Banking Sept 6

8/11/2019 Banking Sept 6

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TERESITA DIO, peti t ioner, vs.SPOUSES VIRGILIO and LUZ ROCESJAPOR and MARTA[1]JAPOR, respondents.

D E C I S I O N

QUISUMBING, J.:

For review on certiorariis the Decision,[2]dated February 22, 2002, of theCourt of Appeals, in the consolidated cases CA-G.R. CV No. 51521 and CA-G.R. SP No. 40457. The decretal portion read:

WHEREFORE, premises considered, in CA-G.R. CV No. 51521, the decision of thetrial court is AFFIRMED with MODIFICATION. Judgment is rendered as follows:

1. Declaring the Real Estate Mortgage to be valid;

2. Fixing the interest at 12% per annum and an additional 1% penalty charge permonth such that plaintiffs-appellants contractual obligation under the deed of realestate mortgage would amount toP1,252,674.00;

3. Directing defendant-appellee Dio to give the surplus of P2,247,326.00 to plaintiffs-appellants; and

4. Affirming the dissolution of the writ of preliminary injunction previously issued by thetrial court.

No pronouncement as to costs.

The Petition in CA-G.R. SP No. 40457 is DENIED for being moot and academic.

SO ORDERED.[3]

Equally assailed in this petition is the Resolution,[4]dated July 2, 2002, ofthe appellate court, denying Teresita DiosMotion for PartialReconsiderationof March 19, 2002 and the Spouses Japor and MartaJaporsMotion for Reconsiderationdated March 20, 2002.

The antecedent facts are as follows:

Herein respondents Spouses Virgilio Japor and Luz Roces Japor were theowners of an 845.5 square-meter residential lot including its improvements,situated in Barangay Ibabang Mayao, Lucena City, as shown by TransferCertificate of Title (TCT) No. T-39514. Adjacent to the Japors lot is anotherlot owned by respondent Marta Japor, which consisted of 325.5 squaremeters and titled under TCT No. T-15018.
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On August 23, 1982, the respondents obtained a loan of P90,000 from theQuezon Development Bank (QDB), and as security therefor, they mortgagedthe lots covered by TCT Nos. T-39514 and T-15018 to QDB, as evidenced bya Deed of Real Estate Mortgage duly executed by and between therespondents and QDB.

On December 6, 1983, respondents and QDB amended the Deed of RealEstate Mortgage increasing respondents loan toP128,000.

The respondents failed to pay their aforesaid loans. However, before thebank could foreclose on the mortgage, respondents, thru their broker, oneLucia G. Orian, offered to mortgage their properties to petitioner TeresitaDio. Petitioner prepared a Deed of Real Estate Mortgage, wherebyrespondents mortgaged anew the two properties already mortgaged with QDBto secure the timely payment of a P350,000 loan that respondents had frompetitioner Dio. The Deed of Real Estate Mortgage, though dated January1989, was actually executed on February 13, 1989 and notarized on February17, 1989.

Under the terms of the deed, respondents agreed to pay the petitionerinterest at the rate of five percent (5%) a month, within a period of two monthsor until April 14, 1989. In the event of default, an additional interest equivalentto five percent (5%) of the amount then due, for every month of delay, wouldbe charged on them.

The respondents failed to settle their obligation to petitioner on April 14,1989, the agreed deadline for settlement.

On August 27, 1991, petitioner made written demands upon therespondents to pay their debt.

Despite repeated demands, respondents did not pay, hence petitionerapplied for extrajudicial foreclosure of the mortgage. The auction of theunredeemed properties was set for February 26, 1992.

Meanwhile, on February 24, 1992, respondents filed an action for Fixingof Contractual Obligation with Prayer for Preliminary MandatoryInjunction/Restraining Order, docketed as Civil Case No. 92-26, with the

Regional Trial Court (RTC) of Lucena City. Respondents prayed thatjudgment be rendered fixing the contractual obligations of plaintiffs with thedefendant Dio plus legal or allowable interests thereon.[5]

The trial court issued an Order enjoining the auction sale of theaforementioned mortgaged properties.
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On June 15, 1992, the Japors filed a Motion to Admit AmendedComplaintwith an attached copy of their Amended Complaintpraying thatthe Deed of Real Estate Mortgage dated February 13, 1989 be declared nulland void, but reiterating the plea that the trial court fix the contractualobligations of the Japors with Dio. The trial court denied the motion.

On September 27, 1994, respondents filed with the appellate court, apetition for certiorari, docketed as CA-G.R. SP No. 35315, praying that theCourt of Appeals direct the trial court to admit their Amended Complaint. Theappellate court denied said petition.[6]

On December 11, 1995, the trial court handed down the followingjudgment:

WHEREFORE, in view of the foregoing considerations, judgment is rendered:

1. Dismissing the complaint for failure of the plaintiffs to substantiate their affirmativeallegations;

2. Declaring the Real Estate Mortgage (Exhs. A to A-13/Exhs. 3 to 3-D) to bevalid and binding as between the parties, more particularly the plaintiffs VirgilioJapor, Luz Japor and Marta Japor or the latters substituted heir or heirs, as thecase may be;

3. Dissolving the writ of preliminary injunction previously issued by this Court; and

4. To pay the cost of this suit.

SO ORDERED.[7]

On January 17, 1996, respondents filed their notice of appeal. On April26, 1996, they also filed a Petition for Temporary Restraining OrderAnd/Or Mandatory Injunction in Aid of Appellate Jurisdictionwith theCourt of Appeals.

On May 8, 1996, petitioner Dio as the sole bidder in an auction purchasedthe properties for P3,500,000.

On May 9, 1996, the Court of Appeals denied respondents application fora temporary restraining order.[8]

On October 9, 1996, the appellate court consolidated CA-G.R. CV No.51521 and CA-G.R. SP No. 40457.

As stated at the outset, the appellate court affirmed the decision of the trialcourt with respect to the validity of the Deed of Real Estate Mortgage, butmodified the interest and penalty rates for being unconscionable andexorbitant.
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Before us, petitioner assigns the following errors allegedly committed bythe appellate court:

I

THE ALLEGED INIQUITY OF THE STIPULATED INTEREST AND PENALTYWAS NOT RAISED BEFORE THE TRIAL COURT NOR ASSIGNED AS ANERROR IN RESPONDENTS APPEAL.

II

THE STIPULATED INTEREST AND PENALTY ARE NOT EXCESSIVE,

INIQUITOUS, UNCONSCIONABLE, EXORBITANT AND CONTRARY TOMORAL[S].

III

PAYMENT OF THE SURPLUS OFP2,247,326.00 TO RESPONDENTS WOULDRESULT IN THEIR UNJUST ENRICHMENT.

IV

RESPONDENTS APPEAL SHOULD HAVE BEEN DISMISSED DUE TO FORUM

SHOPPING.[9]

Simply stated, the issue is: Did the Court of Appeals err when it held that

the stipulations on interest and penalty in the Deed of Real Estate Mortgage iscontrary to morals, if not illegal? Corollarily, were respondents entitled to anysurplus on the auction sale price?

