Digested Cases in Credit Transactions

G.R. No. 113412 April 17, 1996 Spouses PONCIANO ALMEDA and EUFEMIA P. ALMEDA, petitioner, vs. THE COURT OF APPEALS and PHILIPPINE NATIONAL BANK, respondents. KAPUNAN, J.:p On various dates in 1981, the Philippine National Bank granted to herein petitioners, the spouses Ponciano L. Almeda and Eufemia P. Almeda several loan/credit accommodations totaling P18.0 Million pesos payable in a period of six years at an interest rate of 21% per annum. To secure the loan, the spouses Almeda executed a Real Estate Mortgage Contract covering a 3,500 square meter parcel of land, together with the building erected thereon (the Marvin Plaza) located at Pasong Tamo, Makati, Metro Manila. A credit agreement embodying the terms and conditions of the loan was executed between the parties. Pertinent portions of the said agreement are quoted below: SPECIAL CONDITIONS xxx xxx xxx The loan shall be subject to interest at the rate of twenty one per cent (21%) per annum, payable semi-annually in arrears, the first interest payment to become due and payable six (6) months from date of initial release of the loan. The loan shall likewise be subject to the appropriate service charge and a penalty charge of three per cent (30%) per annum to be imposed on any amount remaining unpaid or not rendered when due. xxx xxx xxx III. OTHER CONDITIONS (c) Interest and Charges The Bank reserves the right to increase the interest rate within the limits allowed by law at any time depending on whatever policy it may adopt in the future; provided, that the interest rate on this/these accommodations shall be correspondingly decreased in the event that the applicable maximum interest rate is reduced by law or by the Monetary Board. In either case, the adjustment in the interest rate agreed upon shall take effect on the effectivity date of the increase or decrease of the maximum interest rate. 1 1. Between 1981 and 1984, petitioners made several partial payments on the loan totaling. P7,735,004.66, 2. a substantial portion of which was applied to accrued interest. 3. On March 31, 1984, respondent bank, over petitioners' protestations, raised the interest rate to 28%, allegedly pursuant to Section III-c (1) of its credit agreement. Said interest rate thereupon increased from an initial 21% to a high of 68% between March of 1984 to September, 1986. 4. Petitioner protested the increase in interest rates, to no avail. Before the loan was to mature in March, 1988, the spouses filed on February 6, 1988 a petition for declaratory relief with prayer for a writ of preliminary injunction and temporary restraining order with the Regional Trial Court of Makati, docketed as Civil Case No. 18872. In said petition, which was raffled to Branch 134 presided by Judge Ignacio Capulong, the spouses sought clarification as to whether or not the PNB could unilaterally raise interest rates on the loan, pursuant to the credit agreement's escalation clause, and in relation to Central Bank Circular No. 905. As a preliminary measure, the lower court, on March 3, 1988, issued a writ of preliminary injunction enjoining the Philippine National Bank from enforcing an interest rate above the 21% stipulated in the credit agreement. By this time the spouses were already in default of their loan obligations. Invoking the Law on Mandatory Foreclosure (Act 3135, as amended and P.D. 385), the PNB countered by ordering the extrajudicial foreclosure of petitioner's mortgaged properties and scheduled an auction sale for March 14, 1989. Upon motion by petitioners, however, the lower court, on April 5, 1989, granted a supplemental writ of preliminary injunction, staying the public auction of the mortgaged property. On January 15, 1990, upon the posting of a counterbond by the PNB, the trial court dissolved the supplemental writ of preliminary injunction. Petitioners filed a motion for reconsideration. In the interim, respondent bank once more set a new date for the foreclosure sale of Marvin Plaza which was March 12, 1990. Prior to the scheduled date, however, petitioners tendered to respondent bank the amount of P40,142,518.00, consisting of the principal (P18,000,000.00) and accrued interest calculated at the originally stipulated rate of 21%. The PNB refused to accept the payment. 5. As a result of PNB's refusal of the tender of payment, petitioners, on March 8, 1990, formally consigned the amount of P40,142,518.00 with the Regional Trial Court in Civil Case No. 90-663. They prayed therein for a writ of preliminary injunction with a temporary restraining order. The case was raffled to Branch 147, presided by Judge Teofilo Guadiz. On March 15, 1990, respondent bank sought the dismissal of the case. On March 30, 1990 Judge Guadiz in Civil Case No. 90-663 issued an order granting the writ of preliminary injunction

enjoining the foreclosure sale of "Marvin Plaza" scheduled on March 12, 1990. On April 17, 1990 respondent bank filed a motion for reconsideration of the said order. On August 16, 1991, Civil Case No. 90-663 we transferred to Branch 66 presided by Judge Eriberto Rosario who issued an order consolidating said case with Civil Case 18871 presided by Judge Ignacio Capulong. For Judge Ignacio's refusal to lift the writ of preliminary injunction issued March 30, 1990, respondent bank filed a petition for Certiorari, Prohibition and Mandamus with respondent Court of Appeals, assailing the following orders of the Regional Trial Court: 1. Order dated March 30, 1990 of Judge Guadiz granting the writ of preliminary injunction restraining the foreclosure sale of Mavin Plaza set on March 12, 1990; 2. Order of Judge Ignacio Capulong dated January 10, 1992 denying respondent bank's motion to lift the writ of injunction issued by Judge Guadiz as well as its motion to dismiss Civil Case No. 90-663; 3. Order of Judge Capulong dated July 3, 1992 denying respondent bank's subsequent motion to lift the writ of preliminary injunction; and Order of Judge Capulong dated October 20, 1992 denying respondent bank's motion for reconsideration. On August 27, 1993, respondent court rendered its decision setting aside the assailed orders and upholding respondent bank's right to foreclose the mortgaged property pursuant to Act 3135, as amended and P.D. 385. Petitioners' Motion for Reconsideration and Supplemental Motion for Reconsideration, dated September 15, 1993 and October 28, 1993, respectively, were denied by respondent court in its resolution dated January 10, 1994. Hence the instant petition. This appeal by certiorari from the respondent court's decision dated August 27, 1993 raises two principal issues namely: 1) Whether or not respondent bank was authorized to raise its interest rates from 21% to as high as 68% under the credit agreement; and 2) Whether or not respondent bank is granted the authority to foreclose the Marvin Plaza under the mandatory foreclosure provisions of P.D. 385. In its comment dated April 19, 1994, respondent bank vigorously denied that the increases in the interest rates were illegal, unilateral, excessive and arbitrary, it argues that the escalated rates of interest it imposed was based on the agreement of the parties. Respondent bank further contends that it had a right to foreclose the mortgaged property pursuant to P.D. 385, after petitioners were unable to pay their loan obligations to the bank based on the increased rates upon maturity in 1984. The instant petition is impressed with merit. The binding effect of any agreement between parties to a contract is premised on two settled principles: (1) that any obligation arising from contract has the force of law between the parties; and (2) that there must be mutuality between the parties based on their essential equality. 6 Any contract which appears to be heavily weighed in favor of one of the parties so as to lead to an unconscionable result is void. Any stipulation regarding the validity or compliance of the contract which is left solely to the will of one of the parties, is likewise, invalid. It is plainly obvious, therefore, from the undisputed facts of the case that respondent bank unilaterally altered the terms of its contract with petitioners by increasing the interest rates on the loan without the prior assent of the latter. In fact, the manner of agreement is itself explicitly stipulated by the Civil Code when it provides, in Article 1956 that "No interest shall be due unless it has been expressly stipulated in writing." What has been "stipulated in writing" from a perusal of interest rate provision of the credit agreement signed between the parties is that petitioners were bound merely to pay 21% interest, subject to a possible escalation or de-escalation, when 1) the circumstances warrant such escalation or de-escalation; 2) within the limits allowed by law; and 3) upon agreement. Indeed, the interest rate which appears to have been agreed upon by the parties to the contract in this case was the 21% rate stipulated in the interest provision. Any doubt about this is in fact readily resolved by a careful reading of the credit agreement because the same plainly uses the phrase "interest rate agreed upon," in reference to the original 21% interest rate. The interest provision states: (c) interest and Charges The Bank reserves the right to increase the interest rate within the limits allowed by law at any time depending on whatever policy it may adopt in the future; provided, that the interest rate on this/these accommodations shall be correspondingly decreased in the event that the applicable maximum interest

rate is reduced by law or by the Monetary Board. In either case, the adjustment in the interest rate agreed upon shall take effect on the effectivity date of the increase or decrease of the maximum interest rate. (1) In Philippine National Bank v. Court of Appeals, 7 this Court disauthorized respondent bank from unilaterally raising the interest rate in the borrower's loan from 18% to 32%, 41% and 48% partly because the aforestated increases violated the principle of mutuality of contracts expressed in Article 1308 of the Civil Code. The Court held: CB Circular No. 905, Series of 1982 (Exh. 11) removed the Usury Law ceiling on interest rates — . . . increases in interest rates are not subject to any ceiling prescribed by the Usury Law. but it did not authorize the PNB, or any bank for that matter, to unilaterally and successively increase the agreed interest rates from 18% to 48% within a span of four (4) months, in violation of P.D. 116 which limits such changes to once every twelve months. Besides violating P.D. 116, the unilateral action of the PNB in increasing the interest rate on the private respondent's loan, violated the mutuality of contracts ordained in Article 1308 of the Civil Code: Art. 308. The contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them. In order that obligations arising from contracts may have the force of law between the parties, there must be mutuality between the parties based on their essential equality. A contract containing a condition which makes its fulfillment dependent exclusively upon the uncontrolled will of one of the contracting parties, is void (Garcia vs. Rita Legarda, Inc., 21 SCRA 555). Hence, even assuming that the P1.8 million loan agreement between the PNB and the private respondent gave the PNB a license (although in fact there was none) to increase the interest rate at will during the term of the loan, that license would have been null and void for being violative of the principle of mutuality essential in contracts. It would have invested the loan agreement with the character of a contract of adhesion, where the parties do not bargain on equal footing, the weaker party's (the debtor) participation being reduced to the alternative "to take it or lease it" (Qua vs. Law Union & Rock Insurance Co., 95 Phil. 85). Such a contract is a veritable trap for the weaker party whom the courts of justice must protect against abuse and imposition. PNB's successive increases of the interest rate on the private respondent's loan, over the latter's protest, were arbitrary as they violated an express provision of the Credit Agreement (Exh. 1) Section 9.01 that its terms "may be amended only by an instrument in writing signed by the party to be bound as burdened by such amendment." The increases imposed by PNB also contravene Art. 1956 of the Civil Code which provides that "no interest shall be due unless it has been expressly stipulated in writing." The debtor herein never agreed in writing to pay the interest increases fixed by the PNB beyond 24%per annum, hence, he is not bound to pay a higher rate than that. That an increase in the interest rate from 18% to 48% within a period of four (4) months is excessive, as found by the Court of Appeals, is indisputable. Clearly, the galloping increases in interest rate imposed by respondent bank on petitioners' loan, over the latter's vehement protests, were arbitrary. Moreover, respondent bank's reliance on C.B. Circular No. 905, Series of 1982 did not authorize the bank, or any lending institution for that matter, to progressively increase interest rates on borrowings to an extent which would have made it virtually impossible for debtors to comply with their own obligations. True, escalation clauses in credit agreements are perfectly valid and do not contravene public policy. Such clauses, however, (as are stipulations in other contracts) are nonetheless still subject to laws and provisions governing agreements between parties, which agreements — while they may be the law between the contracting parties — implicitly incorporate provisions of existing law. Consequently, while the Usury Law ceiling on interest rates was lifted by C.B. Circular 905, nothing in the said circular could possibly be read as granting respondent bank carte blanche authority to raise interest rates to levels which would either enslave its borrowers or lead to a hemorrhaging of their assets. Borrowing represents a transfusion of capital from lending institutions to industries and businesses in order to stimulate growth. This would not, obviously, be the effect of PNB's unilateral and lopsided policy regarding the interest rates of petitioners' borrowings in the instant case. Apart from violating the principle of mutuality of contracts, there is authority for disallowing the interest rates imposed by respondent bank, for the credit agreement specifically requires that the increase be "within the limits allowed by law". In the case of PNB v. Court of Appeals, cited above, this Court clearly emphasized that C.B. Circular No. 905 could not be properly invoked to justify the escalation clauses of such contracts, not being a grant of specific authority. Furthermore, the escalation clause of the credit agreement requires that the same be made "within the limits allowed by law," obviously referring specifically to legislative enactments not administrative circulars. Note that the phrase "limits imposed by law," refers only to the escalation clause. However, the same agreement allows reduction on the basis of law or the Monetary Board. Had the parties intended the word "law" to refer to both legislative enactments and administrative circulars and issuances, the agreement would not have gone as far as making a distinction between "law or the Monetary Board Circulars" in referring to mutually agreed upon reductions in interest rates. This distinction was the subject of the

Court's disquisition in the case of Banco Filipino Savings and Mortgage Bank v. Navarro 8 where the Court held that: What should be resolved is whether BANCO FILIPINO can increase the interest rate on the LOAN from 12% to 17% per annum under the Escalation Clause. It is our considered opinion that it may not. The Escalation Clause reads as follows: I/We hereby authorize Banco Filipino to correspondingly increase. the interest rate stipulated in this contract without advance notice to me/us in the event. a law increasing the lawful rates of interest that may be charged on this particular kind of loan. (Paragraphing and emphasis supplied) It is clear from the stipulation between the parties that the interest rate may be increased "in the event a law should be enacted increasing the lawful rate of interest that may be charged on this particular kind of loan." The Escalation Clause was dependent on an increase of rate made by "law" alone. CIRCULAR No. 494, although it has the effect of law, is not a law. "Although a circular duly issued is not strictly a statute or a law, it has, however, the force and effect of law." (Emphasis supplied). "An administrative regulation adopted pursuant to law has the force and effect of law." "That administrative rules and regulations have the force of law can no longer be questioned." The distinction between a law and an administrative regulation is recognized in the Monetary Board guidelines quoted in the latter to the BORROWER of Ms. Paderes of September 24, 1976 (supra). According to the guidelines, for a loan's interest to be subject to the increases provided in CIRCULAR No. 494, there must be an Escalation Clause allowing the increase "in the event that any law or Central Bank regulation is promulgated increasing the maximum rate for loans." The guidelines thus presuppose that a Central Bank regulation is not within the term "any law." The distinction is again recognized by P.D. No. 1684, promulgated on March 17, 1980, adding section 7-a to the Usury Law, providing that parties to an agreement pertaining to a loan could stipulate that the rate of interest agreed upon may be increased in the event that the applicable maximum rate of interest is increased "by law or by the Monetary Board." To quote: Sec. 7-a. Parties to an agreement pertaining to a loan or forbearance of money, goods or credits may stipulate that the rate of interest agreed upon may be increased in the event that the applicable maximum rate of interest is increased by law or by the Monetary Board: Provided, That such stipulation shall be valid only if there is also a stipulation in the agreement that the rate of interest agreed upon shall be reduced in the event that the applicable maximum rate of interest is reduced by law or by the Monetary Board; Provided, further, That the adjustment in the rate of interest agreed upon shall take effect on or after the effectivity of the increase or decrease in the maximum rate of interest.' (Paragraphing and emphasis supplied). It is now clear that from March 17, 1980, escalation clauses to be valid should specifically provide: (1) that there can be an increase in interest if increased by law or by the Monetary Board; and (2) in order for such stipulation to be valid, it must include a provision for reduction of the stipulated interest "in the event that the applicable maximum rate of interest is reduced by law or by the Monetary Board." Petitioners never agreed in writing to pay the increased interest rates demanded by respondent bank in contravention to the tenor of their credit agreement. That an increase in interest rates from 18% to as much as 68% is excessive and unconscionable is indisputable. Between 1981 and 1984, petitioners had paid an amount equivalent to virtually half of the entire principal (P7,735,004.66) which was applied to interest alone. By the time the spouses tendered the amount of P40,142,518.00 in settlement of their obligations; respondent bank was demanding P58,377,487.00 over and above those amounts already previously paid by the spouses. Escalation clauses are not basically wrong or legally objectionable so long as they are not solely potestative but based on reasonable and valid grounds. 9 Here, as clearly demonstrated above, not only the increases of the interest rates on the basis of the escalation clause patently unreasonable and unconscionable, but also there are no valid and reasonable standards upon which the increases are anchored. We go now to respondent bank's claim that the principal issue in the case at bench involves its right to foreclose petitioners' properties under P.D. 385. We find respondent's pretense untenable. Presidential Decree No. 385 was issued principally to guarantee that government financial institutions would not be denied substantial cash inflows necessary to finance the government's development projects all over the country by large borrowers who resort to litigation to prevent or delay the government's collection of their debts or loans. 10 In facilitating collection of debts through its automatic foreclosure provisions, the government is however, not exempted from observing basic principles of law, and ordinary fairness and decency under the due process clause of the Constitution. 11

