5/14/2017 G.R. No.

138703

TodayisSunday,May14,2017

RepublicofthePhilippines
SUPREMECOURT
Manila

SECONDDIVISION

G.R.No.138703June30,2006

DEVELOPMENTBANKOFTHEPHILIPPINES1andPRIVATIZATIONANDMANAGEMENTOFFICE(formerly
ASSETPRIVATIZATIONTRUST),Petitioners,
vs.
HON.COURTOFAPPEALS,PHILIPPINEUNITEDFOUNDRYANDMACHINERYCORP.andPHILIPPINEIRON
MANUFACTURINGCO.,INC.,Respondents.

DECISION

AZCUNA,J.:

ThisisapetitionforreviewoncertiorariunderRule45oftheRulesofCourtofthedecisionoftheCourtofAppeals
(CA) dated May 7, 1999 in CAG.R. CV No. 49239 entitled "Philippine United Foundry and Machinery Corp. and
PhilippineIronManufacturingCo.,Inc.v.DevelopmentBankofthePhilippinesandAssetPrivatizationTrust"which
upheldthedecisionoftheRegionalTrialCourt(RTC),Branch98ofQuezonCityinCivilCaseNo.Q49650.

SometimeinMarch1968,theDevelopmentBankofthePhilippines(DBP)grantedtorespondentsPhilippineUnited
Foundry and Machineries Corporation and Philippine Iron Manufacturing Company, Inc. an industrial loan in the
amount of P2,500,000 consisting of P500,000 in cash and P2,000,000 in DBP Progress Bonds. The loan was
evidencedbyapromissorynote2datedJune26,1968andsecuredbyamortgage3executedbyrespondentsover
theirpresentandfuturepropertiessuchasbuildings,permanentimprovements,variousmachineriesandequipment
formanufacture.

Subsequently,DBPgrantedtorespondentsanotherloanintheformofafiveyearrevolvingguaranteeamountingto
P1,700,000 which was reflected in the amended mortgage contract4 dated November 20, 1968. According to
respondents, the loan guarantee was extended to them when they encountered difficulty in negotiating the DBP
ProgressBonds.Respondentswereonlyabletosellthebondsin1972oraboutfiveyearsfromitsissuanceforan
amountthatwas25%lessthanitsfacevalue.5

OnSeptember10,1975,theoutstandingaccountsofrespondentswithDBPwererestructuredinviewoftheirfailure
to pay. Thus, the outstanding principal balance of the loans and advances amounting to P4,655,992.35 were
consolidated into a single account. The restructured loan was evidenced by a new promissory note6 dated
November12,1975payablewithinsevenyears,withpartialpaymentsontheprincipaltobemadebeginningonthe
third year plus a 12% interest per annum payable every month. The following paragraph appears at the bottom
portionofthenote:

This promissory note represents the consolidation into one account of the outstanding principal balance of
PHILIMCO and PHUMACOs account, and is prepared pursuant to Res. No. 228, dated September 10, 1975,
approvedbytheExecutiveCommitteepursuanttoBd.Res.No.3577,s.of1975.Thisnoteissecuredbymortgages
ontheexistingassetsofthefirms.7

Ontheotherhand,allaccruedinterestandchargesdueamountingtoP3,074,672.21weredenominatedas"Notes
Taken for Interests" and evidenced by a separate promissory note8 dated November 12, 1975. The following
annotationappearsatthebottomportionofthenote:

This promissory note represents all accrued interests and charges which are taken up as "NOTES TAKEN FOR
INTEREST"dueontheaccountsofPHILIMCOandPHUMACOapprovedunderBd.Res.No.3577,s.of1975.This
noteissecuredby(a)mortgageontheexistingassetsofthefirm.9

Bothnotesprovidedforthefollowingadditionalchargesandpenalties:

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(1)12%interestperannumonunpaidamortizations10

(2) 10% penalty charge per annum on the total amortizations past due effective 30 days from the date
respondentsfailedtocomplywithanyofthetermsstipulatedinthenotes11and,

(3)Bankadvancesforinsurancepremiums,taxes,rentals,litigationandacquiredassetsexpenses,collection
and other outofpocket expenses not covered by inspection and processing fees subject to the following
charges12:

(a)Onetimeservicechargeof%ontheamountadvancedtobeincludedinthereceivableaccount

(b)Penaltychargeof8%perannumonpastdueadvancesand

(c)Interestat12%perannum.

