabilitation.J ursuant to said resolution, a Jrogram of Rehabilitationof #9B$ :herein petitioner;J was submitted to this Court and &e appro"ed said programonly on 9ctober +4, *-/. But that appro"al did not yet put petitioner back on its feet. #heCentral Bank, e"idently in accordance with law, continued to refuse to allow it to operateuntil the program appro"ed by the Court could materialiMe. #hus, after 9ctober +4, *-7,steps were continuously taken along that direction, and, as it is now of public knowledge, itwas only this year *-8*, that petitioner, with another name and another management hasbeen allowed to reopen.

%n the aforementioned resolution of the Court of Appeals of 'o"ember 4, *-8, it re"ised thedispositi"e portion of its original decision in the following manner=

&@R>9R, the motion for reconsideration is granted, and thedispositi"e portion of the decision dated eptember *-, *-8, ishereby amended, so as to read as follows=

&@R>9R, the udgment appealed from is

hereby affirmed in toto, but the execution thereofshould be in accordance with the pro"ision ofthe rogram of Rehabilitation of #9B$ asappro"ed by the upreme Court in its resolutionin . R. 'o. !(+-45+ dated 9ctober +4, *-/:70 CRA +8; especially paragraph 4, sub(paragraph /, hase *, Rehabilitation to )uote=

4/ etitioners shall effectan agreement with 9B$Isdepositors and creditors,singly or collecti"ely, forthe con"ersion of theirdeposits and claims into

bills payable under plansmutually acceptable to theparties concerned, with theend in "iew that paymentsof all deposits and claimsagainst 9B$ may bemade after a period ofthree :4; years from dateof resumption of normalbanking operations.I

@owe"er, in the e"ent that said program of rehabilitation is re"oked orfailed to materialiMe, the execution of the udgment is further subect toany subse)uent de"elopment or change that will be taken andconsidered by the upreme Court andFor Central Bank in thepremises, regarding the payments of deposits and claims against the9"arseas Bank of $anila. :p. 44(4/, Record.;

eculiarly, howe"er, while the Appellate Court resol"ed to JgrantJ petitionerIs motion forreconsideration, it still maintained its udgment affirmingin totothe decision of the trial court,albeit it made the execution thereof subect to the conditions afore)uoted. 'aturally,petitioner could not be contented with such modification, hence the present petition before

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:a; 9ne time ser"ice charge of on the amount ad"anced to beincluded in the recei"able account?

:b; enalty charge of 8 per annum on past due ad"ances? and

:c; %nterest at *+ per annum.

'otwithstanding the restructuring, respondents were still unable to comply with the termsand conditions of the new promissory notes. As a result, respondents re)uested B torefinance the matured obligation. #he re)uest was granted by B, pursuant to which threeforeign currency denominated loans sourced from BQs own foreign borrowings wereextended to respondents on "arious dates between *-80 and *-8*.*4#hese loans weresecured by mortgages*/on the properties of respondents and were e"idenced by thefollowing promissory notes=

>ace 6alue $aturity ate %nterest Rate er Annum

:*; romissory 'ote*5dated ecember **,*-80

S77*,440 ecember *5,*--0

4 o"er BQsborrowing rate*7

:+; romissory 'ote*dated 3une 5, *-8*

S777,777 3une +4, *--* 4 o"er BQsborrowing rate*8

:4; romissory 'ote*-dated ecember *7,*-8*

S/87,/+.4 ecember 4*,*-8+

/ o"er BQsborrowing cost

Apart from the interest, the promissory notes imposed additional charges and penalties ifrespondents defaulted on their payments. #he notes dated ecember **, *-80 and 3une 5,*-8* specifically pro"ided for a + annual ser"ice fee computed on the outstandingprincipal balance of the loans as well as the following additional interest and penaltycharges on the loan amortiMations or portions in arrears=

:a; %f in arrears for thirty :40; days or less=

i. Additional interest at the basic loan interest rate per annumcomputed on total amortiMations past due, irrespecti"e of age.

ii. 'o penalty charge

:b; %f in arrears for more than thirty :40; days=

i. Additional interest at the basic loan interest rate per annumcomputed on total amortiMations past due, irrespecti"e of age, plus,

ii. enalty charge of *7 per annum computed on amortiMations orportions thereof in arrears for more than thirty :40; days counted fromthe date the amount in arrears becomes liable to this charge. +0

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9n 3anuary 7, *-8, the complaint was amended to include the annulment of mortgage. 9necember *5, *-8, the complaint was amended a second time to implead the Assetri"atiMation #rust :A#; :now the ri"atiMation and $anagement 9ffice 1$92; +5as a partydefendant.

