Banking Law digest

7/23/2019 Banking Law digest

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14) Banco De Oro Savings and Mortgage Bank vs EquitableBanking

FACTS

Equitable Bank drew six crossed managers check payable tocertain member establishments o !isa Card" Subsequently# thechecks were deposited with Banco $e %ro &B$%' to the credit oits depositor" Following normal procedures and ater stamping atthe back o the checks the usual endorsements# B$% sent thechecks or clearing through the (hilippine Clearing )ouseCorporation &(C)C'" Accordingly# Equitable Banking paid thechecks* its clearing account was debited or the +alue o thechecks and B$%s clearing account was credited or the sameamount" Thereater# Equitable Banking disco+ered that the

endorsements appearing at the back o the checks and purportingto be that o the payees were orged and,or unauthori-ed orotherwise belong to persons other than the payees" EquitableBanking presented the checks directly to B$% or the purpose oclaiming reimbursement rom the latter" )owe+er# B$% reused toaccept such direct presentation and to reimburse EquitableBanking or the +alue o the checks".SS/ES&a' 0hether or not B$% is estopped rom claiming that checks

under consideration are non1negotiable instruments"&b' 0hether or not B$% can escape liability by reasons o orgery"&c' 0hether or not only negotiable checks are within the

2urisdiction o (C)C"3/4.56&a' 7ES" B$% ha+ing stamped its guarantee o 8all priorendorsements and,or lack o endorsements9 is now estoppedrom claiming that the checks under consideration are notnegotiable instruments" The checks were accepted or deposit bythe petitioner stamping thereon its guarantee# in order that it canclear the said checks with the respondent bank" By suchdeliberate and positi+e attitude o the petitioner it has or all legalintents and purposes treated the said cheeks as negotiableinstruments and accordingly assumed the warranty o theendorser when it stamped its guarantee o prior endorsements atthe back o the checks" .t led the said respondent to belie+e that


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it was acting as endorser o the checks and on the strength o thisguarantee said respondent cleared the checks in question andcredited the account o the petitioner" (etitioner is now barredrom taking an opposite posture by claiming that the disputed

checks are not negotiable instrument"&b' 5%" A commercial bank cannot escape the liability o anendorser o a check and which may turn out to be a orgedendorsement" 0hene+er any bank treats the signature at theback o the checks as endorsements and thus logicallyguarantees the same as such there can be no doubt said bankhas considered the checks as negotiable" The collecting bank orlast endorser generally su:ers the loss because it has the duty toascertain the genuineness o all prior endorsements consideringthat the act o presenting the check or payment to the drawee is

an assertion that the party making the presentment has done itsduty to ascertain the genuineness o the endorsements"&c' 5%" (C)Cs 2urisdiction is not limited to negotiable checksonly" The term check as used in the said Articles o .ncorporationo (C)C can only connote checks in general use in commercialand business acti+ities" Thus# no distinction" /bi lex non distinguit#nec nos distinguere debemus" Checks are used between banksand bankers and their customers# and are designed to acilitatebanking operations" .t is o the essence to be payable on demand#

because the contract between the banker and the customer isthat the money is needed on demand"

15) Bank of Philiine !sland vs "#BA5; %F T)E ().4.((.5E .S4A5$S# (etitioner#+s"C%/3T %F A((EA4S# A55ABE44E A" SA4A


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The acts are as ollows?

A"A" Sala-ar Construction and Engineering Ser+ices Gled an action

or a sum o money with damages against herein petitioner Banko the (hilippine .slands &B(.' on $ecember # DD beore BranchH o the 3egional Trial Court &3TC' o (asig City" The complaintwas later amended by substituting the name o Annabelle A"Sala-ar as the real party in interest in place o A"A" Sala-arConstruction and Engineering Ser+ices" (ri+ate respondentSala-ar prayed or the reco+ery o the amount o Two )undredSixty1Se+en Thousand# Se+en )undred Se+en (esos and Se+entyCenta+os &(HI#IJI"IJ' debited by petitioner B(. rom heraccount" She likewise prayed or damages and attorneys ees"

(etitioner B(.# in its answer# alleged that on August # DD# =ulio3" Templonue+o# third1party deendant and herein also a pri+aterespondent# demanded rom the ormer payment o the amount o

Two )undred Sixty1Se+en Thousand# Six )undred 5inety1Two(esos and Fity Centa+os &(HI#HD"J' representing theaggregate +alue o three &' checks# which were allegedly payableto him# but which were deposited with the petitioner bank topri+ate respondent Sala-ars account &Account 5o" JJ1I1HI'

without his knowledge and corresponding endorsement"

Accepting that Templonue+os claim was a +alid one# petitionerB(. ro-e Account 5o" JJ1J1@ o A"A" Sala-ar andConstruction and Engineering Ser+ices# instead o Account 5o"JJ1I1HI where the checks were deposited# since thisaccount was already closed by pri+ate respondent Sala-ar or hadan insuKcient balance"

(ri+ate respondent Sala-ar was ad+ised to settle the matter withTemplonue+o but they did not arri+e at any settlement" As itappeared that pri+ate respondent Sala-ar was not entitled to theunds represented by the checks which were deposited andaccepted or deposit# petitioner B(. decided to debit the amounto (HI#IJI"IJ rom her Account 5o" JJ1J1@ and the sumo (HI#HD"J was paid to Templonue+o by means o a cashiers


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check" The di:erence between the +alue o the checks&(HI#HD"J' and the amount actually debited rom her account&(HI#IJI"IJ' represented bank charges in connection with theissuance o a cashiers check to Templonue+o"

.n the answer to the third1party complaint# pri+ate respondentTemplonue+o admitted the payment to him o (HI#HD"J andargued that said payment was to correct the malicious depositmade by pri+ate respondent Sala-ar to her pri+ate account# andthat petitioner banks negligence and tolerance regarding thematter was +iolati+e o the primary and ordinary rules o banking")e likewise contended that the debiting or taking o thereimbursed amount rom the account o pri+ate respondentSala-ar by petitioner B(. was a matter exclusi+ely between said

parties and may be pursuant to banking rules and regulations# butdid not in any way a:ect him" The debiting rom another accounto pri+ate respondent Sala-ar# considering that her other accountwas e:ecti+ely closed# was not his concern"

Ater trial# the 3TC rendered a decision# the dispositi+e portion owhich reads thus?

0)E3EF%3E# premises considered# 2udgment is hereby rendered

in a+or o the plainti: Lpri+ate respondent Sala-arM and againstthe deendant Lpetitioner B(.M and ordering the latter to pay asollows?

" The amount o (HI#IJI"IJ with N interest thereon romSeptember H# DD until the said amount is ully paid*

" The amount o (J#JJJ"JJ as and or actual damages*

" The amount o (J#JJJ"JJ as and or moral damages*

@" The amount o (J#JJJ"JJ as and or exemplary damages*

" The amount o (J#JJJ"JJ as and or attorneys ees* and

H" Costs o suit"


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The counterclaim is hereby ordered $.S>.SSE$ or lack o actualbasis"

The third1party complaint LGled by petitionerM is hereby likewiseordered $.S>.SSE$ or lack o merit"

Third1party deendants Li"e"# pri+ate respondent Templonue+osMcounterclaim is hereby likewise $.S>.SSE$ or lack o actualbasis"

S% %3$E3E$"@

%n appeal# the Court o Appeals &CA' aKrmed the decision o the

3TC and held that respondent Sala-ar was entitled to theproceeds o the three &' checks notwithstanding the lack oendorsement thereon by the payee" The CA concluded thatSala-ar and Templonue+o had pre+iously agreed that the checkspayable to =3T Construction and Trading actually belonged toSala-ar and would be deposited to her account# with petitioneracquiescing to the arrangement"H

(etitioner thereore Gled this petition on these grounds?

."

The Court o Appeals committed re+ersible error inmisinterpreting Section @D o the 5egotiable .nstruments 4aw andSection &r and s' o 3ule o the 5ew 3ules on E+idence"

.."

The Court o Appeals committed re+ersible error in 5%T applyingthe pro+isions o Articles # I and DJ o the Ci+il Code ina+or o B(."

..."


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The Court o Appeals committed a re+ersible error in holding#based on a misapprehension o acts# that the account rom whichB(. debited the amount o (HI#IJI"IJ belonged to a corporationwith a separate and distinct personality"

.!"

The Court o Appeals committed a re+ersible error in holding#based entirely on speculations# surmises or con2ectures# thatthere was an agreement between SA4A(4%5/E!%that checks payable to TE>(4%5/E!% may be deposited bySA4A


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(etitioner argues thus?

" There is no presumption in law that a check payable to order#

when ound in the possession o a person who is neither a payeenor the indorsee thereo# has been lawully transerred or +alue")ence# the CA should not ha+e presumed that Sala-ar was atranseree or +alue within the contemplation o Section @D o the5egotiable .nstruments 4aw# as the latter applies only to aholder deGned under Section Do the same"D

" Sala-ar ailed to adduce suKcient e+idence to pro+e that herpossession o the three checks was lawul despite her allegationsthat these checks were deposited pursuant to a prior internal

arrangement with Templonue+o and that petitioner was pri+y tothe arrangement"

" The CA should ha+e applied the Ci+il Code pro+isions on legalcompensation because in deducting the sub2ect amount romSala-ars account# petitioner was merely rectiying the unduepayment it made upon the checks and exercising its prerogati+eto alter or modiy an erroneous credit entry in the regular courseo its business"

@" The debit o the amount rom the account o A"A" Sala-arConstruction and Engineering Ser+ices was proper e+en thoughthe +alue o the checks had been originally credited to thepersonal account o Sala-ar because A"A" Sala-ar Constructionand Engineering Ser+ices# an unincorporated singleproprietorship# had no separate and distinct personality romSala-ar"

" Assuming the deduction rom Sala-ars account was improper#the CA should not ha+e dismissed petitioners third1partycomplaint against Templonue+o because the latter would ha+ethe legal duty to return to petitioner the proceeds o the checkswhich he pre+iously recei+ed rom it"

H" There was no actual basis or the award o damages to Sala-ar"


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The petition is partly meritorious"

First# the issue raised by petitioner requires an inquiry into the

actual Gndings made by the CA" The CAs conclusion that thedeductions rom the bank account o A"A" Sala-ar Constructionand Engineering Ser+ices were improper stemmed rom its Gndingthat there was no ine:ecti+e payment to Sala-ar which would callor the exercise o petitioners right to set o: against the ormersbank deposits" This Gnding# in turn# was drawn rom the pleadingso the parties# the e+idence adduced during trial and upon theadmissions and stipulations o act made during the pre1trial#most signiGcantly the ollowing?