Notwithstandingtherestructuring,respondentswerestillunabletocomplywiththetermsandconditionsofthenew
promissory notes. As a result, respondents requested DBP to refinance the matured obligation. The request was
granted by DBP, pursuant to which three foreign currency denominated loans sourced from DBPs own foreign
borrowingswereextendedtorespondentsonvariousdatesbetween1980and1981.13Theseloansweresecured
bymortgages14onthepropertiesofrespondentsandwereevidencedbythefollowingpromissorynotes:

FaceValue MaturityDate InterestRatePerAnnum

(1) PromissoryNote15 $661,330 December15,1990 3%overDBPsborrowingrate16

(2) PromissoryNote17 $666,666 June23,1991 3%overDBPsborrowingrate18

(3) PromissoryNote19 $486,472.37 December31,1982 4%overDBPsborrowingcost

Apartfromtheinterest,thepromissorynotesimposedadditionalchargesandpenaltiesifrespondentsdefaultedon
theirpayments.ThenotesdatedDecember11,1980andJune5,1981specificallyprovidedfora2%annualservice
fee computed on the outstanding principal balance of the loans as well as the following additional interest and
penaltychargesontheloanamortizationsorportionsinarrears:

(a)Ifinarrearsforthirty(30)daysorless:

i. Additional interest at the basic loan interest rate per annum computed on total amortizations past
due,irrespectiveofage.

ii.Nopenaltycharge

(b)Ifinarrearsformorethanthirty(30)days:

i. Additional interest at the basic loan interest rate per annum computed on total amortizations past
due,irrespectiveofage,plus,

ii.Penaltychargeof16%perannumcomputedonamortizationsorportionsthereofinarrearsformore
thanthirty(30)dayscountedfromthedatetheamountinarrearsbecomesliabletothischarge.20

Underthesetwonotes,respondentsalsoboundthemselvestopaybankadvancesforinsurancepremiums,taxes,
litigationandacquiredassetsexpensesandotheroutofpocketexpensesnotcoveredbyinspectionandprocessing
feesasfollows:

(a)Onetimeservicechargeof2%oftheamountadvanced,sametobeincludedinthereceivableaccount.

(b)Interestat16%perannum.

(c)Penaltychargefromdateofadvanceat16%perannum.

The note dated December 16, 1981, on the other hand, provided for the interest and penalty charges on loan
amortizationsorportionsofitinarrearsasfollows:

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(a) Additional interest at the basic loan interest per annum computed on total amortizations past due
irrespectiveofageplus

(b)Penaltychargesof8%perannumcomputedontotalamortizationsinarrears,irrespectiveofage.21

Respondents were likewise bound to pay bank advances for insurance premiums, taxes, litigation and acquired
assetsexpensesandotheroutofpocketexpensesnotcoveredbyinspectionandprocessingfeesasfollows:

(a) Onetime service charge of 2% of (the) amount advanced, same to be included and debited to the
advancesaccount

(b)Interestatthebasicloaninterestrateand

(c)Penaltychargefromdateofadvanceat8%perannum.22

Sometime in October 1985, DBP initiated foreclosure proceedings upon its computation that respondents loans
were in arrears by P62,954,473.68.23 According to DBP, this figure already took into account the intermittent
paymentsmadebyrespondentsbetween1968and1981intheaggregateamountofP5,150,827.71.24

However, the foreclosure proceedings were suspended on twelve separate occasions from October 1985 to
December1986upontherepresentationsofrespondentsthatafinancialrehabilitationfundarisingfromacontract
with the military was forthcoming. On December 23, 1986, before DBP could proceed with the foreclosure
proceedings,respondentsinstitutedthepresentsuitforinjunction.

OnJanuary6,1987,thecomplaintwasamendedtoincludetheannulmentofmortgage.OnDecember15,1987,
thecomplaintwasamendedasecondtimetoimpleadtheAssetPrivatizationTrust(APT)(nowthePrivatizationand
ManagementOffice[PMO])25asapartydefendant.

Respondents cause of action arose from their claim that DBP was collecting from them an unconscionable if not
unlawful or usurious obligation of P62,954,473.68 as of September 30, 1985, out of a mere P6,200,000 loan.
Primarily, respondents contended that the amount claimed by DBP is erroneous since they have remitted to DBP
approximatelyP5,300,000 to repay their original debt. Additionally, respondents assert that since the loans were
procured for the SelfReliant Defense Posture Program of the Armed Forces of the Philippines (AFP), the latters
breachofitscommitmenttopurchasemilitaryarmamentsandequipmentfromrespondentsamountstoafailureof
considerationthatwouldjustifytheannulmentofthemortgageonrespondentsproperties.26

On December 24, 1986, the RTC issued a temporary restraining order. A Writ of Preliminary Injunction was
subsequently issued on May 4, 1987. After trial on the merits, the court rendered a decision in favor of
respondents,27thedispositiveportionofwhichreads:

WHEREFORE, in view of the foregoing consideration, judgment is hereby rendered in favor of the [respondents]
andagainstthedefendants[DBPandAPT],orderingthat:

(1)TheWritofPreliminaryInjunctionalreadyissuedbemadepermanent

(2)The[respondents]bemadetopaytheoriginalloansintheaggregateamountofSixMillionTwoHundred
Thousand(P6,200,000)Pesos

(3) The [respondents] payment in the amount of Five Million Three Hundred ThirtyFive Thousand, Eight
HundredTwentysevenPesosandSeventyoneCentavos(P5,335,827.71)beappliedtopaymentforinterest
andpenaltiesand

(4) No further interest and/or penalties on the aforementioned principal obligation of P6.2 million shall be
imposed/chargeduponthe[respondents]forfailureofthemilitaryestablishmenttohonortheircommitmentto
avalidandconsummatedcontractwiththeformer.Costsagainstthedefendants.