In the first place, because of the dispute regarding the interest rate increases, an issue which was never settled on merit in the courts below, the exact amount of petitioner's obligations could not be determined. Thus, the foreclosure provisions of P.D. 385 could be validly invoked by respondent only after settlement of the question involving the interest rate on the loan, and only after the spouses refused to meet their obligations following such determination. In Filipinas Marble Corporation v. Intermediate Appellate Court, 12 involving P.D. 385's provisions on mandatory foreclosure, we held that: We cannot, at this point, conclude that respondent DBP together with the Bancom people actually misappropriated and misspent the $5 million loan in whole or in part although the trial court found that there is "persuasive" evidence that such acts were committed by the respondent. This matter should rightfully be litigated below in the main action. Pending the outcome of such litigation, P.D. 385 cannot automatically be applied for if it is really proven that respondent DBP is responsible for the misappropriation of the loan, even if only in part, then the foreclosure of the petitioner's properties under the provisions of P.D. 385 to satisfy the whole amount of the loan would be a gross mistake. It would unduly prejudice the petitioner, its employees and their families. Only after trial on the merits of the main case can the true amount of the loan which was applied wisely or not, for the benefit of the petitioner be determined. Consequently, the extent of the loan where there was no failure of consideration and which may be properly satisfied by foreclosure proceedings under P.D. 385 will have to await the presentation of evidence in a trial on the merits. In Republic Planters Bank v. Court of Appeals 13 the Court reiterating the dictum in Filipinas Marble Corporation, held: The enforcement of P.D. 385 will sweep under the rug' this iceberg of a scandal in the sugar industry during the Marcos Martial Law years. This we can not allow to happen. For the benefit of future generations, all the dirty linen in the PHILSUCUCOM/NASUTRA/RPB closets have to be exposed in public so that the same may NEVER be repeated. It is of paramount national interest, that we allow the trial court to proceed with dispatch to allow the parties below to present their evidence. Furthermore, petitioners made a valid consignation of what they, in good faith and in compliance with the letter of the Credit Agreement, honestly believed to be the real amount of their remaining obligations with the respondent bank. The latter could not therefore claim that there was no honest-to-goodness attempt on the part of the spouse to settle their obligations. Respondent's rush to inequitably invoke the foreclosure provisions of P.D. 385 through its legal machinations in the courts below, in spite of the unsettled differences in interpretation of the credit agreement was obviously made in bad faith, to gain the upper hand over petitioners. In the face of the unequivocal interest rate provisions in the credit agreement and in the law requiring the parties to agree to changes in the interest rate in writing, we hold that the unilateral and progressive increases imposed by respondent PNB were null and void. Their effect was to increase the total obligation on an eighteen million peso loan to an amount way over three times that which was originally granted to the borrowers. That these increases, occasioned by crafty manipulations in the interest rates is unconscionable and neutralizes the salutary policies of extending loans to spur business cannot be disputed. WHEREFORE, PREMISES CONSIDERED, the decision of the Court of Appeals dated August 27, 1993, as well as the resolution dated February 10, 1994 is hereby REVERSED AND SET ASIDE. The case is remanded to the Regional Trial Court of Makati for further proceedings. SO ORDERED. ````````````````````````````````````````````````````````````````````````````````````````````````````` [G.R. No. 131622. November 27, 1998] LETICIA Y. MEDEL DR. RAFAEL MEDEL and SERVANDO FRANCO, petitioners, vs. COURT OF APPEALS, SPOUSES VERONICA R. GONZALES and DANILO G. GONZALES, JR., doing lending business under the trade name and style "GONZALES CREDIT ENTERPRISES", respondents. DECISION PARDO, J.: The case before the Court is a petition for review on certiorari, under Rule 45 of the Revised Rules of Court, seeking to set aside the decision of the Court of Appeals,[1] and its resolution denying reconsideration,[2] the dispositive portion of which decision reads as follows: "WHEREFORE, the appealed judgment is hereby MODIFIED such that defendants are hereby ordered to pay the plaintiff: the sum of P500,000.00, plus 5.5% per month interest and 2% service charge per annum effective July 23, 1986, plus 1% per month of the total amount due and demandable as penalty charges effective August 23, 1986, until the entire amount is fully paid. "The award to the plaintiff of P50,000.00 as attorney's fees is affirmed. And so is the imposition of costs against the defendants. SO ORDERED."[3]

The Court required the respondents to comment on the petition,[4] which was filed on April 3, 1998,[5] and the petitioners to reply thereto, which was filed on May 29, 1998.[6] We now resolve to give due course to the petition and decide the case. The facts of the case, as found by the Court of Appeals in its decision, which are considered binding and conclusive on the parties herein, as the appeal is limited to questions of law, are as follows: On November 7, 1985, Servando Franco and Leticia Medel (hereafter Servando and Leticia) obtained a loan from Veronica R. Gonzales (hereafter Veronica), who was engaged in the money lending business under the name "Gonzales Credit Enterprises", in the amount of P50,000.00, payable in two months. Veronica gave only the amount of P47,000.00, to the borrowers, as she retained P3,000.00, as advance interest for one month at 6% per month. Servado and Leticia executed a promissory note for P50,000.00, to evidence the loan, payable on January 7, 1986. On November 19, 1985, Servando and Leticia obtained from Veronica another loan in the amount of P90,000.00, payable in two months, at 6% interest per month. They executed a promissory note to evidence the loan, maturing on January 19, 1986. They received only P84,000.00, out of the proceeds of the loan. On maturity of the two promissory notes, the borrowers failed to pay the indebtedness. On June 11, 1986, Servando and Leticia secured from Veronica still another loan in the amount of P300,000.00, maturing in one month, secured by a real estate mortgage over a property belonging to Leticia Makalintal Yaptinchay, who issued a special power of attorney in favor of Leticia Medel, authorizing her to execute the mortgage. Servando and Leticia executed a promissory note in favor of Veronica to pay the sum of P300,000.00, after a month, or on July 11, 1986. However, only the sum of P275,000.00, was given to them out of the proceeds of the loan. Like the previous loans, Servando and Medel failed to pay the third loan on maturity. On July 23, 1986, Servando and Leticia with the latter's husband, Dr. Rafael Medel, consolidated all their previous unpaid loans totaling P440,000.00, and sought from Veronica another loan in the amount of P60,000.00, bringing their indebtedness to a total of P500,000.00, payable on August 23, 1986. The executed a promissory note, reading as follows: "Baliwag, Bulacan July 23, 1986 "Maturity Date August 23, 1986 "P500,000.00 "FOR VALUE RECEIVED, I/WE jointly and severally promise to pay to the order of VERONICA R. GONZALES doing business in the business style of GONZALES CREDIT ENTERPRISES, Filipino, of legal age, married to Danilo G. Gonzales, Jr., of Baliwag Bulacan, the sum of PESOS ........ FIVE HUNDRED THOUSAND ..... (P500,000.00) Philippine Currency with interest thereonat the rate of 5.5 PER CENT per month plus 2% service charge per annum from date hereof u ntil fully paid according to the amortization schedule contained herein. (Underscoring supplied) "Payment will be made in full at the maturity date. "Should I/WE fail to pay any amortization or portion hereof when due, all the other installments together with all interest accrued shall immediately be due and payable and I/WE hereby agree to pay an additional amount equivalent to one per cent (1%) per month of the amount due and demandable as penalty charges in th e form of liquidated damages until fully paid; and the further sum ofTWENTY FIVE PER CENT (25%) thereon in full, without deductions as Attorney's Fee whether actually incurred or not, of the total amount due and demandable, exclusive of costs and judicial or extra judicial expenses. (Underscoring supplied) "I, WE further agree that in the event the present rate of interest on loan is increased by law or the Central Bank of the Philippines, the holder shall have the option to apply and collect the increased interest charges without notice although the original interest have already been collected wholly or partially unless the contrary is required by law. "It is also a special condition of this contract that the parties herein agree that the amount of peso-obligation under this agreement is based on the present value of peso, and if there be any change in the value thereof, due to extraordinary inflation or deflation, or any other cause or reason, then the peso-obligation herein contracted shall be adjusted in accordance with the value of the peso then prevailing at the time of the complete fulfillment of obligation. "Demand and notice of dishonor waived. Holder may accept partial payments and grant renewals of this note or extension of payments, reserving rights against each and all indorsers and all parties to this note. "IN CASE OF JUDICIAL Execution of this obligation, or any part of it, the debtors waive all his/their rights under the provisions of Section 12, Rule 39, of the Revised Rules of Court." On maturity of the loan, the borrowers failed to pay the indebtedness of P500,000.00, plus interests and penalties, evidenced by the above-quoted promissory note. On February 20, 1990, Veronica R. Gonzales, joined by her husband Danilo G. Gonzales, filed with the Regional Trial Court of Bulacan, Branch 16, at Malolos, Bulacan, a complaint for collection of the full amount of the loan including interests and other charges. In his answer to the complaint filed with the trial court on April 5, 1990, defendant Servando alleged that he did not obtain any loan from the plaintiffs; that it was defendants Leticia and Dr. Rafael Medel who borrowed from the plaintiffs the sum of P500,000.00, and actually received the amount and benefited therefrom; that the loan was secured by a real estate mortgage executed in favor of the plaintiffs, and that he (Servando Franco) signed the promissory note only as a witness. In their separate answer filed on April 10,1990, defendants Leticia and Rafael Medel alleged that the loan was the transaction of Leticia Yaptinchay, who executed a mortgage in favor of the plaintiffs over a parcel of real estate situated in

San Juan, Batangas; that the interest rate is excessive at 5.5% per month with additional service charge of 2% per annum, and penalty charge of 1% per month; that the stipulation for attorney's fees of 25% ofthe amount due is unconscionable, illegal and excessive, and that substantial payments made were applied to interest, penalties and other charges. After due trial, the lower court declared that the due execution and genuineness of the four promissory notes had been duly proved, and ruled that although the Usury Law had been repealed, the interest charged by the plaintiffs on the loans was unconscionable and "revolting to the conscience". Hence, the trial court applied "the provision of the New [Civil] Code" that the "legal rate of interest for loan or forbearance of money, goods or credit is 12% per annum."[7] Accordingly, on December 9, 1991, the trial court rendered judgment, the dispositive portion of which reads as follows: "WHEREFORE, premises considered, judgment is hereby rendered, as follows: "1. Ordering the defendants Servando Franco and Leticia Medel, jointly and severally, to pay plaintiffs the amount of P47,000.00 plus 12% interest per annum from November 7, 1985 and 1% per month as penalty, until the entire amount is paid in full. "2. Ordering the defendants Servando Franco and Leticia Y. Medel to plaintiffs, jointly and severally the amount of P84,000.00 with 12% interest per annum and 1% per cent per month as penalty from November 19,1985 until the whole amount is fully paid; "3. Ordering the defendants to pay the plaintiffs, jointly and severally, the amount of P285,000.00 plus 12% interest per annum and 1% per month as penalty from July 11, 1986, until the whole amount is fully paid; "4. Ordering the defendants to pay plaintiffs, jointly and severally, the amount of P50,000.00 as attorney's fees; "5. All counterclaims are hereby dismissed. "With costs against the defendants."[8] In due time, both plaintiffs and defendants appealed to the Court of Appeals. In their appeal, plaintiffs-appellants argued that the promissory note, which consolidated all the unpaid loans of the defendants, is the law that governs the parties. They further argued that Circular No. 416 of the Central Bank prescribing the rate of interest for loans or forbearance of money, goods or credit at 12% per annum, applies only in the absence of a stipulation on interest rate, but not when the parties agreed thereon. The Court of Appeals sustained the plaintiffs-appellants' contention. It ruled that "the Usury Law having become 'legally inexistent' with the promulgation by the Central Bank in 1982 of Circular No. 905, the lender and borrower could agree on any interest that may be charged on the loan".[9] The Court of Appeals further held that "the imposition of 'an additional amount equivalent to 1% per month of the amount due and demandable as penalty charges in the form of liquidated damages until fully paid' was allowed by law".[10] Accordingly, on March 21, 1997, the Court of Appeals promulgated it decision reversing that of the Regional Trial Court, disposing as follows: "WHEREFORE, the appealed judgment is hereby MODIFIED such that defendants are hereby ordered to pay the plaintiffs the sum of P500,000.00, plus 5.5% per month interest and 2% service charge per annum effective July 23, 1986, plus 1% per month of the total amount due and demandable as penalty charges effective August 24, 1986, until the entire amount is fully paid. "The award to the plaintiffs of P50,000.00 as attorney's fees is affirmed. And so is the imposition of costs against the defendants. "SO OREDERED."[11] On April 15, 1997, defendants-appellants filed a motion for reconsideration of the said decision. By resolution dated November 25, 1997, the Court of Appeals denied the motion.[12] Hence, defendants interposed the present recourse via petition for review on certiorari.[13] We find the petition meritorious. Basically, the issue revolves on the validity of the interest rate stipulated upon. Thus, the question presented is whether or not the stipulated rate of interest at 5.5% per month on the loan in the sum ofP500,000.00, that plaintiffs extended to the defendants is usurious. In other words, is the Usury Law still effective, or has it been repealed by Central Bank Circular No. 905, adopted on December 22, 1982, pursuant to its powers under P.D. No. 116, as amended by P.D. No. 1684? We agree with petitioners that the stipulated rate of interest at 5.5% per month on the P500,000.00 loan is excessive, iniquitous, unconscionable and exorbitant.13 However, we can not consider the rate "usurious" because this Court has consistently held that Circulr No. 905 of the Central Bank, adopted on December 22, 1982, has expressly removed the interest ceilings prescribed by the Usury Law[14] and that the Usury Law is now "legally inexistent".[15] In Security Bank and Trust Company vs. Regional Trial Court of Makati, Branch 61[16] the Court held that CB Circular No. 905 "did not repeal nor in anyway amend the Usury Law but simply suspended the latter's effectivity." Indeed, we have held that "a Central Bank Circular can not repeal a law. Only a law can repeal another law."[17] In the recent case of Florendo vs. Court of Appeals[18], the Court reiterated the ruling that "by virtue of CB Circular 905, the Usury Law has been rendered ineffective". "Usury has been legally non-existent in our jurisdiction. Interest can now be charged as lender and borrower may agree upon."[19] Nevertheless, we find the interest at 5.5% per month, or 66% per annum, stipulated upon by the parties in the promissory note iniquitous or unconscionable, and, hence, contrary to morals ("contra bonos mores"), if not against the law.[20] The