&a' That Sala-ar pre+iously had in her possession the ollowingchecks?

&' Solid Bank Check 5o" CBIHHH dated =anuary J# DDJ in theamount o (I#I"J*

&' Solid Bank Check 5o" CBDDI dated =uly # DDJ in theamount o (#J"JJ* and#

&' Equitable Banking Corporation Check 5o" JH datedAugust # DDJ or the amount o (@#JJ"JJ*

&b' That these checks which had an aggregate amount o(HI#HD"J were payable to the order o =3T Construction and

Trading# the name and style under which Templonue+o doesbusiness*

&c' That despite the lack o endorsement o the designated payeeupon such checks# Sala-ar was able to deposit the checks in herpersonal sa+ings account with petitioner and encash the same*

&d' That petitioner accepted and paid the checks on three &'separate occasions o+er a span o eight months in DDJ* and


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. there was indeed no arrangement between Templonue+o andthe plainti: o+er the three questioned checks# it baQes us why itwas only on August # DD or more than a year ater the thirdand last check was deposited that he demanded or the reund o

the total amount o (HI#HD"J"

A prudent man knowing that payment is due him would ha+edemanded payment by his debtor rom the moment the samebecame due and demandable" >ore so i the sum in+ol+ed runs inhundreds o thousand o pesos" By and large# e+ery person# at the+ery moment he learns that he was depri+ed o a thing whichrightully belongs to him# would ha+e created a big uss" )e wouldnot ha+e waited or a year within which to do so" .t is mostinconcei+able that Templonue+o did not do this"

6enerally# only questions o law may be raised in an appeal bycertiorari under 3ule @ o the 3ules o Court" Factual Gndingso the CA are entitled to great weight and respect# especiallywhen the CA aKrms the actual Gndings o the trial court"@ Suchquestions on whether certain items o e+idence should beaccorded probati+e +alue or weight# or re2ected as eeble orspurious# or whether or not the proos on one side or the other areclear and con+incing and adequate to establish a proposition in

issue# are questions o act" The same holds true or questions onwhether or not the body o proos presented by a party# weighedand analy-ed in relation to contrary e+idence submitted by thead+erse party may be said to be strong# clear and con+incing# orwhether or not inconsistencies in the body o proos o a party areo such gra+ity as to 2ustiy reusing to gi+e said proos weight Rall these are issues o act which are not re+iewable by theCourt"

This rule# howe+er# is not absolute and admits o certainexceptions# namely? a' when the conclusion is a Gnding groundedentirely on speculations# surmises# or con2ectures* b' when theinerence made is maniestly mistaken# absurd# or impossible* c'when there is a gra+e abuse o discretion* d' when the 2udgmentis based on a misapprehension o acts* e' when the Gndings oact are conicting* ' when the CA# in making its Gndings# went


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beyond the issues o the case and the same are contrary to theadmissions o both appellant and appellee* g' when the Gndingso the CA are contrary to those o the trial court* h' when theGndings o act are conclusions without citation o speciGc

e+idence on which they are based* i' when the Gnding o act othe CA is premised on the supposed absence o e+idence but iscontradicted by the e+idence on record* and 2' when the CAmaniestly o+erlooked certain rele+ant acts not disputed by theparties and which# i properly considered# would 2ustiy a di:erentconclusion"H

.n the present case# the records do not support the Gnding madeby the CA and the trial court that a prior arrangement existedbetween Sala-ar and Templonue+o regarding the transer o

ownership o the checks" This act is crucial as Sala-arsentitlement to the +alue o the instruments is based on theassumption that she is a transeree within the contemplation oSection @D o the 5egotiable .nstruments 4aw"

Section @D o the 5egotiable .nstruments 4aw contemplates asituation whereby the payee or indorsee deli+ers a negotiableinstrument or +alue without indorsing it# thus?

Transer without indorsement* e:ect o1 0here the holder o aninstrument payable to his order transers it or +alue withoutindorsing it# the transer +ests in the transeree such title as thetranseror had therein# and the transeree acquires in addition#the right to ha+e the indorsement o the transeror" But or thepurpose o determining whether the transeree is a holder in duecourse# the negotiation takes e:ect as o the time when theindorsement is actually made" I

.t bears stressing that the abo+e transaction is an equitableassignment and the transeree acquires the instrument sub2ect todeenses and equities a+ailable among prior parties" Thus# i thetranseror had legal title# the transeree acquires such title and# inaddition# the right to ha+e the indorsement o the transeror andalso the right# as holder o the legal title# to maintain legal actionagainst the maker or acceptor or other party liable to the


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transeror" The underlying premise o this pro+ision# howe+er# isthat a +alid transer o ownership o the negotiable instrument inquestion has taken place"

Transerees in this situation do not en2oy the presumption oownership in a+or o holders since they are neither payees norindorsees o such instruments" The weight o authority is that themere possession o a negotiable instrument does not in itselconclusi+ely establish either the right o the possessor to recei+epayment# or o the right o one who has made payment to bedischarged rom liability" Thus# something more than merepossession by persons who are not payees or indorsers o theinstrument is necessary to authori-e payment to them in theabsence o any other acts rom which the authority to recei+e

payment may be inerred"

The CA and the trial court surmised that the sub2ect checksbelonged to pri+ate respondent Sala-ar based on the pre1trialstipulation that Templonue+o incurred a one1year delay indemanding reimbursement or the proceeds o the same" To theCourts mind# howe+er# such period o delay is not o suchunreasonable length as to estop Templonue+o rom assertingownership o+er the checks especially considering that it was

readily apparent on the ace o the instrumentsD that these werecrossed checks"

.n State .n+estment )ouse +" .AC#J the Court enumerated thee:ects o crossing a check# thus? &' that the check may not beencashed but only deposited in the bank* &' that the check maybe negotiated only once 1 to one who has an account with a bank*and &' that the act o crossing the check ser+es as a warning tothe holder that the check has been issued or a deGnite purposeso that such holder must inquire i the check has been recei+edpursuant to that purpose"

Thus# e+en i the delay in the demand or reimbursement is takenin con2unction with Sala-ars possession o the checks# it cannotbe said that the presumption o ownership in Templonue+os a+oras the designated payee therein was suKciently o+ercome" This is


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consistent with the principle that i instruments payable to namedpayees or to their order ha+e not been indorsed in blank# onlysuch payees or their indorsees can be holders and entitled torecei+e payment in their own right"

The presumption under Section &s' o the 3ules o Courtstating that a negotiable instrument was gi+en or a suKcientconsideration will not inure to the beneGt o Sala-ar because theterm Pgi+enP does not pertain merely to a transer o physicalpossession o the instrument" The phrase Pgi+en or indorsedP inthe context o a negotiable instrument reers to the manner inwhich such instrument may be negotiated" 5egotiableinstruments are negotiated by Ptranser to one person or anotherin such a manner as to constitute the transeree the holder

thereo" . payable to bearer it is negotiated by deli+ery" . payableto order it is negotiated by the indorsement completed bydeli+ery"P The present case in+ol+es checks payable to order"5ot being a payee or indorsee o the checks# pri+ate respondentSala-ar could not be a holder thereo"

.t is an exception to the general rule or a payee o an orderinstrument to transer the instrument without indorsement"(recisely because the situation is abnormal# it is but air to the

maker and to prior holders to require possessors to pro+e withoutthe aid o an initial presumption in their a+or# that they came intopossession by +irtue o a legitimate transaction with the lastholder" Sala-ar ailed to discharge this burden# and the returno the check proceeds to Templonue+o was thereore warrantedunder the circumstances despite the act that Templonue+o maynot ha+e clearly demonstrated that he ne+er authori-ed Sala-arto deposit the checks or to encash the same" 5oteworthy also isthe act that petitioner stamped on the back o the checks thewords? PAll prior endorsements and,or lack o endorsementsguaranteed#P thereby making the assurance that it hadascertained the genuineness o all prior endorsements" )a+ingassumed the liability o a general indorser# petitioners liability tothe designated payee cannot be denied"


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Consequently# petitioner# as the collecting bank# had the right todebit Sala-ars account or the +alue o the checks it pre+iouslycredited in her a+or" .t is o no moment that the account debitedby petitioner was di:erent rom the original account to which the

proceeds o the check were credited because both admittedlybelonged to Sala-ar# the ormer being the account o the soleproprietorship which had no separate and distinct personalityrom her# and the latter being her personal account"

The right o set1o: was explained in Associated Bank +" Tan?@

A bank generally has a right o set1o: o+er the deposits thereinor the payment o any withdrawals on the part o a depositor" Theright o a collecting bank to debit a clients account or the +alue

o a dishonored check that has pre+iously been credited has airlybeen established by 2urisprudence" To begin with# Article DJ othe Ci+il Code pro+ides that PLMixed# sa+ings# and current depositso money in banks and similar institutions shall be go+erned bythe pro+isions concerning simple loan"P

)ence# the relationship between banks and depositors has beenheld to be that o creditor and debtor" Thus# legal compensationunder Article I o the Ci+il Code may take place Pwhen all the

requisites mentioned in Article ID are present#P as ollows?