SOORDERED.

Both DBP and PMO appealed the decision to the CA. The CA, however, affirmed the decision of the RTC.
Aggrieved,DBPfiledwiththeCAamotionforareconsideration28datedMay26,1999,whichmotionhasnotbeen
resolved by the CA to date. PMO, on the other hand, sought relief directly with the Court by filing this present
petitionuponthefollowinggrounds:

I. THE CA DISREGARDED THE BINDING AND OBLIGATORY FORCE OF CONTRACTS WHICH IS THE
LAWBETWEENTHEPARTIES.

xxx
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II.THECAVIOLATEDTHEPRINCIPLEOFLAWTHATCONTRACTSTAKEEFFECTONLYBETWEENTHE
PARTIES AS IT LINKED RESPONDENTS CONTRACTS WITH THE AFP WITH RESPONDENTS LOANS
WITHDBP.

xxx

III. THE CA ERRED IN PERMANENTLY ENJOINING THE DBP AND APT FROM FORECLOSING THE
MORTGAGES ON RESPONDENTS PROPERTIES THEREBY VIOLATING THE PROVISIONS OF
P[RESIDENTIAL]D[ECREENO.]385ANDPROCLAMATIONNO.50.29

On the first issue, PMO asserts that the CA erred in declaring that the interest rate on the loans had been
unilaterally increased by DBP despite the evidence on record (consisting of promissory notes and testimonies of
witnesses for DBP) showing otherwise. PMO also claims that the CA failed to take into account the effect of the
restructuringandrefinancingoftheloansgrantedbyDBPupontherequestofrespondents.

Anent the second issue, PMO argues that the failure of the AFP to honor its commitment to respondents should
havehadnobearingonrespondentsloanobligationstoDBPasDBPwasnotapartytotheircontract.Hence,PMO
contendsthattheCAranafouloftheprincipleofrelativityofcontractswhenitruledthatnofurtherinterestcouldbe
imposedontheloans.

Finally, PMO claims that DBP, being a government financial institution, could not be enjoined by any restraining
orderorinjunction,whetherpermanentortemporary,fromproceedingwiththeforeclosureproceedingsmandated
underSection1ofPresidentialDecreeNo.385.

Fortheirpart,respondentsmovedforthedenialofthepetitionintheircommentdatedOctober27,1999,30stating
that (1) the petition merely raises questions of fact and not of law (2) PMO is engaged in forum shopping
considering that the motion for reconsideration filed by its codefendant, DBP, against the CA decision was still
pendingbeforetheappellatecourtand,(3)thepetitionisfatallydefectivebecausetheattachedcertificationagainst
nonforumshoppingdoesnotconformtotherequirementssetbylaw.AfterPMOfileditsreplydenyingtheforegoing
allegations,thepartiessubmittedtheirrespectivememoranda.

Thepetitionispartlymeritorious.

Prefatorily,itbearsstressingthatonlyquestionsoflawmayberaisedinapetitionforreviewoncertiorariunderRule
45 of the Rules of Court. This Court is not a trier of facts, its jurisdiction in such a proceeding being limited to
reviewingonlyerrorsoflawthatmayhavebeencommittedbythelowercourts.Consequently,findingsoffactofthe
trial court and the CA are final and conclusive, and cannot be reviewed on appeal.31 It is not the function of the
Court to reexamine or reevaluate evidence, whether testimonial or documentary, adduced by the parties in the
proceedingsbelow.32Nevertheless,theruleadmitsofcertainexceptionsandhas,inthepast,beenrelaxedwhen
the lower courts findings were not supported by the evidence on record or were based on a misapprehension of
facts,33orwhencertainrelevantandundisputedfactsweremanifestlyoverlookedthat,ifproperlyconsidered,would
justifyadifferentconclusion.34

Theresolutionofthepresentcontroversyturnsontheissueregardingthepreciseamountofrespondentsprincipal
obligationundertheseriesofmortgageswhichDBP,asmortgageecreditor,attemptedtoforeclose.Inthiscase,the
totalamountofrespondentsindebtednessisnotsimplyaquestionoffactbutisaquestionoflaw,onerequiringthe
application of legal principles for the computation of the amount owed, and is thus a matter that can be properly
broughtupfortheCourtsdetermination.35

PMOclaimsthatthetotaloutstandingobligationofrespondentsreachedP62.9MilliononSeptember30,1985.This
amountwaspurportedlythepesoequivalentoftheforeigncurrencydenominatedloansgrantedtorespondentsto
refinancetheoriginalloanstheyprocured,andisinclusiveofinterest,penaltiesandothersurchargesincurredfrom
that date as a result of respondents past defaults. Respondents contend, on the other hand, that DBP grossly
misstatedtheextentoftheirobligation,andinsistthattheyshouldbemadeliableonlyfortheamountofP6.2Million
whichtheyactuallyreceivedfromDBP.