On the main issue, petitioner contends that The Usury Law [10]has beenrendered ineffective by Central Bank Circular No. 905, series of 1982 andaccordingly, usury has become legally non-existent in this jurisdiction, thus,interest rates may accordingly be pegged at such levels or rates as the lenderand the borrower may agree upon. Petitioner avers she has not violated anylaw considering she is not engaged in the business of money-lending. Moreover, she claims she has suffered inconveniences and incurred

expenses for some 13 years now as a result of respondents failure to payher. Petitioner further points out that the 5% interest rate was proposed bythe respondents and have only themselves to blame if the interests andpenalties ballooned to its present amount due to their willful delay and defaultin payment. The appellate court thus erred, petitioner now insists, inapplying Sps. Almeda v. Court of Appeals[11]and Medel v. Court of Appeals[12]toreduce the interest rate to 12%per annum and the penalty to 1% per month.
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Respondents admit they owe petitioner P350,000 and do not question anylawful interest on their loan but they maintain that the Deed of Real EstateMortgage is null and void since it did not state the true intent of the parties,which limited the 5% interest rate to only two (2) months from the date of theloan and which did not provide for penalties and other charges in the event of

default or delay. Respondents vehemently contend that they never consentedto the said stipulations and hence, should not be bound by them.

On the first issue, we are constrained to rule against the petitionerscontentions.

Central Bank Circular No. 905, which took effect on January 1, 1983,effectively removed the ceiling on interest rates for both secured andunsecured loans, regardless of maturity. However, nothing in said Circulargrants lenders carte blanche authority to impose interest rates which wouldresult in the enslavement of their borrowers or to the hemorrhaging of theirassets.[13]While a stipulated rate of interest may not technically and necessarilybe usurious under Circular No. 905, usury now being legally non-existent inour jurisdiction,[14]nonetheless, said rate may be equitably reduced should thesame be found to be iniquitous, unconscionable, and exorbitant, and hence,contrary to morals (contra bonosmores), if not against the law.[15]What isiniquitous, unconscionable, and exorbitant shall depend upon the factualcircumstances of each case.

In the instant case, the Court of Appeals found that the 5% interest rateper month and 5% penalty rate per month for every month of default or delay

is in reality interest rate at 120%per annum. This Court has held that astipulated interest rate of 5.5% per month or 66%per annum is void for beinginiquitous or unconscionable.[16]We have likewise ruled that an interest rate of6% per month or 72%per annumis outrageous and inordinate.[17]Conformablyto these precedent cases, a combined interest and penalty rate at 10% permonth or 120%per annum, should be deemed iniquitous, unconscionable,and inordinate. Hence, we sustain the appellate court when it found theinterest and penalty rates in the Deed of Real Estate Mortgage in the presentcase excessive, hence legally impermissible. Reduction is legally called fornow in rates of interest and penalty stated in the mortgage contract.

What then should the interest and penalty rates be?

The evidence shows that it was indeed the respondents who proposed the5% interest rate per month for two (2) months. Having agreed to said rate, theparties are now estopped from claiming otherwise. For the succeeding periodafter the two months, however, the Court of Appeals correctly reduced the
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interest rate to 12%per annum and the penalty rate to 1% per month, inaccordance with Article 2227[18]of the Civil Code.

But were respondents entitled to the surplus ofP2,247,326[19]as a resultof the overpricing in the auction?

We note that the surplus was the result of the computation by the Courtof Appeals of respondents outstanding liability based on a reduced interestrate of 12%per annum and the reduced penalty rate of 1% per month. Thecourt a quothen proceeded to apply our ruling in Sulit v. Court of Appeals,[20]tothe effect that in case of surplus in the purchase price, the mortgagee is liablefor such surplus as actually comes into his hands, but where he sells on creditinstead of cash, he must still account for the proceeds as if the price werepaid in cash, for such surplus stands in the place of the land itself with respectto liens thereon or vested rights therein particularly those of the mortgagor orhis assigns.

In the instant case, however, there is no surplus to speak of. In adjustingthe interest and penalty rates to equitable and conscionable levels, what theCourt did was merely to reflect the true price of the land in the foreclosuresale. The amount of the petitioners bid merely represented the true amount ofthe mortgage debt. No surplus in the purchase price was thus created towhich the respondents as the mortgagors have a vested right.

WHEREFORE,the Decision dated February 22, 2002, of the Court ofAppeals in the consolidated cases CA-G.R. CV No. 51521 and CA-G.R. SPNo. 40457 is hereby AFFIRMED with MODIFICATION. The interest rate forthe subject loan owing to QDB, or whoever is now the party mortgagee, ishereby fixed at five percent (5%) for the first two (2) months following the dateof execution of the Deed of Real Estate Mortgage, and twelve percent (12%)for the succeeding period. The penalty rate thereafter shall be fixed at onepercent (1%) per month. Petitioner Teresita Dio is declared free of anyobligation to return to the respondents, the Spouses Virgilio Japor and LuzRoces Japor and Marta Japor, any surplus in the foreclosure saleprice. There being no surplus, after the court below had applied our rulingin Sulit,[21]respondents could not legally claim any overprice from the petitioner,

much less the amount of P2,247,326.00.SO ORDERED.

THE CONSOLIDATED BANK AND TRUST CORPORATION

(SOLIDBANK), petitioner, vs. THE COURT OF APPEALS,
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CONTINENTAL CEMENT CORPORATION, GREGORY T. LIM

and SPOUSE, respondents.

D E C I S I O N

YNARES-SANTIAGO,J

.:

The instant petition for review seeks to partially set aside the July 26, 1993Decision[1]of respondent Court of Appeals in CA-G.R. CV No. 29950, insofar as itorders petitioner to reimburse respondent Continental Cement Corporation the amountof P490,228.90 with interest thereon at the legal rate from July 26, 1988 until fullypaid. The petition also seeks to set aside the March 8, 1994 Resolution[2]ofrespondent Court of Appeals denying its Motion for Reconsideration.

The facts are as follows:

On July 13, 1982, respondents Continental Cement Corporation (hereinafter,respondent Corporation) and Gregory T. Lim (hereinafter, respondent Lim) obtainedfrom petitioner Consolidated Bank and Trust Corporation Letter of Credit No. DOM-23277 in the amount of P1,068,150.00 On the same date, respondent Corporationpaid a marginal deposit of P320,445.00 to petitioner. The letter of credit was used topurchase around five hundred thousand liters of bunker fuel oil from PetrophilCorporation, which the latter delivered directly to respondent Corporation in itsBulacan plant. In relation to the same transaction, a trust receipt for the amount ofP1,001,520.93 was executed by respondent Corporation, with respondent Lim assignatory.

Claiming that respondents failed to turn over the goods covered by the trustreceipt or the proceeds thereof, petitioner filed a complaint for sum of money withapplication for preliminary attachment[3]before the Regional Trial Court of Manila. Inanswer to the complaint, respondents averred that the transaction between them was asimple loan and not a trust receipt transaction, and that the amount claimed bypetitioner did not take into account payments already made by them. Respondent Limalso denied any personal liability in the subject transactions. In a SupplementalAnswer, respondents prayed for reimbursement of alleged overpayment to petitionerof the amount of P490,228.90.

At the pre-trial conference, the parties agreed on the following issues:

1) Whether or not the transaction involved is a loan transaction or a trustreceipt transaction;
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2) Whether or not the interest rates charged against the defendants by theplaintiff are proper under the letter of credit, trust receipt and under existing rules orregulations of the Central Bank;

3) Whether or not the plaintiff properly applied the previous payment ofP300,456.27 by the defendant corporation on July 13, 1982 as payment for the lattersaccount; and

4) Whether or not the defendants are personally liable under the transactionsued for in this case.[4]

On September 17, 1990, the trial court rendered its Decision,[5]dismissing theComplaint and ordering petitioner to pay respondents the following amounts undertheir counterclaim: P490,228.90 representing overpayment of respondentCorporation, with interest thereon at the legal rate from July 26, 1988 until fully paid;

P10,000.00 as attorneys fees; and costs.