&' That each one o the obligors be bound principally# and that hebe at the same time a principal creditor o the other*

&' That both debts consist in a sum o money# or i the things dueare consumable# they be o the same kind# and also o the samequality i the latter has been stated*

&' That the two debts be due*

&@' That they be liquidated and demandable*

&' That o+er neither o them there be any retention orcontro+ersy# commenced by third persons and communicated indue time to the debtor"


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0hile# howe+er# it is conceded that petitioner had the right o set1o: o+er the amount it paid to Templonue+o against the deposit oSala-ar# the issue o whether it acted 2udiciously is an entirely

di:erent matter" As businesses a:ected with public interest#and because o the nature o their unctions# banks are underobligation to treat the accounts o their depositors withmeticulous care# always ha+ing in mind the Gduciary nature otheir relationship"H .n this regard# petitioner was clearly remiss inits duty to pri+ate respondent Sala-ar as its depositor"

To begin with# the irregularity appeared plainly on the ace o thechecks" $espite the ob+ious lack o indorsement thereon#petitioner permitted the encashment o these checks three times

on three separate occasions" This negates petitioners claim thatit merely made a mistake in crediting the +alue o the checks toSala-ars account and instead bolsters the conclusion o the CAthat petitioner recogni-ed Sala-ars claim o ownership o checksand acted deliberately in paying the same# contrary to ordinarybanking policy and practice" .t must be emphasi-ed that the lawimposes a duty o diligence on the collecting bank to scrutini-echecks deposited with it# or the purpose o determining theirgenuineness and regularity" The collecting bank# being primarily

engaged in banking# holds itsel out to the public as the expert onthis Geld# and the law thus holds it to a high standard oconduct"I The taking and collection o a check without theproper indorsement amount to a con+ersion o the check by thebank"

>ore importantly# howe+er# solely upon the prompting oTemplonue+o# and with ull knowledge o the brewing disputebetween Sala-ar and Templonue+o# petitioner debited the accountheld in the name o the sole proprietorship o Sala-ar withoute+en ser+ing due notice upon her" This ran contrary to petitionersassurances to pri+ate respondent Sala-ar that the account wouldremain untouched# pending the resolution o the contro+ersybetween her and Templonue+o"D .n this connection# the CA citedthe letter dated September # DD o >r" >anuel Ablan# Senior>anager o petitioner banks (asig,%rtigas branch# to pri+ate


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respondent Sala-ar inorming her that her account had beenro-en# thus?

From the tenor o the letter o >anuel Ablan# it is sae to conclude

that Account 5o" JJ1J1@ will remain ro-en or untoucheduntil herein LSala-arM has settled matters with Templonue+o" But#in an unexpected mo+e# in less than two weeks &ele+en days tobe precise' rom the time that letter was written# LpetitionerM bankissued a cashiers check in the name o =ulio 3" Templonue+o othe ="3"T" Construction and Trading or the sum o (HI#HD"J&Exhibit PP' and debited said amount rom >s" Arcillas account5o" JJ1J1@ which was supposed to be ro-en or controlled"Such a mo+e by B(. is# to %ur minds# a clear case o negligence# inot a raudulent# wanton and reckless disregard o the right o its

depositor"

The records urther bear out the act that respondent Sala-ar hadissued se+eral checks drawn against the account o A"A" Sala-arConstruction and Engineering Ser+ices prior to any notice odeduction being ser+ed" The CA sustained pri+ate respondentSala-ars claim o damages in this regard?

The act o the bank in ree-ing and later debiting the amount o

(HI#HD"J rom the account o A"A" Sala-ar Construction andEngineering Ser+ices caused plainti:1appellee great damage andpre2udice particularly when she had already issued checks drawnagainst the said account" As can be expected# the said checksbounced" To pro+e this# plainti:1appellee presented as exhibitsphotocopies o checks dated September # DD# %ctober #DD# and 5o+ember @# DD &Exhibits P$P# PEP and PFPrespecti+ely'J

These checks# it must be emphasi-ed# were subsequentlydishonored# thereby causing pri+ate respondent Sala-ar undueembarrassment and inicting damage to her standing in thebusiness community" /nder the circumstances# she was clearlynot gi+en the opportunity to protect her interest when petitionerunilaterally withdrew the abo+e amount rom her account withoutinorming her that it had already done so"


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For the abo+e reasons# the Court Gnds no reason to disturb theaward o damages granted by the CA against petitioner" Thiswhole incident would ha+e been a+oided had petitioner adhered

to the standard o diligence expected o one engaged in thebanking business" A depositor has the right to reco+er reasonablemoral damages e+en i the banks negligence may not ha+e beenattended with malice and bad aith# i the ormer su:ered mentalanguish# serious anxiety# embarrassment and humiliation">oral damages are not meant to enrich a complainant at theexpense o deendant" .t is only intended to alle+iate the moralsu:ering she has undergone" The award o exemplary damages is

2ustiGed# on the other hand# when the acts o the bank areattended by malice# bad aith or gross negligence" The award o

reasonable attorneys ees is proper where exemplary damagesare awarded" .t is proper where depositors are compelled tolitigate to protect their interest"

0)E3EF%3E# the petition is partially 63A5TE$" The assailed$ecision dated April # DD and 3esolution dated April # DDrendered by the Court o Appeals in CA16"3" C! 5o" @@ are>%$.F.E$ insoar as it ordered petitioner Bank o the (hilippine.slands to return the amount o Two )undred Sixty1se+en

Thousand Se+en )undred and Se+en and IJ,JJ (esos&(HI#IJI"IJ' to respondent Annabelle A" Sala-ar# which portionis 3E!E3SE$ and SET AS.$E" .n all other respects# the same areAFF.3>E$"

H' (hilippine Commercial Bank +s CA

J SC3A @@H R >ercantile 4aw R 5egotiable .nstruments 4aw R3ights o the )older R 0hat Constitutes a )older in $ue Course R5egligence o the Collecting Bank and the $rawee Bank

There are three cases consolidated here? 6"3" 5o" @ &(C.B +sCA and Ford and Citibank'# 6"3" 5o" @ID &Ford +s CA andCitibank and (C.B'# and 6"3" 5o" HJ@ &Ford +s Citibank and(C.B and CA'"

6"3" 5o" @,6"3" 5o" @ID


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.n %ctober DII# Ford (hilippines drew a Citibank check in theamount o (@#I@H#@"@ in a+or o the Commissioner o the.nternal 3e+enue &C.3'" The check represents Fords tax payment

or the third quarter o DII" %n the ace o the check was written8(ayees account only9 which means that the check cannot beencashed and can only be deposited with the C.3s sa+ingsaccount &which is with >etrobank'" The said check was howe+erpresented to (C.B and (C.B accepted the same" (C.B thenindorsed the check or clearing to Citibank" Citibank cleared thecheck and paid (C.B (@#I@H#@"@" C.3 later inormed Ford that itne+er recei+ed the tax payment"

An in+estigation ensued and it was disco+ered that Fords

accountant 6odoredo 3i+era# when the check was deposited with(C.B# recalled the check since there was allegedly an error in thecomputation o the tax to be paid" (C.B# as instructed by 3i+era#replaced the check with two o its managers checks"

.t was urther disco+ered that 3i+era was actually a member o asyndicate and the managers checks were subsequentlydeposited with the (aciGc Banking Corporation by other memberso the syndicate" Thereater# 3i+era and the other members

became ugiti+es o 2ustice"

6"3" 5o" HJ@

.n =uly DI and in April DID# Ford drew two checks in theamounts o (##IJH"I and (H##D"I respecti+ely" Bothchecks are again or tax payments" Both checks are or 8(ayeesaccount only9 or or the C.3s bank sa+ings account only with>etrobank" Again# these checks ne+er reached the C.3"

.n an in+estigation# it was ound that these checks wereembe--led by the same syndicate to which 3i+era was a member".t was established that an employee o (C.B# also a member othe syndicate# created a (C.B account under a Gctitious nameupon which the two checks# through high end manipulation# weredeposited" (C.B unwittingly endorsed the checks to Citibank


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which the latter cleared" /pon clearing# the amount waswithdrawn rom the Gctitious account by syndicate members"

.SS/E? 0hat are the liabilities o each partyO

)E4$? 6"3" 5o" @,6"3" 5o" @ID

(C.B is liable or the amount o the check &(@#I@H#@"@'" (C.B#as a collecting bank has been negligent in +eriying the authorityo 3i+era to negotiate the check" .t ailed to ascertain whether ornot 3i+era can +alidly recall the check and ha+e them be replacedwith (C.Bs managers checks as in act# Ford has no knowledgeand did not authori-e such" A bank &in this case (C.B' whichcashes a check drawn upon another bank &in this case Citibank'#

without requiring proo as to the identity o persons presenting it#or making inquiries with regard to them# cannot hold the proceedsagainst the drawee when the proceeds o the checks wereaterwards di+erted to the hands o a third party" )ence# (C.B isliable or the amount o the embe--led check"

6"3" 5o" HJ@

(C.B and Citibank are liable or the amount o the checks on a J1

J basis"

As a general rule# a bank is liable or the negligent or tortuous acto its employees within the course and apparent scope o theiremployment or authority" )ence# (C.B is liable or the raudulentact o its employee who set up the sa+ings account under aGctitious name"

Citibank is likewise liable because it was negligent in theperormance o its obligations with respect to its agreement withFord" The checks which were drawn against Fords account withCitibank clearly states that they are payable to the C.3 only yetCitibank deli+ered said payments to (C.B" Citibank howe+erargues that the checks were indorsed by (C.B to Citibank and thatthe latter has nothing to do but to pay it" The Supreme Court citedSection H o the 5egotiable .nstruments 4aw which mandates


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the Citibank# as an acceptor o the checks# to engage in payingthe checks according to the tenor o the acceptance which is todeli+er the payment to the 8payees account only9"

But the Supreme Court ruled that in the consolidated cases# that(C.B and Citibank are not the only negligent parties" Ford is alsonegligent or ailing to examine its passbook in a timely mannerwhich could ha+e a+oided urther loss" But this negligence is notthe proximate cause o the loss but is merely contributory"5e+ertheless# this mitigates the liability o (C.B and Citibankhence the rate o interest# with which (C.B and Citibank is to payFord# is lowered rom N to HN per annum"