RespondentsQ cause of action arose from their claim that B was collecting from them anunconscionable if not unlawful or usurious obligation of 7+,-5/,/4.78 as of eptember

40, *-85, out of a mere 7,+00,000 loan. rimarily, respondents contended that the amountclaimed by B is erroneous since they ha"e remitted to B approximately 5,400,000 torepay their original debt. Additionally, respondents assert that since the loans were procuredfor the elf(Reliant efense osture rogram of the Armed >orces of the hilippines :A>;,the latterQs breach of its commitment to purchase military armaments and e)uipment fromrespondents amounts to a failure of consideration that would ustify the annulment of themortgage on respondentsQ properties.+7

9n ecember +/, *-87, the R#C issued a temporary restraining order. A &rit of reliminary%nunction was subse)uently issued on $ay /, *-8. After trial on the merits, the courtrendered a decision in fa"or of respondents,+the dispositi"e portion of which reads=

&@R>9R, in "iew of the foregoing consideration, udgment is hereby rendered in fa"orof the 1respondents2 and against the defendants 1B and A#2, ordering that=

:*; #he &rit of reliminary %nunction already issued be made permanent?

:+; #he 1respondents2 be made to pay the original loans in the aggregate amountof ix $illion #wo @undred #housand :7,+00,000; esos?

:4; #he 1respondentsQ2 payment in the amount of >i"e $illion #hree @undred#hirty(>i"e #housand, ight @undred #wenty(se"en esos and e"enty(oneCenta"os :5,445,8+.*; be applied to payment for interest and penalties? and

:/; 'o further interest andFor penalties on the aforementioned principal obligationof 7.+ million shall be imposedFcharged upon the 1respondents2 for failure of themilitary establishment to honor their commitment to a "alid and consummatedcontract with the former. Costs against the defendants.

9 9RR.

Both B and $9 appealed the decision to the CA. #he CA, howe"er, affirmed thedecision of the R#C. Aggrie"ed, B filed with the CA a motion for a reconsideration+8dated$ay +7, *---, which motion has not been resol"ed by the CA to date. $9, on the otherhand, sought relief directly with the Court by filing this present petition upon the followinggrounds=

%. #@ CA %RAR #@ B%'%' A' 9B!%A#9RD >9RC 9>C9'#RAC# &@%C@ % #@ !A& B#&' #@ AR#%.

x x x

%%. #@ CA 6%9!A# #@ R%'C%! 9> !A& #@A# C9'#RAC# #AG>>C# 9'!D B#&' #@ AR#% A %# !%'G R9''#QC9'#RAC# &%#@ #@ A> &%#@ R9''#Q !9A' &%#@ B.

x x x

%%%. #@ CA RR %' R$A''#!D '39%'%' #@ B A' A# >R9$>9RC!9%' #@ $9R#A 9' R9''#Q R9R#%#@RBD 6%9!A#%' #@ R96%%9' 9> 1R%'#%A!2 1CR '9.2485 A' R9C!A$A#%9' '9. 50.+-

9n the first issue, $9 asserts that the CA erred in declaring that the interest rate on theloans had been unilaterally increased by B despite the e"idence on record :consisting ofpromissory notes and testimonies of witnesses for B; showing otherwise. $9 alsoclaims that the CA failed to take into account the effect of the restructuring and refinancingof the loans granted by B upon the re)uest of respondents.

Anent the second issue, $9 argues that the failure of the A> to honor its commitment torespondents should ha"e had no bearing on respondentsQ loan obligations to B as Bwas not a party to their contract. @ence, $9 contends that the CA ran afoul of the principleof relati"ity of contracts when it ruled that no further interest could be imposed on the loans.

>inally, $9 claims that B, being a go"ernment financial institution, could not beenoined by any restraining order or inunction, whether permanent or temporary, fromproceeding with the foreclosure proceedings mandated under ection * of residentialecree 'o. 485.

>or their part, respondents mo"ed for the denial of the petition in their comment dated9ctober +, *---,40stating that :*; the petition merely raises )uestions of fact and not oflaw? :+; $9 is engaged in forum shopping considering that the motion for reconsiderationfiled by its co(defendant, B, against the CA decision was still pending before theappellate court? and, :4; the petition is fatally defecti"e because the attached certificationagainst non(forum shopping does not conform to the re)uirements set by law. After $9

filed its reply denying the foregoing allegations, the parties submitted their respecti"ememoranda.