Asmentioned,theRTCultimatelysustainedrespondentsandmadepermanentthewritofpreliminaryinjunctionit
issued to enjoin the foreclosure proceedings. Respondents were directed to pay only the amount of the original
loans,thatis,P6.2Million,withtheP5.3Millionwhichtheypreviouslypaidtobeappliedasinterestandpenalties.
TheRTCdidnotfindrespondentsculpablefordefaultingontheirloanobligationsandpassedtheblametotheAFP
fornotfulfillingitscontractualobligationstorespondents.

TheCAaffirmedtheRTCdecisionandagreedthatDBPcannotbeallowedtoforecloseonthemortgagesecuring
respondentsloan.TheCAsurmisedthatsinceDBPfailedtoadequatelyexplainhowitarrivedatP62.9Million,the
original loan amount of P6.2 Million could only have been "blatantly enlarged or erroneously computed" by DBP
throughtheimpositionofan"unconscionablerateofinterestandcharges."TheCAalsoagreedwiththetrialcourt
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thattherewasnoconsiderationforthemortgagecontractsexecutedbyrespondentsconsideringtheproceedsfrom
the alleged foreign currency loans were never actually received by the latter. This view is untenable and lacks
foundation.

AscorrectlypointedoutbyPMO,theoriginalloansalludedtobyrespondentshadbeenrefinancedandrestructured
inordertoextendtheirmaturitydates.Refinancingisanexchangeofanolddebtforanewdebt,asbynegotiatinga
differentinterestrateortermorbyrepayingtheexistingloanwithmoneyacquiredfromanewloan.36Ontheother
hand,restructuring,asappliedtoadebt,impliesnotonlyapostponementofthematurity37butalsoamodificationof
theessentialtermsofthedebt(e.g.,conversionofdebtintobondsorintoequity,38orachangeinoramendmentof
collateralsecurity)inordertomaketheaccountofthedebtorcurrent.39

Inthisinstance,itisimportanttonotethatDBPaccommodatedrespondentsrequesttorestructureandrefinance
theiraccounttwiceinviewofthefinancialdifficultiesthelatterwereexperiencing.Thefirstrestructuring/refinancing
was granted in 1975 while the second one was undertaken sometime in the early 1980s. Pursuant to the
restructuring schemes, respondents executed promissory notes and mortgage contracts in favor of DBP,40 the
second restructuring being evidenced by three promissory notes dated December 11, 1980, June 5, 1981 and
December16,1981inthetotalamountof$1.8Million.Thereasonrespondentsseektobeexcusedfromfulfilling
theirobligationunderthesecondbatchofpromissorynotesisthatfirst,theyallegedlyhad"nochoice"buttosign
the documents in order to have the loan restructured41 and thus avert the foreclosure of their properties, and
second,theyneverreceivedanyproceedsfromthesame.Thisreasoningcannotbesustained.

Respondents allegation that they had no "choice" but to sign is tantamount to saying that DBP exerted undue
influenceuponthem.TheCourtismindfulthatthelawgrantsanaggrievedpartytherighttoobtaintheannulmentof
a contract on account of factors such as mistake, violence, intimidation, undue influence and fraud which vitiate
consent.42 However, the fact that the representatives were "forced" to sign the promissory notes and mortgage
contractsinordertohaverespondentsoriginalloansrestructuredandtopreventtheforeclosureoftheirproperties
doesnotamounttovitiatedconsent.

ThefinancialconditionofrespondentsmayhavemotivatedthemtocontractwithDBP,butundueinfluencecannot
beattributedtoDBPsimplybecausethelatterhadlentmoney.Theconceptofundueinfluenceisdefinedasfollows:

Thereisundueinfluencewhenapersontakesimproperadvantageofhispoweroverthewillofanother,depriving
the latter of a reasonable freedom of choice. The following circumstances shall be considered: the confidential,
family, spiritual and other relations between the parties or the fact that the person alleged to have been unduly
influencedwassufferingfrommentalweakness,orwasignorantorinfinancialdistress.43

Whilerespondentswerepurportedlyfinanciallydistressed,thereisnoclearshowingthatthoseactingontheirbehalf
had been deprived of their free agency when they executed the promissory notes representing respondents
refinancedobligationstoDBP.Forundueinfluencetobepresent,theinfluenceexertedmusthavesooverpowered
orsubjugatedthemindofacontractingpartyastodestroythelattersfreeagency,makingsuchpartyexpressthe
willofanotherratherthanitsown.Theallegedlingeringfinancialwoesofadebtorpersecannotbeequatedwith
thepresenceofundueinfluence.44

Corollarily,thethreattoforeclosethemortgagewouldnotinitselfvitiateconsentasitisathreattoenforceajustor
legalclaimthroughcompetentauthority.45Itbearsemphasisthattheforeclosureofmortgagedpropertiesincaseof
defaultinpaymentofadebtorisalegalremedygivenbylawtoacreditor.46Intheeventofdefaultbythemortgage
debtorintheperformanceoftheprincipalobligation,themortgageeundeniablyhastherighttocausethesaleat
publicauctionofthemortgagedpropertyforpaymentoftheproceedstothemortgagee.47

Itislikewiseofnomomentthatrespondentsneverphysicallyreceivedtheproceedsoftheforeigncurrencyloans.
When the loan was refinanced and restructured, the proceeds were understandably not actually given by DBP to
respondentssincethetransactionwasbutarenewalofthefirstororiginalloanandthesupposedproceedswere
appliedaspaymentforthelatter.

