G.R. No.

167082, August 03, 2016

TERESITA I. BUENAVENTURA, Petitioner, v. METROPOLITAN BANK AND TRUST COMPANY, Respondent.

DECISION

FIRST DIVISION
BERSAMIN, J.:

A duly executed contract is the law between the parties, and, as such, commands them to comply fully and not
selectively with its terms. A contract of adhesion, of itself, does not exempt the parties from compliance with
what was mutually agreed upon by them.

The Case

In this appeal, the petitioner seeks the reversal of the decision promulgated on April 23, 2004,1 whereby the Court
of Appeals (CA) affirmed with modification the judgment2 rendered on July 11, 2002 by the Regional Trial Court
(RTC), Branch 61, in Makati City. Also being appealed is the resolution3 promulgated on February 9, 2005, whereby
the CA denied her motion for reconsideration.

Antecedents

The following factual and procedural antecedents are narrated by the CA in its assailed decision, to wit:

On January 20, 1997 and April 17, 1997, Teresita Buenaventura (or "appellant") executed Promissory Note (or
"PN") Nos. 232663 and 232711, respectively, each in the amount of PI,500,000.00 and payable to Metropolitan
Bank and Trust Company (or "appellee"). PN No. 232663 was to mature on July 1, 1997, with interest and credit
evaluation and supervision fee (or "CESF") at the rate of 17.532% per annum, while PN No. 232711 was to mature
on April 7, 1998, with interest and CESF at the rate of 14.239% per annum. Both PNs provide for penalty of 18% per
annum on the unpaid principal from date of default until full payment of the obligation.

Despite demands, there remained unpaid on PN Nos. 232663 and 232711 the amounts of P2,061,208.08 and
PI,492,236.37, respectively, as of July 15, 1998, inclusive of interest and penalty. Consequently, appellee filed an
action against appellant for recovery of said amounts, interest, penalty and attorney's fees before the Regional
Trial Court of Makati City (Branch 61).

In answer, appellant averred that in 1997, she received from her nephew, Rene Imperial (Or "Imperial"), three
postdated checks drawn against appellee (Tabaco Branch), i.e., Check No. TA 1270484889PA dated January 5, 1998
in the amount of PI,200,000.00, Check No. 1270482455PA dated March 31, 1998 in the amount of PI,197,000.00
and Check No. TA1270482451PA dated March 31, 1998 in the amount of P500,000.00 (or "subject checks"), as
partial payments for the purchase of her properties; that she rediscounted the subject checks with appellee (Timog
Branch), for which she was required to execute the PNs to secure payment thereof; and that she is a mere
guarantor and cannot be compelled to pay unless and until appellee shall have exhausted all the properties of
Imperial.4

On July 11, 2002, the RTC rendered its judgment,5 viz.:

WHEREFORE, in view of the foregoing, the Court finds in favor of plaintiff METROPOLITAN BANK AND TRUST
COMPANY and against defendant TERESITA BUENAVENTURA.

As a consequence of this judgment, defendant Buenaventura is directed to pay plaintiff bank the amount of
P3,553,444.45 plus all interest and penalties due as stipulated in Promissory Notes Nos. 232663 and 232711
beginning July 15, 1998 until the amount is fully paid and 10% of the total amount due as attorney's fees.

SO ORDERED.

Dissatisfied, the petitioner appealed, assigning the following as errors, namely:

THE TRIAL COURT ERRED IN HOLDING THAT THE REDISCOUNTING TRANSACTION BETWEEN APPELLANT AND
METROBANK RESULTED TO A LOAN OBLIGATION SECURED BY THE SUBJECT CHECKS AND PROMISSORY NOTES.

Rediscounting transactions do not create loan obligations between the parties.

By the rediscounting, Metrobank subrogated appellant as creditor of Rene Imperial, the issuer of the checks.

Legal subrogation was presumed when Metrobank paid the obligation of Mr. Imperial with the latter's knowledge
and consent.

II

THE TRIAL COURT ERRED IN GRANTING METROBANK'S CLAIMS ON THE BASIS OF THE PROMISSORY NOTES.

The promissory notes are null and void for being simulated and fictitious.

Assuming that the promissory notes are valid, these only serve as guaranty to secure the payment of the
rediscounted checks.

III

THE TRIAL COURT ERRED IN NOT RULING THAT APPELLANT IS ENTITLED TO HER COUNTERCLAIMS FOR EXEMPLARY
DAMAGES, ATTTORNEY'S FEES, LITIGATION EXPENSES AND COSTS OF SUIT.6

On April 23, 2004, the CA promulgated the assailed decision affirming the decision of the RTC with modification,7
as follows:

WHEREFORE, the appealed decision is AFFIRMED with MODIFICATION of the second paragraph of its dispositive
portion, which should now read:

"As a consequence of this judgment, defendant Buenaventura is directed to pay plaintiff bank the amount of
P3,553,444.45 plus interest and penalty therein at 14.239% per annum and 18% per annum, respectively, from July
15, 1998 until fully paid and 10% of said amount as attorney's fees." SO ORDERED.8

On May 21, 2004, the petitioner moved for the reconsideration of the decision, but the CA denied her motion for
that purpose on February 9, 2005.9

Hence, this appeal by the petitioner.

Issues

The petitioner ascribes the following errors to the CA, to wit:

THE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER IS LIABLE UNDER THE PROMISSORY NOTES.

The promissory notes executed by petitioner are null and void for being simulated and fictitious.

Even assuming that the promissory notes are valid, these are intended as mere guaranty to secure Rene Imperial's
payment of the rediscounted checks. Hence, being a mere guarantor, the action against petitioner under the said
promissory notes is premature.

Metrobank is deemed to have subrogated petitioner as creditor of Mr. Imperial (the issuer of the checks). Hence,
Metrobank's recourse as creditor, is against Mr. Imperial.

II

THE COURT OF APPEALS ERRED IN NOT RULING THAT PETITIONER IS ENTITLED TO HER COUNTER-CLAIM FOR
EXEMPLARY DAMAGES, ATTORNEY'S FEES, LITIGATION EXPENSES AND COSTS OF SUIT.10

Ruling

The appeal lacks merit.

First of all, the petitioner claims that the promissory notes she executed were contracts of adhesion because her
only participation in their execution was affixing her signature,11 and that the terms of the promissory notes
should consequently be strictly construed against the respondent as the party responsible for their preparation.12
In contrast, the respondent counters that the terms and conditions of the promissory notes were clear and
unambiguous; hence, there was no room or need for interpretation thereof.13

The respondent is correct.

