PART I : CONCEPT OF CREDIT
Section 35 of Act No. 2747.
TRANSACTIONS
PEOPLE OF THE PHILIPPINE ISLANDS
(Plaintiff-Appellee)
Vs. VENANCIO CONCEPCION (Defendant-
Appellant)
G.R. No. 19190, November 29, 1922
FACTS:
1) Defendant authorized an extension of credit in
favor of Puno y Concepcion, a co-partnership in
the amount of P300,000.
2) The extension of credit was done between April 10,
1919 and May 7, 1919, when defendant-appellant
(Venancio Concepcion, the President of the
Philippine National Bank) send telegrams and a
letter of confirmation to the manager of the Aparri
branch of the Philippine National Bank.
3) This special authorization was essential in view of
the memorandum order of defendant-appellant
dated May 17, 1918, limiting the discretional power
of the local manager at Aparri, Cagayan to grant
loans and discount negotiable documents to
P5,000, which in certain cases, could be increased
to P10,000.
4) Pursuant to this authorization, credit aggregating
P300,000 was granted to the firm of Puno y
Conception, S. en C. The firm was a co-
partnership with a capital of P100,000.
5) The only security required consisted of six demand
notes. The notes, together with the interest, were
taken up and paid by July 17, 1919.
6) Defendants wife was a director of this co-
partnership.
Defendant (as President of the Philippine National Bank and
as member of the board of directors) was charged of
violating Sec. 35 of Act No. 2747 which says that
The National Bank shall not, directly or indirectly, grant
loans to any of the members of the Board of Directors of the
bank nor to agents of the branch banks. This Section was
in effect in 1919 but was repealed in Act No. 2938 approved
on January 30, 1921.
THE RULING OF THE COURT OF FIRST INSTANCE:
The CFI rendered judgment, finding Venancio Concepcion
guilty of violating Sec. 35 of Act No. 2747. He was sentence
to imprisonment for one year and six months, to pay a fine
of P3,000, with subsidiary imprisonment in case of
insolvency. He was also ordered to pay the costs of suit.
Hence, Concepcion appealed the ruling of the CFI before the
Supreme Court.
ISSUES:
1) Whether the granting of credit of P300,000 to the
co-partnership Puno y Concepcion, S. en C. by
Venancio Concepcion, President of the Philippine
National Bank, a loan within the meaning of
2) Whether the granting of a credit of P300,000 to the
co-partnership a loan or a discount.
3) Whether the granting of the credit to the co-
partnership be considered an indirect loan,
considering that the wife of the defendant held one-
half of the capital of this partnership.
4) Whether or not the alleged good faith of Venancio
Concepcion, President of the Philippine National
Bank, in extending the credit of P300,000 to the co-
partnership constituted a legal defense.
THE RULING OF THE SUPREME COURT:
The Supreme Court affirmed the ruling of the CFI. It ordered
that appellant pay the costs of suit.
HELD:
1) Yes. The granting of credit of P300,000 to the
co-partnership Puno y Concepcion, S. en C.
by Venancio Concepcion, President of the
Philippine National Bank, is considered aa
loan within the meaning of Section 35 of
Act No. 2747.
a) The contention of the defendant-appellant that
there was no authority given to make a loan,
and that it shows only a concession of a credit
has no basis.
b) The credit of an individual means his ability to
borrow money by virtue of the confidence or
trust reposed by a lender that he will pay what
he may promise. A loan means the delivery of
one party and the receipt by the other party of
a given sum of money, upon an agreement,
express of implied, to repay the sum loaned,
with or without interest.
c) In the present case, the concession of a credit
necessarily involves the granting of loans up to
the limit of the amount fixed in the credit.
2) Yes. The granting of a credit of P300,000 to
the co-partnership is considered a loan and
not a discount.
a) The contention of defendant-appellant that the
transaction was a discount and not a loan bears
no basis.
b) In the present case, the demand notes signed
by the firm Puno y Concepcion, S en C., were
not discount paper, but mere evidences of
indebtedness because (1) interest was not
deducted from the face of the notes, but was
paid when the notes fell due; and (2) they were
single-name and not double-name paper.