I' 6C $alton +s Equitable (C. Bank6C $A4T%5 .5$/ST3.ES# .5C"# +s" EU/.TAB4E (C. BA5;FACTS? Equitable (C. Bank extended a (J1million credit line toCamden .ndustries# .nc" &C..' allowing the latter to a+ail o se+eralloans &co+ered by promissory notes' and to purchase trustreceipts" To acilitate collection# C.. executed a 8hold1out9agreement in a+or o respondent authori-ing it to deduct rom itssa+ings account any amounts due" To guarantee payment#petitioner 6C $alton .ndustries# .nc" executed a third1partymortgage o its real properties in Uue-on City and >alolos#BulacanM as security or C..s loans" C.. did not pay its obligations

despite respondents demands" Consequently# respondent Gled apetition or extra2udicial oreclosure o petitioners Bulacanproperties in 3TC o Bulacan" %n August # JJ@# the mortgagedproperties were sold at a public auction where respondent wasdeclared the highest bidder" Consequently# a certiGcate o saleLHMwas issued in respondents a+or on August # JJ@" Thereaterrespondent Gled the certiGcate o sale and an aKda+it oconsolidation o ownership in the 3egister o $eeds o Bulacanpursuant to Section @I o the 6eneral Banking 4aw"L)ence#

petitioners TCTs co+ering the Bulacan properties were cancelledand new ones were issued in the name o respondent"3espondent Gled an ex parte motion or the issuance o a writ opossessionM in the 3TC Bulacan" (re+iously# howe+er# C.. had Gledan action or speciGc perormance and damages in the 3TC o(asig# asserting that it had allegedly paid its obligation in ull torespondent" C.. sought to compel respondent to render an


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accounting in order to pro+e that the bank raudulently oreclosedon petitioners mortgaged properties" Because respondentallegedly ailed to appear during the trial# the (asig 3TC rendereda decision based on the e+idence presented by C.." .t ound that#

while C..s past due obligation amounted only to (@#@H#@"HHas o 5o+ember J# JJ# respondent had deducted a total o(J#H#"JH rom C..s sa+ings account" 3espondent Gled anotice o appeal" C..# on the other hand# mo+ed or the immediateentry and execution o the abo+ementioned decision" (asig 3TC$EC.S.%5? dismissed respondents notice o appeal due to itsailure to pay the appellate docket ees" .t likewise oundrespondent guilty o orum1shopping or Gling the petition or theissuance o a writ o possession in the Bulacan 3TC" Thus# the(asig 3TC ordered the immediate entry o its >arch J# JJ

decision" >eanwhile# in +iew o the pending case in the (asig 3TC#petitioner opposed respondents ex parte motion or the issuanceo a writ o possession in the Bulacan 3TC" .t claimed thatrespondent was guilty o raud and orum1shopping# and that itwas not inormed o the oreclosure" Furthermore# respondentraudulently oreclosed on the properties since the (asig 3TC hadnot yet determined whether C.. indeed ailed to pay itsobligations" Thereater Bulacan 3TC granted the motion and a writo possession was issued in respondents a+or on $ecember D#

JJ" (etitioner immediately assailed the order o the Bulacan 3T".t claimed that the order +iolated Section @# Article !... o theConstitutionLIM which requires that e+ery decision must clearlyand distinctly state its actual and legal bases" CA dismissed thepetition or lack o merit on the ground that an order in+ol+ing theissuance o a writ o possession is not a 2udgment on the merits#hence# not co+ered by the requirement o Section @# Article !...o the Constitution".SS/ES? " (etitioner likewise cites the conict between the ordero the Bulacan 3TC and order the (asig 3TC" (etitioner claims that#since the (asig 3TC already ordered the entry o its >arch J#JJ decision &in turn ordering respondent to return TCT 5o" and all such other owners documents o title as mayha+e been placed in its possession by +irtue o the sub2ect trustreceipt and loan transactions'# the same was already Gnal andexecutory" Thus# inasmuch as C.. had supposedly paid respondent


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But it did not" Thus# inasmuch as the J1day period to a+ail o thesaid remedy had already lapsed# petitioner could no longer assailthe +alidity o the sale" Any question regarding the +alidity o themortgage or its oreclosure cannot be a legal ground or the

reusal to issue a writ o possession" 3egardless o whether or notthere is a pending suit or the annulment o the mortgage or theoreclosure itsel# the purchaser is entitled to a writ o possession#without pre2udice# o course# to the e+entual outcome o thepending annulment caseL 5eedless to say# petitioner committed amisstep by completely relying and pinning all its hopes or relieon its complaint or speciGc perormance and damages in the(asig 3TC#LDM instead o resorting to the remedy o annulment &othe auction sale and writ o possession' under Section o Act in the Bulacan 3TC"

' Equitable (C. Bank +s 5gorFacts? %n %ctober I# JJ# respondents 5gor and 6o Gled anaction or amendment and,or reormation o documents andcontracts against Equitable and its employees" They claimed thatthey were induced by the bank to a+ail o its peso and dollarcredit acilities by o:ering low interests so they accepted andsigned Equitables proposal" They alleged that they were unawarethat the documents contained escalation clauses grantingequitable authority to increase interest without their consent"

These were rebutted by the bank" 3TC ordered the use o theDDH dollar exchange rate in computing respondents dollar1denominated loans" CA granted the Banks application orin2unction but the properties were sold to public auction"

.ssue? 0hether or not there was an extraordinary deation"3uling? Extraordinary ination exists when there is an unusualdecrease in the purchasing power o currency and such decreasecould not be reasonably oreseen or was beyond thecontemplation o the parties at the time o the obligation"$eation is an in+erse situation"$espite the de+aluation o the peso# BS( ne+er declared asituation o extraordinary ination" 3espondents should pay theirdollar denominated loans at the exchange rate Gxed by the BS(on the date o maturity"


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$ecision o lower courts are re+ersed and set aside"

D' Floirendo +s >etropolitan Bank and Trust6"3" 5o" I@@ February @# J@

().4.((.5E 5AT.%5A4 BA5;# (etitioner#+s"S(%/SES E53.U/E >A5A4% V 3%SA4.5$A =AC.5T%# A35%4$ =">A5A4%# A35E4 =" >A5A4%# and A3>A =" >A5A4%# 3espondents"

$ E C . S . % 5

BE3SA>.5# ="?

Although banks are ree to determine the rate o interest theycould impose on their borrowers# they can do so only reasonably#not arbitrarily" They may not take ad+antage o the ordinaryborrowers lack o amiliarity with banking procedures and 2argon")ence# any stipulation on interest unilaterally imposed andincreased by them shall be struck down as +iolati+e o theprinciple o mutuality o contracts"

Antecedents

3espondent Spouses Enrique >analo and 3osalinda =acinto&Spouses >analo' applied or an All1(urpose Credit Facility in theamount o (#JJJ#JJJ"JJ with (hilippine 5ational Bank &(5B' toGnance the construction o their house" Ater (5B granted theirapplication# they executed a 3eal Estate >ortgage on 5o+ember# DD in a+or o (5B o+er their property co+ered by TranserCertiGcate o Title 5o" S1 D as security or the loan" Thecredit acility was renewed and increased se+eral times o+er theyears" %n September J# DDH# the credit acility was again

renewed or (I#JJJ#JJJ"JJ" As a consequence# the partiesexecuted a Supplement to and Amendment o Existing 3eal Estate>ortgage whereby the property co+ered by TCT 5o" ID wasadded as security or the loan"


25/60

The additional security was registered in the names orespondents Arnold# Arnel# Anthony# and Arma# all surnamed>analo# who were their children"

.t was agreed upon that the Spouses >analo would make monthlypayments on the interest" )owe+er# (5B claimed that their lastrecorded payment was made on $ecember# DDI" Thus# (5B senta demand letter to them on their o+erdue account and requiredthem to settle the account" (5B sent another demand letterbecause they ailed to heed the Grst demand"

Ater the Spouses >analo still ailed to settle their unpaid accountdespite the two demand letters# (5B oreclose the mortgage"$uring the oreclosure sale# (5B was the highest bidder or

(#I#JJJ"JJ o the mortgaged properties o the Spouses>analo" The sheri: issued to (5B the CertiGcate o Sale dated5o+ember # JJJ"@

Ater more than a year ater the CertiGcate o Sale had beenissued to (5B# the Spouses >analo instituted this action or thenulliGcation o the oreclosure proceedings and damages" Theyalleged that they had obtained a loan or (#JJJ#JJJ"JJ rom acertain Benito Tan upon arrangements made by Antoninus

7u+ienco# then the 6eneral >anager o (5Bs Bangkal Branchwhere they had transacted* that they had been made tounderstand and had been assured that the (#JJJ#JJJ"JJ wouldbe used to update their account# and that their loan would berestructured and con+erted into a long1term loan* that they hadbeen surprised to learn# thereore# that had been declared indeault o their obligations# and that the mortgage on theirproperty had been oreclosed and their property had been sold*and that (5B did not comply with Section o Act 5o" # asamended"H

(5B and Antoninus 7u+ienco countered that the (#JJJ#JJJ"JJloan obtained by the Spouses >analo rom Benito Tan had beencredited to their account* that they did not make any assuranceson the restructuring and con+ersion o the Spouses >analos loaninto a long1term one*I that (5Bs right to oreclose the mortgage


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had been clear especially because the Spouses >analo had notassailed the +alidity o the loans and o the mortgage* and thatthe Spouses >analo did not allege ha+ing ully paid theirindebtedness"

3uling othe 3TC

Ater trial# the 3TC rendered its decision in a+or o (5B# holdingthusly?