The promissory notes were written as follows:

FOR VALUE RECEIVED, I/we jointly and severally promise to pay Metropolitan Bank and Trust Company, at its office
x x x the principal sum of PESOS xxx, Philippine currency, together with interest and credit evaluation and
supervision fee (CESF) thereon at the effective rate of xxx per centum xxx per annum, inclusive, from date hereof
and until fully paid.14

What the petitioner advocates is for the Court to now read into the promissory notes terms and conditions that
would contradict their clear and unambiguous terms in the guise of such promissory notes being contracts of
adhesion. This cannot be permitted, for, even assuming that the promissory notes were contracts of adhesion,
such circumstance alone did not necessarily entitle her to bar their literal enforcement against her if their terms
were unequivocal. It is preposterous on her part to disparage the promissory notes for being contracts of
adhesion, for she thereby seems to forget that the validity and enforceability of contracts of adhesion were the
same as those of other valid contracts. The Court has made this plain in Avon Cosmetics, Inc. v. Luna,15 stating:

A contract of adhesion is so-called because its terms are prepared by only one party while the other party merely
affixes his signature signifying his adhesion thereto. Such contract is just as binding as ordinary contracts.

It is true that we have, on occasion, struck down such contracts as void when the weaker party is imposed upon in
dealing with the dominant bargaining party and is reduced to the alternative of taking it or leaving it, completely
deprived of the opportunity to bargain on equal footing. Nevertheless, contracts of adhesion are not invalid per se
and they are not entirely prohibited. The one who adheres to the contract is in reality free to reject it entirely, if he
adheres, he gives his consent.

xxxx

Accordingly, a contract duly executed is the law between the parties, and they are obliged to comply fully and not
selectively with its terms. A contract of adhesion is no exception.

As a rule, indeed, the contract of adhesion is no different from any other contract. Its interpretation still aligns
with the literal meaning of its terms and conditions absent any ambiguity, or with the intention of the parties.16
The terms and conditions of the promissory notes involved herein, being clear and beyond doubt, should then
be enforced accordingly. In this regard, we approve of the observation by the CA, citing Cruz v. Court of Appeals,
17 that the intention of the parties should be "deciphered not from the unilateral post facto assertions of one of
the parties, but from the language used in the contract."18 As fittingly declared in The Insular Life Assurance
Company, Ltd. vs. Court of Appeals and Sun Brothers & Company,19 "[w]hen the language of the contract is
explicit leaving no doubt as to the intention of the drafters thereof, the courts may not read into it any other
intention that would contradict its plain import." Accordingly, no court, even this Court, can "make new
contracts for the parties or ignore those already made by them, simply to avoid seeming hardships. Neither
abstract justice nor the rule of liberal construction justifies the creation of a contract for the parties which they
did not make themselves or the imposition upon one party to a contract of an obligation not assumed."20

Secondly, the petitioner submits that the promissory notes were null and void for being simulated and fictitious;
hence, the CA erred in enforcing them against her.

The submission contradicts the records and the law pertinent to simulated contracts.

Based on Article 134521 of the Civil Code, simulation of contracts is of two kinds, namely: (1) absolute; and (2)
relative. Simulation is absolute when there is color of contract but without any substance, the parties not intending
to be bound thereby.22 It is relative when the parties come to an agreement that they hide or conceal in the guise
of another contract.23

The effects of simulated contracts are dealt with in Article 1346 of the Civil Code, to wit:

Art. 1346. An absolutely simulated or fictitious contract is void. A relative simulation, when it does not prejudice a
third person and is not intended for any purpose contrary to law, morals, good customs, public order or public
policy binds the parties to their real agreement.
The burden of showing that a contract is simulated rests on the party impugning the contract. This is because of
the presumed validity of the contract that has been duly executed.24 The proof required to overcome the
presumption of validity must be convincing and preponderant. Without such proof, therefore, the petitioner's
allegation that she had been made to believe that the promissory notes would be guaranties for the rediscounted
checks, not evidence of her primary and direct liability under loan agreements,25 could not stand.

Moreover, the issue of simulation of contract was not brought up in the RTC. It was raised for the first time only in
the CA.26 Such belatedness forbids the consideration of simulation of contracts as an issue. Indeed, the appellate
courts, including this Court, should adhere to the rule that issues not raised below should not be raised for the first
time on appeal. Basic considerations of due process and fairness impel this adherence, for it would be violative of
the right to be heard as well as unfair to the parties and to the administration of justice if the points of law,
theories, issues and arguments not brought to the attention of the lower courts should be considered and passed
upon by the reviewing courts for the first time.

Thirdly, the petitioner insists that the promissory notes, even if valid, were meant as guaranties to secure payment
of the checks by the issuer, Rene Imperial; hence, her liability was that of a guarantor, and would take effect only
upon exhaustion of all properties and after resort to all legal remedies against Imperial.27

The insistence of the petitioner is bereft of merit.

The CA rejected this insistence, expounding as follows:

A guaranty is not presumed; it must be expressed (Art. 2055, New Civil Code). The PNs provide, in clear language,
that appellant is primarily liable thereunder. On the other hand, said PNs do not state that Imperial, who is not
even privy thereto, is the one primarily liable and that appellant is merely a guarantor. Parenthetically, the
disclosure statement (Exh. "D") executed by appellant states that PN No. 232711 is "secured by postdated checks".
In other words, it does not appear that the PNs were executed as guaranty for the payment of the subject checks.

Nevertheless, appellant insists that she did not obtain a short-term loan from appellee but rediscounted the
subject checks, with the PNs as guaranty. The contention is untenable.

In Great Asian Sales Center Corporation vs. Court of Appeals (381 SCRA 557), which was cited in support of
appellant's claim, the Supreme Court explained the meaning of "discounting line", thus:
"In the financing industry, the term 'discounting line' means a credit facility with a financing company or bank
which allows a business entity to sell, on a continuing basis, its accounts receivable at a discount. The term
'discount' means the sale of a receivable at less than its face value. The purpose of a discounting line is to enable a
business entity to generate instant cash out of its receivables which are still to mature at future dates. The
financing company or bank which buys the receivables makes its profit out of the difference between the face
value of the receivable and the discounted price."

A guarantor may bind himself for less, but not for more than the principal debtor, both as regards the amount and
the onerous nature of the conditions (Art. 2054, id). Curiously, the face amounts of the PNs (totaling
P3,000,000.00) are more than those of the subject checks (totaling P2,897,000.00). And unlike the subject checks,
the PNs provide for interest, CESF and penalty.

