SECOND DIVISION

[G.R. No. 233757. April 18, 2018.]

SPOUSES TEOTIMO AND WILHELMINA LAHER , petitioners, vs.

SPOUSES JORGE AND ESTHER LOPEZ , respondents.

NOTICE

Sirs/Mesdames :

Please take notice that the Court, Second Division, issued a Resolution dated 18
April 2018 which reads as follows: HTcADC

"G.R. No. 233757 (Spouses Teotimo and Wilhelmina Laher vs. Spouses
Jorge and Esther Lopez) . — This is a Petition for Review 1 under Rule 45 of the Rules
of Court seeking to reverse and set aside the Decision 2 dated January 27, 2017 and
Resolution 3 dated May 24, 2017 of the Court of Appeals (CA) in CA-G.R. CV No.
103358, which a rmed the Decision dated February 28, 2013 of the Regional Trial
Court (RTC) of Las Piñas City, Branch 253 (RTC-Branch 253).

The Facts

The facts, as culled from the records, read as follows:

Petitioner Wilhelmina Laher was the registered owner of a parcel of land situated
in Las Piñas City covered by Transfer Certi cate of Title (TCT) No. 309197. On January
1999, Spouses Teotimo and Wilhelmina Laher (petitioners) borrowed money from
Spouses Jorge and Esther Lopez (respondents) in the amount of Six Hundred
Thousand Pesos (Php600,000.00). As security for the payment of the loan, petitioners
executed in favor of respondents a Deed of Real Estate Mortgage over the property
covered by TCT No. 309197. 4
When petitioners defaulted in the payment of their loan, respondents sent a
demand letter for them to settle payment but they failed to do so. Respondents then
instituted an extrajudicial foreclosure proceeding against the real estate mortgage of
petitioners before the ex-officio sheriff.
The sheriff initially scheduled the foreclosure sale on October 16, 2000; however,
because of the absence of at least two bidders, the auction sale was rescheduled to
November 16, 2000. During the second scheduled foreclosure sale, the property was
awarded to the respondents, being the lone bidder. After the expiration of the period of
redemption, TCT No. 309197 was cancelled and a new TCT No. 91515 was issued in
the name of respondents.
On January 9, 2002, petitioners led an action for annulment of extrajudicial
foreclosure before the RTC of Las Piñas City, Branch 199 (RTC-Branch 199) on the
ground that the foreclosure sale suffered from procedural in rmities. After trial, the
RTC-Branch 199 dismissed petitioners' complaint for the reason that it did not nd
legal in rmities in the foreclosure proceeding. However, the CA in CA-G.R. CV No.
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 81065, ruled that the extrajudicial foreclosure was void on the ground of lack of
publication for the second auction sale. The CA ratiocinated that since the foreclosure
sale was rescheduled, republication of the Notice was necessary and failure to do so
rendered the subsequent sale void. 5
Sometime in November 2009, respondents led a complaint for judicial
foreclosure before the RTC-Branch 253. In a Decision dated February 28, 2013, RTC-
Branch 253 granted and ruled in favor of respondents. The dispositive portion of which
reads as follows:
WHEREFORE, premised on the foregoing, the [petitioners] are ordered to
pay the [respondents]:
1. The principal amount of P600,000.00;
2. Interest of the P600,000.00 amounting to 1% per month or 12% per
annum from January 19, 1999 until fully paid; and
3. Liquidated penalty of 18% on the total obligation of the [petitioners].
The [petitioners] shall pay [respondents] directly, or to the Court through
the O ce of the Clerk of Court, the said amount within ninety (90) days to one
hundred twenty (120) days from entry of judgment of this Decision. Upon the
[petitioners'] failure to pay such amount the property previously covered by TCT
No. 309197 (T-32112-A) in the name of Wilhelmina Laher, married to Teotimo
Laher, and now covered by TCT No. T-91515 in the name of Spouses Jorge and
Esther Lopez, shall be sold at public auction to satisfy the judgment.
SO ORDERED. 6
Petitioners led a Motion for Reconsideration of the RTC decision but the same
was denied.
Undeterred, petitioners appealed to the CA. One of the issues raised was the
imposition of the 18% liquidated penalty by the RTC.
In its Decision 7 dated January 27, 2017, the CA a rmed the ruling of the RTC,
viz.:
Relative thereto, We rule that the failure to mention therein stipulated
eighteen percent (18%) per annum liquidated penalty does not preclude the
court a quo from imposing the same as there was an express contractual
stipulation for the payment of liquidated penalty. Let it be explained that the
twelve (12%) interest per annum is meant to compensate the creditor for the
utilization of the amount loaned, whereas the eighteen percent (18%) liquidated
damages is the amount mutually agreed upon by the parties to approximate the
opportunity losses, expenses and damages resulting from the non-payment of
the debt and its interest.
Herein applicants must-for the sake of fairness and equity, be held liable
to pay appellees both compensatory interest and stipulated liquidated
damages.
WHEREFORE , premises considered, the appealed Decision dated 28
February 2013 of the [RTC], Branch 253, Las Piñas City is AFFIRMED .
SO ORDERED. 8

Hence, this present petition.