#he petition is partly meritorious.

refatorily, it bears stressing that only )uestions of law may be raised in a petition for re"iewon certiorari under Rule /5 of the Rules of Court. #his Court is not a trier of facts, itsurisdiction in such a proceeding being limited to re"iewing only errors of law that may ha"ebeen committed by the lower courts. Conse)uently, findings of fact of the trial court and theCA are final and conclusi"e, and cannot be re"iewed on appeal.4*%t is not the function of theCourt to reexamine or ree"aluate e"idence, whether testimonial or documentary, adducedby the parties in the proceedings below.4+'e"ertheless, the rule admits of certainexceptions and has, in the past, been relaxed when the lower courtsQ findings were not

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and conditions of the partiesQ loan agreement, which are binding and conclusi"e betweenthem. arties are free to enter into stipulations, clauses, terms and conditions they maydeem con"enient? that is, as long as these are not contrary to law, morals, good customs,public order or public policy./8&ith the signatures of their duly authoriMed representati"es onthe subect notes and mortgage contracts, the genuineness and due execution of whichha"ing been admitted,/-respondents in effect freely and "oluntarily affirmed all theconcurrent rights and obligations flowing therefrom. Accordingly, respondents are barredfrom claiming the contrary without transgressing the principle of estoppel and mutuality ofcontracts. Contracts must bind both contracting parties? their "alidity or compliance cannotbe left to the will of one of them.50

#he significance of the promissory notes should not ha"e been o"erlooked by the trial courtand the CA. By completely disregarding the promissory notes, the lower courts unilaterallymodified the contractual obligations of respondents after the latter already benefited fromthe extension of the maturity date on their original loans, to the damage and preudice of$9 which steps into the shoes of B as mortgagee(creditor.

At this uncture, it must be emphasiMed that a party to a contract cannot deny its "alidityafter enoying its benefits without outrage to oneQs sense of ustice and fairness. &hereparties ha"e entered into a well(defined contractual relationship, it is imperati"e that theyshould honor and adhere to their rights and obligations as stated in their contracts becauseobligations arising from it ha"e the force of law between the contracting parties and shouldbe complied with in good faith.5*

As a rule, a court in such a case has no alternati"e but to enforce the contractualstipulations in the manner they ha"e been agreed upon and written. Courts, whether trial orappellate, generally ha"e no power to relie"e parties from obligations "oluntarily assumedsimply because their contract turned out to be disastrous or unwise in"estments.5+

#hus, respondents cannot be absol"ed from their loan obligations on the basis of the failureof the A> to fulfill its commitment under the manufacturing agreement54entered by themallegedly upon the prompting of certain A> and B officials. &hile it is true that the Brepresentati"es appear to ha"e been aware that the proceeds from the sale to the A> weresupposed to be applied to the loan, the records are bereft of any proof that would show thatB was a party to the contract itself or that B would condone respondentsQ credit if thecontract did not materialiMe. "en assuming that the A> defaulted in its obligations underthe manufacturing agreement, respondentsQ cause of action lies with the A>, and not with

B or $9. #he loan contract of respondents is separate and distinct from theirmanufacturing agreement with the A>.

%ncidentally, the CA sustained the "alidity of a loan obligation but annulled the mortgagesecuring it on the ground of failure of consideration. #his is erroneous. A mortgage is a mereaccessory contract and its "alidity would depend on the "alidity of the loan secured byit.5/@ence, the consideration of the mortgage contract is the same as that of the principalcontract from which it recei"es life, and without which it cannot exist as an independentcontract. 55#he debtor cannot escape the conse)uences of the mortgage contract once the"alidity of the loan is upheld.

Again, as a rule, courts cannot inter"ene to sa"e parties from disad"antageous pro"isions oftheir contracts if they consented to the same freely and "oluntarily.57#hus, respondents

cannot now protest against the fact that the loans were denominated in foreign currency andwere to be paid in its peso e)ui"alent after they had already gi"en their consent to suchterms.5#here is no legal impediment to ha"ing obligations or transactions paid in a foreigncurrency as long as the parties agree to such an arrangement. %n fact, obligations in foreigncurrency may be discharged in hilippine currency based on the pre"ailing rate at the timeof payment.58>or this reason, it was improper for the CA to reect outright BQs claim thatthe con"ersion of the remaining balance of the foreign currency loans into peso accountedfor the considerable differential in the total indebtedness of respondents mainly because theexchange rates at the time of demand had been "olatile and led to the depreciation of thepeso.5-