Moreover, the maturity date (July 1, 1997) of PN No. 232663 is ahead of the dates (January 5, 1998 and March 31,
1998) of the subject checks. In other words, appellant, as "guarantor", was supposed to make good her "guaranty",
i.e. PNs in question, even before the "principal" obligations, i.e. subject checks, became due. It is also noted that
the rediscounting of the subject checks (in January 1997) occurred months ahead of the execution of PN No.
232711 (on April 17, 1997) even as the PNs were supposedly a precondition to said rediscounting.

xxxx

Stated differently, appellant is primarily liable under the subject checks. She is a principal debtor and not a
guarantor. Consequently, the benefit of excussion may not be interposed as a defense in an action to enforce
appellant's warranty as indorser of the subject checks.

Moreover, it is absurd that appellant (as maker of the PNs) may act as guarantor of her own obligations (as
indorser of the subject checks). Thus, Art. 2047 of the New Civil Code provides that "(b)y guaranty, a person called
the guarantor, binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should
fail to do so."28 (Emphasis supplied)

The CA was correct. A contract of guaranty is one where a person, the guarantor, binds himself or herself to
another, the creditor, to fulfill the obligation of the principal debtor in case of failure of the latter to do so.29 It
cannot be presumed, but must be express and in writing to be enforceable,30 especially as it is considered a
special promise to answer for the debt, default or miscarriage of another.31 It being clear that the promissory
notes were entirely silent about the supposed guaranty in favor of Imperial, we must read the promissory notes
literally due to the absence of any ambiguities about their language and meaning. In other words, the petitioner
could not validly insist on the guaranty. In addition, the disclosure statements32 and the statements of loan
release33 undeniably identified her, and no other, as the borrower in the transactions. Under such established
circumstances, she was directly and personally liable for the obligations under the promissory notes.

Fourth, the petitioner argues that the respondent was immediately . subrogated as the creditor of the accounts by
its purchase of the checks from her through its rediscounting facility;34 and that legal subrogation should be
presumed because the petitioner, a third person not interested in the obligation, paid the debt with the express or
tacit approval of the debtor.35

The argument is barren of factual and legal support.

Legal subrogration finds no application because there is no evidence showing that Imperial, the issuer of the
checks, had consented to the subrogation, expressly or impliedly.36 This circumstance was pointed out by the RTC
itself.37 Also, as the CA emphatically observed,38 the argument was off-tangent because the suit was not for the
recovery of money by virtue of the checks of Imperial but for the enforcement of her obligation as the maker of
the promissory notes.

Fifth, the petitioner posits that she was made to believe by the manager of the respondent's Timog Avenue,
Quezon City Branch that the promissory notes would be mere guaranties for the rediscounted checks;39 that
despite the finding of the RTC and the CA that she was a seasoned businesswoman presumed to have read and
understood all the documents given to her for signature, she remained a layman faced with and puzzled by
complex banking terms; and that her acceding to signing the promissory notes should not be taken against her as
to conclude her.40

The petitioner's position is unworthy of serious consideration.

After having determined that the terms and conditions of the promissory notes were clear and unambiguous, and
thus should be given their literal meaning and not be interpreted differently, we insist and hold that she should be
bound by such terms and conditions. Verily, the promissory notes as contracts should bind both contracting
parties; hence, the validity or compliance therewith should not be left to the will of the petitioner.41 Otherwise,
she would contravene and violate the principles of mutuality and of the obligatory force of contracts. A respected
commentator on civil law has written in this respect:
The binding effect of the contract on both parties is based on the principles (1) that obligations arising from
contracts have the force of law between the contracting parties; and (2) that there must be mutuality between the
parties based on their essential equality, to which is repugnant to have one party bound by the contract leaving
the other free therefrom.

xxxx

Just as nobody can be forced to enter into a contract, in the same manner once a contract is entered into, no party
can renounce it unilaterally or without the consent of the other. It is a general principle of law that no one may be
permitted to change his mind or disavow and go back upon his own acts, or to proceed contrary thereto, to the
prejudice of the other party.

If, after a perfect and binding contract has been executed between the parties, it occurs to one of them to allege
some defect therein as a reason for annulling it, the alleged defect must be conclusively proven, since the validity
and fulfillment of contracts cannot be left to the will of one of the contracting parties. The fact that a party may
not have fully understood the legal effect of the contract is no ground for setting it aside.42

And, lastly, there is need to revise the monetary awards by the CA. Although no issue is raised by the petitioner
concerning the monetary awards, the Court feels bound to make this revision as a matter of law in order to arrive
at a just resolution of the controversy.

Involved here are two loans of the petitioner from the respondent, specifically: (1) the principal amount of
PI,500,000.00 covered by Promissory Note No. 232663 to be paid on or before July 1, 1997 with interest and credit
evaluation and supervision fee (CESF) at the rate of 17.532% per annum and penalty charge of 18% per annum
based on the unpaid principal to be computed from the date of default until full payment of the obligation; and (2)
the principal amount of PI,500,000.00 covered by Promissory Note No. 232711 to be paid on or before April 7,
1998 with interest and CESF at the rate of 14.239% per annum and penalty charge of 18% per annum based on the
unpaid principal to be computed from the date of default until full payment of the obligation.
The RTC adjudged the petitioner liable to pay to the respondent the total of P3,553,444.45 representing her
outstanding obligation, including accrued interests and penalty charges under the promissory notes, plus
attorney's fees.43 On appeal, the CA ruled that she was liable to the respondent for the sum of P3,553,444.45 with
interest and penalties at 14.239% per annum and 18% per annum, respectively, from July 15, 1998 until fully
paid.44chanrobleslaw

The bases of the amounts being claimed from the petitioner were apparently the two statements of past due
interest and penalty charges as of July 15, 1998, one corresponding to Promissory Note No. 232711,45 and the
other to Promissory Note No. 232663,46 Respondent's witness Patrick N. Miranda, testifying on the obligation and
the computation thereof,47 attested as follows:
What is the amount of her loan obligation?

-Under Promissory Note No. 232663, her loan obligation is Pl,492,236.37 inclusive of interest and penalty charges
as of July 15, 1998. Under Promissory Note No. 232711, her loan obligation is P2,061,208.08, inclusive of interest
and penalty charges as of July 15, 1998. Thus, the total is P3,553,444.45 as of July 15, 1998. Two (2) Statements of
Account were prepared to show the computation and penalty charges.

Do you have these Statements of Account?