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 The Issues

I.
WHETHER OR NOT JUDICIAL FORECLOSURE IS PROPER aScITE

II.
WHETHER OR NOT THE PAYMENT OF THE 18% LIQUIDATED DAMAGES IS
PROPER

Ruling of the Court

The rst case involving the same parties was for the annulment of extrajudicial
foreclosure (CA-G.R. CV No. 81065). The second one, subject of the CA decision and
resolution being assailed, is pursuant to a complaint for judicial foreclosure led by
respondents against petitioners.
Petitioners mortgaged their property to secure the Php600,000.00 they
borrowed from respondents. When the latter sought the extrajudicial foreclosure of
mortgage, an auction sale was conducted and a Certi cate of Sale was issued in favor
of respondents being the highest bidder. Later, the sale was annulled and voided by the
appellate court due to legal in rmities in the foreclosure proceeding — respondents
complied with the notice and publication requirement for the First Auction Sale but they
failed to republish the Notice when the sale was rescheduled.
The failure to publish the notice of auction sale as required by the statute
constitutes a jurisdictional defect which invalidates the sale. 9
In that case, the sale was declared void but the appellate court nonetheless
a rmed the existence of petitioner's Php600,000.00 debt and reimposed the
stipulated interest rate of 12% per annum computed from January 19, 1999 until full
payment as well as the stipulated liquidated penalty equivalent to 18% of the total
obligation.
With regard to the judicial foreclosure subject of the present appeal, the Court
finds no reason to reverse the ruling of the CA.
Judicial foreclosure of real estate mortgage is governed by the provisions of
Rule 68 of the Rules of Court.
Under the Rules, the trial court shall render a judgment based on the facts proven
and shall ascertain the amount due based on the mortgage debt or obligation, including
interests, charges and costs. The court shall then direct the defendant to pay said
amount within a period of not less than 90 days nor more than 120 days. 1 0
In the event of failure to pay as directed within 90 to 120 days, the mortgage
realty/ies shall be sold at an auction sale, the proceeds of which shall be applied to the
mortgage debt, pursuant to Rule 39 of the Rules of Court. 1 1
It need be stated at this point that what the appellate court declared void and
invalid in CA-G.R. CV No. 81065 was the auction sale and not the mortgage. Verily, the
real estate mortgage over the subject property as well as the complaint for foreclosure
remained valid and effective. 1 2
It is also undisputed that petitioners' obligation to respondents for the principal
amount of Php600,000.00 remains unpaid, thus, the mortgage remains valid and
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 subsisting notwithstanding annulment of the extrajudicial foreclosure due to lack of
publication of notice of the auction sale.
With regard to the matter of interest, the prevailing rate of interest for loans or
forbearance of money at that time was still 12% per annum. In line, however, with
Circular No. 799 of the Monetary Board of the Bangko Sentral ng Pilipinas (BSP-MB),
the new prevailing rates of interest starting July 1, 2013, have been adjusted to read as
follows:
II. With regard particularly to an award of interest in the concept of
actual and compensatory damages, the rate of interest, as well as the accrual
thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of
a sum of money, i.e., a loan or forbearance of money, the interest due should be
that which may have been stipulated in writing. Furthermore, the interest due
shall itself earn legal interest from the time it is judicially demanded. In the
absence of stipulation, the rate of interest shall be 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.
2. 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 quanti cation 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.
3. When the judgment of the court awarding a sum of money
becomes nal 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
nality until its satisfaction, this interim period being deemed to be by then an
equivalent to a forbearance of credit.
It must also be clari ed that the interest shall start to run only from August 1,
2000 — the time of extrajudicial demand, and not from January 19, 1999 when the
contract was executed. Thus, from August 1, 2000 to June 30, 2013 the rate of interest
is 12%. However, from July 1, 2013 until the obligation is fully paid, the rate of interest
should be 6%. HEITAD