Both parties appealed to the Court of Appeals, which partially modified theDecision by deleting the award of attorneys fees in favor of respondents and, instead,

ordering respondent Corporation to pay petitioner P37,469.22 as and for attorneysfees and litigation expenses.

Hence, the instant petition raising the following issues:

1. WHETHER OR NOT THE RESPONDENT APPELLATE COURT ACTEDINCORRECTLY OR COMMITTED REVERSIBLE ERROR IN HOLDING THAT

THERE WAS OVERPAYMENT BY PRIVATE RESPONDENTS TO THEPETITIONER IN THE AMOUNT OF P490,228.90 DESPITE THE ABSENCE OFANY COMPUTATION MADE IN THE DECISION AND THE ERRONEOUSAPPLICATION OF PAYMENTS WHICH IS IN VIOLATION OF THE NEWCIVIL CODE.

2. WHETHER OR NOT THE MANNER OF COMPUTATION OF THEMARGINAL DEPOSIT BY THE RESPONDENT APPELLATE COURT IS INACCORDANCE WITH BANKING PRACTICE.

3. WHETHER OR NOT THE AGREEMENT AMONG THE PARTIES ASTO THE FLOATING OF INTEREST RATE IS VALID UNDER APPLICABLEJURISPRUDENCE AND THE RULES AND REGULATIONS OF THE CENTRALBANK.

4. WHETHER OR NOT THE RESPONDENT APPELLATE COURTGRIEVOUSLY ERRED IN NOT CONSIDERING THE TRANSACTION AT BAR
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AS A TRUST RECEIPT TRANSACTION ON THE BASIS OF THE JUDICIALADMISSIONS OF THE PRIVATE RESPONDENTS AND FOR WHICHRESPONDENTS ARE LIABLE THEREFOR.

5. WHETHER OR NOT THE RESPONDENT APPELLATE COURT

GRIEVOUSLY ERRED IN NOT HOLDING PRIVATE RESPONDENT SPOUSESLIABLE UNDER THE TRUST RECEIPT TRANSACTION.[6]

The petition must be denied.

On the first issue respecting the fact of overpayment found by both the lowercourt and respondent Court of Appeals, we stress the time-honored rule that findingsof fact by the Court of Appeals especially if they affirm factual findings of the trialcourt will not be disturbed by this Court, unless these findings are not supported byevidence.[7]

Petitioner decries the lack of computation by the lower court as basis for its rulingthat there was an overpayment made. While such a computation may not haveappeared in the Decision itself, we note that the trial courts finding of overpayment issupported by evidence presented before it. At any rate, we painstakingly reviewedand computed the payments together with the interest and penalty charges due thereonand found that the amount of overpayment made by respondent Bank topetitioner, i.e.,P563,070.13, was more than what was ordered reimbursed by thelower court. However, since respondents did not file an appeal in this case, theamount ordered reimbursed by the lower court should stand.

Moreover, petitioners contention that the marginal deposit made by respondentCorporation should not be deducted outright from the amount of the letter of credit isuntenable. Petitioner argues that the marginal deposit should be considered only aftercomputing the principal plus accrued interests and other charges. However, to sustainpetitioner on this score would be to countenance a clear case of unjust enrichment, forwhile a marginal deposit earns no interest in favor of the debtor-depositor, the bank isnot only able to use the same for its own purposes, interest-free, but is also able toearn interest on the money loaned to respondent Corporation. Indeed, it would beonerous to compute interest and other charges on the face value of the letter of creditwhich the petitioner issued, without first crediting or setting off the marginal deposit

which the respondent Corporation paid to it. Compensation is proper and should takeeffect by operation of law because the requisites in Article 1279 of the Civil Code arepresent and should extinguish both debts to the concurrent amount.[8]

Hence, the interests and other charges on the subject letter of credit should becomputed only on the balance of P681,075.93, which was the portion actually loanedby the bank to respondent Corporation.
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Neither do we find error when the lower court and the Court of Appeals set asideas invalid the floating rate of interest exhorted by petitioner to be applicable. Thepertinent provision in the trust receipt agreement of the parties fixing the interest ratestates:

I, WE jointly and severally agree to any increase or decrease in the interest rate whichmay occur after July 1, 1981, when the Central Bank floated the interest rate, and topay additionally the penalty of 1% per month until the amount/s or installment/s dueand unpaid under the trust receipt on the reverse side hereof is/are fully paid.[9]

We agree with respondent Court of Appeals that the foregoing stipulation isinvalid, there being no reference rate set either by it or by the Central Bank, leavingthe determination thereof at the sole will and control of petitioner.

While it may be acceptable, for practical reasons given the fluctuating economic

conditions, for banks to stipulate that interest rates on a loan not be fixed and insteadbe made dependent upon prevailing market conditions, there should always be areference rate upon which to peg such variable interest rates. An example of such avalid variable interest rate was found inPolotan, Sr. v. Court of Appeals.[10]In thatcase, the contractual provision stating that if there occurs any change in the

prevailing market rates, the new interest rate shall be the guiding ratein computingthe interest due on the outstanding obligation without need of serving notice to theCardholder other than the required posting on the monthly statement served to theCardholder[11]was considered valid. The aforequoted provision was upheldnotwithstanding that it may partake of the nature of an escalation clause, because at

the same time it provides for the decrease in the interest rate in case the prevailingmarket rates dictate its reduction. In other words, unlike the stipulation subject of theinstant case, the interest rate involved in thePolotan case is designed to be based onthe prevailing market rate. On the other hand, a stipulation ostensibly signifying anagreement to any increase or decrease in the interest rate, without more, cannot be

accepted by this Court as valid for it leaves solely to the creditor the determination ofwhat interest rate to charge against an outstanding loan.

Petitioner has also failed to convince us that its transaction with respondentCorporation is really a trust receipt transaction instead of merely a simple loan, asfound by the lower court and the Court of Appeals.

The recent case of Colinares v. Court of Appeals[12]appears to be foursquare withthe facts obtaining in the case at bar. There, we found that inasmuch as the debtorreceived the goods subject of the trust receipt before the trust receipt itself was enteredinto, the transaction in question was a simple loan and not a trust receiptagreement. Prior to the date of execution of the trust receipt, ownership over thegoods was already transferred to the debtor. This situation is inconsistent with what
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normally obtains in a pure trust receipt transaction, wherein the goods belong inownership to the bank and are only released to the importer in trust after the loan isgranted.

In the case at bar, as in Colinares, the delivery to respondent Corporation of the

goods subject of the trust receipt occurred long before the trust receipt itself wasexecuted. More specifically, delivery of the bunker fuel oil to respondentCorporations Bulacan plant commenced on July 7, 1982 and was completed by July

19, 1982.[13]Further, the oil was used up by respondent Corporation in its normaloperations by August, 1982.[14]On the other hand, the subject trust receipt was onlyexecuted nearly two months after full delivery of the oil was made to respondentCorporation, or on September 2, 1982.

The danger in characterizing a simple loan as a trust receipt transaction wasexplained in Colinares, to wit:

The Trust Receipts Law does not seek to enforce payment of the loan, rather itpunishes the dishonesty and abuse of confidence in the handling of money or goods tothe prejudice of another regardless of whether the latter is the owner. Here, it iscrystal clear that on the part of Petitioners there was neither dishonesty nor abuse ofconfidence in the handling of money to the prejudice of PBC. Petitioners continuallyendeavored to meet their obligations, as shown by several receipts issued by PBCacknowledging payment of the loan.