3) Yes. The granting of the credit to the co-
partnership be considered an indirect loan,
considering that the wife of the defendant
held one-half of the capital of this
partnership.
a) The contention of the defendant-appellant that
the transaction was not an indirect loan has no
basis.
b) The transaction is an indirect loan because a
loan to a partnership of which the wife of a
director of a bank is a member, is an indirect
loan to such director. Defendant was tempted
to mingle his personal and family affairs with
his official duties, and to permit the loan of
CRED TRANS CASE DIGEST 1st SET Page 1 of 31
 P300,000 to a partnership of no established
reputation and without asking for collateral
security.
4) No. The alleged good faith of Venancio Concepcion,
President of the Philippine National Bank, in
extending the credit of P300,000 to the co-
partnership constituted a legal defense.
a) Good faith is not a defense in this case. Under
the stature which the defendant has violated,
criminal intent is not necessarily material.
b) The doing of the inhibited act, inhibited on
account of public policy and public interest,
constitutes the crime.
c) The acts of the defendant, as President of the
Philippine National Bank, do not fall within the
purview of the rulings of the Insular Auditor,
since Section 125 of the rules of Banks and
Banking, It is fraud for directors to secure by
means of their trust, an advantage not common
to the other stockholders. The law will not
allow private profit from a trust, and will not
listed to any proof of honest intent.
SEVERINO TOLENTINO and POTENCIANA
MANIO (Plaintiffs-Appellants) Vs. BENITO
GONZALEZ SY CHIAM (Defendants Appellee)
G.R. No. 260085, August 12, 1927
FACTS:
Before November 28, 1922, appellants Tolentino and Manio
purchased land from Luzon Rice Mills, Inc., for Php25,000
payable in three installments. The following stipulations of
the agreement (Contract of Purchase) were as follows:
1) The first installment of P2,000 was due on or before
the May 2, 1921.
2) The second installment of P8,000 was due on or
before May 31, 1921.
3) The balance of P15,000 at 12% interest was due
and payable on or about November 30, 1922.
4) The failure of the purchaser (plaintiffs-appellants) to
pay the balance of said purchase price or any of the
installments on the date agreed upon would result
to the property bought being reverted to the
original owner.
The following events transpired as follows:
1) The first and second installments were paid so far
as the record shows upon the due dates.
2) The balance of P15,000 due on said Contract of
Purchase was paid on or about December 1, 1922.
3) On the date when the balance of P15,000 with
interest was paid, the vendor of said property had
issued from the sellers Transfer Certificate of Title
(TCT) No. 40 to that of the buyers (TCT No. 528).
4) On November 7, 1922, the representative of the
vendor of the property in question wrote a letter to
the appellant Potenciana Manio, notifying the latter
that if the balance of said indebtedness was not
paid, an action would be brought for the purpose of
recovering the property, together with damages
CRED TRANS CASE DIGEST 1st SET Page 2 of 31
from non-compliance with the condition of the
Contract of Purchase.
In order to pay his obligation, appellant Tolentino applied for
loan from Gonzalez on condition that he would execute a
pacto de retro sale on the property in favor of appellee
Gonzalez. Upon maturity of the loan, Tolentino defaulted.
Hence, appellee Gonzalez demanded recovery of the land.
Tolentino contends that the pacto de retro sale is a
mortgage and not an absolute sale. The appellee filed an
action before the Court of First Instance, which ruled in favor
of him, and against Tolentino. Hence, the latter raised this
appeal.
THE ISSUES:
1) Whether the second contract in question
executed by appellant Tolentino and appellee
Gonzales constituted a pacto de retro or a
mortgage.
2) Whether a tenant may charge his landlord
with a violation of the Usury Law, upon the
ground that the amount of rent he pays,
based upon the real value of the property,
amounts to a usurious rate of interest.
THE RULING OF THE SUPREME COURT:
The Supreme Court affirmed the ruling of the CFI. It ordered
appellant to pay the costs of suit.
HELD:
1) Yes. The second contract in question
executed by appellant Tolentino and appellee
Gonzales constituted a pacto de retro, not a
mortgage.
a) The language of the contract is clear. The
purpose of the contract is expressed clearly in
its quotation that the purpose of the plaintiff is
to sell the property in question, reserving the
right only to repurchase the same.
b) The contract of pacto de retro is an absolute
sale of the property with the right to
repurchase and not a mortgage. By virtue of
the said contract, the vendor became the
tenant of the purchaser, under the conditions
mentioned in Paragraph 3 of the said contract.
c) The plaintiffs agree in their complaint that the
contract in question is a pacto de retro. They
admitted that they signed it, and sold the
property in question with the right to
repurchase.
d) The transaction cannot be considered as a loan,
since the purchase and sale that is
consummated, is a contract which by its nature
transfers the ownership and other rights in the
thing sold. The object is to transfer the
property to the vendee. On the other hand, the
deed of pacto de retro sale is an absolute sale
with right of repurchase and not a mortgage.