Finally, anent the award of liquidated penalty, the Court nds no reason to reverse
the nding of the RTC as a rmed by the CA as there was an express contractual
stipulation for the payment of the same.
Parties are free to enter into agreements and stipulate as to the terms and
conditions of their contract, but such freedom is not absolute. As Article 1306 of the
Civil Code provides, "[t]he contracting parties may establish such stipulations, clauses,
terms and conditions as they may deem convenient, provided they are not contrary to
law, morals, good customs, public order, or public policy." Hence, if the stipulations in
the contract are valid, the parties thereto are bound to comply with them, since such
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 contract is the law between the parties. 1 3 Herein petitioners voluntarily agreed to the
liquidated penalty of 18% to approximate the opportunity losses, expenses and
damages resulting from the non-payment of the debt and its interest.
I n Ruiz v. CA , 1 4 the Court held that the 1% surcharge on the principal loan for
every month of default or 12% per annum is valid, viz.:
This surcharge or penalty stipulated in a loan agreement in case of
default partakes of the nature of liquidated damages under Art. 2227 of the New
Civil Code, and is separate and distinct from interest payment. Also referred to
as a penalty clause, it is expressly recognized by law. It is an accessory
undertaking to assume greater liability on the part of an obligor in case of
breach of an obligation. 1 5
In the more recent case of Sps. Mallari v. Prudential Bank, 1 6 the Court held that a
12% per annum penalty charge on a Php1,700,000.00 loan is valid, viz.:
Here, petitioners defaulted in the payment of their loan obligation with
respondent bank and their contract provided for the payment of 12% p.a.
penalty charge, and since there was no showing that petitioners' failure to
perform their obligation was due to force majeure or to respondent bank's acts,
petitioners cannot now back out on their obligation to pay the penalty charge. A
contract is the law between the parties and they are bound by the stipulations
therein. 1 7
The liability for liquidated damages is governed by Articles 2226-2228 1 8 of the
Civil Code. Under Article 2227, these damages serve a dual function, it may either be for
purposes of indemnity or serve as a penalty in addition to legal interests that may
attach. Parties to a contract are permitted to stipulate on the amount or percentage of
liquidated penalty to be imposed in case of breach or delay. The only condition for its
imposition is that the same must not be iniquitous or unconscionable otherwise it shall
be equitably reduced by the courts. Although the penalty charges involved in the
abovementioned cases are a bit lower than the 18% involved in the present case, the
Court nds the 18% liquidated penalty agreed upon by the parties neither iniquitous nor
unconscionable and thus valid.
WHEREFORE , premises considered, the Decision dated January 27, 2017 of the
Court of Appeals in CA-G.R. CV No. 103358 which a rmed the earlier Decision dated
February 28, 2013 of the Regional Trial Court, Branch 253, Las Piñas City is hereby
AFFIRMED with MODIFICATION .
The petitioners, Spouses Teotimo and Wilhelmina Laher, are ordered to pay the
respondents, Spouses Jorge and Esther Lopez:
1) The principal amount of Php600,000.00;
2) Liquidated penalty of eighteen percent (18%) per annum on the principal
amount from August 1, 2000 until full satisfaction; and
3) Interest on the total obligation of petitioner Spouses Teotimo and
Wilhelmina Laher amounting to twelve percent (12%) per annum from
August 1, 2000 to June 30, 2013 and six percent (6%) per annum from July
1, 2013 until full satisfaction of the same.
The petitioners shall pay respondents directly, or to the Court through the Clerk
of Court, the said amount within ninety (90) days to one hundred twenty (120) days
from entry of judgment of this Resolution. Upon the petitioners' failure to pay such
amount, the property previously covered by Transfer Certi cate of Title No. 309197 (T-
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 32112-A) in the name of Wilhelmina Laher, married to Teotimo Laher, and now covered
by TCT No. T-91515 in the name of Spouses Jorge and Esther Lopez, shall be sold at
public auction to satisfy the judgment.
SO ORDERED ."
Very truly yours,

(SGD.) MA. LOURDES C. PERFECTO

Division Clerk of Court

By:

TERESITA AQUINO TUAZON

Deputy Division Clerk of Court
Footnotes
1. Rollo, pp. 8-16.
2. Penned by Associate Justice Manuel M. Barrios, with Associate Justices Ramon M. Bato, Jr.
and Maria Elisa Sempio Diy; id. at 19-26.
3. Id. at 27-28.
4. Id. at 20.
5. Id. at 21.

6. Id. at 19-20.
7. Id. at 19-25.
8. Id. at 25.
9. Development Bank of the Philippines v. Aguirre, 417 Phil. 235, 242 (2001).

10. RULES OF COURT, Rule 68, Section 2.

11. RULES OF COURT, Rule 68, Section 3.
12. Rollo, p. 24.
13. Sps. Mallari v. Prudential Bank (now Bank of the Philippine Islands) , 710 Phil. 490, 497
(2013).
14. 449 Phil. 419 (2003).
15. Id. at 435.

16. 710 Phil. 490, 497 (2013).

17. Id. at 500.
18. CIVIL CODE OF THE PHILIPPINES
  Article 2226. Liquidated damages are those agreed upon by the parties to a contract, to
be paid in case of breach thereof.
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   Article 2227. Liquidated damages, whether intended as an indemnity or a penalty, shall
be equitably reduced if they are iniquitous or unconscionable.
  Article 2228. When the breach of the contract committed by the defendant is not the one
contemplated by the parties in agreeing upon the liquidated damages, the law shall
determine the measure of damages, and not the stipulation.

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