$9 also denies that a unilateral increase in the interest rates on the loans caused thesubstantial increase in the indebtedness of respondents and points out that the promissorynotes themsel"es specifically pro"ided for the rates of interest as well as penalty and othercharges which were merely applied on respondentsQ outstanding obligations. %t should benoted, howe"er, that at the time of the transaction, Act 'o. +755, as amended byresidential ecree 'o. **7 :

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should ha"e been gi"en the opportunity to explain its entries in the tatement of Account inorder to place the figures that were cited in the proper context. Assuming the interestapplied to the principal obligation did, in fact, exceed *+, in addition to the other penaltiesstipulated in the note, this should be stricken out for being usurious.

%n usurious loans, the entire obligation does not become "oid because of an agreement forusurious interest? the unpaid principal debt still stands and remains "alid but the stipulation

as to the interest is "oid. #he debt is then considered to be without stipulation as to theinterest. %n the absence of an express stipulation as to the rate of interest, the legal rate of*+ per annum shall be imposed.75

As to the issue raised by $9 that the inunction issued by the lower courts "iolatedresidential ecree 'o. 485, the Court agrees with the ruling of the CA. residential ecree'o. 485 was issued primarily to see to it that go"ernment financial institutions are notdenied substantial cash inflows which are necessary to finance de"elopment proects allo"er the country, by large borrowers who, when they become delin)uent, resort to courtactions in order to pre"ent or delay the go"ernmentQs collection of their debts and loans. 77

#he go"ernment, howe"er, is bound by basic principles of fairness and decency under thedue process clause of the Bill of Rights. residential ecree 'o. 485 does not pro"ide thego"ernment blanket authority to un)ualifiedly impose the mandatory pro"isions of thedecree without due regard to the constitutional rights of the borrowers. %n fact, it is re)uired

that a hearing first be conducted to determine whether or not +0 of the outstandingarrearages has been paid, as a prere)uisite for the issuance of a temporary restrainingorder or a writ of preliminary inunction. @ence, the trial court can, on the basis of thee"idence then in its possession, make a pro"isional determination on the matter of theactual existence of the arrearages and the amount on which the +0 re)uirement is to becomputed. Conse)uently, residential ecree 'o. 485 cannot be in"oked where the extentof the loan actually recei"ed by the borrower is still to be determined.7

>inally, respondentsQ allegation that $9 is engaged in forum shopping is untenable. >orumshopping is the act of a party, against whom an ad"erse udgment has been rendered in oneforum, of seeking another and possibly fa"orable opinion in another forum by appeal or aspecial ci"il action of certiorari.78As correctly pointed out by $9, the present petition ismerely an appeal from the ad"erse decision rendered in the same action where it wasimpleaded as co(defendant with B. #hat B opted to file a motion for reconsiderationwith the CA rather than a direct appeal to this Court does not bar $9 from seeking relief

from the udgment by taking the latter course of action.

%t must be remembered that $9 was impleaded as party defendant through the amendedcomplaint7-dated 'o"ember +5, *-8. ersons made parties(defendants "ia asupplemental complaint possess locus stan#i or legal personality to seek a re"iew by theCourt of the decision by the CA which they assail e"en if their co(defendants did not appealthe said ruling of the appellate court.0"en assuming that separate actions ha"e been filedby two different parties in"ol"ing essentially the same subect matter, no forum shopping iscommitted where the parties did not resort to multiple udicial remedies.*

%n any e"ent, the Court deems it fit to put an end to this contro"ersy and to finally adudicatethe rights and obligations of the parties in the interest of a speedy dispensation of ustice,taking into account the length of time this action has been pending with the courts as well as

in light of the fact that $9 is the real party(in(interest in this case, being the successor(in(interest of B.

&@R>9R, the petition is AR#!D RA'# and the assailed ecision dated $ay ,*--- rendered by the Court of Appeals in CA(.R. C6 'o. /-+4- is R6R A' #A%. #he case is hereby remanded to the trial court for determination of the total amountof the respondentsQ obligation based on the promissory notes dated ecember **, *-80,

3une 5, *-8* and ecember *7, *-8* according to the interest rate agreed upon by theparties or the interest rate of *+ per annum, whiche"er is lower.

'o costs.

9 9RR.