stipulation is void.[21] The courts shall reduce equitably liquidated damages, whether intended as an indemnity or a penalty if they are iniquitous or unconscionable.[22] Consequently, the Court of Appeals erred in upholding the stipulation of the parties. Rather, we agree with the trial court that, under the circumstances, interest at 12% per annum, and an additional 1% a month penalty charge as liquidated damages may be more reasonable. WHEREFORE, the Court hereby REVERSES and SETS ASIDE the decision of the Court of Appeals promulgated on March 21, 1997, and its resolution dated November 25, 1997. Instead, we render judgment REVIVING and AFFIRMING the decision dated December 9, 1991, of the Regional Trial Court of Bulacan, Branch 16, Malolos, Bulacan, in Civil Case No. 134-M-90, involving the same parties. No pronouncement as to costs in this instance SO ORDERED. ``````````````````````````````````````````````````````````````````````````````````````````````````````````````````` [G.R. No. 125944. June 29, 2001] SPOUSES DANILO SOLANGON and URSULA SOLANGON, petitioners, vs. JOSE AVELINO SALAZAR, respondent. DECISION SANDOVAL-GUTIERREZ, J.: Petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as amended, of the decision of the Court of Appeals in CA-G.R. CV No. 37899, affirming the decision of the Regional Trial Court, Branch 16, Malolos, Bulacan, in Civil Case No. 375-M-91, “Spouses Danilo and Ursula Solangon vs. Jose Avelino Salazar” for annulment of mortgage. The dispositive portion of the RTC decision reads: “WHEREFORE, judgment is hereby rendered against the plaintiffs in favor of the defendant Salazar, as follows: 1. Ordering the dismissal of the complaint; 2. Ordering the dissolution of the preliminary injunction issued on July 8, 1991; 3. Ordering the plaintiffs to pay the defendant the amount of P10,000.00 by way of attorney’s fees; and 4. To pay the costs. SO ORDERED.”[1] The facts as summarized by the Court of Appeals in its decision being challenged are: “On August 22, 1986, the plaintiffs-appellants executed a deed or real estate mortgage in which they mortgaged a parcel of land situated in Sta. Maria, Bulacan, in favor of the defendant-appellee, to secure payment of a loan of P60,000.00 payable within a period of four (4) months, with interest thereon at the rate of 6% per month (Exh. “B”). On May 27, 1987, the plaintiffs-appellants executed a deed of real estate mortgage in which they mortgaged the same parcel of land to the defendant-appellee, to secure payment of a loan of P136,512.00, payable within a period of one (1) year, with interest thereon at the legal rate (Exh. “1”). On December 29, 1990, the plaintiffs-appellants executed a deed of real estate mortgage in which they mortgaged the same parcel of land in favor of defendant-appellee, to secure payment of a loan in the amount of P230,000.00 payable within a period of four (4) months, with interest thereon at the legal rate (Exh. “2”, Exh. “C”). This action was initiated by the plaintiffs-appellants to prevent the foreclosure of the mortgaged property. They alleged that they obtained only one loan form the defendant-appellee, and that was for the amount of P60,000.00, the payment of which was secured by the first of the above-mentioned mortgages. The subsequent mortgages were merely continuations of the first one, which is null and void because it provided for unconscionable rate of interest. Moreover, the defendant-appellee assured them that he will not foreclose the mortgage as long as they pay the stipulated interest upon maturity or within a reasonable time thereafter. They have already paid the defendant-appellee P78,000.00 and tendered P47,000.00 more, but the latter has initiated foreclosure proceedings for their alleged failure to pay the loan P230,000.00 plus interest. On the other hand, the defendant-appellee Jose Avelino Salazar claimed that the above-described mortgages were executed to secure three separate loans of P60,000.00 P136,512.00 and P230,000.00, and that the first two loans were paid, but the last one was not. He denied having represented that he will not foreclose the mortgage as long as the plaintiffs-appellants pay interest.” In their petition, spouses Danilo and Ursula Solangon ascribe to the Court of Appeals the following errors: 1. The Court of Appeals erred in holding that three (3) mortgage contracts were executed by the parties instead of one (1); 2. The Court of Appeals erred in ruling that a loan obligation secured by a real estate mortgage with an interest of 72% per cent per annum or 6% per month is not unconscionable; 4. The Court of Appeals erred in holding that the loan of P136,512.00 HAS NOT BEEN PAID when the mortgagee himself states in his ANSWER that the same was already paid; and 5. The Court of Appeals erred in not resolving the SPECIFIC ISSUES raised by the appellants. In his comment, respondent Jose Avelino Salazar avers that the petition should not be given due course as it raises questions of facts which are not allowed in a petition for review on certiorari.

We find no merit in the instant petition. The core of the present controversy is the validity of the third contract of mortgage which was foreclosed. Petitioners contend that they obtained from respondent Avelino Salazar only one (1) loan in the amount of P60,000.00 secured by the first mortgage of August 1986. According to them, they signed the third mortgage contract in view of respondent’s assurance that the same will not be foreclosed. The trial court, which is in the best position to evaluate the evidence presented before it, did not give credence to petitioners’ corroborated testimony and ruled: “The testimony is improbable. The real estate mortgage was signed not only by Ursula Solangon but also by her husband including the Promissory Note appended to it. Signing a document without knowing its contents is contrary to common experience. The uncorroborated testimony of Ursula Solangon cannot be given weight.”[2] Petitioners likewise insist that, contrary to the finding of the Court of appeals, they had paid the amount of P136,512.00, or the second loan. In fact, such payment was confirmed by respondent Salazar in his answer to their complaint. It is readily apparent that petitioners are raising issues of fact in this petition. In a petition for review under Rule 45 of the 1997 Rules of Civil Procedure, as amended, only questions of law may be raised and they must be distinctly set forth. The settled rule is that findings of fact of the lower courts (including the Court of Appeals) are final and conclusive and will not be reviewed on appeal except: (1) when the conclusion is a finding grounded entirely on speculation, surmises or conjectures; (2) when the inference made is manifestly mistaken, absurd or impossible; (3) when there is grave abuse of discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the findings of facts are conflicting; (6) when the Court of Appeals, in making its findings, went beyond the issues of the case and such findings are contrary to the admission of both appellant and appellee; (6) when the findings of the Court of Appeals are contrary to those of the trial court; and (7) when the findings of fact are conclusions without citation of specific evidence on which they are based.[3] None of these instances are extant in the present case. Parenthetically, petitioners are questioning the rate of interest involved here. They maintain that the Court of Appeals erred in decreeing that the stipulated interest rate of 72% per annum or 6% per month is not unconscionable. The Court of Appeals, in sustaining the stipulated interest rate, ratiocinated that since the Usury Law had been repealed by Central Bank Circular No. 905 there is no more maximum rate of interest and the rate will just depend on the mutual agreement of the parties. Obviously, this was in consonance with our ruling in Liam Law v. Olympic Sawmill Co.[4] The factual circumstances of the present case require the application of a different jurisprudential instruction. While the Usury Law ceiling on interest rates was lifted by C.B. Circular No. 905, nothing in the said circular grants lenders carte blanche authority to raise interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging of their assets.[5] In Medel v. Court of Appeals,[6]this court had the occasion to rule on this question - whether or not the stipulated rate of interest at 5.5% per month on a loan amounting to P500,000.00 is usurious. While decreeing that the aforementioned interest was not usurious, this Court held that the same must be equitably reduced for being iniquitous, unconscionable and exorbitant, thus: “We agree with petitioners that the stipulated rate of interest at 5.5% per month on the P500,000.00 loan is excessive, iniquitous, unconscionable and exorbitant. However, we can not consider the rate ‘usurious’ because this Court has consistently held that Circular No. 905 of the Central Bank, adopted on December 22, 1982, has expressly removed the interest ceilings prescribed by the Usury Law and that the Usury Law is now ‘legally inexistent.’ In Security Bank and Trust Company vs. Regional Trial Court of Makati, Branch 61 the Court held that CB Circular No. 905 did not repeal nor in any way amend the Usury Law but simply suspended the latter’s effectivity. Indeed, we have held that ‘a Central Bank Circular can not repeal a law. Only a law can repeal another law. In the recent case of Florendo v. Court of Appeals, the Court reiterated the ruling that ‘by virtue of CB Circular 905, the Usury Law has been rendered ineffective.’ ‘Usury Law has been legally non-existent in our jurisdiction. Interest can now be charged as lender and borrower may agree upon.’ Nevertheless, we find the interest at 5.5 % per month, or 66% per annum, stipulated upon by the parties in the promissory note iniquitous or unconscionable, and hence, contrary to morals (‘contra bonos mores’), if not against the law. The stipulation is void. The courts shall reduce equitably liquidated damages, whether intended as an indemnity or a penalty if they are iniquitous or unconscionable.” (Emphasis supplied) In the case at bench, petitioners stand on a worse situation. They are required to pay the stipulated interest rate of 6% per month or 72% per annum which is definitely outrageous and inordinate. Surely, it is more consonant with justice that the said interest rate be reduced equitably. An interest of 12% per annum is deemed fair and reasonable. WHEREFORE, the appealed decision of the Court of Appeals is AFFIRMED subject to the MODIFICATION that the interest rate of 72% per annum is ordered reduced to 12 % per annum. SO ORDERED. ```````````````````````````````````````````````````````````````````````````````````````````````````````````````````` [G.R. No. 146942. April 22, 2003] CORAZON G. RUIZ, petitioner, vs. COURT OF APPEALS and CONSUELO TORRES, respondents. DECISION PUNO, J.:

On appeal is the decision[1] of the Court of Appeals in CA-G.R. CV No. 56621 dated 25 August 2000, setting aside the decision[2] of the trial court dated 19 May 1997 and lifting the permanent injunction on the foreclosure sale of the subject lot covered by TCT No. RT-96686, as well as its subsequent Resolution[3] dated 26 January 2001, denying petitioner’s Motion for Reconsideration. The facts of the case are as follows: Petitioner Corazon G. Ruiz is engaged in the business of buying and selling jewelry.[4] She obtained loans from private respondent Consuelo Torres on different occasions, in the following amounts: P100,000.00; P200,000.00; P300,000.00; and P150,000.00.[5] Prior to their maturity, the loans were consolidated under one (1) promissory note dated March 22, 1995, which reads as follows:[6] “P750,000.00 Quezon City, March 22, 1995 PROMISSORY NOTE For value received, I, CORAZON RUIZ, as principal and ROGELIO RUIZ as surety in solidum, jointly and severally promise to pay to the order of CONSUELO P. TORRES the sum of SEVEN HUNDRED FIFTY THOUSAND PESOS (P750,000.00) Philippine Currency, to earn an interest at the rate of three per cent (3%) a month, for thirteen months, payable every _____ of the month, and to start on April 1995 and to mature on April 1996, subject to renewal. If the amount due is not paid on date due, a SURCHARGE of ONE PERCENT of the principal loan, for every month default, shall be collected. Remaining balance as of the maturity date shall earn an interest at the rate of ten percent a month, compounded monthly. It is finally agreed that the principal and surety in solidum, shall pay attorney’s fees at the rate of twenty-five percent (25%) of the entire amount to be collected, in case this note is not paid according to the terms and conditions set forth, and same is referred to a lawyer for collection. In computing the interest and surcharge, a fraction of the month shall be considered one full month. In the event of an amicable settlement, the principal and surety in solidum shall reimburse the expenses of the plaintiff. (Sgd.) Corazon Ruiz __________________ Principal Surety” The consolidated loan of P750,000.00 was secured by a real estate mortgage on a 240-square meter lot in New Haven Village, Novaliches, Quezon City, covered by Transfer Certificate of Title (TCT) No. RT-96686, and registered in the name of petitioner.[7] The mortgage was signed by Corazon Ruiz for herself and as attorney-in-fact of her husband Rogelio. It was executed on 20 March 1995, or two (2) days before the execution of the subject promissory note.[8] Thereafter, petitioner obtained three (3) more loans from private respondent, under the following promissory notes: (1) promissory note dated 21 April 1995, in the amount ofP100,000.00;[9] (2) promissory note dated May 23, 1995, in the amount of P100,000.00;[10] and (3) promissory note dated December 21, 1995, in the amount of P100,000.00.[11] These combined loans of P300,000.00 were secured by P571,000.00 worth of jewelry pledged by petitioner to private respondent. [12] From April 1995 to March 1996, petitioner paid the stipulated 3% monthly interest on the P750,000.00 loan,[13] amounting to P270,000.00.[14] After March 1996, petitioner was unable to make interest payments as she had difficulties collecting from her clients in her jewelry business.[15] Due to petitioner’s failure to pay the principal loan of P750,000.00, as well as the interest payment for April 1996, private respondent demanded payment not only of the P750,000.00 loan, but also of the P300,000.00 loan.[16] When petitioner failed to pay, private respondent sought the extra-judicial foreclosure of the aforementioned real estate mortgage.[17] On September 5, 1996, Acting Clerk of Court and Ex-Officio Sheriff Perlita V. Ele, Deputy Sheriff In-Charge Rolando G. Acal and Supervising Sheriff Silverio P. Bernas issued a Notice of Sheriff’s Sale of subject lot. The public auction was scheduled on October 8, 1996.[18] On October 7, 1996, one (1) day before the scheduled auction sale, petitioner filed a complaint with the RTC of Quezon City docketed as Civil Case No. Q-96-29024, with a prayer for the issuance of a Temporary Restraining Order to enjoin the sheriff from proceeding with the foreclosure sale and to fix her indebtedness to private respondent to P706,000.00. The computed amount of P706,000.00 was based on the aggregate loan of P750,000.00, covered by the March 22, 1995 promissory note, plus the other loans of P300,000.00, covered by separate promissory notes, plus interest, minus P571,000.00 representing the amount of jewelry pledged in favor of private respondent.[19] The trial court granted the prayer for the issuance of a Temporary Restraining Order,[20] and on 29 October 1996, issued a writ of preliminary injunction.[21] In its Decision dated May 19, 1997, it ordered the Clerk of Court and Ex-Officio Sheriff to desist with the foreclosure sale of the subject property, and it made permanent the writ of preliminary injunction. It held that the real estate mortgage is unenforceable because of the lack of the participation and signature of petitioner’s husband. It noted that although the subject real estate mortgage stated that petitioner was “attorney-in-fact for herself and her husband,” the Special Power of Attorney was never presented in court during the trial.[22] The trial court further held that the promissory note in question is a unilateral contract of adhesion drafted by private respondent. It struck down the contract as repugnant to public policy because it was imposed by a dominant bargaining party (private respondent) on a weaker party (petitioner).[23] Nevertheless, it held that petitioner still has an obligation to pay the private respondent. Private respondent was further barred from imposing on petitioner the obligation to pay the