It also bears emphasis that the second set of promissory notes executed by respondents must govern the
contractual relation of the parties for they unequivocally express the terms and conditions of the parties loan
agreement, which are binding and conclusive between them. Parties are free to enter into stipulations, clauses,
terms and conditions they may deem convenient that is, as long as these are not contrary to law, morals, good
customs,publicorderorpublicpolicy.48Withthesignaturesoftheirdulyauthorizedrepresentativesonthesubject
notesandmortgagecontracts,thegenuinenessanddueexecutionofwhichhavingbeenadmitted,49respondents
in effect freely and voluntarily affirmed all the concurrent rights and obligations flowing therefrom. Accordingly,
respondentsarebarredfromclaimingthecontrarywithouttransgressingtheprincipleofestoppelandmutualityof
contracts.Contractsmustbindbothcontractingpartiestheirvalidityorcompliancecannotbelefttothewillofoneof
them.50
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The significance of the promissory notes should not have been overlooked by the trial court and the CA. By
completely disregarding the promissory notes, the lower courts unilaterally modified the contractual obligations of
respondentsafterthelatteralreadybenefitedfromtheextensionofthematuritydateontheiroriginalloans,tothe
damageandprejudiceofPMOwhichstepsintotheshoesofDBPasmortgageecreditor.

Atthisjuncture,itmustbeemphasizedthatapartytoacontractcannotdenyitsvalidityafterenjoyingitsbenefits
withoutoutragetoonessenseofjusticeandfairness.Wherepartieshaveenteredintoawelldefinedcontractual
relationship, it is imperative that they should honor and adhere to their rights and obligations as stated in their
contracts because obligations arising from it have the force of law between the contracting parties and should be
compliedwithingoodfaith.51

Asarule,acourtinsuchacasehasnoalternativebuttoenforcethecontractualstipulationsinthemannerthey
havebeenagreeduponandwritten.Courts,whethertrialorappellate,generallyhavenopowertorelieveparties
from obligations voluntarily assumed simply because their contract turned out to be disastrous or unwise
investments.52

Thus,respondentscannotbeabsolvedfromtheirloanobligationsonthebasisofthefailureoftheAFPtofulfillits
commitment under the manufacturing agreement53 entered by them allegedly upon the prompting of certain AFP
andDBPofficials.WhileitistruethattheDBPrepresentativesappeartohavebeenawarethattheproceedsfrom
thesaletotheAFPweresupposedtobeappliedtotheloan,therecordsarebereftofanyproofthatwouldshow
that DBP was a party to the contract itself or that DBP would condone respondents credit if the contract did not
materialize. Even assuming that the AFP defaulted in its obligations under the manufacturing agreement,
respondents cause of action lies with the AFP, and not with DBP or PMO. The loan contract of respondents is
separateanddistinctfromtheirmanufacturingagreementwiththeAFP.

Incidentally,theCAsustainedthevalidityofaloanobligationbutannulledthemortgagesecuringitonthegroundof
failureofconsideration.Thisiserroneous.Amortgageisamereaccessorycontractanditsvaliditywoulddepend
onthevalidityoftheloansecuredbyit.54Hence,theconsiderationofthemortgagecontractisthesameasthatof
theprincipalcontractfromwhichitreceiveslife,andwithoutwhichitcannotexistasanindependentcontract.55The
debtorcannotescapetheconsequencesofthemortgagecontractoncethevalidityoftheloanisupheld.

Again,asarule,courtscannotintervenetosavepartiesfromdisadvantageousprovisionsoftheircontractsifthey
consentedtothesamefreelyandvoluntarily.56Thus,respondentscannotnowprotestagainstthefactthattheloans
weredenominatedinforeigncurrencyandweretobepaidinitspesoequivalentaftertheyhadalreadygiventheir
consent to such terms.57 There is no legal impediment to having obligations or transactions paid in a foreign
currency as long as the parties agree to such an arrangement. In fact, obligations in foreign currency may be
discharged in Philippine currency based on the prevailing rate at the time of payment.58 For this reason, it was
improper for the CA to reject outright DBPs claim that the conversion of the remaining balance of the foreign
currencyloansintopesoaccountedfortheconsiderabledifferentialinthetotalindebtednessofrespondentsmainly
becausetheexchangeratesatthetimeofdemandhadbeenvolatileandledtothedepreciationofthepeso.59