.n resol+ing this present case# one o the most signiGcant mattersthe court has noted is that while during the pre1trial held on September JJ# plainti:1spouses >analo with the assistancecounsel had agreed to stipulate that deendants had the right to

oreclose upon the sub2ect properties and that the plainti:sLWMmain thrust was to pro+e that the oreclosure proceedings werein+alid# in the course o the presentation o their e+idence# theymodiGed their position and claimed LthatM the loan documentexecuted were contracts o adhesion which were null and +oidbecause they were prepared entirely under the deendant bankssuper+ision" They also questioned the interest rates and penaltycharges imposed arguing that these were iniquitous#unconscionable and thereore likewise +oid"

5ot ha+ing raised the oregoing matters as issues during the pre1trial# plainti:1spouses are presumably estopped rom allowingthese matters to ser+e as part o their e+idence# more so becauseat the pre1trial they expressly recogni-ed the deendant banksright to oreclose upon the sub2ect property &See %rder# pp" D1D'"

)owe+er# considering that the deendant bank did not interposeany ob2ection to these matters being made part o plainti:se+idence so much so that their memorandum containeddiscussions rebutting plainti: spouses arguments on these issues#the court must necessarily include these matters in the resolutiono the present case"D


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The 3TC held# howe+er# that the Spouses >analos Pcontract oadhesionP argument was unounded because they had stillaccepted the terms and conditions o their credit agreement with(5B and had exerted e:orts to pay their obligation*J that the

Spouses >analo were now estopped rom questioning the interestrates unilaterally imposed by (5B because they had paid at thoserates or three years without protest* and that their allegationabout (5B +iolating the notice and publication requirementsduring the oreclosure proceedings was untenable becausepersonal notice to the mortgagee was not required under Act 5o""

The Spouses >analo appealed to the CA by assigning a singularerror# as ollows?

T)E C%/3T A U/% SE3.%/S47 E33E$ .5 $.S>.SS.56 (4A.5T.FF1A((E44A5TS C%>(4A.5T F%3 BE.56 &sic' 4AC; %F >E3.T5%T0.T)STA5$.56 T)E FACT T)AT .T 0AS C4EA347 S)%05

T)AT T)E F%3EC4%S/3E (3%CEE$.56S 0AS .5!A4.$ A5$.44E6A4"

The Spouses >analo reiterated their arguments# insisting that? &'the credit agreements they entered into with (5B were contracts

o adhesion*@ &' no interest was due rom them because theircredit agreements with (5B did not speciy the interest rate# and(5B could not unilaterally increase the interest rate without Grstinorming them* and &' (5B did not comply with the notice andpublication requirements under Section o Act "H %n theother hand# (5B and 7u+ienco did not Gle their bries despitenotice"I

3uling othe CA

.n its decision promulgated on >arch # JJH# the CA aKrmedthe decision o the 3TC insoar as it upheld the +alidity o theoreclosure proceedings initiated by (5B# but modiGed theSpouses >analos liability or interest" .t directed the 3TC to see tothe recomputation o their indebtedness# and ordered that shouldthe recomputed amount be less than the winning bid in the


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oreclosure sale# the di:erence should be immediately returned tothe Spouses >analo"

The CA ound it necessary to pass upon the issues o (5Bs ailure

to speciy the applicable interest and the lack o mutuality in theexecution o the credit agreements considering the earlier citedobser+ation made by the trial court in its decision" ApplyingArticle DH o the Ci+il Code# the CA held that (5Bs ailure toindicate the rate o interest in the credit agreements would notexcuse the Spouses >analo rom their contractual obligation topay interest to (5B because o the express agreement to payinterest in the credit agreements" 5e+ertheless# the CA ruled that(5Bs inad+ertence to speciy the interest rate should beconstrued against it because the credit agreements were clearly

contracts o adhesion due to their ha+ing been prepared solely by(5B"

The CA urther held that (5B could not unilaterally increase therate o interest considering that the credit agreements speciGcallypro+ided that prior notice was required beore an increase ininterest rate could be e:ected" .t ound that (5B did not adduceproo showing that the Spouses >analo had been notiGed beorethe increased interest rates were imposed* and that (5Bs

unilateral imposition o the increased interest rate was null and+oid or being +iolati+e o the principle o mutuality o contractsenshrined in Article J o the Ci+il Code" 3einorcing itsPcontract o adhesionP conclusion# it added that the Spouses>analos being in dire need o money rendered them to be not onan equal ooting with (5B" Consequently# the CA# relying onEastern Shipping 4ines# +" Court o Appeals#D Gxed the interestrate to be paid by the Spouses >analo at N per annum#computed rom their deault"

The CA deemed to be untenable the Spouses >analos allegationthat (5B had ailed to comply with the requirements or noticeand posting under Section o Act " The CA stated thatSheri: 5orberto >agsa2os testimony was suKcient proo o hisposting o the required 5otice o Sheri:s Sale in three publicplaces* that the notari-ed AKda+it o (ublication presented by


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Sheri: >agsa2o was prima acie proo o the publication o thenotice* and that the AKda+it o (ublication en2oyed thepresumption o regularity# such that the Spouses >analos bareallegation o non1publication without other proo did not o+ercome

the presumption"

%n August D# JJH# the CA denied the Spouses >analos >otionor 3econsideration and (5Bs (artial >otion or3econsideration"J

.ssues

.n its >emorandum# (5B raises the ollowing issues?

.

0)ET)E3 %3 5%T T)E C%/3T %F A((EA4S 0AS C%33ECT .55/44.F7.56 T)E .5TE3EST 3ATES .>(%SE$ %5 3ES(%5$E5TS(%/SES 4%A5 A5$ .5 F.X.56 T)E SA>E AT T0E4!E (E3CE5T&N' F3%> $EFA/4T# $ES(.TE T)E FACT T)AT &i' T)E SA>E 0AS3A.SE$ B7 T)E 3ES(%5$E5TS %547 F%3 T)E F.3ST T.>E %5A((EA4 &ii' .T 0AS 5E!E3 (A3T %F T)E.3 C%>(4A.5T &iii' 0ASEX4/$E$ AS A5 .SS/E $/3.56 (3E1T3.A4# A5$ 0%3SE# &i+'

T)E3E 0AS 5% F%3>A447 %FFE3E$ (E3TA.5.56 T% T)E SA>E$/3.56 T3.A4"

..

0)ET)E3 %3 5%T T)E C%/3T %F A((EA4S C%33ECT47 3/4E$T)AT T)E3E 0AS 5% >/T/A4.T7 %F C%5SE5T .5 T)E .>(%S.T.%5%F .5TE3EST 3ATES %5 T)E 3ES(%5$E5T S(%/SES 4%A5$ES(.TE T)E EX.STE5CE %F FACTS A5$ C.3C/>STA5CES C4EA347S)%0.56 3ES(%5$E5TS ASSE5T T% T)E 3ATES %F .5TE3ESTS% .>(%SE$ B7 (5B %5 T)E 4%A5"

Anent the Grst issue# (5B argues that by passing upon the issueo the +alidity o the interest rates# and in nulliying the ratesimposed on the Spouses >analo# the CA decided the case in amanner not in accord with Section # 3ule @@ o the 3ules o


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Court# which states that only questions o law or act raised in thetrial court could be assigned as errors on appeal* that to allow theSpouses >analo to raise an issue or the Grst time on appealwould Po:end the basic rules o air play# 2ustice and due

process*P that the resolution o the CA was limited to the issuesagreed upon by the parties during pre1trial* that the CA erred inpassing upon the +alidity o the interest rates inasmuch as theSpouses >analo did not present e+idence thereon* and that the

=udicial AKda+it o Enrique >analo# on which the CA relied or itsGnding# was not o:ered to pro+e the in+alidity o the interestrates and was# thereore# inadmissible or that purpose"@

As to the substanti+e issues# (5B claims that the Spouses>analos continuous payment o interest without protest indicated

their assent to the interest rates imposed# as well as to thesubsequent increases o the rates* and that the CA erred indeclaring that the interest rates and subsequent increases werein+alid or lack o mutuality between the contracting parties"

3uling

The appeal lacks merit"

"(rocedural .ssue

Contrary to (5Bs argument# the +alidity o the interest rates ando the increases# and on the lack o mutuality between the partieswere not raised by the Spouses >analos or the Grst time onappeal" 3ather# the issues were impliedly raised during the trialitsel# and (5Bs lack o +igilance in +oicing out a timely ob2ectionmade that possible"

.t appears that Enrique >analos =udicial AKda+it introduced theissues o the +alidity o the interest rates and the increases# andthe lack o mutuality between the parties in the ollowing manner#to wit?


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" True to his words# deendant 7u+ienco# ater se+eral days# sentus a document through a personnel o deendant (5B# Bangkal#>akati City Branch# who required me and my wie to aKx oursignature on the said document*

H" 0hen the document was handed o+er me# . was able to knowthat it was a (romissory 5ote which was in ready made orm andprepared solely by the deendant (5B*

x x x x

" As abo+e1noted# the rates o interest imposed by thedeendant bank were ne+er the sub2ect o any stipulation betweenus mortgagors and the deendant (5B as mortgagee*

" The truth o the matter is that deendant bank imposed rate ointerest which ranges rom DN to as high as N and whichchanges rom time to time*

" The irregularity# much less the in+alidity o the imposition oiniquitous rates o interest was aggra+ated by the act that wewere not inormed# notiGed# nor the same had our prior consentand acquiescence thereor" x x x

(5B cross1examined Enrique >analo upon his =udicial AKda+it"There is no showing that (5B raised any ob2ection in the course othe cross examination"H Consequently# the 3TC rightly passedupon such issues in deciding the case# and its ha+ing done so wasin total accord with Section # 3ule J o the 3ules o Court# whichstates?

Section " Amendment to conorm to or authori-e presentation oe+idence" R 0hen issues not raised by the pleadings are tried withthe express or implied consent o the parties# they shall betreated in all respects as i they had been raised in the pleadings"Such amendment o the pleadings as may be necessary to causethem to conorm to the e+idence and to raise these issues may bemade upon motion o any party at any time# e+en ater 2udgment*but ailure to amend does not a:ect the result o the trial o these


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issues" . e+idence is ob2ected to at the trial on the ground that itis not within the issues made by the pleadings# the court mayallow the pleadings to be amended and shall do so with liberalityi the presentation o the merits o the action and the ends o

substantial 2ustice will be subser+ed thereby" The court may granta continuance to enable the amendment to be made"

.n Bernardo Sr" +" Court o Appeals#I we held that?