.R. 'o. !(80-4 9ctober +-, *-55

DO#INADOR NICOLAS $%& OLI#PIA #ATIAS, '$(%)(":$''$%)",

!".

VICENTA #ATIAS, A#ADO CORNE;O, ;R., ;OSE POLICARPIO, $%& #ATILDE

#ANUEL, &%&$%)":$''".

By an instrument dated 3une +-, *-//, 6icenta $atias 6da. de Corneo, and her son,Amado Corneo, 3r., mortgaged to the spouses ominador 'icolas and 9limpia $atias, four:/; parcels of land, situated in an Ro)ue, municipality of apan, ro"ince of 'ue"a cia,to guarantee the payment of the sum of 40,000Othen lent by the mortgagees to themortgagors and recei"ed by the latter, in 3apanese military notesOone :*; year after theexpiration of fi"e :5; years from said date :Jpagbabayaran isang 1*2 taon pagkatapos nglimang 152 taon simula sa fecha ng kasulatang itoJ;, with interest thereon, at the rate of sixper cent :7; per annum. 9n 3uly *5, *-//, said mortgagors offered to pay the debt, withinterest for fi"e :5; years, but the mortgagees reected the offer. &hereupon, in August,*-//, the mortgagors deposited udicially the sum of 4-,000Orepresenting the principal:40,000;, plus interest for fi"e :5; years, at the stipulated rateOand instituted Ci"il Case'o. *57 of the Court of >irst %nstance of 'ue"a cia, entitled J6icenta $atias, etal.vs. ominador 'icolas, et al.,J for the purpose of compelling the mortgagees to acceptsaid amount and to discharge the mortgage. Although holding that the mortgagees were notustified in reecting the tender of payment made by the mortgagors, said court renderedudgment, on August *+, *-/7, declaring the consignation in"alid for failure of themortgagors to gi"e pre"ious notice thereof, and sentencing the mortgagors to pay themortgagees the sum of +,000Oas the e)ui"alent in hilippine currency, pursuant to theBallantyne schedule, of 40,000 in 3apanese military notesOwith interest, at the legal rate,from 3une +-, *-//. 9n appeal from this udgment, the Court of Appeals, CAO. R. 'o.55/(R :!(**-5;, in a decision promulgated on eptember *7, *-/, held the consignation"alid and the obligation guaranteed by the mortgage fully discharged. #he mortgagees,howe"er, brought the case, for re"iew by writ ofcertiorari to this Court, which, in a decisionpromulgated on $ay +-, *-5*:. R. 'o. !(*/4;, held that the mortgagors could not,without the mortgageesI consent, accelerate the date of maturity of the obligation in

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)uestion, which is payable after the fifth year from 3une +-, *-//? that the mortgageescannot be compelled to accept payment prior to the expiration of said fifth year? and that theudicial consignation made by the mortgagors is, conse)uently, in"alid, except as regardsthe amount corresponding to the interest for one :*; year from 3une +-, *-//. #hedispositi"e part of our aforementioned decision reads=

@ence we must of necessity declare, that the offer and consignation were not"alid, except for the satisfaction of the interest for the year *-// which was thendue. #he appealed decision will thus be modified. Although the defendants ha"easked for udgment against the plaintiffs Jin the sixth year from *-//J for theamount of the note plus interest, we must decline to render such udgment now,firstly because at the time the case was instituted the mortgage was not yetpayable, and secondly because there is the moratorium law. Anyway they will beat liberty to collect that mortgage plus interest when the moratorium is lifted, andin that foreclosure proceedings the amount of reco"ery shall be determined. !etudgment be entered accordingly.

oon thereafter, or on August ++, *-5*, the mortgagees instituted the present action forforeclosure of said mortgage. #he only issue raised in the lower court was whether the sumof 40,000, lent by the mortgagees in 3apanese war notes, should be paid by the

mortgagors in hilippine currency, peso for peso, or in accordance with the Ballantyneschedule. #he lower court chose the latter alternati"e and, accordingly, rendered udgmentJordering defendants to pay plaintiffs the amount of +,000, hilippine currency, withinterest at six per cent :7; a year, from 3une +-, *-/5, up to the date when it is actuallypaid.J #he case is not before us on appeal taken by the mortgagees.