surcharge of one percent (1%) per month from March 1996 onwards, and interest of ten percent (10%) a month, compounded monthly from September 1996 to January 1997. Petitioner was thus ordered to pay the amount of P750,000.00 plus three percent (3%) interest per month, or a total of P885,000.00, plus legal interest from date of [receipt of] the decision until the total amount of P885,000.00 is paid.[24] Aside from the foregoing, the trial court took into account petitioner’s proposal to pay her other obligations to private respondent in the amount of P392,000.00.[25] The trial court also recognized the expenses borne by private respondent with regard the foreclosure sale and attorney’s fees. As the notice of the foreclosure sale has already been published, it ordered the petitioner to reimburse private respondent the amount of P15,000.00 plus attorney’s fees of the same amount.[26] Thus, the trial court computed petitioner’s obligation to private respondent, as follows: Principal Loan ……………. P 750,000.00 Interest……………………….. 135,000.00 Other Loans…………………..392,000.00 Publication Fees……………….15,000.00 Attorney’s Fees …………… 15,000.00 TOTAL…………………… P1,307,000.00 with legal interest from date of receipt of decision until payment of total amount of P1,307,000.00 has been made.[27] Private respondent’s motion for reconsideration was denied in an Order dated July 21, 1997. Private respondent appealed to the Court of Appeals. The appellate court set aside the decision of the trial court. It ruled that the real estate mortgage is valid despite the non-participation of petitioner’s husband in its execution because the land on which it was constituted is paraphernal property of petitioner-wife. Consequently, she may encumber the lot without the consent of her husband.[28] It allowed its foreclosure since the loan it secured was not paid. Nonetheless, the appellate court declared as invalid the 10% compounded monthly interest[29] and the 10% surcharge per month stipulated in the promissory notes dated May 23, 1995 and December 1, 1995,[30] and so too the 1% compounded monthly interest stipulated in the promissory note dated 21 April 1995,[31] for being excessive, iniquitous, unconscionable, and contrary to morals. It held that the legal rate of interest of 12% per annum shall apply after the maturity dates of the notes until full payment of the entire amount due, and that the only permissible rate of surcharge is 1% per month, without compounding.[32] The appellate court also granted attorney’s fees in the amount of P50,000.00, and not the stipulated 25% of the amount due, following the ruling in the case of Medel v. Court of Appeals.[33] Now, before this Court, petitioner assigns the following errors: (1) PUBLIC RESPONDENT COURT OF APPEALS GRAVELY ERRED IN RULING THAT THE PROMISSORY NOTE OF P750,000.00 IS NOT A CONTRACT OF ADHESION DESPITE THE CLEAR SHOWING THAT THE SAME IS A READY-MADE CONTRACT PREPARED BY (THE) RESPONDENT CONSUELO TORRES AND DID NOT REFLECT THEIR TRUE INTENTIONS AS IT WEIGHED HEAVILY IN FAVOR OF RESPONDENT AND AGAINST PETITIONER. (2) PUBLIC RESPONDENT COURT OF APPEALS GRAVELY ERRED IN DECLARING THAT THE PROPERTY COVERED BY THE SUBJECT DEED OF MORTGAGE OF MARCH 20, 1995 IS A PARAPHERNAL PROPERTY OF THE PETITIONER AND NOT CONJUGAL EVEN THOUGH THE ISSUE OF WHETHER OR NOT THE MORTGAGED PROPERTY IS PARAPHERNAL WAS NEVER RAISED, NOR DISCUSSED AND ARGUED BEFORE THE TRIAL COURT. (3) PUBLIC RESPONDENT COURT OF APPEALS GRAVELY ERRED IN DISREGARDING THE TRIAL COURT’S COMPUTATION OF THE ACTUAL OBLIGATIONS OF THE PETITIONER WITH (THE) RESPONDENT TORRES EVEN THOUGH THE SAME IS BASED ON EVIDENCE SUBMITTED BEFORE IT. The pertinent issues to be resolved are: (1) Whether the promissory note of P750,000.00 is a contract of adhesion; (2) Whether the real property covered by the subject deed of mortgage dated March 20, 1995 is paraphernal property of petitioner; and (3) Whether the rates of interests and surcharges on the obligation of petitioner to private respondent are valid. I We hold that the promissory note in the case at bar is not a contract of adhesion. In Sweet Lines, Inc. vs. Teves,[34] this Court discussed the nature of a contract of adhesion as follows: “. . . there are certain contracts almost all the provisions of which have been drafted only by one party, usually a corporation. Such contracts are called contracts of adhesion, because the only participation of the other party is the signing of his signature or his ‘adhesion’ thereto. Insurance contracts, bills of lading, contracts of sale of lots on the installment plan fall into this category.[35] “ . . . it is drafted only by one party, usually the corporation, and is sought to be accepted or adhered to by the other party . . . who cannot change the same and who are thus made to adhere hereto on the ‘take it or leave it’ basis . . . ”[36] In said case of Sweet Lines,[37] the conditions of the contract on the 4 x 6 inches passenger ticket are in fine print. Thus we held:

“ . . . it is hardly just and proper to expect the passengers to examine their tickets received from crowded/congested counters, more often than not during rush hours, for conditions that may be printed thereon, much less charge them with having consented to the conditions, so printed, especially if there are a number of such conditions in fine print, as in this case.”[38] We further stressed in the said case that the questioned ‘Condition No. 14’ was prepared solely by one party which was the corporation, and the other party who was then a passenger had no say in its preparation. The passengers have no opportunity to examine and consider the terms and conditions of the contract prior to the purchase of their tickets.[39] In the case at bar, the promissory note in question did not contain any fine print provision which could not have been examined by the petitioner. Petitioner had all the time to go over and study the stipulations embodied in the promissory note. Aside from the March 22, 1995 promissory note for P750,000.00, three other promissory notes of different dates and amounts were executed by petitioner in favor of private respondent. These promissory notes contain similar terms and conditions, with a little variance in the terms of interests and surcharges. The fact that petitioner and private respondent had entered into not only one but several loan transactions shows that petitioner was not in any way compelled to accept the terms allegedly imposed by private respondent. Moreover, petitioner, in her complaint[40] dated October 7, 1996 filed with the trial court, never claimed that she was forced to sign the subject note. Paragraph five of her complaint states: “That on or about March 22, 1995 plaintiff was required by the defendant Torres to execute a promissory note consolidating her unpaid principal loan and interests which said defendant computed to be in the sum of P750,000.00 . . .” To be required is certainly different from being compelled. She could have rejected the conditions made by private respondent. As an experienced business- woman, she ought to understand all the conditions set forth in the subject promissory note. As held by this Court in Lee, et al. vs. Court of Appeals, et al.,[41] it is presumed that a person takes ordinary care of his concerns.[42] Hence, the natural presumption is that one does not sign a document without first informing himself of its contents and consequences. This presumption acquires greater force in the case at bar where not only one but several documents were executed at different times by petitioner in favor of private respondent. II We also affirm the ruling of the appellate court that the real property covered by the subject deed of mortgage is paraphernal property. The property subject of the mortgage is registered in the name of “Corazon G. Ruiz, of legal age, married to Rogelio Ruiz, Filipinos.” Thus, title is registered in the name of Corazon alone because the phrase “married to Rogelio Ruiz” is merely descriptive of the civil status of Corazon and should not be construed to mean that her husband is also a registered owner. Furthermore, registration of the property in the name of “Corazon G. Ruiz, of legal age, married to Rogelio Ruiz” is not proof that such property was acquired during the marriage, and thus, is presumed to be conjugal. The property could have been acquired by Corazon while she was still single, and registered only after her marriage to Rogelio Ruiz. Acquisition of title and registration thereof are two different acts.[43]The presumption under Article 116 of the Family Code that properties acquired during the marriage are presumed to be conjugal cannot apply in the instant case. Before such presumption can apply, it must first be established that the property was in fact acquired during the marriage. In other words, proof of acquisition during the marriage is a condition sine qua non for the operation of the presumption in favor of conjugal ownership.[44] No such proof was offered nor presented in the case at bar. Thus, on the basis alone of the certificate of title, it cannot be presumed that said property was acquired during the marriage and that it is conjugal property. Since there is no showing as to when the property in question was acquired, the fact that the title is in the name of the wife alone is determinative of its nature as paraphernal, i.e., belonging exclusively to said spouse.[45] The only import of the title is that Corazon is the owner of said property, the same having been registered in her name alone, and that she is married to Rogelio Ruiz.[46] III We now resolve the issue of whether the rates of interests and surcharges on the obligation of petitioner to private respondent are legal. The four (4) unpaid promissory notes executed by petitioner in favor of private respondent are in the following amounts and maturity dates: (1) P750,000.00, dated March 22, 1995 matured on April 21, 1996; (2) P100,000.00, dated April 21, 1995 matured on August 21, 1995; (3) P100,000.00, dated May 23, 1995 matured on November 23, 1995; and (4) P100,000.00, dated December 21, 1995 matured on March 1, 1996. The P750,000.00 promissory note dated March 22, 1995 has the following provisions: (1) 3% monthly interest, from the signing of the note until its maturity date; (2) 10% compounded monthly interest on the remaining balance at maturity date; (3) 1% surcharge on the principal loan for every month of default; and (4) 25% attorney’s fees. The P100,000.00 promissory note dated April 21, 1995 has the following provisions: (1) 3% monthly interest, from the signing of the note until its maturity date; (2) 10% monthly interest on the remaining balance at maturity date; (3) 1% compounded monthly surcharge on the principal loan for every month of default; and

(4) 10% attorney’s fees. The two (2) other P100,000.00 promissory notes dated May 23, 1995 and December 1, 1995 have the following provisions: (1) 3% monthly interest, from the signing of the note until its maturity date; (2) 10% compounded monthly interest on the remaining balance at maturity date; (3) 10% surcharge on the principal loan for every month of default; and (4) 10% attorney’s fees. We affirm the ruling of the appellate court, striking down as invalid the 10% compounded monthly interest, the 10% surcharge per month stipulated in the promissory notes dated May 23, 1995 and December 1, 1995, and the 1% compounded monthly interest stipulated in the promissory note dated April 21, 1995. The legal rate of interest of 12% per annum shall apply after the maturity dates of the notes until full payment of the entire amount due. Also, the only permissible rate of surcharge is 1% per month, without compounding. We also uphold the award of the appellate court of attorney’s fees, the amount of which having been reasonably reduced from the stipulated 25% (in the March 22, 1995 promissory note) and 10% (in the other three promissory notes) of the entire amount due, to a fixed amount of P50,000.00. However, we equitably reduce the 3% per month or 36% per annum interest present in all four (4) promissory notes to 1% per month or 12% per annum interest. The foregoing rates of interests and surcharges are in accord with Medel vs. Court of Appeals,[47] Garcia vs. Court of Appeals,[48] Bautista vs. Pilar Development Corporation,[49]and the recent case of Spouses Solangon vs. Salazar.[50] This Court invalidated a stipulated 5.5% per month or 66% per annum interest on a P500,000.00 loan in Medel[51] and a 6% per month or 72% per annum interest on a P60,000.00 loan in Solangon[52] for being excessive, iniquitous, unconscionable and exorbitant. In both cases, we reduced the interest rate to 12% per annum. We held that while the Usury Law has been suspended by Central Bank Circular No. 905, s. 1982, effective on January 1, 1983, and parties to a loan agreement have been given wide latitude to agree on any interest rate, still stipulated interest rates are illegal if they are unconscionable. Nothing in the said circular grants lenders carte blanche authority to raise interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging of their assets.[53] On the other hand, in Bautista vs. Pilar Development Corp., [54] this Court upheld the validity of a 21% per annum interest on a P142,326.43 loan, and in Garcia vs. Court of Appeals, sustained the agreement of the parties to a 24% per annum interest on anP8,649,250.00 loan. It is on the basis of these cases that we reduce the 36% per annum interest to 12%. An interest of 12% per annum is deemed fair and reasonable. While it is true that this Court invalidated a much higher interest rate of 66% per annum in Medel[55] and 72% in Solangon[56] it has sustained the validity of a much lower interest rate of 21% in Bautista[57]and 24% in Garcia. [58] We still find the 36% per annum interest rate in the case at bar to be substantially greater than those upheld by this Court in the two (2) aforecited cases. The 1% surcharge on the principal loan for every month of default is valid. This surcharge or penalty stipulated in a loan agreement in case of default partakes of the nature of liquidated damages under Art. 2227 of the New Civil Code, and is separate and distinct from interest payment.[59] Also referred to as a penalty clause, it is expressly recognized by law. It is an accessory undertaking to assume greater liability on the part of an obligor in case of breach of an obligation.[60] The obligor would then be bound to pay the stipulated amount of indemnity without the necessity of proof on the existence and on the measure of damages caused by the breach.[61] Although the courts may not at liberty ignore the freedom of the parties to agree on such terms and conditions as they see fit that contravene neither law nor morals, good customs, public order or public policy, a stipulated penalty, nevertheless, may be equitably reduced if it is iniquitous or unconscionable. [62] In the instant case, the 10% surcharge per month stipulated in the promissory notes dated May 23, 1995 and December 1, 1995 was properly reduced by the appellate court. In sum, petitioner shall pay private respondent the following: 1. Principal of loan under promissory note dated March 22, 1995 ………………………………………... P750,000.00 a. 1% interest per month on principal from March 22, 1995 until fully paid, less P270,000.00 paid by petitioner as interest from April 1995 to March 1996 b. 1% surcharge per month on principal from May 1996 until fully paid 2. Principal of loan under promissory note dated April 21, 1995 ………………………………………….. P100,000.00 a. 1% interest per month on principal from April 21, 1995 until fully paid b. 1% surcharge per month on principal from September 1995 until fully paid 3. Principal of loan under promissory note dated May 23, 1995 .……….………………………………….. P100,000.00 a. 1% interest per month on principal from May 23, 1995 until fully paid b. 1% surcharge per month on principal from December 1995 until fully paid 4. Principal of loan under promissory note dated December 1, 1995 ….………………………………….. P100,000.00 a. 1% interest per month on principal from December 1, 1995 until fully paid b. 1% surcharge per month on principal from April 1996 until fully paid