.t is settled that e+en i the complaint be deecti+e# but theparties go to trial thereon# and the plainti:# without ob2ection#introduces suKcient e+idence to constitute the particular cause oaction which it intended to allege in the original complaint# andthe deendant +oluntarily produces witnesses to meet the cause

o action thus established# an issue is 2oined as ully and ase:ecti+ely as i it had been pre+iously 2oined by the most perectpleadings" 4ikewise# when issues not raised by the pleadings aretried by express or implied consent o the parties# they shall betreated in all respects as i they had been raised in the pleadings"

The 3TC did not need to direct the amendment o the complaintby the Spouses >analo" Section # 3ule J o the 3ules o CourtspeciGcally declares that the Pailure to amend does not a:ect the

result o the trial o these issues"P According to Talisay1Silay>illing Co"# .nc" +" Asociacion de Agricultores de Talisay1Silay#.nc"?

The ailure o a party to amend a pleading to conorm to thee+idence adduced during trial does not preclude an ad2udicationby the court on the basis o such e+idence which may embodynew issues not raised in the pleadings# or ser+e as a basis or ahigher award o damages" Although the pleading may not ha+ebeen amended to conorm to the e+idence submitted during trial#

2udgment may nonetheless be rendered# not simply on the basiso the issues alleged but also on the basis o issues discussed andthe assertions o act pro+ed in the course o trial"Ywphi Thecourt may treat the pleading as i it had been amended toconorm to the e+idence# although it had not been actually soamended" Former Chie =ustice >oran put the matter in this way?


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0hen e+idence is presented by one party# with the expressed orimplied consent o the ad+erse party# as to issues not alleged inthe pleadings# 2udgment may be rendered +alidly as regards those

issues# which shall be considered as i they ha+e been raised inthe pleadings" There is implied# consent to the e+idence thuspresented when the ad+erse party ails to ob2ect thereto"P&Emphasis supplied'

Clearly# a court may rule and render 2udgment on the basis o thee+idence beore it e+en though the rele+ant pleading had notbeen pre+iously amended# so long as no surprise or pre2udice isthereby caused to the ad+erse party" (ut a little di:erently# solong as the basic requirements o air play had been met# as

where litigants were gi+en ull opportunity to support theirrespecti+e contentions and to ob2ect to or reute each otherse+idence# the court may +alidly treat the pleadings as i they hadbeen amended to conorm to the e+idence and proceed toad2udicate on the basis o all the e+idence beore it"

There is also no merit in (5Bs contention that the CA should notha+e considered and ruled on the issue o the +alidity o theinterest rates because the =udicial AKda+it o Enrique >analo had

not been o:ered to pro+e the same but only Por the purpose oidentiying his aKda+it"PD As such# the aKda+it was inadmissibleto pro+e the nullity o the interest rates"

0e do not agree"

Section # 3ule J o the 3ules o Court is applicable in twosituations"Ywphi The Grst is when e+idence is introduced on anissue not alleged in the pleadings and no ob2ection is interposedby the ad+erse party" The second is when e+idence is o:ered onan issue not alleged in the pleadings but an ob2ection is raisedagainst the o:er"J This case comes under the Grst situation"Enrique >analos =udicial AKda+it would introduce the +ery issuesthat (5B is now assailing" The question o whether the e+idenceon such issues was admissible to pro+e the nullity o the interestrates is an entirely di:erent matter" The 3TC accorded credence to


34/60

(5Bs e+idence showing that the Spouses >analo had beenpaying the interest imposed upon them without protest" %n theother hand# the CAs nulliGcation o the interest rates was basedon the credit agreements that the Spouses >analo and (5B had

themsel+es submitted"

Based on the oregoing# the +alidity o the interest rates and theirincreases# and the lack o mutuality between the parties wereissues +alidly raised in the 3TC# gi+ing the Spouses >analo e+eryright to raise them in their appeal to the CA" (5Bs contention wasbased on its wrong appreciation o what transpired during thetrial" .t is also interesting to note that (5B did not itsel assail the3TCs ruling on the issues ob+iously because the 3TC had decidedin its a+or" .n act# (5B did not e+en submit its appellees brie

despite notice rom the CA"

"Substanti+e .ssue

The credit agreement executed succinctly stipulated that the loanwould be sub2ected to interest at a rate Pdetermined by the Bankto be its prime rate plus applicable spread# pre+ailing at thecurrent month"P This stipulation was carried o+er to or adopted

by the subsequent renewals o the credit agreement" (5B therebyarrogated unto itsel the sole prerogati+e to determine andincrease the interest rates imposed on the Spouses >analo" Sucha unilateral determination o the interest rates contra+ened theprinciple o mutuality o contracts embodied in Article J o theCi+il Code"

The Court has declared that a contract where there is nomutuality between the parties partakes o the nature o a contracto adhesion# and any obscurity will be construed against theparty who prepared the contract# the latter being presumed thestronger party to the agreement# and who caused the obscurity"@(5B should then su:er the consequences o its ailure tospeciGcally indicate the rates o interest in the credit agreement"0e spoke clearly on this in (hilippine Sa+ings Bank +" Castillo#to wit?


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The unilateral determination and imposition o the increased ratesis +iolati+e o the principle o mutuality o contracts under ArticleJ o the Ci+il Code# which pro+ides that WLtMhe contract must

bind both contracting parties* its +alidity or compliance cannot belet to the will o one o them" A perusal o the (romissory 5otewill readily show that the increase or decrease o interest rateshinges solely on the discretion o petitioner" .t does not requirethe conormity o the maker beore a new interest rate could beenorced" Any contract which appears to be hea+ily weighed ina+or o one o the parties so as to lead to an unconscionableresult# thus partaking o the nature o a contract o adhesion# is+oid" Any stipulation regarding the +alidity or compliance o thecontract let solely to the will o one o the parties is likewise

in+alid" &Emphasis supplied'

(5B could not also 2ustiy the increases it had e:ected on theinterest rates by citing the act that the Spouses >analo had paidthe interests without protest# and had renewed the loan se+eraltimes" 0e rule that the CA# citing (hilippine 5ational Bank +" Courto Appeals#H rightly concluded that Pa borrower is not estoppedrom assailing the unilateral increase in the interest made by thelender since no one who recei+es a proposal to change a contract#

to which he is a party# is obliged to answer the same and saidpartys silence cannot be construed as an acceptance thereo"PI

4astly# the CA obser+ed# and properly so# that the creditagreements had explicitly pro+ided that prior notice would benecessary beore (5B could increase the interest rates" .n ailingto notiy the Spouses >analo beore imposing the increased rateso interest# thereore# (5B +iolated the stipulations o the +erycontract that it had prepared" )ence# the +arying interest ratesimposed by (5B ha+e to be +acated and declared null and +oid#and in their place an interest rate o N per annum computedrom their deault is Gxed pursuant to the ruling in EasternShipping 4ines# .nc" +" Court o Appeals"

The CAs directi+e to (5B &a' to recompute the Spouses >analosindebtedness under the o+ersight o the 3TC* and &b' to reund to


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them any excess o the winning bid submitted during theoreclosure sale o+er their recomputed indebtedness waswarranted and equitable" Equally warranted and equitable was tomake the amount to be reunded# i any# bear legal interest# to be

reckoned rom the promulgation o the CAs decision on >arch #JJH"D .ndeed# the Court said in Eastern Shipping 4ines# .nc" +"Court o Appeals@J that interest should be computed rom thetime o the 2udicial or extra2udicial demand" )owe+er# this casepresents a peculiar situation# the peculiarity being that theSpouses >analo did not demand interest either 2udicially orextra2udicially" .n the 3TC# they speciGcally sought as the mainrelies the nulliGcation o the oreclosure proceedings brought by(5B# accounting o the payments they had made to (5B# and thecon+ersion o their loan into a long term one"@ .n its 2udgment#

the 3TC e+en upheld the +alidity o the interest rates imposed by(5B"@ .n their appellants brie# the Spouses >analo againsought the nulliGcation o the oreclosure proceedings as the mainrelie"@ .t is e+ident# thereore# that the Spouses >analo made no

2udicial or extra2udicial demand rom which to reckon the intereston any amount to be reunded to them" Such demand could onlybe reckoned rom the promulgation o the CAs decision becauseit was there that the right to the reund was Grst 2udiciallyrecogni-ed" 5e+ertheless# pursuant to Eastern Shipping 4ines# .nc"

+" Court o Appeals#@@ the amount to be reunded and the interestthereon should earn interest to be computed rom the Gnality othe 2udgment until the ull reund has been made"

Anent the correct rates o interest to be applied on the amount tobe reunded by (5B# the Court# in 5acar +" 6allery Frames@ andS"C" >egaworld Construction +" (arada#@H already applied>onetary Board Circular 5o" IDD by reducing the interest ratesallowed in 2udgments rom N per annum to HN per annum"@IAccording to 5acar +" 6allery Frames# >B Circular 5o" IDD isapplied prospecti+ely# and 2udgments that became Gnal andexecutory prior to its e:ecti+ity on =uly # J are not to bedisturbed but continue to be implemented applying the old legalrate o N per annum" )ence# the old legal rate o N perannum applied to 2udgments becoming Gnal and executory prior


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to =uly # J# but the new rate o HN per annum applies to2udgments becoming Gnal and executory ater said dater"

Conormably with 5acar +" 6allery Frames and S"C" >egaworld

Construction +" (arada# thereore# the proper interest rates to beimposed in the present case are as ollows?

" Any amount to be reunded to the Spouses >analo shall bearinterest o N per annum computed rom >arch # JJH# thedate o the promulgation o the CA decision# until =une J# J*and HN per annum computed rom =uly # J until Gnality othis decision* and

" The amount to be reunded and its accrued interest shall earn

interest o HN per annum until ull reund"

0)E3EF%3E# the Court AFF.3>S the decision promulgated by theCourt o Appeals on >arch # JJH in CA16"3" C! 5o" @DH#sub2ect to the >%$.F.CAT.%5 that any amount to be reunded tothe respondents shall bear interest o N per annum computedrom >arch # JJH until =une J# J# and HN per annumcomputed rom =uly # J until Gnality hereo* that the amountto be reunded and its accrued interest shall earn interest at Ho,o

per annum until ull reund* and $.3ECTS the petitioner to pay thecosts o suit"

S% %3$E3E$"

J' Trade V .n+estment +s 3oblett .ndustrial/nder consideration are the motion or reconsideration dated $ecember JJ and supplemental motion or reconsiderationdated =anuary JJH# both Gled by respondent (aramount.nsurance Corporation &(aramount' with regard to our $ecision

dated 5o+ember JJ which disposed o the case as ollows?