PMOalsodeniesthataunilateralincreaseintheinterestratesontheloanscausedthesubstantialincreaseinthe
indebtednessofrespondentsandpointsoutthatthepromissorynotesthemselvesspecificallyprovidedfortherates
ofinterestaswellaspenaltyandotherchargeswhichweremerelyappliedonrespondentsoutstandingobligations.
Itshouldbenoted,however,thatatthetimeofthetransaction,ActNo.2655,asamendedbyPresidentialDecree
No.116(UsuryLaw),wasstillinfullforceandeffect.Basicistherulethatthelawsinforceatthetimethecontractis
madegovernstheeffectivityofitsprovisions.60Section2oftheUsuryLawspecificallyprovidesasfollows:

Sec. 2. No person or corporation shall directly or indirectly take or receive in money or other property, real or
personal,orchosesinaction,ahigherrateofinterestoragreatersumorvalue,includingcommissions,premiums,
finesandpenalties,fortheloanorrenewalthereoforforbearanceofmoney,goods,orcredits,wheresuchloanor
renewal or forbearance is secured in whole or in part by a mortgage upon real estate the title to which is duly
registered,orbyanydocumentconveyingsuchrealestateorinteresttherein,thantwelvepercentumperannumor
the maximum rate prescribed by the Monetary Board and in force at the time the loan or renewal thereof or
forbearanceisgranted:Provided,thattherateofinterestunderthissectionorthemaximumrateofinterestthatmay
be prescribed by the monetary board under this section may likewise apply to loans secured by other types of
securityasmaybespecifiedbytheMonetaryBoard.

Aperusalofthepromissorynotesrevealsthattheinterestchargeduponthenotesisdependentupontheborrowing
costofDBPwhich,however,wouldbepeggedatafixedrateassumingcertainfactors.ThenotesdatedDecember
11,1980andJune5,1981,forexample,hadaperannuminterestrateof3%overDBPsborrowingratethatwill
become1%perannumintheeventtheloanisdrawnundertheCentralBanksJumboLoan.Thesewerefurther
subjecttotheconditionthatshouldtheloanfromwheretheyweredrawnbefullyrepaid,theinteresttobecharged
on respondents remaining dollar obligation would be pegged at 16% per annum.61 The promissory note dated
December16,1981,ontheotherhand,hadaperannuminterestrateof4%overDBPsborrowingrate.Thisrate
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would also become 1 % per annum in the event the loan is drawn under the Central Banks Jumbo Loan.
However,shouldtheloanfromwhererespondentsforeigncurrencyloanwasdrawnbefullyrepaid,theinterestto
bechargedontheirremainingdollarobligationwouldbepeggedat18%perannum.62

Duetothevariablefactorsmentionedabove,itcannotbedeterminedwhetherDBPdidinfactapplyaninterestrate
higher than what is prescribed under the law. It appears on the records, however, that DBP attempted to explain
howitarrivedattheamountstatedintheStatementofAccount63itsubmittedinsupportofitsclaimbutwasnot
allowedbythetrialcourttodosocitingtherulethatthebestevidenceofthesameisthedocumentitself. 64DBP
should have been given the opportunity to explain its entries in the Statement of Account in order to place the
figures that were cited in the proper context. Assuming the interest applied to the principal obligation did, in fact,
exceed12%,inadditiontotheotherpenaltiesstipulatedinthenote,thisshouldbestrickenoutforbeingusurious.

In usurious loans, the entire obligation does not become void because of an agreement for usurious interest the
unpaid principal debt still stands and remains valid but the stipulation as to the interest is void. The debt is then
considered to be without stipulation as to the interest. In the absence of an express stipulation as to the rate of
interest,thelegalrateof12%perannumshallbeimposed.65

AstotheissueraisedbyPMOthattheinjunctionissuedbythelowercourtsviolatedPresidentialDecreeNo.385,
the Court agrees with the ruling of the CA. Presidential Decree No. 385 was issued primarily to see to it that
government financial institutions are not denied substantial cash inflows which are necessary to finance
development projects all over the country, by large borrowers who, when they become delinquent, resort to court
actionsinordertopreventordelaythegovernmentscollectionoftheirdebtsandloans.66

Thegovernment,however,isboundbybasicprinciplesoffairnessanddecencyunderthedueprocessclauseofthe
Bill of Rights. Presidential Decree No. 385 does not provide the government blanket authority to unqualifiedly
imposethemandatoryprovisionsofthedecreewithoutdueregardtotheconstitutionalrightsoftheborrowers.In
fact,itisrequiredthatahearingfirstbeconductedtodeterminewhetherornot20%oftheoutstandingarrearages
hasbeenpaid,asaprerequisitefortheissuanceofatemporaryrestrainingorderorawritofpreliminaryinjunction.
Hence,thetrialcourtcan,onthebasisoftheevidencetheninitspossession,makeaprovisionaldeterminationon
the matter of the actual existence of the arrearages and the amount on which the 20% requirement is to be
computed. Consequently, Presidential Decree No. 385 cannot be invoked where the extent of the loan actually
receivedbytheborrowerisstilltobedetermined.67

Finally,respondentsallegationthatPMOisengagedinforumshoppingisuntenable.Forumshoppingistheactofa
party, against whom an adverse judgment has been rendered in one forum, of seeking another and possibly
favorable opinion in another forum by appeal or a special civil action of certiorari.68 As correctly pointed out by
PMO,thepresentpetitionismerelyanappealfromtheadversedecisionrenderedinthesameactionwhereitwas
impleadedascodefendantwithDBP.ThatDBPoptedtofileamotionforreconsiderationwiththeCAratherthana
directappealto thisCourtdoesnotbarPMOfromseekingrelieffromthe judgmentbytakingthe lattercourseof
action.