The Information charges Petitioners with intent to defraud and misappropriating themoney for their personal use. The mala prohibitanature of the alleged offensenotwithstanding, intent as a state of mind was not proved to be present in Petitioners

situation. Petitioners employed no artifice in dealing with PBC and never did theyevade payment of their obligation nor attempt to abscond. Instead, Petitioners soughtfavorable terms precisely to meet their obligation.

Also noteworthy is the fact that Petitioners are not importers acquiring the goods forre-sale, contrary to the express provision embodied in the trust receipt. They arecontractors who obtained the fungible goods for their construction project. At no timedid title over the construction materials pass to the bank, but directly to the Petitionersfrom CM Builders Centre. This impresses upon the trust receipt in questionvagueness and ambiguity, which should not be the basis for criminal prosecution inthe event of violation of its provisions.

The practice of banks of making borrowers sign trust receipts to facilitate collection ofloans and place them under the threats of criminal prosecution should they be unableto pay it may be unjust and inequitable, if not reprehensible. Such agreements arecontracts of adhesion which borrowers have no option but to sign lest their loan be


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disapproved. The resort to this scheme leaves poor and hapless borrowers at themercy of banks, and is prone to misinterpretation, as had happened in thiscase. Eventually, PBC showed its true colors and admitted that it was only aftercollection of the money, as manifested by its Affidavit of Desistance.

Similarly, respondent Corporation cannot be said to have been dishonest in itsdealings with petitioner. Neither has it been shown that it has evaded payment of itsobligations. Indeed, it continually endeavored to meet the same, as shown by thevarious receipts issued by petitioner acknowledging payment on the loan. Certainly,the payment of the sum of P1,832,158.38 on a loan with a principal amount of onlyP681,075.93 negates any badge of dishonesty, abuse of confidence or mishandling offunds on the part of respondent Corporation, which are the gravamen of a trust receiptviolation. Furthermore, respondent Corporation is not an importer which acquired thebunker fuel oil for re-sale; it needed the oil for its own operations. More importantly,at no time did title over the oil pass to petitioner, but directly to respondentCorporation to which the oil was directly delivered long before the trust receipt wasexecuted. The fact that ownership of the oil belonged to respondent Corporation,through its President, Gregory Lim, was acknowledged by petitioners own account

officer on the witness stand, to wit:

Q - After the bank opened a letter of credit in favor of Petrophil Corp. for the account of thedefendants thereby paying the value of the bunker fuel oil what transpired next after that?

A - Upon purchase of the bunker fuel oil and upon the requests of the defendant possession of thebunker fuel oil were transferred to them.

Q - You mentioned them to whom are you referring to?

A - To the Continental Cement Corp. upon the execution of the trust receipt acknowledging theownership of the bunker fuel oil this should be acceptable for whatever disposition he may make.

Q - You mentioned about acknowledging ownership of the bunker fuel oil to whom by whom?

A - By the Continental Cement Corp.

Q - So by your statement who really owns the bunker fuel oil?

ATTY. RACHON:

Objection already answered.

COURT:

Give time to the other counsel to object.

ATTY. RACHON:

He has testified that ownership was acknowledged in favor of Continental Cement Corp. so thatquestion has already been answered.

ATTY. BAAGA:

That is why I made a follow up question asking ownership of the bunker fuel oil.


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COURT:

Proceed.

ATTY. BAAGA:

Q - Who owns the bunker fuel oil after purchase from Petrophil Corp.?

A - Gregory Lim.[15]

By all indications, then, it is apparent that there was really no trust receipttransaction that took place. Evidently, respondent Corporation was required to signthe trust receipt simply to facilitate collection by petitioner of the loan it had extendedto the former.

Finally, we are not convinced that respondent Gregory T. Lim and his spouseshould be personally liable under the subject trust receipt. Petitioners argument thatrespondent Corporation and respondent Lim and his spouse are one and the samecannot be sustained. The transactions sued upon were clearly entered into byrespondent Lim in his capacity as Executive Vice President of respondentCorporation. We stress the hornbook law that corporate personality is a shield againstpersonal liability of its officers. Thus, we agree that respondents Gregory T. Lim andhis spouse cannot be made personally liable since respondent Lim entered into andsigned the contract clearly in his official capacity as Executive Vice President. Thepersonality of the corporation is separate and distinct from the persons composing it.[16]

WHEREFORE, in view of all the foregoing, the instant Petition for Review isDENIED. The Decision of the Court of Appeals dated July 26, 1993 in CA-G.R. CVNo. 29950 is AFFIRMED.

SO ORDERED.

ILEANA DR. MACALINAO,Petitioner,

- versus -

BANK OF THE

PHILIPPINEISLANDS,Respondent.

.

G.R. No. 175490

Present:

YNARES-SANTIAGO,J.,Chairperson,

CHICO-NAZARIO,VELASCO, JR.,ACHURA, and

PERALTA,JJ.

Promulgated:


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September 17, 2009x-----------------------------------------------------------------------------------------x

D E C I S I O N

VELASCO, JR., J.:

The Case

Before us is a Petition for Review on Certiorari under Rule 45 of the Rules

of Court seeking to reverse and set aside the June 30, 2006 Decision [1]of the Courtof Appeals (CA) and its November 21, 2006 Resolution[2]denying petitionersmotion for reconsideration.

The Facts

Petitioner Ileana Macalinao was an approved cardholder of BPI Mastercard,

one of the credit card facilities of respondent Bank of the Philippine Islands(BPI).[3] Petitioner Macalinao made some purchases through the use of the said

credit card and defaulted in paying for said purchases. She subsequently received a

letter dated January 5, 2004 from respondent BPI, demanding payment of the

amount of one hundred forty-one thousand five hundred eighteen pesos and thirty-

four centavos (PhP 141,518.34), as follows:

Statement

Date

Previous

Balance

Purchases

(Payments)

Penalty

Interest

Finance

Charges

Balance Due

10/27/2002 94,843.70 559.72 3,061.99 98,456.4111/27/2002 98,465.41 (15,000) 0 2,885.61 86,351.0212/31/2002 86,351.02 30,308.80 259.05 2,806.41 119,752.281/27/2003 119,752.28 618.23 3,891.07 124,234.582/27/2003 124,234.58 990.93 4,037.62 129,263.133/27/2003 129,263.13 (18,000.00) 298.72 3,616.05 115,177.90
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4/27/2003 115,177.90 644.26 3,743.28 119,565.445/27/2003 119,565.44 (10,000.00) 402.95 3,571.71 113,540.106/29/2003 113,540.10 8,362.50

(7,000.00)323.57 3,607.32 118,833.49

7/27/2003 118,833.49 608.07 3,862.09 123,375.65

8/27/2003 123,375.65 1,050.20 4,009.71 128,435.569/28/2003 128,435.56 1,435.51 4,174.16 134,045.2310/28/200311/28/200312/28/20031/27/2004 141,518.34 8,491.10 4,599.34 154,608.78

Under the Terms and Conditions Governing the Issuance and Use of the BPI

Credit and BPI Mastercard, the charges or balance thereof remaining unpaid after

the payment due date indicated on the monthly Statement of Accounts shall bear

interest at the rate of 3% per month and an additional penalty fee equivalent to

another 3% per month. Particularly:

8. PAYMENT OF CHARGES BCC shall furnish the Cardholder amonthly Statement of Account (SOA) and the Cardholder agrees that all chargesmade through the use of the CARD shall be paid by the Cardholder as stated in

the SOA on or before the last day for payment, which is twenty (20) days fromthe date of the said SOA, and such payment due date may be changed to an earlierdate if the Cardholders account is considered overdue and/or with balances inexcess of the approved credit limit, or to such other date as may be deemed properby the CARD issuer with notice to the Cardholder on the same monthly SOA. Ifthe last day fall on a Saturday, Sunday or a holiday, the last day for the paymentautomatically becomes the last working day prior to said payment date. However,notwithstanding the absence or lack of proof of service of the SOA of theCardholder, the latter shall pay any and all charges made through the use of theCARD within thirty (30) days from date or dates thereof. Failure of theCardholder to pay the charges made through the CARD within the payment

period as stated in the SOA or within thirty (30) days from actual date or dates ofpurchase whichever occur earlier, shall render him in default without the necessityof demand from BCC, which the Cardholder expressly waives. The charges orbalance thereof remaining unpaid after the payment due date indicated on

the monthly Statement of Accounts shall bear interest at the rate of 3% per

month for BPI Express Credit, BPI Gold Mastercardand an additionalpenalty fee equivalent to another 3% of the amount due for every month or a

fraction of a months delay.PROVIDED that if there occurs any change on the


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prevailing market rates, BCC shall have the option to adjust the rate of interestand/or penalty fee due on the outstanding obligation with prior notice to thecardholder. The Cardholder hereby authorizes BCC to correspondingly increasethe rate of such interest [in] the event of changes in the prevailing market rates,and to charge additional service fees as may be deemed necessary in order to

maintain its service to the Cardholder. A CARD with outstanding balance unpaidafter thirty (30) days from original billing statement date shall automatically besuspended, and those with accounts unpaid after ninety (90) days from saidoriginal billing/statement date shall automatically be cancel (sic), withoutprejudice to BCCs right to suspend or cancel any card anytime and for whateverreason. In case of default in his obligation as provided herein, Cardholder shallsurrender his/her card to BCC and in addition to the interest and penalty chargesaforementioned , pay the following liquidated damages and/or fees (a) a collectionfee of 25% of the amount due if the account is referred to a collection agency orattorney; (b) service fee for every dishonored check issued by the cardholder inpayment of his account without prejudice, however, to BCCs right of considering

Cardholders account, and (c) a final fee equivalent to 25% of the unpaid balance,exclusive of litigation expenses and judicial cost, if the payment of the account isenforced though court action. Venue of all civil suits to enforce this Agreement orany other suit directly or indirectly arising from the relationship between theparties as established herein, whether arising from crimes, negligence or breachthereof, shall be in the process of courts of the City of Makati or in other courts atthe option of BCC.[4](Emphasis supplied.)

For failure of petitioner Macalinao to settle her obligations, respondent BPI

filed with the Metropolitan Trial Court (MeTC) of Makati City a complaint for asum of money against her and her husband, Danilo SJ. Macalinao. This was raffled

to Branch 66 of the MeTC and was docketed as Civil Case No. 84462

entitledBank of the Philippine Islandsvs. Spouses Ileana Dr. Macalinao and

Danilo SJ. Macalinao.[5]

In said complaint, respondent BPI prayed for the payment of the amount of

one hundred fifty-four thousand six hundred eight pesos and seventy-eightcentavos (PhP 154,608.78) plus 3.25% finance charges and late payment charges

equivalent to 6% of the amount due from February 29, 2004 and an amount

equivalent to 25% of the total amount due as attorneys fees, and of the cost of

suit.[6]
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After the summons and a copy of the complaint were served upon petitioner

Macalinao and her husband, they failed to file their Answer.[7]Thus, respondent

BPI moved that judgment be rendered in accordance with Section 6 of the Rule on

Summary Procedure.[8]

This was granted in an Order dated June 16,2004.[9] Thereafter, respondent BPI submitted its documentary evidence.[10]

In its Decision dated August 2, 2004, the MeTC ruled in favor of respondent

BPI and ordered petitioner Macalinao and her husband to pay the amount of PhP

141,518.34 plus interest and penalty charges of 2% per month, to wit:

WHEREFORE, finding merit in the allegations of the complaint supported

by documentary evidence, judgment is hereby rendered in favor of theplaintiff, Bank of the Philippine Islandsand against defendant-spouses IleanaDR Macalinao and Danilo SJ Macalinaoby ordering the latter to pay theformer jointly and severally the following:

1. The amount of PESOS: ONE HUNDRED FORTY ONETHOUSAND FIVE HUNDRED EIGHTEEN AND 34/100

(P141,518.34) plus interest and penalty charges of 2% per month fromJanuary 05, 2004 until fully paid;2. P10,000.00 as and by way of attorneys fees; and

3. Cost of suit.SO ORDERED.[11]

Only petitioner Macalinao and her husband appealed to the Regional Trial

Court (RTC) of Makati City, their recourse docketed as Civil Case No. 04-1153. In

its Decision dated October 14, 2004, the RTC affirmed in totothe decision of the

MeTC and held:

In any event, the sum of P141,518.34 adjudged by the trial court appearedto be the result of a recomputation at the reduced rate of 2% per month. Note thatthe total amount sought by the plaintiff-appellee was P154,608.75 exclusive offinance charge of 3.25% per month and late payment charge of 6% per month.
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WHEREFORE, the appealed decision is hereby affirmed in toto.

No pronouncement as to costs.

SO ORDERED.[12]

Unconvinced, petitioner Macalinao filed a petition for review with the CA,

which was docketed as CA-G.R. SP No. 92031. The CA affirmed with

modification the Decision of the RTC:

WHEREFORE,the appealed decisionis AFFIRMEDbut MODIFIED with respect to the total amount dueand interest rate. Accordingly, petitioners are jointly and severally

ordered to pay respondent Bank of the Philippine Islands the following:

1. The amount of One Hundred Twenty Six Thousand SevenHundred Six Pesos and Seventy Centavosplus interest andpenalty charges of 3% per month from January 5, 2004 untilfully paid;

2. P10,000.00 as and by way of attorneys fees; and3. Cost of Suit.

SO ORDERED.[13]

Although sued jointly with her husband, petitioner Macalinao was the onlyone who filed the petition before the CA since her husband already passed away onOctober 18, 2005.[14]

In its assailed decision, the CA held that the amount of PhP 141,518.34 (theamount sought to be satisfied in the demand letter of respondent BPI) is clearly notthe result of the re-computation at the reduced interest rate as previous higherinterest rates were already incorporated in the said amount. Thus, the said amountshould not be made as basis in computing the total obligation of petitionerMacalinao. Further, the CA also emphasized that respondent BPI should notcompound the interest in the instant case absent a stipulation to that effect. The CAalso held, however, that the MeTC erred in modifying the amount of interest ratefrom 3% monthly to only 2% considering that petitioner Macalinao freely availedherself of the credit card facility offered by respondent BPI to the general public. It


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explained that contracts of adhesion are not invalid per se and are not entirelyprohibited.

Petitioner Macalinaos motion for reconsideration was denied by the CA in

its Resolution dated November 21, 2006. Hence, petitioner Macalinao is nowbefore this Court with the following assigned errors:

I.