0)E3EF%3E# premises considered# the petition is hereby63A5TE$" The $ecision o the Court o Appeals is 3E!E3SE$ andthe 2udgment o the 3egional Trial Court is 3E.5STATE$ with theollowing modiGcations?


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a' ordering respondents 3oblett# the Abieras# and (aramount#2ointly and se+erally# to pay petitioner (hilguarantee the amounto (#II#H"# with the ollowing rates o interest and penaltycharge# to wit?

i" or respondent (aramount# eighteen percent &N' interest perannum rom =une DDJ until ully paid*

ii" or respondents 3oblett and the Abieras# sixteen percent &HN'interest per annum rom =une DDJ until ully paid* and penaltycharge o sixteen percent &HN' per annum compounded monthlyrom =une DDJ until ully paid*

b' ordering respondents 3oblett and the Abieras# 2ointly and

se+erally# to pay petitioner (hilguarantee the amount o(#JD#D"I plus N interest thereon rom the time o Gnalityo 2udgment until ully paid*

c' ordering respondents 3oblett and the Abieras# 2ointly andse+erally# to pay petitioner (hilguarantee ten percent &JN' o(#II#H"# as attorneys ees# plus the costs o suit*

d' ordering respondent (aramount# 2ointly and se+erally with

respondents 3oblett and the Abieras# to pay petitioner(hilguarantee (JJ#JJJ"JJ as reasonable attorneys ees*

e' ordering respondents 3oblett and Benlot# 2ointly and se+erally#to reimburse respondent (aramount whate+er amount it wouldpay petitioner (hilguarantee including all interests# attorneys eesand the costs* and

' ordering all the respondents# 2ointly and se+erally# and thethird1party deendants# also 2ointly and se+erally# to pay petitioner(hilguarantee legal interest o N per annum on the 2udgmentawards respecti+ely against them rom the time o Gnality o

2udgment until ully paid"

S% %3$E3E$"@


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.n support o its motion or reconsideration# (aramount submitsthe ollowing grounds? &' (aramount issued a bidders bond andnot a perormance or guarantee bond so that when respondent3oblett .ndustrial Construction Corporation &3oblett' executed the

sub1contract agreement# (aramount was released rom liabilitythereunder* &' petitioner is guilty o misrepresentation andconcealment in securing (aramounts continuing commitment toanswer or 3obletts repayment scheme* &' petitioner and 3oblettentered into a rehabilitation program which no+ated the principalobligation o the parties resulting in the discharge o (aramount*&@' the sub2ect surety bond expired without any claim being madeagainst the same* and &' (aramount is not liable or attorneysees"

The supplemental motion or reconsideration essentiallyreiterates the allegations and arguments ound in the motion orreconsideration with the additional contention that the interestcharge on the principal debt is unconscionable"

0e ha+e perused the instant motions and Gnd no new substantialarguments to warrant the re+ersal or modiGcation o our $ecision"3espondents motion essentially concerns issues that ha+e beenpassed upon and ully considered by the Court in the decision

sought to be reconsidered" Thus# we Gnd no cogent reason todepart rom the ruling sub2ect o this recourse" The only matterlet to be resol+ed is the +alidity o the interest charge against theprincipal amount in+ol+ed in this case"

/nder the surety bond# (aramount bound itsel 2ointly andse+erally with 3oblett to pay petitioner to the extent o(#II#H" or whate+er damages and liabilities the lattermay su:er by +irtue o its counterguarantee" (aramount urtheragreed to pay petitioner interest thereon at the rate o N perannum rom the date o receipt o petitioners Grst demand letterup to the date o actual payment"

.n our $ecision# we ound that none o the parties questioned the+alidity o the stipulated interest rate" Finding the same legal# weupheld its +alidity" 0ith the suspension o the /sury 4aw and the


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remo+al o interest ceiling# the parties are ree to stipulate theinterest to be imposed on monetary obligations" Absent anye+idence o raud# undue inuence# or any +ice o consentexercised by one party against the other# the interest rate agreed

upon is binding upon them"H 5e+ertheless# we ruled that(aramounts liability thereor should commence rom the date o2udicial demand# or on =une DDJ# and not rom the datepetitioner made a ormal notice o demand to (aramount" This isbut air as the delay in the perormance o (aramount isattributable to the ailure o petitioner to inorm the ormer o thede+elopments in the negotiations with 3oblett"

(aramount argues that it is made liable or approximately (@million# the bulk o which is the interest charge and not the

principal amount" .t then submits that the interest is clearlyiniquitous# unconscionable and exorbitant# thus contrary tomorals#I citing our ruling in >edel +" Court o Appeals" .n thesaid case# we held as +oid the stipulation on interest at the rate o"N per month or HHN per annum# on a (JJ#JJJ"JJ loan# thesame being Pexcessi+e# iniquitous# unconscionable and exorbitant#hence# contrary to morals &Pcontra bonos moresP'# i not againstthe law"PD

.t would seem that (aramounts opposition to the interestawarded herein does not spring rom the in+alidity o thestipulated interest rate but rather on the resulting amount ointerest charge alone# which i counted rom the date o 2udicialdemand would come to roughly ( million which is thrice theamount o the principal debt o (#II#H""

0hile the Court recogni-es the right o the parties to enter intocontracts and who are expected to comply with their terms andobligations# this rule is not absolute" Stipulated interest rates areillegal i they are unconscionableJ and the Court is allowed totemper interest rates when necessary" .n exercising this +estedpower to determine what is iniquitous and unconscionable# theCourt must consider the circumstances o each case" 0hat maybe iniquitous and unconscionable in one case# may be 2ust inanother" .n a number o cases# this Court equitably reduced the


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interest rate agreed upon by the parties or being iniquitous#unconscionable# and,or exhorbitant"

5otably in the case o $e+elopment Bank o the (hilippines +"

Court o Appeals@# while this Court held that respondents wereliable or the stipulated interest rate o N per annum# weequitably reduced the same to JN per annum ater Gnding thatthe interests and penalty charges alone exceeded the amount othe principal debt" As such# the interests were ound to beexcessi+e" 0e urther held that the additional penalty charge oN per annum would suKciently co+er whate+er else damagespetitioner may ha+e incurred such as attorneys ees and litigationexpenses"

.n the instant case# the resulting interest charge has turned out tobe excessi+e in the context o its base computation period# andhence# unwarranted in act and in operation" 0e are notunmindul o the length o time this case has been pending incourt or which the amount in+ol+ed has ballooned to theoutrageous amount o more than (@ million which is our timesthe principal debt"

0hile we ha+e sustained the +alidity o much higher interest rates

o N per annum in Bautista +" (ilar $e+elopment Corporationand @N per annum in 6arcia +" Court o AppealsH as the actualcircumstances therein warrant# it is well to note that compared tothe instant case# the said cases were litigated or a shorter periodo timeZ years and years# respecti+ely" $e+elopment Bank othe (hilippinesI was Gnally decided ater only J years olitigation" )ere# the complaint was Gled in the lower court on

=une DDJ or sixteen &H' years ago" Consequently# the alreadyhuge principal debt swelled to a considerably disproportionatesum" Thus# we deem an interest rate o N per annum is morereasonable under the circumstances"

0)E3EF%3E# premises considered# respondent (aramountsmotion or reconsideration and supplemental motion orreconsideration are 63A5TE$ .5 (A3T and our assailed $ecisiondated 5o+ember JJ is hereby >%$.F.E$" The interest rate o


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N per annum as stipulated in the surety bond is equitablyreduced to N per annum" The $ecision is AFF.3>E$ 0.T)F.5A4.T7 in all other respects"

S% %3$E3E$"' 5ew Sampaguita Builders +s (5B>ini digest? Sampaguita loaned money rom (5B" (5B unilaterallyincreased rates o interest in the loan w,o inorming Sampaguita"(5B claimed they were authori-ed to do it as there was a clausein the agreement that they may do so" Besides# /sury law was nolonger in orce [ SC said 5%\ (5B cannot do so* it will +iolatemutuality o contracts under J" Besides# SC may inter+enewhen amount o interest is unconscionable"

Facts?Sampaguita secured a loan rom (5B in an aggregate amount o> pesos# mortgaging the properties o Sampaguitas presidentand chairman o the board" Sampaguita also executed se+eralpromissory notes due on di:erent dates &payment dates'" TheGrst promissory note had D"N interest rate" The nd and rdhad "N" a uniorm clause therein permitted (5B to increasethe rate 8within the limits allowed by law at any time dependingon whate+er policy it may adopt in the uture x x x#9 without e+en

gi+ing prior notice to petitioners" There was also a clause in thepromissory note that stated that i the same is not paid yearsater release then it shall be con+erted to a medium term loan Rand the interest rate or such loan would apply"

4ater on# Sampaguita deaulted on its payments and ailed tocomply with obligations on promissory notes" Sampaguita thusrequested or a DJ day extension to pay the loan" Again theydeaulted# so they asked or loan restructuring" .t partly paid theloan and promised to pay the balance later on" A6A.5 they ailedto pay so (5B extra2udicially oreclosed the mortgaged properties".t was sold or J>" (5B claimed that Sampaguita owed it > sothey Gled a case in court asking sampaguita to pay or deGciency"

3TC ound that Sampaguita was automatically entitled to the debtrelie package o (5B and ruled that the latter had no cause o


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action against the ormer" CA re+ersed# saying Sampaguita wasnot entitled# thus ordered them to pay the deGciency R Appeal [0ent to SC" Sampaguita claims the loan was bloated so they dontreally owe (5B anymore# but it 2ust o+ercharged them\

.ssues,3uling?0,5 the loan accounts are bloated? 7ES" There is no deGciency*there is actually an o+erpayment o more than > based on thecomputation o the SC"0hether (5B could unilaterally increase interest rates? 5%