%nCru, vs. Del (osario :. R. 'o. !(/85-; decided on 3uly +/, *-5*, it was held=

%n passing upon the petitionerIs first assignment of error, which was the only onethat deser"ed consideration, and dismissing the petition forcertiorari we ha"ecited in our minute resolution the cases already decided by this Court asapplicable to the present, not because they are similar in fact and law to this caseas the attorneys for the petitioner erroneously belie"e, but because the doctrine

laid down in those cases is s)uarely applicable to the present. #hat is,ifaccor#in! to the stipulation of the parties the money to be pai# by the #ebtor to

the cre#itor or by the ven#or withpacto to the creditor to redeem the propertymortgaged, or sold,shall be #ue an# payable after liberation as a!ree# upon bythe parties in the present case it shall be pai# in le!al ten#er or Philippine

currency at par value or at the rate of one Philippine peso for each peso in

%apanese military notes but if it shall be due and payable before liberation it shallbe paid after the liberation in hilippine currency in accordance with theBallantyne schedule. Besides, according to the facts found by the Court ofAppeals which we cannot disturb in the present case, in fixing the amount of5,000 to be paid by a "endor withpacto #e retro to the "endee or by the debtorto his creditor after liberation, the parties had stipulated that the debtor or "endor,

who had recei"ed 0,000 in 3apanese military notes, shall pay the said sum of5,000 hilippine currency within a certain period after liberation. :mphasissupplied.;

#his ruling was reiterated inArevalo vs. Barreto :8- hil., 744; decided on 3uly 4*, *-5*, inthe following language=

After a consideration of the )uestion raised in the second assignment of error ofthe appellant, we are of the opinion, and so hold, that the lower court erred ine"aluating the repurchase price of the property sold and the "alue of thepromissory note, at 5*7.0 hilippine currency. #he parties ha"e stipulated oragreed that the right to repurchase the property for *+,000 hilippine currencyJshall not commence from 3anuary *, *-/, and shall end on 3anuary *0, *-/8,Jand the promissory note for /,000 hilippine currency Jshall be paid on or after9ctober 4*, *-/7.JAs the sai# amounts $ere to become #ue after liberationthey shall be pai# in Philippine currency according to a long line of decisionrendered by this Court. Besides, in the present case, the agreement of theparties was, not only that said amounts be paid after liberation, but they hadstipulated that of the 70,000 pesos in 3apanese military notes, the "endee shallpay *+,000 in hilippine currency for the repurchase of the property, and of the

+0,000 in 3apanese military notes recei"ed by the plaintiff from the defendant asa loan, the former shall pay the latter /,000 in hilippine currency, afterliberation. :mphasis supplied.;

#o the same effect was the conclusion reached in the case of &ilsonvs. Berkenkotter :/-9ff. aM., p. */0*;, in which we said=

%n se"eral cases in"ol"ing the application of the Ballantyne schedule, this Courthas held that said schedule is applicable to obligations contracted during the3apanese occupation$here sai# obli!ations are ma#e payable on #eman# or#urin! sai# %apanese occupation but not after the war or at a specified dateorperio# $hich may in#icate that the parties $ere speculatin! on the continuation

or cessation of the $ar at time of payment. %f the obligation on the part of &ilson

to pay Berkenkotter the amount paid by the latter to wipe out their debt to theBank was created during the occupation, then createdbefore the $ar particularlyon date when plaintiff and defendant signed the promissory note in fa"or of theBank, then the Ballantyne schedule may not be applied.:mphasis supplied.;

#he foregoing "iew has been consistently applied by this Court in a number of other cases,among which the following may be mentioned=lusorio vs. Busue!o 8/ hil., 740? (o/o vs.'ome, /7 9ff. aM., upp. 'o. **, 44-?'ome, vs. Tabia / 9ff. aM., 7/*, Ponce De0eon vs. 1yjuco -0 hil., 4**?'arcia vs. De los 1antos /- 9ff. aM., /840. &hat is more,the strong dissents written in some of the cases cited indicated that adherence to said "iewwas affected upon thorough consideration of the different aspects thereof, that said doctrineis not in the nature ofstare #ecisis and that the issue is now close as regards this Court.