THE REDUCTION OF INTEREST RATE, FROM 9.25% TO 2%, SHOULD BEUPHELD SINCE THE STIPULATED RATE OF INTEREST WASUNCONSCIONABLE AND INIQUITOUS, AND THUS ILLEGAL.

II.

THE COURT OF APPEALS ARBITRARILY MODIFIED THE REDUCEDRATE OF INTEREST FROM 2% TO 3%, CONTRARY TO THE TENOR OFITS OWN DECISION.

III.

THE COURTA QUO, INSTEAD OF PROCEEDING WITH ARECOMPUTATION, SHOULD HAVE DISMISSED THE CASE FORFAILURE OF RESPONDENT BPI TO PROVE THE CORRECT AMOUNT OFPETITIONERS OBLIGATION, OR IN THE ALTERNATIVE, REMANDEDTHE CASE TO THE LOWER COURT FOR RESPONDENT BPI TO PRESENTPROOF OF THE CORRECT AMOUNT THEREOF.

Our Ruling

The petition is partly meritorious.

The Interest Rate and Penalty Charge of 3% Per Month or 36% Per Annum

Should Be Reduced to 2% Per Month or 24% Per Annum


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In its Complaint, respondent BPI originally imposed the interest and penaltycharges at the rate of 9.25% per month or 111% per annum. This was declared asunconscionable by the lower courts for being clearly excessive, and was thusreduced to 2% per month or 24% per annum. On appeal, the CA modified the rate

of interest and penalty charge and increased them to 3% per month or 36% perannum based on the Terms and Conditions Governing the Issuance and Use of theBPI Credit Card, which governs the transaction between petitioner Macalinao andrespondent BPI.

In the instant petition, Macalinao claims that the interest rate and penaltycharge of 3% per month imposed by the CA is iniquitous as the same translates to36% per annum or thrice the legal rate of interest.[15]On the other hand, respondent

BPI asserts that said interest rate and penalty charge are reasonable as the same arebased on the Terms and Conditions Governing the Issuance and Use of the BPICredit Card.[16]

We find for petitioner. We are of the opinion that the interest rate andpenalty charge of 3% per month should be equitably reduced to 2% per month or24% per annum.

Indeed, in the Terms and Conditions Governing the Issuance and Use of theBPI Credit Card, there was a stipulation on the 3% interest rate. Nevertheless, itshould be noted that this is not the first time that this Court has considered theinterest rate of 36% per annum as excessive and unconscionable. We held in Chuavs. Timan:[17]

The stipulated interest rates of 7% and 5% per month imposed onrespondents loans must be equitably reduced to 1% per month or

12%per annum. We need not unsettle the principle we had affirmedin a plethora of cases that stipulated interest rates of 3% per month

and higher are excessive, iniquitous, unconscionable and exorbitant.

Such stipulations are void for being contrary to morals, if notagainst the law.While C.B. Circular No. 905-82, which took effect onJanuary 1, 1983, effectively removed the ceiling on interest rates forboth secured and unsecured loans, regardless of maturity, nothing in thesaid circular could possibly be read as granting carte blancheauthority


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to lenders to raise interest rates to levels which would either enslave theirborrowers or lead to a hemorrhaging of their assets. (Emphasis supplied.)

Since the stipulation on the interest rate is void, it is as if there was noexpress contract thereon. Hence, courts may reduce the interest rate as reason andequity demand.[18]

The same is true with respect to the penalty charge. Notably, under theTerms and Conditions Governing the Issuance and Use of the BPI Credit Card, itwas also stated therein that respondent BPI shall impose an additional penaltycharge of 3% per month. Pertinently, Article 1229 of the Civil Code states:

Art. 1229. The judge shall equitably reduce the penalty when theprincipal obligation has been partly or irregularly complied with by thedebtor. Even if there has been no performance, the penalty may also bereduced by the courts if it is iniquitous or unconscionable.

In exercising this power to determine what is iniquitous and unconscionable,courts must consider the circumstances of each case since what may be iniquitousand unconscionable in one may be totally just and equitable in another.[19]

In the instant case, the records would reveal that petitioner Macalinao madepartial payments to respondent BPI, as indicated in her BillingStatements.[20] Further, the stipulated penalty charge of 3% per month or 36% perannum, in addition to regular interests, is indeed iniquitous and unconscionable.

Thus, under the circumstances, the Court finds it equitable to reduce theinterest rate pegged by the CA at 1.5% monthly to 1% monthly and penalty chargefixed by the CA at 1.5% monthly to 1% monthly or a total of 2% per month or

24% per annum in line with the prevailing jurisprudence and in accordance withArt. 1229 of the Civil Code.

There Is No Basis for the Dismissal of the Case,Much Less a Remand of the Same for Further Reception of Evidence


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Petitioner Macalinao claims that the basis of the re-computation of the CA,that is, the amount of PhP 94,843.70 stated on the October 27, 2002 Statement of

Account, was not the amount of the principal obligation. Thus, this allegedlynecessitates a re-examination of the evidence presented by the parties. For thisreason, petitioner Macalinao further contends that the dismissal of the case or itsremand to the lower court would be a more appropriate disposition of the case.

Such contention is untenable. Based on the records, the summons and a copyof the complaint were served upon petitioner Macalinao and her husband on May4, 2004. Nevertheless, they failed to file their Answer despite such service. Thus,

respondent BPI moved that judgment be rendered accordingly.

[21]

Consequently, adecision was rendered by the MeTC on the basis of the evidence submitted byrespondent BPI. This is in consonance with Sec. 6 of the Revised Rule onSummary Procedure, which states:

Sec. 6. Effect of failure to answer.Should the defendant failto answer the complaint within the period above provided, the

court, motu proprio, or on motion of the plaintiff, shall render

judgment as may be warranted by the facts alleged in the complaint

and limited to what is prayed for therein:Provided, however, that thecourt may in its discretion reduce the amount of damages and attorneys

fees claimed for being excessive or otherwise unconscionable. This iswithout prejudice to the applicability of Section 3(c), Rule 10 of theRules of Court, if there are two or more defendants. (As amended by the1997 Rules of Civil Procedure; emphasis supplied.)

Considering the foregoing rule, respondent BPI should not be made to sufferfor petitioner Macalinaos failure to file an answer and concomitantly, to allow thelatter to submit additional evidence by dismissing or remanding the case for furtherreception of evidence. Significantly, petitioner Macalinao herself admitted theexistence of her obligation to respondent BPI, albeit with reservation as to the

principal amount. Thus, a dismissal of the case would cause great injustice torespondent BPI. Similarly, a remand of the case for further reception of evidence
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would unduly prolong the proceedings of the instant case and render inutile theproceedings conducted before the lower courts.