It must be remembered that PMO was impleaded as party defendant through the amended complaint69 dated
November25,1987.Personsmadepartiesdefendantsviaasupplementalcomplaintpossesslocusstandiorlegal
personalitytoseekareviewbytheCourtofthedecisionbytheCAwhichtheyassaileveniftheircodefendantsdid
not appeal the said ruling of the appellate court.70 Even assuming that separate actions have been filed by two
differentpartiesinvolvingessentiallythesamesubjectmatter,noforumshoppingiscommittedwherethepartiesdid
notresorttomultiplejudicialremedies.71

In any event, the Court deems it fit to put an end to this controversy and to finally adjudicate the rights and
obligationsofthepartiesintheinterestofaspeedydispensationofjustice,takingintoaccountthelengthoftimethis
actionhasbeenpendingwiththecourtsaswellasinlightofthefactthatPMOistherealpartyininterestinthis
case,beingthesuccessorininterestofDBP.

WHEREFORE, the petition is PARTLY GRANTED and the assailed Decision dated May 7, 1999 rendered by the
CourtofAppealsinCAG.R.CVNo.49239isREVERSEDANDSETASIDE.Thecaseisherebyremandedtothe
trialcourtfordeterminationofthetotalamountoftherespondentsobligationbasedonthepromissorynotesdated
December11,1980,June5,1981andDecember16,1981accordingtotheinterestrateagreeduponbytheparties
ortheinterestrateof12%perannum,whicheverislower.

Nocosts.

SOORDERED.

ADOLFOS.AZCUNA
AssociateJustice

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WECONCUR:

REYNATOS.PUNO
ActingChiefJustice
Chairperson

ANGELINASANDOVALGUTIERREZ RENATOC.CORONA
AssociateJustice AsscociateJustice
(OnOfficialBusiness)

CANCIOC.GARCIA
AssociateJustice

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution, it is hereby certified that the conclusions in the above
DecisionhadbeenreachedinconsultationbeforethecasewasassignedtothewriteroftheopinionoftheCourts
Division.

REYNATOS.PUNO
ActingChiefJustice

Footnotes

1 Based on the records, only the Privatization and Management Office (PMO) filed the present petition for
reviewoncertiorari.DBP,foritspart,movedforreconsiderationoftheCAdecisioninstead.

2Exhibit"F,"p.42.

3Exhibit"1,"pp.115132.

4Exhibit"2,"pp.133146.

5TSN,October26,1990,pp.1724TSN,March22,1991,pp.2837.

6Exhibit"8,"pp.202203.

7Exhibit"8,"p.203.

8Exhibit"9,"pp.204205.

9Id.at205.

10Exhibit"8,"pp.202,204.

11Id.

12Id.

13TSN,March22,1991,pp.4143.

14Exhibits"4"and"5,"pp.152200.

15Exhibit"10,"pp.206207.

16Itwasagreedthatthisratewillbecome1%perannumintheeventtheloanisdrawnundertheCentral
BanksJumboLoan.However,shouldtheloanfromwhererespondentsforeigncurrencyloanwasdrawnbe
fully repaid, the interest to be charged on their remaining dollar obligation would be pegged at 16% per
annum.SeeExhibit"10,"p.206.

17Exhibit"11,"pp.208209.

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18Itwasagreedthatthisratewillbecome1%perannumintheeventtheloanisdrawnundertheCentral
BanksJumboLoan.However,shouldtheloanfromwhererespondentsforeigncurrencyloanwasdrawnbe
fully repaid, the interest to be charged on their remaining dollar obligation would be pegged at 18% per
annum.SeeExhibit"11,"p.208.

19Exhibit"12,"pp.210211.

20Exhibit"10,"pp.206207,Exhibit"11,"pp.208209.

21Exhibit"12,"p.210.

22Id.

23Exhibit"15,"pp.215216.

24TSN,May13,1994,pp.1823.

25 Former President Corazon C. Aquino issued Proclamation No. 50 which created the Asset Privatization
Trust (APT). APT was mandated to take title to and possess, manage and dispose of the nonperforming
assetsofthenationalgovernment.Pursuanttotheproclamation,DBPtransferredandassigneditsrightsand
interestsinthemortgagetoAPTbyvirtueofaDeedofTransferdatedFebruary27,1987(Records,pp.215
234).BecauseoftheexpirationofAPTstermofexistenceonDecember31,2000,ExecutiveOrderNo.323
was issued on December 6, 2000 which created the PMO. PMO assumed the functions, duties and
responsibilitiesofthenowdefunctAPT.