-Yes, sir. (Copies are hereto attached as Exhibits "H" and "I".) 48
Promissory Note No. 23271149

PRINCIPAL AMOUNT P1,500,000.00

PAST DUE INTEREST - 334 days @34.991%

fr. Aug. 15, 1997 to July 15, 1998 P486,958.08

PENALTY CHARGES - 99 days @18.0%

fr. April 07, 1998 to July 15, 1998 P74,250.00

TOTAL OUTSTANDING LOAN

AS OF JULY 15, 1998 P2,061,208.08

Promissory Note No. 23266350

PRINCIPAL AMOUNT P1,200,000.00

PAST DUE INTEREST - 191 days @27.901%

fr. [J]an. 05, 1998 to [J]uly 15, 1998 P177,636.37

PENALTY CHARGES - 191 days @18.0%

fr. [J]an. 05, 1998 to [J]uly 15, 1998 P114,600.00

TOTAL OUTSTANDING LOAN

AS OF JULY 15, 1998 P1,492,236.37
The total of P3,553,444.45 was the final sum of the computations contained in the statements of past due interest
and penalty charges as of July 15, 1998, and was inclusive of interest at the rate of 34.991% (on the principal of
P1,500,000.00) and 27.901% (on the principal of P1,200,00.00). Yet, such interest rates were different from the
interest rates stipulated in the promissory notes, namely: 14.239% for promissory Note No. 232711 and 17.532%
for Promissory Note No. 232663. As a result, the P3,553,444.45 claimed by the respondent as the petitioner's
aggregate oustanding loan obligatopn included interest of almost double the rates stipulated by the parties.

We hold that the respondent had no legal basis for imposing rates far higher than those agreed upon and
stipulated in the promissory notes. It did not suitably justify the imposition of the increased rates of 34.991% and
27.901%, as borne out by the statements of past due interest and penalty charges as of July 15, 1998, although it
certainly was its burden to show the legal and factual support for the imposition. We need not remind that the
burden of proof is the duty of any party to present evidence to establish its claim or defense by the amount of
evidence required by law, which in civil cases is preponderance of evidence.51 Consequently, we have to strike
down the imposition.

Parenthetically, we observe that the stipulation in the promissory notes on the automatic increase of the interest
rate to the prevailing rate52 did not justify the increase of the interest rates because the respondent did not
adduce evidence about the prevailing rates at the time material to this case.
On May 16, 2013, the Monetary Board of the Bangko Sentral ng Pilipinas, in the exercise of its statutory authority
to review and fix interest rates, issued Circular No. 799, Series of 2013 to lower to 6% per annum the rate of
interest for loan or forbearance of any money, goods or credits, and the rate allowed in judgment.53 The revised
rate applies only in the absence of stipulation in loan contracts. Hence, the contractual stipulations on the rates of
interest contained in the promissory notes remained applicable.

Considering that, as mentioned, the P3,553,444.45 was an aggregate inclusive of the interest {i.e., at the rates of
34.991% and 27.901% per annum); and that the penalty charges contravened the express provisions of the
promissory notes, the RTC and the CA both erred on a matter of law, and we should correct their error as a matter
of law in the interest of justice.

It is further held that the CA could not validly apply the lower interest rate of 14.239% per annum to the whole
amount of P3,553,444.45 in contravention of the stipulation of the parties. In Mallari v. Prudential Bank,54 the
Court declared that the interest rate of "3% per month and higher are excessive, unconscionable and exorbitant,
hence, the stipulation was void for being contrary to morals." Even so, the Court did not consider as
unconscionable the interest rate of 23% per annum agreed upon by the parties. Upholding the 23% per annum
interest rate agreed upon, the Court instead opined that "the borrowers cannot renege on their obligation to
comply with what is incumbent upon them under the contract of loan as the said contract is the law between the
parties and they are bound by its stipulations."55 Consequently, the respondent could not impose the flat interest
rate of 14.239% per annum on the petitioner's loan obligation. Verily, the obligatory force of the stipulations
between the parties called for the imposition of the interest rates stipulated in the promissory notes.

To accord with the prevailing jurisprudence, the Court pronounces that the respondent was entitled to recover the
principal amount of P1,500,000.00 subject to the stipulated interest of 14.239%per annum from date of default
until full payment;56 and the principal amount of P1,200,000.00 subject to the stipulated interest of 17.532%per
annum from date of default until full payment.57

The next matter to be considered and determined is the date of default.

According to Article 1169 of the Civil Code, there is delay or default from the time the obligee judicially or
extrajudically demands from the obligor the fulfillment of his or her obligation. The records reveal that the
respondent did not establish when the petitioner defaulted in her obligation to pay based on the two promissory
notes. As such, its claim for payment computed from July 15, 1998 until full payment of the obligation had no
moorings other than July 15, 1998 being the date reflected in the statements of past due interest and penalty
charges as of July 15, 1998. Nonetheless, its counsel, through the letter dated July 7, 1998,58 made a final demand
in writing for the petitioner to settle her total obligation within five days from receipt. As the registry return receipt
indicated,59 the final demand letter was received for the petitioner by one Elisa dela Cruz on July 28, 1998.
Hence, the petitioner had five days from such receipt, or until August 2, 1998, within which to comply. The
reckoning date of default is, therefore, August 3, 1998.

As to the penalty charge, the same was warranted for being expressly stipulated in the promissory notes, to wit:

I/we further agree to pay the Bank, in addition to the agreed interest rate, a penalty charge of eighteen per
centum (18%) per annum based on any unpaid principal to be computed from date of default until full payment of
the obligation.60

Verily, a penal clause is an accessory undertaking attached to a principal obligation. It has for its purposes, firstly,
to provide for liquidated damages; and, secondly, to strengthen the coercive force of the obligation by the threat
of greater responsibility in the event of breach of obligation.61 Under Article 1226 of the Civil Code,62 a penal
clause is a substitute indemnity for damages and the payment of interests in case of noncompliance, unless there
is a stipulation to the contrary. In Tan v. Court of Appeals[63] the Court has elaborated on the nature of a penalty
clause in the following:

Penalty on delinquent loans may take different forms. In Government Service Insurance System v. Court of
Appeals, this Court has ruled that the New Civil Code permits an agreement upon a penalty apart from the
monetary interest. If the parties stipulate this kind of agreement, the penalty does not include the monetary
interest, and as such the two are different and distinct from each other and may be demanded separately. Quoting
Equitable Banking Corp. v. Liwanag, the GSIS case went on to state that such a stipulation about payment of an
additional interest rate partakes of the nature of a penalty clause which is sanctioned by law, more particularly
under Article 2229 of the New Civil Code which provides that:
If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for
damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon, and the
absence of stipulation, the legal interest, which is six per cent per annum.