Significantly, the CA correctly used the beginning balance of PhP 94,843.70as basis for the re-computation of the interest considering that this was the firstamount which appeared on the Statement of Account of petitioner Macalinao.There is no other amount on which the re-computation could be based, as can begathered from the evidence on record. Furthermore, barring a showing that thefactual findings complained of are totally devoid of support in the record or thatthey are so glaringly erroneous as to constitute serious abuse of discretion, suchfindings must stand, for this Court is not expected or required to examine orcontrast the evidence submitted by the parties.[22]

In view of the ruling that only 1% monthly interest and 1% penalty chargecan be applied to the beginning balance of PhP 94,843.70, this Court finds thefollowing computation more appropriate:

StatementDate

PreviousBalance

Purchases(Payments)

Balance Interest(1%)

PenaltyCharge(1%)

TotalAmountDue for

the Month10/27/2002 94,843.70 94,843.70 948.44 948.44 96,740.5811/27/2002 94,843.70 (15,000) 79,843.70 798.44 798.44 81,440.5812/31/2002 79,843.70 30,308.80 110,152.50 1,101.53 1,101.53 112,355.561/27/2003 110,152.50 110,152.50 1,101.53 1,101.53 112,355.562/27/2003 110,152.50 110,152.50 1,101.53 1,101.53 112,355.563/27/2003 110,152.50 (18,000.00) 92,152.50 921.53 921.53 93,995.564/27/2003 92,152.50 92,152.50 921.53 921.53 93,995.565/27/2003 92,152.50 (10,000.00) 82,152.50 821.53 821.53 83,795.566/29/2003 82,152.50 8,362.50

(7,000.00)83,515.00 835.15 835.15 85,185.30

7/27/2003 83,515.00 83,515.00 835.15 835.15 85,185.308/27/2003 83,515.00 83,515.00 835.15 835.15 85,185.309/28/2003 83,515.00 83,515.00 835.15 835.15 85,185.3010/28/2003 83,515.00 83,515.00 835.15 835.15 85,185.3011/28/2003 83,515.00 83,515.00 835.15 835.15 85,185.3012/28/2003 83,515.00 83,515.00 835.15 835.15 85,185.301/27/2004 83,515.00 83,515.00 835.15 835.15 85,185.30TOTAL 83,515.00 14,397.26 14,397.26 112,309.52
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WHEREFORE, the petition is PARTLY GRANTED. The CA Decisiondated June 30, 2006 in CA-G.R. SP No. 92031 is hereby MODIFIEDwith respectto the total amount due, interest rate, and penalty charge. Accordingly, petitionerMacalinao is ordered to pay respondent BPI the following:

(1) The amount of one hundred twelve thousand three hundred ninepesos and fifty-two centavos(PhP 112,309.52)plus interest and penalty chargesof 2% per month from January 5, 2004 until fully paid;

(2)PhP 10,000 as and by way of attorneys fees; and

(3)Cost of suit.

SO ORDERED.

CHINA BANKING CORPORATION, peti t ioner, vs. HON. COURT OF

APPEALS and ARMED FORCES AND POLICE SAVINGS & LOANASSOCIATION, INC. (AFPSLAI), respondents.

D E C I S I O N

QUISUMBING, J.:


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For review is the Decision[1]dated November 23, 2001 of the Court ofAppeals in CA-G.R. SP No. 65740, affirming the Orders[2]dated August 25,2000 and April 17, 2001, of the Regional Trial Court of Quezon City, Branch216, which denied petitioners motion to dismiss the civil action for a sum ofmoney filed by private respondent. Likewise impugned is

the Resolution[3]dated April 24, 2002 of the Court of Appeals denyingpetitioners motion for reconsideration of said decision.

The antecedent facts, as summarized by the appellate court, are asfollows:

On September 24, 1996, private respondent Armed Forces and PoliceSavings and Loan Association, Inc. (AFPSLAI) filed a complaint for a sum ofmoney against petitioner China Banking Corporation (CBC) with the RegionalTrial Court of Quezon City, Branch 216.

In its Answer,[4]

the petitioner admitted being the registered owner of theHome Notes, the subject matter of the complaint. These are instruments ofindebtedness issued in favor of a corporation named Fund Centrum Finance,Inc. (FCFI) and were sold, transferred and assigned to private respondent.Thus, the petitioner filed a Motion to Dismissalleging that the real party ininterest was FCFI, which was not joined in the complaint, and that petitionerwas a mere trustee of FCFI.

The trial court denied the motion to dismiss. Petitioner filed a motion forreconsideration, which the court a quoagain denied. Petitioner elevated thecase to the Court of Appeals through a Petition for Certiorariand Prohibition.The appellate court denied the petition for lack of merit. The petitioner thenbrought the matter to this Court viaa Petition for Certiorari, under Rule 65. Wedismissed the petition for being an improper remedy.

Petitioner filed another Motion to Dismiss, this time invokingprescription. The lower court denied said motion to dismiss for lack of merit. Itheld that it was not apparent in the complaint whether or not prescription hadset in. Thus, the trial judge directed petitioner to present its evidence.However, petitioner instead filed a motion for reconsideration, which the trialcourt denied, ratiocinating thus:

This Court finds that there are conflicting claims on the issue of whether or not theaction has already prescribed. A full blown trial is in order to determine fully therights of the contending parties.[5]

Undeterred, petitioner impugned, through a petition under Rule 65, the twoorders of the trial court claiming before the appellate court that:
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RESPONDENT COURT GROSSLY ERRED OR GRAVELY ABUSED ITSDISCRETION AMOUNTING TO LACK OF JURISDICTION IN DENYING THEMOTION TO DISMISS AND DECLARING THAT PRESCRIPTION HAS NOTSET IN AGAINST PRIVATE RESPONDENT.[6]

In its assailed Decision,the Court of Appeals dismissed the petition,ruling that:

Since the defense of prescription under the facts obtaining did not rest on solidground, the trial court took a more judicious move to direct the defendant therein,herein petitioner, to present its evidence. It is self-evident that with the evidence ofboth parties adduced, the trial court could proceed to decide on the merits of the caseincluding prescription, and thus avoid collateral proceedings such as the one at barthat unduly prolong the final determination of the controversy. After all, prescriptionsubsists as a valid issue in the decision process. The trial court wanted precisely a

definite and definitive-factual premise to determine whether or not the action hasprescribed. Surely, such exercise of judgment is not grave abuse of discretioncorrectible by writ of certiorari. If ever he erred, it was error in judgment. Errors ofjudgment may be reviewed only by appeal.[7]

Undaunted, petitioner now comes to this Court raising a simple issue:

WHETHER [OR] NOT THE DATE OF MATURITY OF THE INSTRUMENTS ISTHE DATE OF ACCRUAL OF CAUSE OF ACTION.[8]

Petitioner insists that upon the face of the complaint, prescription has setin. It claims that the Home Notes annexed to the pleading bearing a uniformmaturity date of December 2, 1983 indicate the date of accrual of the cause ofaction. Hence, argues petitioner, private respondents filing of the complaintfor sum of money on September 24, 1996, is way beyond the prescriptiveperiod of ten years under Article 1144 [9]of the Civil Code. Citing Soriano v.Ubat,[10]petitioner maintains the prescription period starts from the time whenthe creditor may file an action, not from the time he wishes to do so.

However, private respondent counters that prescription is not apparent in

the complaint because the maturity date of the Home Notes attached theretois not the time of accrual of petitioners action. Relying onElido, Sr. v. Court of

Appeals,[11]private respondent insists that the action accrued only on July 20,1995, when demand to pay was made on petitioner. Private respondent alsopoints out that since both the trial court and the appellate court found thatprescription is not apparent on the face of the complaint, such factual findingshould therefore be binding on this Court.
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We find the petition without merit. The Court of Appeals validly dismissedthe petition, there being no grave abuse of discretion committed by the trialcourt in denying petitioners motion to dismiss the complaint on the ground ofprescription.