3atio?Sampaguitas accessory duty to pay interest did not gi+e (5Bunrestrained reedom to charge any rate other than that which

was agreed upon" 5o interest shall be due# unless expresslystipulated in writing" .t would be the -enith o arcicality to speciyand agree upon rates that could be subsequently upgraded atwhim by only one party to the agreement"

The 8unilateral determination and imposition9 o increased ratesis 8+iolati+e o the principle o mutuality o contracts ordained inArticle J o the Ci+il Code"9 %ne1sided impositions do not ha+ethe orce o law between the parties# because such impositions

are not based on the parties essential equality"

Although escalation clauses are +alid in maintaining Gscal stabilityand retaining the +alue o money on long1term contracts# gi+ingrespondent an unbridled right to ad2ust the interest independentlyand upwardly would completely take away rom petitioners the8right to assent to an important modiGcation in their agreement9and would also negate the element o mutuality in their contracts"

The clause cited earlier made the ulGllment o the contracts8dependent exclusi+ely upon the uncontrolled will9 o respondentand was thereore +oid" Besides# the pro orma promissory notesha+e the character o a contract dadh]sion# 8where the partiesdo not bargain on equal ooting# the weaker partys Lthe debtorsMparticipation being reduced to the alternati+e Wto take it or lea+eit"9


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Circular that lited the ceiling o interest rates o usury law did notauthori-e either party to unilaterally raise the interest ratewithout the others consent"

the interest ranging rom H percent to percent in thestatements o account 11 8must be equitably reduced or beinginiquitous# unconscionable and exorbitant"9 3ates ound to beiniquitous or unconscionable are +oid# as i it there were noexpress contract thereon" Abo+e all# it is undoubtedly againstpublic policy to charge excessi+ely or the use o money"

.t cannot be argued that assent to the increases can be impliedeither rom the =une # DD request o petitioners or loanrestructuring or rom their lack o response to the statements o

account sent by respondent" Such request does not indicate anyagreement to an interest increase* there can be no implied wai+ero a right when there is no clear# unequi+ocal and decisi+e actshowing such purpose" Besides# the statements were not letterso inormation sent to secure their conormity* and e+en i wewere to presume these as an o:er# there was no acceptance" 5oone recei+ing a proposal to modiy a loan contract# especiallyinterest 11 a +ital component 11 is 8obliged to answer theproposal"9

Besides# (5B did not comply with its own stipulation that shouldthe loan not be paid years ater release o money then it shallbe con+erted to a medium term loan"

^Court applied N interest rate instead or being a orbearanceo money

&there were some pieces o e+idence presented by (5B in courtthat sampaguita ob2ected to" 4ower courts o+erruled theob2ections but SC said the ob2ections were correct and thee+idence should not ha+e been admitted" i"e" contract wasntsigned by the parties# a part o the contract wasnt properlyannexed,no reerence was made in the main contract"'


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.n addition to the preceding discussion# it is then useless to laborthe point that the increase in rates +iolates the impairment clauseo the Constitution# because the sole purpose o this pro+ision isto saeguard the integrity o +alid contractual agreements against

unwarranted intererence by the State in the orm o laws" (ri+ateindi+iduals intrusions on interest rates is go+erned by statutoryenactments like the Ci+il Code

' 3ural Bank o San >iguel +s >onetary Board.t is well1settled that the closure o a bank may be considered asan exercise o police power" The action o the >B on this matter isGnal and executory" Such exercise may nonetheless be sub2ect to

2udicial inquiry and can be set aside i ound to be in excess o2urisdiction or with such gra+e abuse o discretion as to amount tolack or excess o 2urisdiction"

Facts? >onetary Board &>B'# the go+erning board o respondentBangko Sentral ng (ilipinas &BS('# issued 3esolution 5o" Jprohibiting 3BS> rom doing business in the (hilippines# placing itunder recei+ership and designating respondent (hilippine $eposit.nsurance Corporation &($.C' as recei+er on the basis o thecomptrollership reports o the banks super+ising head" To assistits impaired liquidity and operations# the 3BS> was grantedemergency loans on di:erent occasions in the aggregate amount

o (I" As early as 5o+ember # DD# 4and Bank o the(hilippines &4B(' ad+ised 3BS> that it will terminate the clearingo 3BS>s checks in +iew o the latters requent clearing lossesand continuing ailure to replenish its Special Clearing $emand$eposit with 4B(" The BS( interceded with 4B( not to terminatethe clearing arrangement o 3BS> to protect the interests o3BS>s depositors and creditors" %n the basis o reports preparedby ($.C stating that 3BS> could not resume business withsuKcient assurance o protecting the interest o its depositors#

creditors and the general public# the >B passed 3esolution 5o"DHH directing ($.C to proceed with the liquidation o 3BS> underSection J o 3A IH"

.ssue? 0hether or not the >onetary Board can unilaterally close abank without prior hearing


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)eld? 5o" .t is well1settled that the closure o a bank may beconsidered as an exercise o police power" The action o the >B onthis matter is Gnal and executory" Such exercise may nonethelessbe sub2ect to 2udicial inquiry and can be set aside i ound to be in

excess o 2urisdiction or with such gra+e abuse o discretion as toamount to lack or excess o 2urisdiction"

This case essentially boils down to one core issue? whetherSection J o 3A IH &also known as the 5ew Central Bank Act'and applicable 2urisprudence require a current and completeexamination o the bank beore it can be closed and placed underrecei+ership" The actions o the >onetary Board taken under thissection or under Section D o this Act shall be Gnal andexecutory# and may not be restrained or set aside by the court

except on petition or certiorari on the ground that the actiontaken was in excess o 2urisdiction or with such gra+e abuse odiscretion as to amount to lack or excess o 2urisdiction" Thepetition or certiorari may only be Gled by the stockholders orecord representing the ma2ority o the capital stock within ten&J' days rom receipt by the board o directors o the institutiono the order directing recei+ership# liquidation or conser+atorship"

' Banco Filipino Sa+ings Bank +s 7bane-(etition or 3e+iew on Certiorari under 3ule @ o the DDI 3ules

o Ci+il (rocedure# as amended# assailing the $ecision o theCourt o Appeals in CA16"3" C! 5o" @II promulgated onFebruary # JJ and its 3esolution dated >ay J# JJ"

%n February # D# spouses


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petitioners shall be liable or ten percent &JN' o the amount dueas attorneys ees and Gteen percent &N' o the amount due asliquidated damages"

As security or the loan# petitioners mortgaged with respondentbank their parcel o land located in $agupan City# (angasinan#registered under Transer CertiGcate o Title 5o" @JI"

From >arch # D to =uly J# DD# petitioners paid respondentbank (@# DD"H" Thereater# they ailed to pay the remainingbalance o the loan"

%n August I# DD# petitioners recei+ed rom respondent bank astatement o account stating that their indebtedness as o =uly #

DD amounts to (@J#@"H"

.n its letter dated =anuary # DD# respondent bank inormedpetitioners that should they ail to pay their loan within Gteen&' days rom notice# appropriate action shall be taken againstthem"

$ue to petitioners ailure to settle their obligation# respondentinstituted# on >arch # DD# an action or extra12udicial

oreclosure o mortgage"

(rior thereto# or on February # DD# petitioners Gled with Branch@J o the same 3TC# a complaint or +iolation o the /sury 4awagainst respondent# docketed as Ci+il Case 5o" $1J@J" Theyalleged that the pro+isions o the promissory note constitute ausurious transaction considering the &' rate o interest# &' therate o penalties# ser+ice charge# attorneys ees and liquidateddamages# and &' deductions or surcharges and insurancepremium" .n their amended complaint# petitioners urther allegedthat# during the closure o respondent bank# it ceased to be abanking institution and# thereore# could not charge interests andinstitute oreclosure proceeding"

%n August # DD@# the 3TC rendered its decision dismissingpetitioners complaint# holding that?


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&' The terms and conditions o the $eed o >ortgage and the(romissory 5ote are legal and not usurious"

The plainti: reely signed the $eed o >ortgage and the(romissory 5ote with ull knowledge o its terms and conditions"

The interest rate o @N per annum is not usurious and does not+iolate the /sury 4aw &Act H' as amended by ("$" 5o" HH"

The rate o interest# including commissions# premiums# ees andother charges# on a loan or orbearance o any money etc"#regardless o maturity x x x# shall not be sub2ect to any ceilingunder or pursuant to the /sury 4aw# as amended &CB Circular no"

DJ'" )ence# the @N interest per annum is allowed under ("$"5o" HH"

For sometime now# usury has been legally non1existent" .nterestcan now be as lender and borrower may agree upon &!erde2o +"CA# =an" D# D" I SC3A I@'"

The imposition o penalties in case the obligation is not ulGlled isnot prohibited by the /sury 4aw" (arties to a contract o loan may

+alidly agree upon the imposition o penalty charges in case odelay or non1payment o the loan" The purpose is to compel thedebtor to pay his debt on time &6o Chioco +" >artine-# @ (hil"H# H'"

&' The closure o Banco Filipino did not suspend or stop its usualand normal banking operations like the collection o loanrecei+ables and oreclosures o mortgages"

.n +iew o the oregoing# plainti:s ailed to substantiate theircause o action against the deendant"

%n appeal# the Court o Appeals rendered its $ecision aKrmingthe $ecision o the trial court" (etitioners subsequent motion orreconsideration was denied"


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)ence# this present petition or re+iew on certiorari raising thislone issue? whether the interest rate is Pexcessi+e andunconscionable"P

.t is the petitioners contention that while the /sury 4aw ceiling oninterest rates was lited by Central Bank Circular 5o" DJ# there isnothing in the said circular which grants respondent bank carteblanche authority to raise interest rates to le+els which Peitherensla+e the borrower or lead to a hemorrhaging o their assets"P

.n its comment @ # respondent bank maintained that petitioner# bysigning the $eed o >ortgage and (romissory 5ote# knowinglyand reely consented to its terms and conditions" A contractbetween the parties

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