The penalty charge of two percent (2%) per month in the case at bar began to accrue from the time of default by
the petitioner. There is no doubt that the petitioner is liable for both the stipulated monetary interest and the
stipulated penalty charge. The penalty charge is also called penalty or compensatory interest.

The Court has explained the rate of compensatory interest on monetary awards adjudged in decisions of the Court
in Planters Development Bank v. Lopez,64 citing Nacar v. Gallery Frames [65] to wit:

With respect to the computation of compensatory interest, Section 1 of Bangko Sentral ng Pilipinas (BSP) Circular
No. 799, Series of 2013, which took effect on July 1, 2013, provides:

Section 1. The rate of interest for the loan or forbearance of any money, goods or credits and the rate allowed in
judgments, in the absence of an express contract as to such rate of interest, shall be six percent (6%) per annum.

This provision amends Section 2 of Central Bank (CB) Circular No. 905-82, Series of 1982, which took effect on
January 1, 1983. Notably, we recently upheld the constitutionality of CB Circular No. 905-82 in Advocates for Truth
in Lending, Inc., et al. v. Bangko Sentral ng Pilipinas Monetary Board, etc. Section 2 of CB Circular No. 905-82
provides:

Section 2. The rate of interest for the loan or forbearance of any money, goods or credits and the rate allowed in
judgments, in the absence of express contract as to such rate of interest, shall continue to be twelve percent (12%)
per annum.

Pursuant to these changes, this Court modified the guidelines in Eastern Shipping Lines, Inc. v. Court of Appeals in
the case of Dario Nacar v. Gallery Frames, et al.(Nacar). In Nacar, we established the following guidelines:
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.

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:
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 6% 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, (emphasis and underscore supplied)

When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of
damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest,
however, shall be adjudged on unliquidated claims or damages, except when or until the demand can be
established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the
interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code), but
when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin
to run only from the date the judgment of the court is made (at which time the quantification of damages may be
deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any
case, be on the amount finally adjudged.

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 6% per annum from such finality until its
satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit.

And, in addition to the above, judgments that have become final and executory prior to July 1, 2013, shall not be
disturbed and shall continue to be implemented applying the rate of interest fixed therein.

To accord with the foregoing rulings, the 17.532% and 14.239% annual interest rates shall also respectively earn a
penalty charge of 18% per annum reckoned on the unpaid principals computed from the date of default (August 3,
1998) until fully paid. This is in line with the express agreement between the parties to impose such penalty
charge.

Article 2212 of the Civil Code requires that interest due shall earn legal interest from the time it is judicially
demanded, although the obligation may be silent upon this point. Accordingly, the interest due shall itself earn
legal interest of 6% per annum from the date of finality of the judgment until its full satisfaction, the interim period
being deemed to be an equivalent to a forbearance of credit.66

WHEREFORE, the Court AFFIRMS the decision promulgated on April 23, 2004 with the MODIFICATION that the
petitioner shall pay to the respondent: (1) the principal sum of PI,500,000.00 under Promissory Note No. 232711,
plus interest at the rate of 14.239% per annum commencing on August 3, 1998 until fully paid; (2) the principal
sum of PI,200,000.00 under Promissory Note No. 232663, plus interest at the rate of 17.532% per annum
commencing on August 3, 1998 until fully paid; (3) penalty interest on the unpaid principal amounts at the rate of
18% per annum commencing on August 3, 1998 until fully paid; (4) legal interest of 6% per annum on the interests
commencing from the finality of this judgment until fully paid; (5) attorney's fees equivalent to 10% of the total
amount due to the respondent; and (6) costs of suit.

SO ORDERED.

Sereno, C.J., Leonardo-De Castro, Perlas-Bernabe, and Caguioa, JJ., concur.

Endnotes:

1Rollo, pp. 174-182; penned by Associate Justice Edgardo P. Cruz (retired), with the concurrence of Associate
Justice Delilah Vidallon-Magtolis (retired) and Associate Justice Noel G. Tijam.

2 CA rollo, pp. 62-69; penned by Judge Marissa Macaraig-Guillen

3Rollo, p. 193.

4Rollo, pp. 174-175.

5 CA rollo, p. 69.

6 Id. at 23-24.

7 Supra note 1.

8 Id. at 181.

9 CA rollo, p. 194.

10Rollo, pp. 13-14.

11 Id. at 16.

12 Id. at 17.

13 Id. at 211-212.

14 Id. at 37.

15 G.R. No. 153674, December 20, 2006, 511 SCRA 376, 396-397.

16 The Civil Code says:

Art. 1370. If the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the
literal meaning of its stipulation shall control.

If the words appear to be contrary to the evident intention of the parties, the latter shall prevail over the former.

17 G.R. No. 126713, July 27, 1998, 293 SCRA 239, 252.

18Rollo, p. 177.

19 G.R. No. 126850, April 28, 2004, 428 SCRA 79, 92.

20 Id.
21 Art. 1345. Simulation of a contract may be absolute or relative. The former takes place when the parties do not
intend to be bound at all; the latter, when the parties conceal their true agreement.

22 IV Tolentino, Civil Code of the Philippines, 1991, p. 516.

23 Id.

24Ramos v. Heirs of Honorio Ramos, Sr., G.R. No. 140848, April 25, 2002, 381 SCRA 594, 602.

25 Rollo, p. 18.

26 CA rollo, pp. 44-55.

27Rollo, pp. 22-24.

28 Rollo, pp. 177-180.

29 Art. 2047, Civil Code, provides:

Art. 2047. By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the
principal debtor in case the latter should fail to do so.

If a person binds himself solidarity with the principal debtor, the provisions of Section 4, Chapter 3, Title I of this
Book shall be observed. In such case the contract is called a suretyship. (1822a)

30 Art. 2055, Civil Code, declares that: "A guaranty is not presumed; it must be express and cannot extend to more
than what is stipulated therein."

31 Art. 1403, Civil Code, requires that a special promise to answer for the debt, default or miscarriage of another,
among others, must be in writing to be enforceable unless ratified; see also Aglibot v. Santia, G.R. No. 185945,
December 5, 2012, 687 SCRA 283, 294-295.

32Rollo, pp. 38, 40.

33Records, pp. 126-127.

34Rollo, p. 26.

35 Id. at 27.

According to Art. 1302, Civil Code, there is legal subrogation when: (1) a creditor pays another creditor who is
preferred, even without the debtor's knowledge; (2) a third person, not interested in the obligation, pays with the
express or tacit approval of the debtor; or (3) even without the knowledge of the debtor, a person interested in the
fulfillment of the obligation pays, without prejudice to the effects of confusion as to the latter's share.