5. Attorney’s fees…………………………………………...P 50,000.00 Hence, since the mortgage is valid and the loan it secures remains unpaid, the foreclosure proceedings may now proceed. IN VIEW WHEREOF, the appealed Decision of the Court of Appeals is AFFIRMED, subject to the MODIFICATION that the interest rate of 36% per annum is ordered reduced to 12 % per annum. SO ORDERED. ````````````````````````````````````````````````````````````````````````````````````````````````````````````````` [G.R. No. 158382. January 27, 2004] MANSUETO CUATON, petitioner, vs. REBECCA SALUD and COURT OF APPEALS (Special Fourteenth Division), respondents. DECISION YNARES-SANTIAGO, J.: Before the Court is a petition for review on certiorari assailing the August 31, 2001 Decision[1] of the Court of Appeals in CA-G.R. CV No. 54715 insofar as it affirmed the Judgment[2] of the Regional Trial Court of General Santos City, Branch 35, in SPL. Civil Case No. 359, imposing interest at the rate of 8% to 10% per month on the one-million-peso loan of petitioner. On January 5, 1993, respondent Rebecca Salud, joined by her husband Rolando Salud, instituted a suit for foreclosure of real estate mortgage with damages against petitioner Mansueto Cuaton and his mother, Conchita Cuaton, with the Regional Trial Court of General Santos City, Branch 35, docketed as SPL. Civil Case No. 359.[3] The trial court rendered a decision declaring the mortgage constituted on October 31, 1991 as void, because it was executed by Mansueto Cuaton in favor of Rebecca Salud without expressly stating that he was merely acting as a representative of Conchita Cuaton, in whose name the mortgaged lot was titled. The court ordered petitioner to pay Rebecca Salud, inter alia, the loan secured by the mortgage in the amount of One Million Pesos plus a total P610,000.00 representing interests of 10% and 8% per month for the period February 1992 to August 1992, thus – Original loan ------------------------------------------------------ P1,000,000.00 10% interest for the month of February 1992 balance only --------------------------------------------50,000.00 10% interest for the month of March 1992 --------------------------------------------100,000.00 10% interest for the month of April 1992 ---------------------------------------------100,000.00 10% interest for the month of May 1992 ----------------------------------------------100,000.00 10% interest for the month of June 1992 ----------------------------------------------100,000.00 8% interest for the month of July 1992 -----------------------------------------------80,000.00 8% interest for the month of August 1992 -------------------------------------------80,000.00 --------------------Total amount as of August 1992 ------------------P 1, 610,000.00[4] The dispositive portion of the trial court’s decision, reads: WHEREFORE, premises considered, judgment is hereby rendered: a) Declaring the mortgage executed by Mansueto Cuaton over the property owned by Conchita Cuaton, covered by TCT NO. T-34460, dated October 31, 1991, in favor of Rebecca Salud as unauthorized, void and unenforceable against defendant, Conchita Cuaton hence, the TRO issued against the foreclosure thereof is hereby made permanent. The annotation of the mortgage over said property is likewise cancelled; b) Ordering defendant Mansueto Cuaton to pay plaintiff, Rebecca Salud, the sum of One Million Six Hundred Ten Thousand (P1,610,000.00) Pesos, with legal interest thereon, from January 5, 1993 until fully paid; c) Ordering defendant, Mansueto Cuaton, to pay Attorney’s fees of P25,000.00 in favor of the plaintiff, Rebecca Salud and to pay the cost of this suit. Defendants’ counterclaims, being merely a result of the filing of plaintiff’s complaint are hereby DISMISSED. SO ORDERED.[5] Both parties filed their respective notices of appeal.[6] On August 31, 2001, the Court of Appeals rendered the assailed decision affirming the judgment of the trial court. Petitioner filed a motion for partial reconsideration of the trial court’s decision with respect to the award of interest in the amount of P610,000.00, arguing that the same was iniquitous and exorbitant.[7] This was denied by the Court of Appeals on May 7, 2003.[8]

Hence, the instant petition on the sole issue of whether the 8% and 10% monthly interest rates imposed on the one-millionpeso loan obligation of petitioner to respondent Rebecca Salud are valid. We find merit in the petition. In Ruiz v. Court of Appeals,[9] we declared that the Usury Law was suspended by Central Bank Circular No. 905, s. 1982, effective on January 1, 1983, and that parties to a loan agreement have been given wide latitude to agree on any interest rate. However, nothing in the said Circular grants lenders carte blanche authority to raise interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging of their assets. The stipulated interest rates are illegal if they are unconscionable. Thus, in Medel v. Court of Appeals,[10] and Spouses Solangon v. Salazar,[11] the Court annulled a stipulated 5.5% per month or 66% per annum interest on a P500,000.00 loan and a 6% per month or 72% per annum interest on a P60,000.00 loan, respectively, for being excessive, iniquitous, unconscionable and exorbitant. In both cases, the interest rates were reduced to 12% per annum. In the present case, the 10% and 8% interest rates per month on the one-million-peso loan of petitioner are even higher than those previously invalidated by the Court in the above cases. Accordingly, the reduction of said rates to 12% per annum is fair and reasonable. Stipulations authorizing iniquitous or unconscionable interests are contrary to morals (‘contra bonos mores’), if not against the law.[12] Under Article 1409 of the Civil Code, these contracts are inexistent and void from the beginning. They cannot be ratified nor the right to set up their illegality as a defense be waived.[13] Moreover, the contention regarding the excessive interest rates cannot be considered as an issue presented for the first time on appeal. The records show that petitioner raised the validity of the 10% monthly interest in his answer filed with the trial court.[14] To deprive him of his right to assail the imposition of excessive interests would be to sacrifice justice to technicality. Furthermore, an appellate court is clothed with ample authority to review rulings even if they are not assigned as errors. This is especially so if the court finds that their consideration is necessary in arriving at a just decision of the case before it. We have consistently held that an unassigned error closely related to an error properly assigned, or upon which a determination of the question raised by the error properly assigned is dependent, will be considered by the appellate court notwithstanding the failure to assign it as an error.[15]Since respondents pointed out the matter of interest in their Appellants’ Brief[16] before the Court of Appeals, the fairness of the imposition thereof was opened to further evaluation. The Court therefore is empowered to review the same. The case of Eastern Shipping Lines, Inc. v. Court of Appeals,[17] laid down the following guidelines on the imposition of interest, to wit: 1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 23 of the Civil Code. xxx xxx xxx 3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit. Applying the foregoing rules, the interest of 12% per annum imposed by the Court (in lieu of the invalidated 10% and 8% per month interest rates) on the one-million-peso loan should be computed from the date of the execution of the loan on October 31, 1991 until finality of this decision. After the judgment becomes final and executory until the obligation is satisfied, the amount due shall further earn interest at 12% per year. WHEREFORE, in view of all the foregoing, the instant petition is GRANTED. The August 31, 2001 Decision of the Court of Appeals in CA-G.R. CV No. 54715, which affirmed the Decision of the Regional Trial Court of General Santos City, Branch 35, in SPL. Civil Case No. 359, is MODIFIED. The interest rates of 10% and 8% per month imposed by the trial court is reduced to 12% per annum, computed from the date of the execution of the loan on October 31, 1991 until finality of this decision. After the judgment becomes final and executory until the obligation is satisfied, the amount due shall further earn interest at 12% per year. SO ORDERED. ````````````````````````````````````````````````````````````````````````````````````````````````````````````` [G.R. No. 149004. April 14, 2004] RESTITUTA M. IMPERIAL, petitioner, vs. ALEX A. JAUCIAN, respondent. DECISION PANGANIBAN, J.: Iniquitous and unconscionable stipulations on interest rates, penalties and attorney’s fees are contrary to morals. Consequently, courts are granted authority to reduce them equitably. If reasonably exercised, such authority shall

not be disturbed by appellate courts. The Case Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, assailing the July 19, 2000 Decision[2] and the June 14, 2001 Resolution[3] of the Court of Appeals (CA) in CA-GR CV No. 43635. The decretal portion of the Decision is as follows: “WHEREFORE, premises considered, the appealed Decision of the Regional Trial Court, 5th Judicial Region, Branch 21, Naga City, dated August 31, 1993, in Civil Case No. 89-1911 for Sum of Money, is hereby AFFIRMED in toto.”[4] The assailed Resolution denied petitioner’s Motion for Reconsideration. The dispositive portion of the August 31, 1993 Decision, promulgated by the Regional Trial Court (RTC) of Naga City (Branch 21) and affirmed by the CA, reads as follows: “Wherefore, Judgment is hereby rendered declaring Section I, Central Bank Circular No. 905, series of 1982 to be of no force and legal effect, it having been promulgated by the Monetary Board of the Central Bank of the Philippines with grave abuse of discretion amounting to excess of jurisdiction; declaring that the rate of interest, penalty, and charges for attorney’s fees agreed upon between the parties are unconscionable, iniquitous, and in violation of Act No. 2655, otherwise known as the Usury Law, as amended; and ordering Defendant to pay Plaintiff the amount of FOUR HUNDRED SEVENTY-EIGHT THOUSAND, ONE HUNDRED NINETY-FOUR and 54/100 (P478,194.54) PESOS, Philippine currency, with regular and compensatory interests thereon at the rate of twenty-eight (28%) per centum per annum, computed from August 31, 1993 until full payment of the said amount, and in addition, an amount equivalent to ten (10%) per centum of the total amount due and payable, for attorney’s fees, without pronouncement as to costs.”[5] The Facts The CA summarized the facts of the case in this wise: “The present controversy arose from a case for collection of money, filed by Alex A. Jaucian against Restituta Imperial, on October 26, 1989. The complaint alleges, inter alia, that defendant obtained from plaintiff six (6) separate loans for which the former executed in favor of the latter six (6) separate promissory notes and issued several checks as guarantee for payment. When the said loans became overdue and unpaid, especially when the defendant’s checks were dishonored, plaintiff made repeated oral and written demands for payment. “Specifically, the six (6) separate loans obtained by defendant from plaintiff on various dates are as follows: (a) November 13, 1987 P 50,000.00 (b) December 28, 1987 40,000.00 (c) January 6, 1988 30,000.00 (d) January 11, 1988 50,000.00 (e) January 12, 1988 50,000.00 (f) January 13, 1988 100,000.00 Total P320,000.00 “The loans were covered by six (6) separate promissory notes executed by defendant. The face value of each promissory notes is bigger [than] the amount released to defendant because said face value already include[d] the interest from date of note to date of maturity. Said promissory notes, which indicate the interest of 16% per month, date of issue, due date, the corresponding guarantee checks issued by defendant, penalties and attorney’s fees, are the following: 1. Exhibit ‘D’ – for loan of P40,000.00 on December 28, 1987, with face value of P65,000.00; 2. Exhibit ‘E’ – for loan of P50,000.00 on January 11, 1988, with face value of P82,000.00; 3. Exhibit ‘F’ – for loan of P50,000.00 on January 12, 1988, with face value of P82,000.00; 4. Exhibit ‘G’ – for loan of P100,000.00 on January 13, 1988, with face value of P164,000.00; 5. Exhibit ‘H’ – This particular promissory note covers the second renewal of the original loan of P50,000.00 on November 13, 1987, which was renewed for the first time on March 16, 1988 after certain payments, and which was renewed finally for the second time on January 4, 1988 also after certain payments, with a face value of P56,240.00; 6. Exhibit ‘I’ – This particular promissory note covers the second renewal of the original loan of P30,000.00 on January 6, 1988, which was renewed for the first time on June 4, 1988 after certain payments, and which was finally renewed for the second time on August 6, 1988, also after certain payments, with [a] face value of P12,760.00; “The particulars about the postdated checks, i.e., number, amount, date, etc., are indicated in each of the promissory notes. Thus, for Exhibit ‘D’, four (4) PB checks were issued; for Exhibit ‘E’ four (4) checks; for Exhibit ‘F’ four (4) checks; for Exhibit ‘G’ four (4) checks; for Exhibit ‘H’ one (1) check; for Exhibit ‘I’ one (1) check; “The arrangement between plaintiff and defendant regarding these guarantee checks was that each time a check matures the defendant would exchange it with cash. “Although, admittedly, defendant made several payments, the same were not enough and she always defaulted whenever her loans mature[d]. As of August 16, 1991, the total unpaid amount, including accrued interest, penalties and attorney’s fees, [was] P2,807,784.20. “On the other hand, defendant claims that she was extended loans by the plaintiff on several occasions, i.e., from November 13, 1987 to January 13, 1988, in the total sum of P320,000.00 at the rate of sixteen percent (16%) per month. The notes mature[d] every four (4) months with unearned interest compounding every four (4) months if the loan [was] not fully

paid. (a) (b) (c) (d) (e) (f)

The loan releases [were] as follows: November 13, 1987 P 50,000.00 December 28, 1987 40,000.00 January 6, 1988 30,000.00 January 11, 1988 50,000.00 January 12, 1988 50,000.00 January 13, 1988 100,000.00 Total P320,000.00 “The loan on November 13, 1987 and January 6, 1988 ha[d] been fully paid including the usurious interests of 16% per month, this is the reason why these were not included in the complaint. “Defendant alleges that all the above amounts were released respectively by checks drawn by the plaintiff, and the latter must produce these checks as these were returned to him being the drawer if only to serve the truth. The above amount are the real amount released to the defendant but the plaintiff by masterful machinations made it appear that the total amount released was P462,600.00. Because in his computation he made it appear that the true amounts released was not the original amount, since it include[d] the unconscionable interest for four months. “Further, defendant claims that as of January 25, 1989, the total payments made by defendants [were] as follows: a. Paid releases on November 13, 1987 of P50,000.00 and January 6, 1988 of P30,000.00 these two items were not included in the complaint affirming the fact that these were paid P 80,000.00 b. Exhibit ‘26’ Receipt 231,000.00 c. Exhibit ‘8-25’ Receipt 65,300.00 d. Exhibit ‘27’ Receipt 65,000.00 Total P441,780.00 Less: 320,000.00 Excess Payment P121,780.00 “Defendant contends that from all perspectives the above excess payment of P121,780.00 is more than the interest that could be legally charged, and in fact as of January 25, 1989, the total releases have been fully paid. “On 31 August 1993, the trial court rendered the assailed decision.”[6] Ruling of the Court of Appeals On appeal, the CA held that without judicial inquiry, it was improper for the RTC to rule on the constitutionality of Section 1, Central Bank Circular No. 905, Series of 1982. Nonetheless, the appellate court affirmed the judgment of the trial court, holding that the latter’s clear and detailed computation of petitioner’s outstanding obligation to respondent was convincing and satisfactory. Hence, this Petition.[7] The Issues Petitioner raises the following arguments for our consideration: “1. That the petitioner has fully paid her obligations even before filing of this case. “2. That the charging of interest of twenty-eight (28%) per centum per annum without any writing is illegal. “3. That charging of excessive attorney’s fees is hemorrhagic. “4. Charging of excessive penalties per month is in the guise of hidden interest. “5. The non-inclusion of the husband of the petitioner at the time the case was filed should have dismissed this case.”[8] The Court’s Ruling The Petition has no merit. First Issue: Computation of Outstanding Obligation Arguing that she had already fully paid the loan before the filing of the case, petitioner alleges that the two lower courts misappreciated the facts when they ruled that she still had an outstanding balance of P208,430. This issue involves a question of fact. Such question exists when a doubt or difference arises as to the truth or the falsehood of alleged facts; and when there is need for a calibration of the evidence, considering mainly the credibility of witnesses and the existence and the relevancy of specific surrounding circumstances, their relation to each other and to the whole, and the probabilities of the situation.[9] It is a well-entrenched rule that pure questions of fact may not be the subject of an appeal by certiorari under Rule 45 of the Rules of Court, as this remedy is generally confined to questions of law.[10] The jurisdiction of this Court over cases brought to it is limited to the review and rectification of errors of law allegedly committed by the lower court. As a rule, the latter’s factual findings, when adopted and affirmed by the CA, are final and conclusive and may not be reviewed on appeal. [11] Generally, this Court is not required to analyze and weigh all over again the evidence already considered in the proceedings below.[12] In the present case, we find no compelling reason to overturn the factual findings of the RTC -- that the total amount of the loans extended to petitioner was P320,000, and that she paid a total of only P116,540 on twenty-nine