26CARollo,p.202.

27Records,pp.512527.

28CARollo,pp.241250.

29Rollo,pp.3738.

30Id.at93110.

31DonatoC.CruzTradingCorp.v.CA,G.R.No.129189,December5,2000,347SCRA13Baylon v. CA,
G.R.No.109941,August17,1999,312SCRA502.

32Kwokv.PhilippineCarpetManufacturingCorp.,G.R.No.149252,April28,2005,457SCRA465.

33SwagmanHotelsandTravel,Inc.v.CA,G.R.No.161135,April8,2005,455SCRA175.

34NewSampaguitaBuildersConstruction,Inc.v.PhilippineNationalBank,G.R.No.148753,July30,2004,
435SCRA565.

35 Landl & Company (Phil.), Inc. v. Metropolitan Bank & Trust Co., G.R. No. 159622, July 30, 2004, 435
SCRA639.

36BlacksLawDictionary,8thedition.

37DevelopmentBankofthePhilippinesv.Perez,G.R.No.148541,November11,2004,442SCRA238.

38Garciav.CA,G.R.No.80201,November20,1990,191SCRA493.

39AjaxMarketingandDevelopmentCorporationv.CA,G.R.No.L118585,September14,1995,248SCRA
222.

40TSN,March22,1991,pp.3742.

41TSN,September18,1992,pp.34TSN,October2,1992,p.15.

42CIVILCODE,Article1391,inrelationtoArticle1390.

43CIVILCODE,Article1337.

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44Carpov.Chua,G.R.Nos.150773and153599,September30,2005,471SCRA471.

45CIVILCODE,Article1335.

46BPIFamilySavingsBank,Inc.v.Veloso,G.R.No.141974,August9,2004,436SCRA1.

47CIVILCODE,Art.2087RULESOFCOURT,Rule68,Sec.5Act3135,Sec.4.

48CIVILCODE,Article1306.

49TSN,September18,1992,pp.310.

50AsianConstruction&Devt.Corp.v.Tulabut,G.R.No.161904,April26,2005,457SCRA317.

51 CIVIL CODE, Article 1159 Premiere Development Bank v. CA, G.R. No. 159352, April 14, 2004, 427
SCRA686.

52Limv.QueenslandTokyoCommodities,Inc.,G.R.No.136031,January4,2002,373SCRA31.

53Exhibit"Q,"pp.5064.

54Naguiatv.CA,G.R.No.118375,October3,2003,412SCRA591.

55Carpov.Chua,G.R.Nos.150773and153599,September30,2005,471SCRA471.

56PryceCorporationv.PAGCOR,G.R.No.157480,May6,2005,458SCRA164.

57Thefollowingparagraphsappearinthepromissorynotes:

(a)PromissorynotedatedDecember11,1980

"xxxBorrowersobligationshallremaindenominatedinUSDollarsorinanyforeigncurrencyavailable
forrelendingbyDBP.Incaseofdefaultinthepaymentofanyinstallmentabove,webindourselvesto
pay DBP for advances made on the installment in equivalent pesos computed at commercial banks
sellingrateasof[the]dateDBPpaidfor[the]installmentorasof[the]dateof[the]borrowerspayment
toDBP,whicheverishigher.xxx"(Exhibit"10,"p.206)

(b)PromissorynotesdatedJune5,1981andDecember31,1981

"x x x In case of default in the payment of any installment above, we bind ourselves to pay DBP for
advancesmadeontheinstallmentinequivalentpesoscomputedatcommercialbankssellingrateas
of [the] date DBP paid for [the] installment or as of [the] date of [the] borrowers payment to DBP,
whicheverishigher.xxx"(Exhibits"11"and"12"pp.208,210)
58CFSharp&Co.,Inc.v.NorthwestAirlines,Inc.,G.R.No.133498,April18,2002,381SCRA314.

59TSN,July18,1994,p.38.

60Puertov.CA,G.R.No.138210,June6,2002,383SCRA185.

61Supra,note16.

62Supra,note18.

63Exhibit"15,"pp.215216.

64TSN,April4,1994,p.17.

65DevelopmentBankofthePhilippinesv.Perez,G.R.No.148541,November11,2004,442SCRA238.

66Republicv.CA,G.R.No.107943,February3,2000,324SCRA569.

67PolystereneManufacturingCo.,Inc.v.CA,G.R.No.77631,May9,1990,185SCRA207.

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68 Heirs of Trinidad de Leon Vda. De Roxas v. CA, G.R. No. 138660, February 5, 2004, 422 SCRA 101
Velasquezv.Hernandez,G.R.No.138660,February5,2004,437SCRA357.

69Records,pp.244257.

70Tanv.Mandap,G.R.No.150925,May27,2004,429SCRA711.

71Republicv.ExpressTelecommunicationsCo.,Inc.,G.R.No.147096,January15,2002,373SCRA316.

TheLawphilProjectArellanoLawFoundation

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