37Rollo, p. 65.

38 Id. at 180.

39 Id. at 18.

40 Id. at 20.

41 Art. 1308, Civil Code.

42 IV Tolentino, op. cit., at 424-425.

43Rollo, p. 67.

44 Id. at 181.

45Record, p. 104.

46 Id. at 105.
47 Id. at 95.

48 Id. at 96.

49 Supra note 44.

50 Id. at 105.

51United Merchants Corporation v. Country Bankers Insurance Corporation, G.R. No. 198588, July 11, 2012, 676
SCRA 382, 395.

52 Paragraph 5 of the Promissory Note, last sentence, reads:

In case of default, I/we agree that as additional compensation, the interest rate sffall automatically be raised to the
prevailing rate, the increased rate to be applied from the date of default. (Records, pp. 5, 7).

53 Section 1. The rate of interest for the loan or forbearance of any money, goods or credits and the rate allowed
in judgments, in the absence of an express contract as to such rate of interest, shall be six percent (6%) per annum.

54 G.R. No. 197861, June 5, 2013, 697 SCRA 555, 564.

55 Id., citing Villanueva v. Court of Appeals, G.R. No. 163433, August 22, 2011, 655 SCRA 707, 716- 717.

56 Records, p. 98.

57 Id. at 99.

58 Id. at 108.

59 Id. at 109.

60Rollo, pp. 37 and 39.

61 IV Tolentino, op. cit., at 259.

62 Art. 1226. In obligations with a penal clause, the penalty shall substitute the indemnity for damages and the
payment of interests in case of noncompliance, if there is no stipulation to the contrary. Nevertheless, damages
shall be paid if the obligor refuses to pay the penalty or is guilty of fraud in the fulfillment of the obligation.

The penalty may be enforced only when it is demandable in accordance with the provisions of this code.

63 G.R. No. 116285, October 19, 2001, 367 SCRA 571, 579-580.

64 G.R. No. 186332, October 23, 2013, 708 SCRA 481, 501-503.

65 G.R. No. 189871, August 13, 2013, 703 SCRA 439, 455-457.

66 Planters Development Bank v. Lopez, supra note 64.

[G.R. NO. 162523 : November 25, 2009]

NORTON RESOURCES AND DEVELOPMENT CORPORATION, Petitioner, v. ALL ASIA BANK CORPORATION,*
Respondent.

DECISION

NACHURA, J.:

Before this Court is a Petition for Review on Certiorari1 under Rule 45 of the Rules of Civil Procedure, seeking the
reversal of the Court of Appeals (CA) Decision2 dated November 28, 2002 which set aside the Decision3 of the
Regional Trial Court (RTC) of Davao City, Branch 14, dated August 27, 1999.

The Facts

Petitioner Norton Resources and Development Corporation (petitioner) is a domestic corporation engaged in the
business of construction and development of housing subdivisions based in Davao City, while respondent All Asia
Bank Corporation (respondent), formerly known as Banco Davao-Davao City Development Bank, is a domestic
banking corporation operating in Davao City.

On April 13, 1982, petitioner applied for and was granted a loan by respondent in the amount of Three Million
Eight Hundred Thousand Pesos (P3,800,000.00) as evidenced by a Loan Agreement.4 The loan was intended for the
construction of 160 housing units on a 3.9 hectare property located in Matina Aplaya, Davao City which was
subdivided by petitioner per Subdivision Sketch Plan.5 To speed up the processing of all documents necessary for
the release of the funds, petitioner allegedly offered respondent a service/commitment fee of P320,000.00 for the
construction of 160 housing units, or at P2,000.00 per unit. The offer having been accepted, both parties executed
a Memorandum of Agreement6 (MOA) on the same date.

As guarantor, the Home Financing Corporation (HFC), a government entity tasked to encourage lending institutions
to participate in the government's housing programs, extended security coverage obligating itself to pay the said
loan upon default of petitioner. Out of the loan proceeds in the amount of P3,800,000.00, respondent deducted in
advance the amount of P320,000.00 as commitment/service fee.

Unfortunately, petitioner was only able to construct 35 out of the 160 housing units proposed to be constructed
under the contract. In addition, petitioner defaulted in the payment of its loan obligation. Thus, respondent made
a call on the unconditional cash guarantee of HFC. In order to recover from HFC, respondent assigned to HFC its
interest over the mortgage by virtue of a Deed of Assignment7 on August 28, 1983 coupled with the delivery of the
Transfer Certificate of Title.

As of August 2, 1983, the outstanding obligation of petitioner amounted to P3,240,757.99. HFC paid only
P2,990,757.99, withholding the amount of P250,000.00. Upon payment, HFC executed a Deed of Release of
Mortgage8 on February 14, 1984, thereby canceling the mortgage of all properties listed in the Deed of
Assignment. Respondent made several demands from HFC for the payment of the amount of P250,000.00 but HFC
continued to withhold the same upon the request of petitioner. Thus, respondent filed an action to recover the
P250,000.00 with the RTC, Branch 15, of Davao City, docketed as Civil Case No. 17048.9 On April 13, 1987, said RTC
rendered a Decision10 in favor of respondent, the dispositive portion thereof reads as follows:

IN VIEW WHEREOF, judgment is hereby rendered as follows:

1. The defendant shall return to the plaintiff the P250,000.00 with legal interest to be computed from April 12,
1984 until fully paid.

2. The defendant shall pay the plaintiff fifty thousand pesos (P50,000.00) as attorney's fees and P7,174.82 as
collection expenses.

3. The defendant shall pay the costs of this suit.

SO ORDERED.11

HFC appealed to the CA which, in turn, sustained the decision of the RTC. The CA decision became final and
executory.

However, on February 22, 1993, petitioner filed a Complaint12 for Sum of Money, Damages and Attorney's Fees
against respondent with the RTC, docketed as Civil Case No. 21-880-93. Petitioner alleged that the P320,000.00
commitment/service fee mentioned in the MOA was to be paid on a per-unit basis at P2,000.00 per unit. Inasmuch
as only 35 housing units were constructed, petitioner posited that it was only liable to pay P70,000.00 and not the
whole amount of P320,000.00, which was deducted in advance from the proceeds of the loan. As such, petitioner
demanded the return of P250,000.00, representing the commitment fee for the 125 housing units left
unconstructed and unduly collected by respondent.

In its Answer,13 respondent denied that the P320,000.00 commitment/service fee provided in the MOA was
broken down into P2,000.00 per housing unit for 160 units. Moreover, respondent averred that petitioner's action
was already barred by res judicata considering that the present controversy had already been settled in a previous
judgment rendered by RTC, Branch 15, of Davao City in Civil Case No. 17048.