dates. These findings are supported by a preponderance of evidence. Moreover, the amount of the outstanding obligation has been meticulously computed by the trial court and affirmed by the CA. Petitioner has not given us sufficient reason why her cause falls under any of the exceptions to this rule on the finality of factual findings. Second Issue: Rate of Interest The trial court, as affirmed by the CA, reduced the interest rate from 16 percent to 1.167 percent per month or 14 percent per annum; and the stipulated penalty charge, from 5 percent to 1.167 percent per month or 14 percent per annum. Petitioner alleges that absent any written stipulation between the parties, the lower courts should have imposed the rate of 12 percent per annum only. The records show that there was a written agreement between the parties for the payment of interest on the subject loans at the rate of 16 percent per month. As decreed by the lower courts, this rate must be equitably reduced for being iniquitous, unconscionable and exorbitant. “While the Usury Law ceiling on interest rates was lifted by C.B. Circular No. 905, nothing in the said circular grants lenders carte blanche authority to raise interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging of their assets.”[13] In Medel v. CA,[14] the Court found the stipulated interest rate of 5.5 percent per month, or 66 percent per annum, unconscionable. In the present case, the rate is even more iniquitous and unconscionable, as it amounts to 192 percent per annum. When the agreed rate is iniquitous or unconscionable, it is considered “contrary to morals, if not against the law. [Such] stipulation is void.”[15] Since the stipulation on the interest rate is void, it is as if there were no express contract thereon.[16] Hence, courts may reduce the interest rate as reason and equity demand. We find no justification to reverse or modify the rate imposed by the two lower courts. Third and Fourth Issue: Penalties and Attorney’s Fees Article 1229 of the Civil Code states thus: “The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced 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.[17] What may be iniquitous and unconscionable in one may be totally just and equitable in another. In the present case, iniquitous and unconscionable was the parties’ stipulated penalty charge of 5 percent per month or 60 percent per annum, in addition to regular interests and attorney’s fees. Also, there was partial performance by petitioner when she remitted P116,540 as partial payment of her principal obligation ofP320,000. Under the circumstances, the trial court was justified in reducing the stipulated penalty charge to the more equitable rate of 14 percent per annum. The Promissory Note carried a stipulation for attorney’s fees of 25 percent of the principal amount and accrued interests. Strictly speaking, this covenant on attorney’s fees is different from that mentioned in and regulated by the Rules of Court.[18] “Rather, the attorney’s fees here are in the nature of liquidated damages and the stipulation therefor is aptly called a penal clause.”[19] So long as the stipulation does not contravene the law, morals, public order or public policy, it is binding upon the obligor. It is the litigant, not the counsel, who is the judgment creditor entitled to enforce the judgment by execution. Nevertheless, it appears that petitioner’s failure to comply fully with her obligation was not motivated by ill will or malice. The twenty-nine partial payments she made were a manifestation of her good faith. Again, Article 1229 of the Civil Code specifically empowers the judge to reduce the civil penalty equitably, when the principal obligation has been partly or irregularly complied with. Upon this premise, we hold that the RTC’s reduction of attorney’s fees -- from 25 percent to 10 percent of the total amount due and payable -- is reasonable. Fifth Issue: Non-Inclusion of Petitioner’s Husband Petitioner contends that the case against her should have been dismissed, because her husband was not included in the proceedings before the RTC. We are not persuaded. The husband’s non-joinder does not warrant dismissal, as it is merely a formal requirement that may be cured by amendment.[20] Since petitioner alleges that her husband has already passed away, such an amendment has thus become moot. WHEREFORE, the Petition is DENIED. Costs against petitioner. SO ORDERED. ``````````````````````````````````````````````````````````````````````````````````````````````````````````````````````` TERESITA DIO, petitioner, vs. SPOUSES VIRGILIO and LUZ ROCES JAPOR and MARTA[1] JAPOR, respondents.

DECISION QUISUMBING, J.: For review on certiorari is the Decision,[2] dated February 22, 2002, of the Court of Appeals, in the consolidated cases CAG.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 the trial 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 per month such that plaintiffs-appellants’ contractual obligation under the deed of real estate 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 the trial 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, of the appellate court, denying Teresita Dio’s Motion for Partial Reconsideration of March 19, 2002 and the Spouses Japor and Marta Japor’s Motion for Reconsideration dated March 20, 2002. The antecedent facts are as follows: Herein respondents Spouses Virgilio Japor and Luz Roces Japor were the owners of an 845.5 square-meter residential lot including its improvements, situated in Barangay Ibabang Mayao, Lucena City, as shown by Transfer Certificate of Title (TCT) No. T-39514. Adjacent to the Japor’s lot is another lot owned by respondent Marta Japor, which consisted of 325.5 square meters and titled under TCT No. T-15018. On August 23, 1982, the respondents obtained a loan of P90,000 from the Quezon Development Bank (QDB), and as security therefor, they mortgaged the lots covered by TCT Nos. T-39514 and T-15018 to QDB, as evidenced by a Deed of Real Estate Mortgage duly executed by and between the respondents and QDB. On December 6, 1983, respondents and QDB amended the Deed of Real Estate Mortgage increasing respondents’ loan to P128,000. The respondents failed to pay their aforesaid loans. However, before the bank could foreclose on the mortgage, respondents, thru their broker, one Lucia G. Orian, offered to mortgage their properties to petitioner Teresita Dio. Petitioner prepared a Deed of Real Estate Mortgage, whereby respondents mortgaged anew the two properties already mortgaged with QDB to secure the timely payment of a P350,000 loan that respondents had from petitioner Dio. The Deed of Real Estate Mortgage, though dated January 1989, was actually executed on February 13, 1989 and notarized on February 17, 1989. Under the terms of the deed, respondents agreed to pay the petitioner interest at the rate of five percent (5%) a month, within a period of two months or until April 14, 1989. In the event of default, an additional interest equivalent to five percent (5%) of the amount then due, for every month of delay, would be 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 the respondents to pay their debt. Despite repeated demands, respondents did not pay, hence petitioner applied for extrajudicial foreclosure of the mortgage. The auction of the unredeemed properties was set for February 26, 1992. Meanwhile, on February 24, 1992, respondents filed an action for Fixing of Contractual Obligation with Prayer for Preliminary Mandatory Injunction/Restraining Order, docketed as Civil Case No. 92-26, with the Regional Trial Court (RTC) of Lucena City. Respondents prayed that “judgment be rendered fixing the contractual obligations of plaintiffs with the defendant Dio plus legal or allowable interests thereon.”[5] The trial court issued an Order enjoining the auction sale of the aforementioned mortgaged properties. On June 15, 1992, the Japors filed a Motion to Admit Amended Complaint with an attached copy of their Amended Complaint praying that the Deed of Real Estate Mortgage dated February 13, 1989 be declared null and void, but reiterating the plea that the trial court fix the contractual obligations of the Japors with Dio. The trial court denied the motion. On September 27, 1994, respondents filed with the appellate court, a petition for certiorari, docketed as CA-G.R. SP No. 35315, praying that the Court of Appeals direct the trial court to admit their Amended Complaint. The appellate court denied said petition.[6] On December 11, 1995, the trial court handed down the following judgment: WHEREFORE, in view of the foregoing considerations, judgment is rendered: 1. Dismissing the complaint for failure of the plaintiffs to substantiate their affirmative allegations; 2. Declaring the Real Estate Mortgage (Exhs. “A” to “A-13”/Exhs. “3” to “3-D”) to be valid and binding as between the parties, more particularly the plaintiffs Virgilio Japor, Luz Japor and Marta Japor or the latter’s substituted heir or heirs, as the case 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 April 26, 1996, they also filed a Petition for Temporary Restraining Order And/Or Mandatory Injunction in Aid of Appellate Jurisdiction with the Court of Appeals. On May 8, 1996, petitioner Dio as the sole bidder in an auction purchased the properties for P3,500,000. On May 9, 1996, the Court of Appeals denied respondents’ application for a 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 trial court with respect to the validity of the Deed of Real Estate Mortgage, but modified the interest and penalty rates for being unconscionable and exorbitant. Before us, petitioner assigns the following errors allegedly committed by the appellate court: I THE ALLEGED INIQUITY OF THE STIPULATED INTEREST AND PENALTY WAS NOT RAISED BEFORE THE TRIAL COURT NOR ASSIGNED AS AN ERROR IN RESPONDENTS’ APPEAL. II THE STIPULATED INTEREST AND PENALTY ARE NOT “EXCESSIVE, INIQUITOUS, UNCONSCIONABLE, EXORBITANT AND CONTRARY TO MORAL[S]”. III PAYMENT OF THE “SURPLUS” OF P2,247,326.00 TO RESPONDENTS WOULD RESULT 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 is contrary to morals, if not illegal? Corollarily, were respondents entitled to any “surplus” on the auction sale price? On the main issue, petitioner contends that The Usury Law[10] has been rendered ineffective by Central Bank Circular No. 905, series of 1982 and accordingly, usury has become legally non-existent in this jurisdiction, thus, interest rates may accordingly be pegged at such levels or rates as the lender and the borrower may agree upon. Petitioner avers she has not violated any law 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 pay her. Petitioner further points out that the 5% interest rate was proposed by the respondents and have only themselves to blame if the interests and penalties ballooned to its present amount due to their willful delay and default in payment. The appellate court thus erred, petitioner now insists, in applying Sps. Almeda v. Court of Appeals[11] and Medel v. Court of Appeals[12] to reduce the interest rate to 12% per annum and the penalty to 1% per month. Respondents admit they owe petitioner P350,000 and do not question any lawful interest on their loan but they maintain that the Deed of Real Estate Mortgage 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 the loan and which did not provide for penalties and other charges in the event of default or delay. Respondents vehemently contend that they never consented to the said stipulations and hence, should not be bound by them. On the first issue, we are constrained to rule against the petitioner’s contentions. Central Bank Circular No. 905, which took effect on January 1, 1983, effectively removed the ceiling on interest rates for both secured and unsecured loans, regardless of maturity. However, nothing in said Circular grants lenders carte blanche authority to impose interest rates which would result in the enslavement of their borrowers or to the hemorrhaging of their assets.[13] While a stipulated rate of interest may not technically and necessarily be usurious under Circular No. 905, usury now being legally non-existent in our jurisdiction,[14] nonetheless, said rate may be equitably reduced should the same be found to be iniquitous, unconscionable, and exorbitant, and hence, contrary to morals (contra bonos mores), if not against the law.[15] What is iniquitous, unconscionable, and exorbitant shall depend upon the factual circumstances of each case. In the instant case, the Court of Appeals found that the 5% interest rate per 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 a stipulated interest rate of 5.5% per month or 66% per annum is void for being iniquitous or unconscionable.[16] We have likewise ruled that an interest rate of 6% per month or 72% per annum is outrageous and inordinate.[17] Conformably to these precedent cases, a combined interest and penalty rate at 10% per month or 120% per annum, should be deemed iniquitous, unconscionable, and inordinate. Hence, we sustain the appellate court when it found the interest and penalty rates in the Deed of Real Estate Mortgage in the present case excessive, hence legally impermissible. Reduction is legally called for now 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 the 5% interest rate per month for two (2) months. Having agreed to said rate, the parties are now estopped from claiming otherwise. For the succeeding period after the two months, however, the Court of Appeals correctly reduced the interest rate to 12% per annum and the penalty rate to 1% per month, in accordance with Article 2227[18] of the Civil Code.

But were respondents entitled to the “surplus” of P2,247,326[19] as a result of the “overpricing” in the auction? We note that the “surplus” was the result of the computation by the Court of Appeals of respondents’ outstanding liability based on a reduced interest rate of 12% per annum and the reduced penalty rate of 1% per month. The court a quo then proceeded to apply our ruling in Sulit v. Court of Appeals,[20] to the effect that in case of surplus in the purchase price, the mortgagee is liable for such surplus as actually comes into his hands, but where he sells on credit instead of cash, he must still account for the proceeds as if the price were paid in cash, for such surplus stands in the place of the land itself with respect to liens thereon or vested rights therein particularly those of the mortgagor or his assigns. In the instant case, however, there is no “surplus” to speak of. In adjusting the interest and penalty rates to equitable and conscionable levels, what the Court did was merely to reflect the true price of the land in the foreclosure sale. The amount of the petitioner’s bid merely represented the true amount of the mortgage debt. No surplus in the purchase price was thus created to which the respondents as the mortgagors have a vested right. WHEREFORE, the Decision dated February 22, 2002, of the Court of Appeals in the consolidated cases CA-G.R. CV No. 51521 and CA-G.R. SP No. 40457 is hereby AFFIRMED with MODIFICATION. The interest rate for the subject loan owing to QDB, or whoever is now the party mortgagee, is hereby fixed at five percent (5%) for the first two (2) months following the date of execution of the Deed of Real Estate Mortgage, and twelve percent (12%) for the succeeding period. The penalty rate thereafter shall be fixed at one percent (1%) per month. Petitioner Teresita Dio is declared free of any obligation to return to the respondents, the Spouses Virgilio Japor and Luz Roces Japor and Marta Japor, any surplus in the foreclosure sale price. There being no surplus, after the court below had applied our ruling in Sulit,[21] respondents could not legally claim any overprice from the petitioner, much less the amount ofP2,247,326.00. SO ORDERED. ``````````````````````````````````````````````````````````````````````````````````````````````````````````````````` Republic of the Philippines Supreme Court Manila FIRST DIVISION Leonides C. Diño, Petitioner,

G.R. No. 145871 Present:

- versus -

PANGANIBAN, C.J. (Chairperson) YNARES-SANTIAGO, AUSTRIA-MARTINEZ, CALLEJO, SR., and CHICO-NAZARIO, JJ.

Lina Jardines, Promulgated: Respondent. January 31, 2006 x----------------------------------------------x DECISION AUSTRIA-MARTINEZ, J.: This resolves the petition for review on certiorari seeking to set aside the Decision[1] of the Court of Appeals (CA) dated June 9, 2000 dismissing the appeal in CA-G.R. CV No. 56118 and the Resolution dated October 25, 2000 denying the motion for reconsideration. The antecedent facts are as follows.