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%t is thus settled that the contracting parties are free to stipulate on the currency in whichtheir respecti"e obligations shall be settled, and that whene"er, pursuant to the terms of anagreement, an obligation assumed during the 3apanese occupation is not payable until afterliberation of the hilippines, the parties to the agreement are deemed to ha"e intended thatthe amount stated in the contract be paid in such currency as may be legal tender at thetime when the obligation becomes due. #his is, precisely, the situation obtaining in the caseat bar. #he deed of mortgage in )uestion pro"ides that the obligation of the mortgagees

shall be paid one yearafter the expiration of fi"e :5; years form 3une +-, *-//, which is thedate of said instrument. %n other words, the obligation is not payable until 3une +-, *-/-.%ndeed, in the decision of this Court in case . R. 'o. !(*/4, we reverse# the decision ofthe Court of Appeals sustaining the theory of the mortgagors, upon the ground that the latterwere not entitled to accelerate, without the consent of the mortgagees, the date of thematurity of the obligation? that the mortgagees could not be compelled, and were under noobligation, to accept the tender of payment made on 3uly *5, *-// :except as to the interestfor one 1*2 year; despite the fact that said tender included the interest for fi"e :5; years from3une +-, *-//? and that, conse)uently, the consignation effected simultaneously with theinstitution of ci"il case 'o. *57 of the Court of >irst %nstance of 'ue"a cia in August, *-//,was null and "oid, with the exception abo"ementioned.

%n other words, said decision of this Court was implicitly held, and the doctrine laid down in

the cases abo"e referred to, lea"e us no choice but to declare, as we do, that the obligationin"ol"ed in the present case must be satisfied, peso for peso, in hilippine currency.

&herefore, the defendants(appellees are hereby sentenced to pay to the plaintiffs(appellants, either directly or through the Clerk of the lower court, within ninety :-0; daysfrom the date on which this decision shall become final, the sum of 40,000, in hilippinecurrency, with interest thereon at the rate of six per centum :7; of a year, from 3une +-,*-/5. %n default of such payment, let the mortgage in )uestion be foreclosed in the mannerpro"ided by law and the rules of court.

&ith costs against the defendants(appellees. o ordered.

G.R. N+. L:46591 ;'* 28, 1987

BANCO FILIPINO SAVINGS $%& #ORTGAGE BANK,petitioner,"s.

ON. #IGUEL NAVARRO, P/"(&(% ;&, C+/) + F(/") I%")$% + #$%('$, B/$%-

I $%& FLORANTE DEL VALLE,respondents.

#his is a etition to re"iew on certiorari the ecision of respondent Court, the dispositi"eportion of which decrees=

&@R>9R, the Court finds that the enforcement of the escalation clauseretroacti"ely before the lapse of the *5(year period stated in the promissory note

is contrary to ec. 4 of residential ecree 'o. **7 and ec. *0- of Republic Act'o. +75, and hereby declares null and "oid the said escalation clause. #herespondent Banco >ilipino a"ings and $ortgage Bank is hereby ordered todesist from enforcing the increased rate of interest on petitionerIs loan.

9 9RR.

#he facts are not in dispute=

9n $ay +0, *-5, respondent >lorante del 6alle :the B9RR9&R; obtained a loan securedby a real estate mortgage :the !9A', for short; from petitioner BA'C9 >%!%%'9*in thesum of >orty(one #housand #hree @undred :/*,400.00; esos, payable and to beamortiMed within fifteen :*5; years at twel"e :*+; per cent interest annually. @ence, the!9A' still had more than 40 days to run by 3anuary +, *-7, the date when C%RC

4. #he maximum rate of interest, including commissions, premiums, fees andother charges on loans with maturity of more than se"en hundred thirty :40;days, by banking institutions, including thrift banks and rural banks, or byfinancial intermediaries authoriMed to engage in )uasi(banking functions shall benineteen percent :*-; per annum.

x x x x x x x x x

. xcept as pro"ided in this Circular and Circular 'o. /-4, loans or renewalsthereof shall continue to be go"erned by the

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worded in such a way that the borrower shall agree to whate"er interest rate respondentfixes. %n credit agreements co"ered by the abo"e(cited cases, it is pro"ided that=

#he Bank reser"es the right to increase the interest rate within the limits allowed by law atany time depending on whate"er policy it may adopt in the future= ro"ided, that, theinterest rate on this accommodation shall be correspondingly decreased in the e"ent thatthe applicable maximum interest rate is reduced by law or by the $onetary Board. %n eithercase, the adustment in the interest rate agreed upon shall take effect on the effecti"ity dateof the increase or decrease in maximum interest rate.85:mphasis supplied;

&hereas, in the present credit agreements under scrutiny, it is stated that=

%' #@ 3

C. /. Any creditor shall furnish to each person to whom credit is extended, prior to theconsummation of the transaction, a clear statement in writing setting forth, to the extentapplicable and in accordance with rules and regulations prescribed by the Board, thefollowing information=

:*; the cash price or deli"ered price of the property or ser"ice to be ac)uired?