The RTC's Ruling

After trial on the merits, the RTC rendered a Decision14 on August 27, 1999 in favor of petitioner. It held that the
amount of P320,000.00, as commitment/service fee provided in the MOA, was based on the 160 proposed housing
units at P2,000.00 per unit. Since petitioner was able to

construct only 35 units, there was overpayment to respondent in the amount of P250,000.00. Thus, the RTC
disposed of the case in this wise:

THE FOREGOING CONSIDERED, judgment is hereby rendered for the plaintiff and against the defendant ordering
the said defendant:

1. To pay the plaintiff the amount of TWO HUNDRED FIFTY THOUSAND PESOS (P250,000.00) with interest at the
legal rate reckoned from February 22, 1993, the date of the filing of the plaintiff's complaint until the same shall
have been fully paid and satisfied;

2. To pay the plaintiff the sum of THIRTY THOUSAND PESOS (P30,000.00) representing litigation expenses;

3. To pay the plaintiff the sum of SIXTY TWO THOUSAND FIVE HUNDRED PESOS (P62,500.00) as and for attorney's
fees; andcralawlibrary

4. To pay the costs.

SO ORDERED.15

Aggrieved, respondent appealed to the CA.16

The CA's Ruling

On November 28, 2002, the CA reversed the ruling of the RTC. The CA held that from the literal import of the MOA,
nothing was mentioned about the arrangement that the payment of the commitment/service fee of P320,000.00
was on a per unit basis valued at P2,000.00 per housing unit and dependent upon the actual construction or
completion of said units. The CA opined that the MOA duly contained all the terms agreed upon by the parties.

Undaunted, petitioner filed a Motion for Reconsideration17 which was, however, denied by the CA in its
Resolution18 dated February 13, 2004.

Hence, this Petition which raised the following issues:

1. WHETHER OR NOT THE MEMORANDU[M] OF AGREEMENT (MOA) REFLECTS THE TRUE INTENTION OF THE
PARTIES[;]

2. WHETHER OR NOT HEREIN PETITIONER IS ENTITLED TO RECOVER THE AMOUNT OF TWO HUNDRED [FIFTY]
THOUSAND PESOS REPRESENTING THE ONE HUNDRED TWENTY FIVE (125) UNCONSTRUCTED HOUSING UNITS AT
TWO THOUSAND PESOS (PHP. 2,000.00) EACH AS AGREED [; AND]

3. WHETHER OR NOT VICTOR FACUNDO AS THE VICE PRESIDENT AND GENERAL MANAGER AT THE TIME THE
AFOREMENTIONED MOA WAS EXECUTED, WAS AUTHORIZED TO ENTER INTO [AN] AGREEMENT AND TO
NEGOTIATE THE TERMS AND CONDITIONS THEREOF TO THEIR CLIENTELE.19

Our Ruling

The instant Petition is bereft of merit.

Our ruling in Benguet Corporation, et al. v. Cesar Cabildo20 is instructive:

The cardinal rule in the interpretation of contracts is embodied in the first paragraph of Article 1370 of the Civil
Code: "[i]f the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the
literal meaning of its stipulations shall control." This provision is akin to the "plain meaning rule" applied by
Pennsylvania courts, which assumes that the intent of the parties to an instrument is "embodied in the writing
itself, and when the words are clear and unambiguous the intent is to be discovered only from the express
language of the agreement." It also resembles the "four corners" rule, a principle which allows courts in some
cases to search beneath the semantic surface for clues to meaning. A court's purpose in examining a contract is
to interpret the intent of the contracting parties, as objectively manifested by them. The process of interpreting
a contract requires the court to make a preliminary inquiry as to whether the contract before it is ambiguous. A
contract provision is ambiguous if it is susceptible of two reasonable alternative interpretations. Where the
written terms of the contract are not ambiguous and can only be read one way, the court will interpret the
contract as a matter of law. If the contract is determined to be ambiguous, then the interpretation of the
contract is left to the court, to resolve the ambiguity in the light of the intrinsic evidence.

In our jurisdiction, the rule is thoroughly discussed in Bautista v. Court of Appeals:

The rule is that where the language of a contract is plain and unambiguous, its meaning should be determined
without reference to extrinsic facts or aids. The intention of the parties must be gathered from that language,
and from that language alone. Stated differently, where the language of a written contract is clear and
unambiguous, the contract must be taken to mean that which, on its face, it purports to mean, unless some
good reason can be assigned to show that the words should be understood in a different sense. Courts cannot
make for the parties better or more equitable agreements than they themselves have been satisfied to make, or
rewrite contracts because they operate harshly or inequitably as to one of the parties, or alter them for the
benefit of one party and to the detriment of the other, or by construction, relieve one of the parties from the
terms which he voluntarily consented to, or impose on him those which he did not.21

Moreover, Section 9, Rule 130 of the Revised Rules of Court clearly provides:

SEC. 9. Evidence of written agreements. - When the terms of an agreement have been reduced to writing, it is
considered as containing all the terms agreed upon and there can be, between the parties and their successors in
interest, no evidence of such terms other than the contents of the written agreement.

However, a party may present evidence to modify, explain or add to the terms of the written agreement if he puts
in issue in his pleading:
(a) An intrinsic ambiguity, mistake, or imperfection in the written agreement;
(b) The failure of the written agreement to express the true intent and agreement of the parties thereto;
(c) The validity of the written agreement; or
(d) The existence of other terms agreed to by the parties or their successors in interest after the execution of the
written agreement.

The "parol evidence rule" forbids any addition to or contradiction of the terms of a written instrument by
testimony or other evidence purporting to show that, at or before the execution of the parties' written agreement,
other or different terms were agreed upon by the parties, varying the purport of the written contract. When an
agreement has been reduced to writing, the parties cannot be permitted to adduce evidence to prove alleged
practices which, to all purposes, would alter the terms of the written agreement. Whatever is not found in the
writing is understood to have been waived and abandoned.22 None of the above-cited exceptions finds application
in this case, more particularly the alleged failure of the MOA to express the true intent and agreement of the
parties concerning the commitment/service fee of P320,000.00.