On December 14, 1992, Leonides C. Diño (petitioner) filed a Petition for Consolidation of Ownership with the Regional Trial Court of Baguio City, Branch 7 (RTC). She alleged that: on January 31, 1987, Lina Jardines (respondent) executed in her favor a Deed of Sale with Pacto de Retro over a parcel of land with improvements thereon covered by Tax Declaration No. 44250, the consideration for which amounted to P165,000.00; it was stipulated in the deed that the period for redemption would expire in six months or on July 29, 1987; such period expired but neither respondent nor any of her legal representatives were able to redeem or repurchase the subject property; as a consequence, absolute ownership over the property has been consolidated in favor of petitioner.[2] Respondent countered in her Answer that: the Deed of Sale with Pacto de Retro did not embody the real intention of the parties; the transaction actually entered into by the parties was one of simple loan and the Deed of Sale with Pacto de Retro was executed just as a security for the loan; the amount borrowed by respondent during the first week of January 1987 was only P50,000.00 with monthly interest of 9% to be paid within a period of six months, but since said amount was insufficient to buy construction materials for the house she was then building, she again borrowed an additional amount of P30,000.00; it was never the intention of respondent to sell her property to petitioner; the value of respondent’s residential house alone is over a million pesos and if the value of the lot is added, it would be around one and a half million pesos; it is unthinkable that respondent would sell her property worth one and a half million pesos for only P165,000.00; respondent has even paid a total of P55,000.00 out of the amount borrowed and she is willing to settle the unpaid amount, but petitioner insisted on appropriating the property of respondent which she put up as collateral for the loan; respondent has been the one paying for the realty taxes on the subject property; and due to the malicious suit filed by petitioner, respondent suffered moral damages. On September 14, 1993, petitioner filed an Amended Complaint adding allegations that she suffered actual and moral damages. Thus, she prayed that she be declared the absolute owner of the property and/or that respondent be ordered to pay her P165,000.00 plus the agreed monthly interest of 10%; moral and exemplary damages, attorney’s fees and expenses of litigation. Respondent then filed her Answer to the Amended Complaint reiterating the allegations in her Answer but increasing the alleged valuation of the subject property to more than two million pesos. After trial, the RTC rendered its Decision dated November 20, 1996, the dispositive portion of which reads as follows: WHEREFORE, in view of all the foregoing, judgment is hereby rendered as follows: a) Declaring the contract (Exh. A) entered into by the contending parties as one of deed of sale with right to repurchase or pacto de retro sale; b) Declaring the plaintiff Diño to have acquired whatever rights Jardines has over the parcel of land involved it being that Jardines has no torrens title yet over said land; c) Declaring the plaintiff Diño the owner of the residential house and other improvements standing on the parcel of land in question; d) Ordering the consolidation of ownership of Diño over the residential house and other improvements, and over the rights, she (Diño) acquired over the parcel of land in question; and ordering the corresponding government official (The City Assessor) of Baguio City to undertake the consolidation by putting in the name of plaintiff Diño the ownership and/or rights which she acquired from the defendant Jardines in the corresponding document (Tax Declarations) on file in his/her office; after the plaintiff has complied with all the requirements and has paid the fees necessary or incident to the issuance of a new tax declaration as required by law; e) f) 1)

Ordering the cancellation of Tax Declaration 44250; Ordering defendant Jardines to pay actual and/or compensatory damages to the plaintiff as follows: P3,000.00 representing expenses in going to and from Jardines’ place to collect the redemption money;

2) P1,000.00 times the number of times Diño came to Baguio to attend the hearing of the case as evidenced by the signatures of Diño appearing on the minutes of the proceedings found in theRollo of the case; 3)

P10,000.00 attorney’s fee.

Costs against defendant Jardines. SO ORDERED.[3] Respondent then appealed to the CA which reversed the RTC judgment. The CA held that the true nature of the contract between herein parties is one of equitable mortgage, as shown by the fact that (a) respondent is still in actual physical possession of the property; (b) respondent is the one paying the real property taxes on the property; and (c) the amount of the supposed sale price, P165,000.00, earns monthly interest. The dispositive portion of the CA Decision promulgated on June 9, 2000 reads: WHEREFORE, foregoing premises considered, we find that the Regional Trial Court, First Judicial Region, Branch 07, Baguio City, committed reversible errors in rendering its decision dated20 November 1996 in Civil Case No. 2669-R, entitled Leonides G. Diño, etc. vs. Lina Jardines”. The appeal at bar is herby GRANTED and the assailed decision is hereby REVERSED and SET ASIDE. Let a new judgment be entered as follows: 1. Declaring that the true nature of the contract entered into by the contending parties as one of equitable mortgage and not a pacto de retro sale; 2. Ordering the defendant-appellant to pay plaintiff-appellee legal interest on the amount of P165,000.00 from July 29, 1987, the time the said interest fell due, until fully paid; 3.

No pronouncement as to cost.

SO ORDERED.[4] Petitioner moved for reconsideration of said decision, but the same was denied per Resolution dated October 25, 2000. Hence, herein petition for review on certiorari alleging that: 1. THE LOWER COURT COMMITTED AN ERROR IN DECLARING THAT THE TRUE NATURE OF THE CONTRACT ENTERED INTO BY THE PARTIES AS ONE EQUITABLE MORTGAGE AND NOT A PACTO DE RETRO SALE; 2. THE LOWER COURT COMMITTED AN ERROR IN ORDERING THE RESPONDENT TO PAY PETITIONER LEGAL INTEREST DESPITE THE CONFLICTING ADMISSIONS OF THE PARTIES THAT THE AGREED INTERESTS WAS EITHER 9% OR 10%; 3. THE FINDINGS OF FACTS OF THE LOWER COURT ARE CONTRARY TO EVIDENCE AND THE ADMISSIONS OF THE PARTIES; 4. THE LOWER COURT COMMITTED AN ERROR IN GOING BEYOND THE ISSUES OF THE CASE BY DELETING THE AWARD FOR DAMAGES DESPITE THE FACT THAT THE SAME WAS NOT RAISED AS AN ISSUE IN THE APPEAL; [5] The petition lacks merit. The Court finds the allegations of petitioner that the findings of fact of the CA are contrary to evidence and admissions of the parties and that it erred in declaring the contract between the parties as an equitable mortgage to be absolutely unfounded. A close examination of the records of this case reveals that the findings of fact of the CA are all based on documentary evidence and on admissions and stipulation of facts made by the parties. The CA’s finding that there was no gross inadequacy of the price of respondent’s residential house as stated in the contract, was based on respondent’s own evidence, Tax Declaration No. 44250, which stated that the actual market value of subject residential house in 1986 was only P93,080.00. The fact that respondent has remained in actual physical possession of the property in question, and that respondent has been the one paying the real property taxes on the subject property was established by the admission made

by petitioner during the pre-trial conference and embodied in the Pre-Trial Order[6] dated May 25, 1994. The finding that the purchase price in the amount of P165,000.00 earns monthly interest was based on petitioner’s own testimony and admission in her appellee’s brief that the amount of P165,000.00, if not paid on July 29, 1987, shall bear an interest of 10% per month. The Court sees no reversible error with the foregoing findings of fact made by the CA. The CA correctly ruled that the true nature of the contract entered into by herein parties was one of equitable mortgage. Article 1602 of the Civil Code enumerates the instances when a purported pacto de retro sale may be considered an equitable mortgage, to wit: Art. 1602. The contract shall be presumed to be an equitable mortgage, in any of the following cases: (1)

When the price of a sale with right to repurchase is unusually inadequate;

(2)

When the vendor remains in possession as lessee or otherwise;

(3) When upon or after the expiration of the right to repurchase another instrument extending the period of redemption or granting a new period is executed; (4)

When the purchaser retains for himself a part of the purchase price;

(5)

When the vendor binds himself to pay the taxes on the thing sold;

(6) In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the payment of a debt or the performance of any other obligation. In any of the foregoing cases, any money, fruits, or other benefit to be received by the vendee as rent or otherwise shall be considered as interest which shall be subject to the usury laws. (Emphasis supplied) In Legaspi vs. Ong,[7] the Court further explained that: The presence of even one of the above-mentioned circumstances as enumerated in Article 1602 is sufficient basis to declare a contract of sale with right to repurchase as one of equitable mortgage. As stated by the Code Commission which drafted the new Civil Code, in practically all of the so-called contracts of sale with right of repurchase, the real intention of the parties is that the pretended purchase price is money loaned and in order to secure the payment of the loan, a contract purporting to be a sale with pacto de retro is drawn up.[8] In the same case, the Court cited Article 1603 of the Civil Code, which provides that in case of doubt, a contract purporting to be a sale with right to repurchase shall be construed as an equitable mortgage.[9] In the instant case, the presence of the circumstances provided for under paragraphs (2) and (5) of Article 1602 of the Civil Code, and the fact that petitioner herself demands payment of interests on the purported purchase price of the subject property, clearly show that the intention of the parties was merely for the property to stand as security for a loan. The transaction between herein parties was then correctly construed by the CA as an equitable mortgage. The allegation that the appellate court should not have deleted the award for actual and/or compensatory damages is likewise unmeritorious. Section 8, Rule 51 of the Rules of Court provides as follows: Sec. 8. Questions that may be decided. – No error which does not affect the jurisdiction over the subject matter or the validity of the judgment appealed from or the proceedings therein will be considered unless stated in the assignment of errors, or closely related to or dependent on an assigned error and properly argued in the brief, save as the court may pass upon plain errors and clerical errors. Clearly, the appellate court may pass upon plain errors even if they are not stated in the assignment of errors. In Villegas vs. Court of Appeals,[10] the Court held: [T]he Court is clothed with ample authority to review matters, even if they are not assigned as errors in the appeal, if it finds that their consideration is necessary in arriving at a just decision of the case.[11]

In the present case, the RTC’s award for actual damages is a plain error because a reading of said trial court’s Decision readily discloses that there is no sufficient evidence on record to prove that petitioner is entitled to the same. Petitioner’s only evidence to prove her claim for actual damages is her testimony that she has spent P3,000.00 in going to and from respondent’s place to try to collect payment and that she spent P1,000.00 every time she travels from Bulacan, where she resides, to Baguio in order to attend the hearings. In People vs. Sara,[12] the Court held that a witness’ testimony cannot be “considered as competent proof and cannot replace the probative value of official receipts to justify the award of actual damages, for jurisprudence instructs that the same must be duly substantiated by receipts.”[13] Hence, there being no official receipts whatsoever to support petitioner’s claim for actual or compensatory damages, said claim must be denied. The appellate court was also correct in ordering respondent to pay “legal interest” on the amount of P165,000.00. Both parties admit that they came to an agreement whereby respondent shall pay petitioner interest, at 9% (according to respondent) or 10% (according to petitioner) per month, if she is unable to pay the principal amount of P165,000.00 on July 29, 1987. In the Pre-Trial Order[14] dated May 25, 1994, one of the issues for resolution of the trial court was “whether or not the interest to be paid under the agreement is 10% or 9% or whether or not this amount of interest shall be reduced equitably pursuant to law.”[15] The factual milieu of Carpo vs. Chua[16] is closely analogous to the present case. In the Carpo case, petitioners therein contracted a loan in the amount of P175,000.00 from respondents therein, payable within six months with an interest rate of 6% per month. The loan was not paid upon demand. Therein petitioners claimed that following the Court’s ruling in Medel vs. Court of Appeals,[17] the rate of interest of 6% per month or 72% per annum as stipulated in the principal loan agreement is null and void for being excessive, iniquitous, unconscionable and exorbitant. The Court then held thus: In a long line of cases, this Court has invalidated similar stipulations on interest rates for being excessive, iniquitous, unconscionable and exorbitant. In Solangon v. Salazar, we annulled the stipulation of 6% per month or 72% per annum interest on a P60,000.00 loan. In Imperial v. Jaucian, we reduced the interest rate from 16% to 1.167% per month or 14% per annum. In Ruiz v. Court of Appeals, we equitably reduced the agreed 3% per month or 36% per annum interest to 1% per month or 12% per annum interest. The 10% and 8% interest rates per month on a P1,000,000.00 loan were reduced to 12% per annum in Cuaton v. Salud. Recently, this Court, in Arrofo v. Quino, reduced the 7% interest per month on a P15,000.00 loan amounting to 84% interest per annum to 18% per annum. There is no need to unsettle the principle affirmed in Medel and like cases. From that perspective, it is apparent that the stipulated interest in the subject loan is excessive, iniquitous, unconscionable and exorbitant. Pursuant to the freedom of contract principle embodied in Article 1306 of the Civil Code, contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy. In the ordinary course, the codal provision may be invoked to annul the excessive stipulated interest. In the case at bar, the stipulated interest rate is 6% per month, or 72% per annum. By the standards set in the above-cited cases, this stipulation is similarly invalid. x x x.[18] Applying the afore-cited rulings to the instant case, the inescapable conclusion is that the agreed interest rate of 9% per month or 108% per annum, as claimed by respondent; or 10% per month or 120% per annum, as claimed by petitioner, is clearly excessive, iniquitous, unconscionable and exorbitant. Although respondent admitted that she agreed to the interest rate of 9%, which she believed was exorbitant, she explained that she was constrained to do so as she was badly in need of money at that time. As declared in the Medelcase[19] and Imperial vs. Jaucian,[20] “[i]niquitous and unconscionable stipulations on interest rates, penalties and attorney’s fees are contrary to morals.” Thus, in the present case, the rate of interest being charged on the principal loan of P165,000.00, be it 9% or 10% per month, is void. The CA correctly reduced the exhorbitant rate to “legal interest.” In Trade & Investment Development Corporation of the Philippines vs. Roblett Industrial Construction Corporation, [21] the Court held that: In Eastern Shipping Lines, Inc. v. Court of Appeals, this Court laid down the following rules with respect to the manner of computing legal interest: I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is breached, the contravenor can be held liable for damages. The provisions under Title XVIII on 'Damages' of the Civil Code govern in determining the measure of recoverable damages.