:+; the amounts, if any, to be credited as down payment andFor trade(in?

:4; the difference between the amounts set forth under clauses :*; and :+;?

:/; the charges, indi"idually itemiMed, which are paid or to be paid by suchperson in connection with the transaction but which are not incident to theextension of credit?

:5; the total amount to be financed?

:7; the finance charge expressed in terms of pesos and centa"os? and

:; the percentage that the finance bears to the total amount to be financed

expressed as a simple annual rate on the outstanding unpaid balance of theobligation.

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9 9RR.

EASTERN SIPPING LINES, INC. V CA ?CREDIT TRANSACTIONS@.R. '9. -/*+ 3

FACTSinancial %nstitutions, before itsamendment by B($B Circular 'o. -- ^ but will now be six percent :7; per annumeffecti"e 3uly *, +0*4. %t should be noted, nonetheless, that the new rate could only beapplied prospecti"ely and not retroacti"ely. Conse)uently, the twel"e percent :*+; perannum legal interest shall apply only until 3une 40, +0*4. Come 3uly *, +0*4 the new rate ofsix percent :7; per annum shall be the pre"ailing rate of interest when applicable.

Corollarily, in the recent case of Ad"ocates for #ruth in !ending, %nc. and duardo B.9laguer ". Bangko entral $onetary Board,/*this Court affirmed the authority of the B($B to set interest rates and to issue and enforce Circulars when it ruled that Uthe B($Bmay prescribe the maximum rate or rates of interest for all loans or renewals thereof or theforbearance of any money, goods or credits, including those for loans of low priority such asconsumer loans, as well as such loans made by pawnshops, finance companies and similarcredit institutions. %t e"en authoriMes the B($B to prescribe different maximum rate orrates for different types of borrowings, including deposits and deposit substitutes, or loans offinancial intermediaries.V

'onetheless, with regard to those udgments that ha"e become final and executory prior to3uly *, +0*4, said udgments shall not be disturbed and shall continue to be implementedapplying the rate of interest fixed therein.

T+ /$()'$) $%& +/ )/ (&$%, )- (&'(%" '$(& &+% (% )- $" +E$")/% S-((% L(%"42$/ $+/&(%'* +&((& )+ +&* BSP:#B C(/'$/ N+.799, $" +''+"urthermore, the interest due shall itselfearn legal interest from the time it is udicially demanded. %n the absence of stipulation, therate of interest shall be 7 per annum to be computed from default, i.e., from udicial orextraudicial demand under and subect to the pro"isions of Article **7- of the Ci"il Code.

+. &hen an obligation, not constituting a loan or forbearanceof money, is breached, an interest on the amount of damages awarded may be imposed atthe discretion of the court at the rate of 7 per annum. 'o interest, howe"er, shall beadudged on unli)uidated claims or damages, except when or until the demand can beestablished with reasonable certainty. Accordingly, where the demand is established with

reasonable certainty, the interest shall begin to run from the time the claim is made udiciallyor extraudicially :Art. **7-, Ci"il Code;, but when such certainty cannot be so reasonablyestablished at the time the demand is made, the interest shall begin to run only from thedate the udgment of the court is made :at which time the )uantification of damages may bedeemed to ha"e been reasonably ascertained;. #he actual base for the computation of legalinterest shall, in any case, be on the amount finally adudged.

4. &hen the udgment of the court awarding a sum of moneybecomes final and executory, the rate of legal interest, whether the case falls underparagraph * or paragraph +, abo"e, shall be 7 per annum from such finality until itssatisfaction, this interim period being deemed to be by then an e)ui"alent to a forbearanceof credit.

And, in addition to the abo"e, udgments that ha"e become final and executory prior to 3uly*, +0*4, shall not be disturbed and shall continue to be implemented applying the rate ofinterest fixed therein.

EREFORE, premises considered, the ecision dated eptember +4, +008 of the Courtof Appeals in CA(.R. 'o. -85-*, and the Resolution dated 9ctober -, +00-are REVERSED $%& SET ASIDE. Respondents are 9rdered to ay petitioner=

:*; backwages computed from the time petitioner was illegally dismissed on 3anuary +/,*-- up to $ay +, +00+, when the Resolution of this Court in .R. 'o. *5*44+ becamefinal and executory?

:+; separation pay computed from August *--0 up to $ay +, +00+ at the rate of one monthpay per year of ser"ice? and

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