In this case, paragraph 4 of the MOA plainly states:

4. That the CLIENT offers and agrees to pay a commitment and service fee of THREE HUNDRED TWENTY
THOUSAND PESOS (P320,000.00), which shall be paid in two (2) equal installments, on the same dates as the first
and second partial releases of the proceeds of the loan.23

As such, we agree with the findings of the CA when it aptly and judiciously held, to wit:

Unmistakably, the testimonies of Antonio Soriano and Victor Facundo jibed in material points especially when they
testified that the P320,000.00 commitment/service fee mentioned in Paragraph 4 of Exhibit "B" is not to be paid in
lump sum but on a per unit basis valued at P2,000.00 per housing unit. But a careful scrutiny of such testimonies
discloses that they are not in accord with the documentary evidence on record. It must be stressed that both
Antonio Soriano and Victor Facundo testified that the P320,000.00 commitment/service fee was arrived at by
multiplying P2,000.00, the cost per housing unit; by 160, the total number of housing units proposed to be
constructed by the [petitioner] as evidenced by a certain subdivision survey plan of [petitioner] marked as Exhibit
"C."

xxx

Looking closely at Exhibit "C," noticeable are the date of survey of the subdivision which is May 15-31, 1982 and
the date of its approval which is June 25, 1982, which dates are unmistakably later than the execution of the Loan
Agreement (Exhibit "A") and Exhibit "B" which was on April 13, 1982. With these dates, we cannot lose sight of the
fact that it was impossible for Victor Facundo to have considered Exhibit "C" as one of the documents presented by
[petitioner] to support its proposal that the commitment/service fee be paid on a per unit basis at P2,000.00 a
unit. x x x.

xxx

To stress, there is not even a slim possibility that said blue print (referring to Exhibit "C") was submitted to
[respondent] bank during the negotiation of the terms of Exhibit "B" and was made the basis for the computation
of P320,000.00 commitment/service fee. As seen on its face, Exhibit "C" was approved in a much later date than
the execution of Exhibit "B" which was on April 13, 1982. In addition, as viewed from the foregoing testimony, no
less than Victor Facundo himself admitted that there were only 127 proposed housing units instead of 160.
Considering these factual milieus, there is sufficient justification to discredit the stance of [petitioner] that Exhibit
"B" was not reflective of the true intention or agreement of the parties. Paragraph 4 of Exhibit "B" is clear and
explicit in its terms, leaving no room for different interpretation. Considering the absence of any credible and
competent evidence of the alleged true and real intention of the parties, the terms of Paragraph 4 of Exhibit "B"
remains as it was written. Therefore, the payment of P320,000.00 commitment/service fee mentioned in Exhibit
"B" must be paid in lump sum and not on a per unit basis. Consequently, we rule that [petitioner] is not entitled to
the return of P250,000.00.24

The agreement or contract between the parties is the formal expression of the parties' rights, duties and
obligations. It is the best evidence of the intention of the parties. Thus, when the terms of an agreement have
been reduced to writing, it is considered as containing all the terms agreed upon and there can be no evidence
of such terms other than the contents of the written agreement between the parties and their successors in
interest.25 Time and again, we have stressed the rule that a contract is the law between the parties, and courts
have no choice but to enforce such contract so long as it is not contrary to law, morals, good customs or public
policy. Otherwise, courts would be interfering with the freedom of contract of the parties. Simply put, courts
cannot stipulate for the parties or amend the latter's agreement, for to do so would be to alter the real intention
of the contracting parties when the contrary function of courts is to give force and effect to the intention of the
parties.26

Finally, as correctly observed by respondent, petitioner's claim that the MOA is a contract of adhesion was never
raised by petitioner before the lower courts. Settled is the rule that points of law, theories, issues, and arguments
not adequately brought to the attention of the trial court need not be, and ordinarily will not be, considered by a
reviewing court. They cannot be raised for the first time on appeal. To allow this would be offensive to the basic
rules of fair play, justice and due process.27

A contract of adhesion is defined as one in which one of the parties imposes a ready-made form of contract, which
the other party may accept or reject, but which the latter cannot modify. One party prepares the stipulation in the
contract, while the other party merely affixes his signature or his "adhesion" thereto, giving no room for
negotiation and depriving the latter of the opportunity to bargain on equal footing.28 It must be borne in mind,
however, that contracts of adhesion are not invalid per se. Contracts of adhesion, where one party imposes a
ready-made form of contract on the other, are not entirely prohibited. The one who adheres to the contract is, in
reality, free to reject it entirely; if he adheres, he gives his consent.29

All told, we find no reason to disturb, much less, to reverse the assailed CA Decision.

WHEREFORE, the instant Petition is DENIED and the assailed Court of Appeals Decision is AFFIRMED. Costs against
petitioner.

SO ORDERED.

Endnotes:

* Formerly known as Banco Davao-Davao City Development Bank.

1 Rollo, pp. 11-20.
2 Penned by Associate Justice Bienvenido L. Reyes, with Associate Justices Romeo A. Brawner (deceased) and
Danilo B. Pine, concurring; rollo, pp. 27-39.
3 Records, pp. 221-231.
4 Exhibit "1," id. at 148-151.
5 Exhibit "C," id. at 134.
6 Exhibit "2," id. at 152-154.
7 Records, pp. 185-188.
8 Id. at 189-190.
9 CA rollo, pp. 58-63.
10 Id. at 64-79.
11 Id. at 79.
12 Records, pp. 1-4.
13 Id. at 19-22.
14 Supra note 3.
15 Id. at 231.
16 Records, p. 232.
17 CA rollo, pp. 125-129.
18 Id. at 138-139.
19 Supra note 1, at 14.
20 G.R. No. 151402, August 22, 2008, citing Abad v. Goldloop Properties, Inc., 521 SCRA 131, 143-145 (2007).
21 Citations omitted.
22 Heirs of the Deceased Carmen Cruz-Zamora v. Multiwood International, Inc., G.R. No. 146428, January 19, 2009.
23 Supra note 6, at 153.
24 Supra note 2, at 35-39.
25 Gamboa, Rodriguez, Rivera & Co., Inc. v. Court of Appeals, G.R. No. 117456, May 6, 2005, 458 SCRA 68, 73.
26 Heirs of San Andres v. Rodriguez, 388 Phil. 571, 586 (2000).
27 Stronghold Insurance Company, Inc. v. Tokyu Construction Company, Ltd., G.R. NOS. 158820-21, June 5, 2009,
citing Eastern Assurance and Surety Corporation v. Con-Field Construction and Development Corporation, 552
SCRA 271, 279-280 (2008).
28 Radio Communications of the Philippines, Inc. v. Verchez, G.R. No. 164349, January 31, 2006, 481 SCRA 384,
401, citing Philippine Commercial International Bank v. Court of Appeals, 325 Phil. 588, 597 (1996).
29 Premiere Development Bank v. Central Surety & Insurance Company, Inc., G.R. No. 176246, February 13, 2009.