Well-settled is the rule that since a cause of action requires, as essentialelements, not only a legal right of the plaintiff and a correlative duty of thedefendant but also an act or omission of the defendant in violation of saidlegal right, the cause of action does not accrue until the party obligatedrefuses, expressly or impliedly, to comply with its duty.[12]

Otherwise stated, a cause of action has three elements, to wit, (1) a rightin favor of the plaintiff by whatever means and under whatever law it arises oris created; (2) an obligation on the part of the named defendant to respect ornot to violate such right; and (3) an act or omission on the part of suchdefendant violative of the right of the plaintiff or constituting a breach of theobligation of the defendant to the plaintiff.[13]

It bears stressing that it is only when the last element occurs that a causeof action arises. Accordingly, a cause of action on a written contract accruesonly when an actual breach or violation thereof occurs.[14]

Applying the foregoing principle to the instant case, we rule that privaterespondents cause of action accrued only on July 20, 1995, when its demandfor payment of the Home Notes was refused by petitioner. It was only at thattime, and not before that, when the written contract was breached and privaterespondent could properly file an action in court.

The cause of action cannot be said to accrue on the uniform maturity dateof the Home Notes as petitioner posits because at that point, the thirdessential element of a cause of action, namely, an act or omission on the partof petitioner violative of the right of private respondent or constituting a breachof the obligation of petitioner to private respondent, had not yet occurred.

The subject Home Notes, in fact, specifically states that payment of theprincipal and interest due on the notes shall be made only upon presentationfor notation and/or surrender for cancellation of the notes, thus:

Payment of the principal amount and interest due on this Note shall be made by theCompany at the principal office of the Trustee herein referred to or at such otheroffice or agency that the Company may designate for the purpose, in such coin orcurrency of the Republic of the Philippines as at the time of payment shall be legaltender for payment of public and private debts, upon presentation for notation and/orsurrender for cancellation of this Note. . . .[15](Emphasis supplied.)
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Thus, the maturity date of the Home Notes is not controlling as far asaccrual of cause of action is concerned. What said date indicates is the timewhen the obligation matures, when payment on the Notes would commence,subject to presentation, notation and/or cancellation of those Notes. The datefor computing when prescription of the action for collection begins to set in is

properly a function related to the date of actual demand by the holder of theNotes for payment by the obligor, herein petitioner bank.

Since the demand was made only on July 20, 1995, while the civil actionfor collection of a sum of money was filed on September 24, 1996, within aperiod of not more than ten years, such action was not yet barred byprescription.

WHEREFORE, the petition is DENIED for lack of merit. The assailedDecision dated November 23, 2001, and the Resolution dated April 24, 2002,of the Court of Appeals are AFFIRMED. Costs against petitioner.

SO ORDERED.

MONDRAGON LEISURE AND

RESORTS CORPORATION,Petitioner,

- versus -

G.R. No. 154188

Present:

Davide, Jr., C.J.,(Chairman),

Quisumbing,Ynares-Santiago,Carpio, andAzcuna,JJ.

COURT OF APPEALS, ASIAN

BANK CORPORATION, FAR

EAST BANK AND TRUST

COMPANY, and UNITED

COCONUT PLANTERS BANK,Respondents.

Promulgated:

June 15, 2005

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION


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QUISUMBING, J.:

In its Decision[1]dated March 12, 2002, the Court of Appeals in CA-G.R. SP

No. 61047 dismissed the petition for certiorari filed by Mondragon Leisure andResorts Corporation against the Order[2]dated March 9, 2000, of

the Regional Trial Court of Angeles City, Branch 61, in Civil Case No. 9527.

Likewise, in its Resolution dated July 3, 2002, the CA denied the motion for

reconsideration.

The facts of the case are undisputed.

On February 28, 1994, Mondragon International Philippines, Inc. (MIPI),

Mondragon Securities Corporation (MSC) and herein petitioner entered into a

lease agreement with the Clark Development Corporation (CDC) for the

development of what is now known as the Mimosa Leisure Estate.

To help finance the project, petitioner, on June 30, 1997, entered into an

Omnibus Loan and Security Agreement[3](hereafter Omnibus Agreement) with

respondent banks for a syndicated term loan in the aggregate principal amount of

US$20M. Under the agreement, as amended on January 19, 1999,[4]the proceeds

of the loan were to be released through advances evidenced by promissory notes to

be executed by petitioner in favor of each lender-bank, and to be paid within a six-

year period from the date of initial advance inclusive of a one year and two

quarters grace period.

To secure the repayment of the loan, petitioner pledged in favor of

respondents US$20M worth of MIPI shares of stocks; assigned, transferred and

delivered all rights, title to and interest in the pledged shares; and assigned by way
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of security its leasehold rights over the project and all the rights, title, interests and

benefits in, to and under any and all agreements in connection with the project.

On July 3, 1997, petitioner fully availed of and received the full amount ofthe syndicated loan agreement. Petitioner, which had regularly paid the monthly

interests due on the promissory notes until October 1998, thereafter failed to make

payments. Consequently, on January 6 and February 5, 1999, written notices of

default, acceleration of payment and demand letters were sent by the lenders to the

petitioner. Then on August 27, 1999, respondents filed a complaint, docketed as

Civil Case No. 9527, for the foreclosure of leasehold rights against petitioner.

Petitioner moved for the dismissal of the complaint on the following

grounds: (1) a condition precedent for the filing of the complaint has not been

complied with and/or the instant complaint failed to state a cause of action, or

otherwise the filing was premature; (2) the certification of non-forum shopping

appended to the complaint was fatally defective since one of the plaintiffs, UCPB,

deliberately failed to mention that it had previously filed another complaint; and

(3) plaintiffs had engaged in forum shopping in filing the instant complaint.

The trial court denied the motion and ruled as follows:. . .

After a careful study of the arguments of the parties, this courtfinds that the motion to dismiss is without merit. As correctly pointedout by the plaintiffs under par. 6.01, the borrower defaults when interestsdue at stated maturity are not paid and the lenders are authorized toaccelerate any amount payable under the loan agreements. One of theconsequences of such default is the foreclosure of collaterals. This is theaction taken by the herein plaintiffs-lenders.

This court also finds the allegedforce majeurebaseless. Thesame are not those provided for under Sec. 1, Article 41 of the loanagreement.


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As to the allegation of forum shopping, the herein parties AsianBank Corporation and Far East Bank and Trust Company are not partiesto this case in 9510 (sic). The subject matter of Civil Case No. 9527 isnot the same with the subject matter in Civil Case No. 9510.

Wherefore, premises considered, the motion to dismiss isdenied. The defendant is given 15 days from receipt hereof withinwhich to file its answer and/or responsive pleading.

SO ORDERED.[5]

Petitioner moved for the reconsideration of the order and argued that the

complaint is premature, since it had not been validly declared in default.[6] The

trial court denied the motion for reconsideration. Seasonably, petitioner filed aspecial civil action for certiorari with the Court of Appeals.

Before the appellate court, petitioner reiterated its arguments in its motion to

dismiss before the trial court, including the failure of the respondents to attach the

board resolutions authorizing them to file the complaint.[7]

The Court of Appeals dismissed the petition and denied the subsequent

motion for reconsideration. Hence, this appeal by certiorari[8]imputing the

following errors:I

THE RESPONDENT-APPELLEE COURT OF APPEALSCOMMITTED A SERIOUS ERROR OF LAW AND ACTED WITHGRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OREXCESS OF JURISDICTION IN RULING THAT THE COMPLAINTIN CIVIL CASE NO. 9527 COMPLIED WITH THE MANDATORY

REQUIREMENTS OF CERTIFICATION OF NON-FORUMSHOPPING.

II

THE RESPONDENT-APPELLEE COURT OF APPEALSCOMMITTED A SERIOUS ERROR OF LAW AND ACTED WITHGRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR
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