II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows: 1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. [22] (Underscoring supplied)

Applied to the present case, since the agreed interest rate is void, the parties are considered to have no stipulation regarding the interest rate. Thus, the rate of interest should be 12% per annum to be computed from judicial or extrajudicial demand, subject to the provisions of Article 1169 of the Civil Code, to wit: Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of the obligation. However, the demand by the creditor shall not be necessary in order that delay may exist: (1) When the obligation or the law expressly so declares; or (2) When from the nature and the circumstances of the obligation it appears that the designation of the time when the thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the contract; or (3) When demand would be useless, as when the obligor has rendered it beyond his power to perform. xxxx The records do not show any of the circumstances enumerated above. Consequently, the 12% interest should be reckoned from the date of extrajudicial demand. Petitioner testified that she went to respondent’s place several times to try to collect payment, but she (petitioner) failed to specify the dates on which she made such oral demand. The only evidence which clearly shows the date when petitioner made a demand on respondent is the demand letter dated March 19, 1989 (Exh. “C”), which was received by respondent or her agent on March 29, 1989 per the Registry Return Receipt (Exh. “C-1”). Hence, the interest of 12% per annum should only begin to run from March 29, 1989, the date respondent received the demand letter from petitioner. WHEREFORE, the petition is hereby DENIED. The Decision of the Court of Appeals dated June 9, 2000 is AFFIRMED with the MODIFICATION that the legal interest rate to be paid by respondent on the principal amount of P165,000.00 is twelve (12%) percent per annum from March 29, 1989 until fully paid. SO ORDERED. ```````````````````````````````````````````````````````````````````````````````````````````````````````````````````

G.R. No. 164358 December 20, 2006 THERESA MACALALAG, petitioner, vs. PEOPLE OF THE PHILIPPINES, respondent. DECISION CHICO-NAZARIO, J.: This Petition for Review seeks to set aside the Court of Appeals' 10 October 2003 Decision1 convicting petitioner Theresa Macalalag (Macalalag) of Violation of Batas Pambansa Blg. 22, and its 13 May 2004 Resolution denying her Motion for

Reconsideration. The factual and procedural antecedents of this case are as follows: On two separate occasions, particularly on 30 July 1995 and 16 October 1995, petitioner Theresa Macalalag obtained loans from Grace Estrella (Estrella), each in the amount of P100,000.00, each bearing an interest of 10% per month. Macalalag consistently paid the interests starting 30 August 1995. Finding the interest rates so burdensome, Macalalag requested Estrella for a reduction of the same to which the latter agreed. On 16 April 1996 and 1 May 1996, Macalalag executed Acknowledgment/Affirmation Receipts promising to pay Estrella the face value of the loans in the total amount of P200,000.00 within two months from the date of its execution plus 6% interest per month for each loan. Under the two Acknowledgment/Affirmation Receipts, she further obligated herself to pay for the two (2) loans the total sum of P100,000.00 as liquidated damages and attorney's fees in the total sum of P40,000.00 as stipulated by the parties the moment she breaches the terms and conditions thereof. As security for the payment of the aforesaid loans, Macalalag issued two Philippine National Bank (PNB) Checks (Check No. C-889835 and No. 889836) on 30 June 1996, each in the amount of P100,000.00, in favor of Estrella. However, when Estrella presented said checks for payment with the drawee bank, the same were dishonored for the reason that the account against which the same was drawn was already closed. Estrella sent a notice of dishonor and demand to make good the said checks to Macalalag, but the latter failed to do so. Hence, Estrella filed two criminal complaints for Violation of Batas Pambansa Blg. 22 before the Municipal Trial Court in Cities (MTCC) of Bacolod City, docketed as Criminal Cases No. 76367 and No. 76368. When arraigned, Macalalag entered a plea of "not guilty." On trial, Macalalag admitted her indebtedness and the issuance of the two PNB checks. She, however, stated that she already made payments over and above the value of the said checks. According to her, she made a total payment of P355,837.98, including the payment ofP199,837.98 made during the pendency of the cases. Estrella admitted the payment of P199,837.98 but claimed that the same amount was applied to the payment of the interest. On 5 February 2001, the MTCC of Bacolod City rendered its Decision, disposing of the case as follows: WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered declaring the accused Theresa Macalalag guilty beyond reasonable doubt of the crime charged. Pursuant however to Eduardo Vaca vs. Court of Appeals case (G.R. No. 131714, November 16, 1998[,] 298 SCRA 656) and the Rosa Lim vs. People x x x case (G.R. No. 130038, September 18, 2000) where the Supreme Court deleted these penalty of imprisonment, the penalty therefore imposable is a fine of P100,000.00 for each of the two (2) checks and subsidiary imprisonment in case of insolvency or failure to pay said fine. As she is criminally liable, she is likewise ordered to pay as civil indemnity the total amount of P200,000.00 with interest at the legal rate from the time of the filing of the informations until the amount is fully paid; less whatever amount was thus far paid and validly deducted from the principal sum originally claimed.2 Petitioner Macalalag appealed with the Regional Trial Court (RTC) of Bacolod City, which affirmed in toto the MTCC Decision. Petitioner Macalalag appealed anew with the Court of Appeals, which affirmed the RTC and the MTCC decisions with modification to the effect that, among other things, accused was convicted only of one (1) count of Violation of Batas Pambansa Blg. 22, corresponding to the issuance of the second check. The decretal portion of the Court of Appeals Decision reads: WHEREFORE, foregoing premises considered, the petition is PARTLY GRANTED. Accordingly, the dispositive portion of the February 9, 2001 Decision of the Municipal Trial Court in Cities of Bacolod City, Branch 3, as affirmed by the Regional Trial Court of Bacolod City, Branch 43, is hereby MODIFIED to read as follows: "WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered declaring the accused Theresa Macalalag guilty beyond reasonable doubt of the crime charged. Pursuant however to Eduardo Vaca vs. Court of Appeals case (G.R. No. 131714, November 16, 1998[,] 298 SCRA 659) and the Rosa Lim vs. People of the Philippines case (G.R. No. 130038, September 18, 2000) where the Supreme Court deleted the penalty of imprisonment, the penalty therefore imposable is a fine of P100,000.00 for the second check and subsidiary imprisonment in case of insolvency or failure to pay said fine. As she is criminally liable, she is likewise ordered to pay civil indemnity in the amount of P100,000.00 with interest at the legal rate from the time of the filing of the information until the amount is fully paid; less P195,837.98, the amount credited to the accused after paying the first loan, to be applied to the second loan."3 In acquitting petitioner Macalalag of one count of violation of Batas Pambansa Blg. 22, the Court of Appeals reversed the RTC ruling which held that Medel v. Court of Appeals4 is not applicable as it applies only in civil cases where the validity of the interest rate is in issue, and cannot be applied in criminal cases for violation of Batas Pambansa Blg. 22.5 In Medel, we held that, while the Usury Law is now legally inexistent, the stipulated rate of interest at 5.5% per month is iniquitous or unconscionable, which the court could equitably reduce. The Court of Appeals was correct in applying Medel to the case at bar. The criminal action for violation of Batas Pambansa Blg. 22 is deemed to include the corresponding civil action.6 In fact, no reservation to file such civil action shall be allowed.7 Verily then, whether the interest is unconscionable or not can be determined in the instant case. Furthermore, in

all criminal prosecutions, any doubt should be resolved in favor of the accused and strictly against the State. Following this principle, the issue of whether the Medel case should be applied in favor of Macalalag should be resolved in her favor. The stipulated interest of 10% per month, and even the reduced rate of 6% per month, are higher than the interest rates declared unconscionable in Medel and in several other cases with allegations of unconscionable interests. Such cases were synthesized by then Associate Justice (now Chief Justice) Reynato Puno in Ruiz v. Court of Appeals8: The foregoing rates of interests and surcharges are in accord with Medel vs. Court of Appeals, Garcia vs. Court of Appeals, Bautista vs. Pilar Development Corporation, and the recent case of Spouses Solangon vs. Salazar. This Court invalidated a stipulated 5.5% per month or 66% per annum interest on aP500,000.00 loan in Medel and a 6% per month or 72% per annum interest on a P60,000.00 loan inSolangon for being excessive, iniquitous, unconscionable and exorbitant. In both cases, we reduced the interest rate to 12% per annum. We held that while the Usury Law has been suspended by Central Bank Circular No. 905, s. 1982, effective on January 1, 1983, and parties to a loan agreement have been given wide latitude to agree on any interest rate, still stipulated interest rates are illegal if they are unconscionable. Nothing in the said circular grants lenders carte blanche authority to raise interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging of their assets. On the other hand, in Bautista vs. Pilar Development Corp., this Court upheld the validity of a 21% per annum interest on a P142,326.43 loan, and in Garcia vs. Court of Appeals, sustained the agreement of the parties to a 24% per annum interest on an P8,649,250.00 loan. It is on the basis of these cases that we reduce the 36% per annum interest to 12%. An interest of 12% per annum is deemed fair and reasonable. While it is true that this Court invalidated a much higher interest rate of 66% per annum in Medel and 72% in Solangon it has sustained the validity of a much lower interest rate of 21% in Bautista and 24% in Garcia. We still find the 36% per annum interest rate in the case at bar to be substantially greater than those upheld by this Court in the two (2) aforecited cases. Applying Medel, therefore, the Court of Appeals convicted petitioner Macalalag of one count of Batas Pambansa Blg. 22 and computed her civil liability as follows: Thus, applying the Medel doctrine, the interest rate imposed by Estrella on the loans of Macalalag should be reduced to 12% per annum only plus 1% a month penalty charge as liquidated damages on each loan. We now proceed to the determination of whether Macalalag had already paid her obligations to Estrella. There is no dispute that Macalalag obtained the first P100,000.00 loan from Estrella on July 30, 1995. The said amount multiplied by 1% interest per month until July 1, 1996, the time the check representing the said amount was dishonored (P100,000.00 x 1% x 11 + P100,000.00), would be P111,000.00. The second loan of P100,000.00 was obtained on October 16, 1995 and the check that was issued for the payment of the said loan was also dishonored on July 1, 1996. Using the above formula (P100,000.00 x 1% x 8.5 + P100,000.00), Macalalag's obligation would only be P108,500.00. Thus, when the checks were dishonored, Macalalag's total obligation to Estrella was P219,500.00. In the instant case, it has been established that Macalalag made a total payment of P355,837.98 (P199,837.98 plus P156,000.00) (See 275-276, Records). The P156,000.00 was paid starting August 30, 1995 until June 15, 1996 while the amount of P199,837.98 was paid to complainant sometime in 1997 considering that the acknowledgment receipt was dated January 5, 1998. In the Acknowledgment/Affirmation Receipts, Macalalag promised to pay Estrella the principal loans within two (2) months after the execution of said documents. Thus, the two (2) loans of P100,000.00 each, or a total of P200,000.00, were demandable only on June 16, 1996 and July 1, 1996, respectively. Hence, the total amount of P156,000.00 already paid by Macalalag to Estrella could very well be applied to the face value of the first loan which fell due on June 16, 1996, including the 1% interest rate per month on the two (2) loans or a total of 2% per month. Thus, Macalalag could no longer be held liable for violation of B.P. Blg. 22 insofar as the first check is concerned since the same was already paid prior to its presentment for payment. However, with respect to the second check, there is no doubt that Macalalag is liable under B.P. Blg. 22. Macalalag admitted having issued the said check and that said check, when presented for payment for payment with the drawee bank bounced for the reason "account closed". Despite notice of dishonor, Macalalag failed to make good the said check. All the elements of violation of B.P. Blg. 22, viz: a) the making, drawing or issuance of any check to apply to account or for value; b) the knowledge of the maker[,] drawer, or issuer that at the time of the issue he does not have sufficient funds in, or credit with, the drawee bank for the payment of the check in full upon its presentment; and, c) the subsequent dishonor of the check by the drawee bank for insufficiency of funds or credit, or dishonor for the same reason had not the drawer, without any valid cause, ordered the bank to stop payment (Sycip, Jr. vs. Court of Appeals, 328 SCRA 447), are, therefore, present. In view of the foregoing, the penalty imposed on Macalalag by the trial court should be modified. In accordance with the Vaca vs. Court of Appeals (294 SCRA 656) case, Macalalag should be meted the penalty of fine amounting to P100,000.00 only corresponding to the face value of the second check with subsidiary imprisonment in case of insolvency. Likewise, Macalalag should pay the civil indemnity in the total amount of P100,000.00 with interest at the legal rate from the time of the filing of the Information until fully satisfied less the amount of P195,837.98 which amount should be credited to her. This amount represents the balance after full payment of

the first loan computed as follows: P355,837.9 8

- total amount paid by petitioner to private complainant (P199,837.98 and P156,000.00)

LESS: P160,000.0 0

- to fully pay the first loan (P100,000.00 face value of the loan plus interests at P21,000.00 and P39,000.00)

P195,837.9 8

- amount to be credited to petitioner to be applied to pay the second loan.9

We have repeatedly held that there is no violation of Batas Pambansa Blg. 22 if the complainant was actually told by the drawer that he has no sufficient funds in a bank.10 Where, as in the case at bar, the checks were issued as security for a loan, payment by the accused of the amount of the check prior to its presentation for payment would certainly serve the same purpose. Batas Pambansa Blg. 22 was not intended to shelter or favor nor encourage users of the banking system to enrich themselves through the manipulation and circumvention of the noble purpose and objectives of the law.11Such manipulation is manifest when payees of checks issued as security for loans present such checks for payment even after the payment of such loans. Petitioner Macalalag, however, claims that she should not be convicted of even one count of Violation of Batas Pambansa Blg. 22. Petitioner Macalalag claims that: (1) the payment of the accounts before the checks became due and demandable and/or before the same are presented for payment would exempt the petitioner from Violation of Batas Pambansa Blg. 22;12 (2) the redeemable value of the check is limited only to its face value and does not include interest;13 and (3) partial redemption of the check will exempt the accused from criminal liability for Violation of Batas Pambansa Blg. 22.14 Petitioner Macalalag claims that, considering that she had already paid P156,000.00 at the time the subject checks were presented for payment, the amount of P100,000.00 should be applied for redemption of the first check and the remaining amount of P56,000.00 should be treated as partial redemption of the second check. Petitioner Macalalag posits that said partial redemption exempts her from criminal liability because it was made before the check was presented for payment. The petition must fail. Even if we agree with petitioner Macalalag that the interests on her loans should not be imputed to the face value of the checks she issued, petitioner Macalalag is still liable for Violation of Batas Pambansa Blg. 22. Petitioner Macalalag herself declares that before the institution of the two cases against her, she has made a total payment of P156,000.00. Applying this amount to the first check (No. C-889835), what will be left is P56,000.00, an amount insufficient to cover her obligation with respect to the second check. As stated above, when Estrella presented the checks for payment, the same were dishonored on the ground that they were drawn against a closed account. Despite notice of dishonor, petitioner Macalalag failed to pay the full face value of the second check issued. Only a full payment of the face value of the second check at the time of its presentment or during the five-day grace period15 could have exonerated her from criminal liability. A contrary interpretation would defeat the purpose of Batas Pambansa Blg. 22, that of safeguarding the interest of the banking system and the legitimate public checking account user,16 as the drawer could very well have himself exonerated by the mere expediency of paying a minimal fraction of the face value of the check. Neither could petitioner Macalalag's subsequent payment of P199,837.98 during the pendency of the cases against her before the MTCC result in freeing her from criminal liability because the same had already attached after the check was dishonored. Said subsequent payments can only affect her civil, not criminal, liability. A subsequent payment by the accused would not obliterate the criminal liability theretofore already incurred.17 It is well to note that the gravamen of Batas Pambansa Blg. 22 is the issuance of a check, not the nonpayment of an obligation.18 The law has made the act of issuing a bum check a malum prohibitum.19 Consequently, the lack of criminal intent on the part of the accused is irrelevant,20 and the accused will be convicted for violation thereof as long as the following elements are proven: 1. The accused makes, draws or issues any check to apply to account or for value; 2. The accused knows at the time of the issuance that he or she does not have sufficient funds in, or credit with, the drawee bank for the payment of the check in full upon its presentment; and 3. The check is subsequently dishonored by the drawee bank for insufficiency of funds or credit, or it would have been dishonored for the same reason had not the drawer, without any valid reason, ordered the bank to stop payment.21 All these elements have been conclusively proven in Court, the second element by the prima facie evidence established by Section 2 of Batas Pambansa Blg. 22, which provides: SEC. 2. Evidence of knowledge of insufficient funds. – the making, drawing and issuance of a check payment of which is refused by the drawee because of insufficient funds in or credit with such bank, when presented within ninety (90) days from the date of the check, shall be prima facie evidence of knowledge of such insufficiency of

funds or credit unless such maker or drawer pays the holder thereof the amount due thereon, or makes arrangements for payment in full by the drawee of such check within five (5) banking days after receiving notice that such check has not been paid by the drawee. WHEREFORE, the Petition is DENIED. The Court of Appeals Decision dated 10 October 2003 and Resolution dated 13 May 2004, affirming the conviction of petitioner Theresa Macalalag of one count of Violation of Batas Pambansa Blg. 22, are AFFIRMED. No costs. SO ORDERED.