Thus, Gonzalez is the owner of the land and
Tolentino is only holding it as a tenant by virtue
 of a contract of lease.
2) No. A tenant cannot charge his landlord with
a violation of the Usury Law, upon the ground
that the amount of rent he pays, based upon
the real value of the property, amounts to a
usurious rate of interest.
a) In the present case, the vendor became the
tenant of the property by virtue of the pacto de
retro sale.
b) A contract of loan differs materially from a
contract of rent. In a contract of rent, the
owner of the property does not lose his
ownership. He simply loses his control over the
property rented during the period of the
contract. The relation between the contractors
is that of obligor and oblige.
c) On the other hand, in a contract of rent, the
thing still remains the property of the lessor.
The relation between the contractors is that of
landlord and tenant.
d) Since the Usury Law refers only to contracts of
loan, it is not applicable to the present case.
ACME SHOE, RUBBER & PLASTIC
CORPORATION and CHUA PAC Vs. HON.
COURT OF APPEALS, BANK OF THE
PHILIPPINES and REGIONAL SHERIFF OF
CALOOCAN CITY
G.R. No. 103576 August 22, 1996
FACTS: On June 27, 1978, petitioner Chua Pac, the
president and general manager of co-petitioner Acme
executed a chattel mortgage in favor of private respondent
Producers Bank as a security for a loan of P3,000,000. A
provision in the chattel mortgage agreement was to this
effect:
"In case the MORTGAGOR executes subsequent promissory
note or notes either as a renewal of the former note, as an
extension thereof, or as a new loan, or is given any other
kind of accommodations such as overdrafts, letters of credit,
acceptances and bills of exchange, releases of import
shipments on Trust Receipts, etc., this mortgage shall also
stand as security for the payment of the said promissory
note or notes and/or accommodations without the necessity
of executing a new contract and this mortgage shall have
the same force and effect as if the said promissory note or
notes and/or accommodations were existing on the date
thereof. This mortgage shall also stand as security for said
obligations and any and all other obligations of the
MORTGAGOR to the MORTGAGEE of whatever kind and
nature, whether such obligations have been contracted
before, during or after the constitution of this mortgage."
1 In due time, the loan of P3,000,000.00 was paid.
Subsequently, it obtained an additional loan
totalling P2,700,000.00 which was also duly paid.
CRED TRANS CASE DIGEST 1st SET Page 3 of 31
2 Another loan was again extended (P1,000,000.00)
covered by four promissory notes for P250,000.00
each, but went unsettled.
The bank filed an application for an extrajudicial foreclosure
of the property of the mortgagor with the Sheriff of
Caloocan City. Hence, petitioner-mortgagor filed an action
for injuction with damages and a prayer for a writ of
preliminary injunction before the RTC of Caloocan City.
THE RULING OF THE RTC:
The court dismissed the complaint of Acme. It ordered the
foreclosure of the chattel mortgage. Hence, petitioner
Acme appealed the RTC ruling before the Court of Appeals.
THE RULING OF THE CA:
The CA affirmed the RTC ruling in all respects. The motion
for reconsideration filed by Acme was subsequently denied.
Hence, petitioner filed the present petition before the
Supreme Court.
ISSUE: Would it be valid and effective to have a clause in a
chattel mortgage that purports to likewise extend its
coverage to obligations yet to be contracted or incurred?
THE RULING OF THE SUPREME COURT:
HELD:
No. While a pledge, real estate mortgage, or antichresis
may exceptionally secure after-incurred obligations so long
as these future debts are accurately described, a chattel
mortgage, however, can only cover obligations existing at
the time the mortgage is constituted. Although a promise
expressed in a chattel mortgage to include debts that are
yet to be contracted can be a binding commitment that can
be compelled upon, the security itself, however, does not
come into existence or arise until after a chattel mortgage
agreement covering the newly contracted debt is executed
either by concluding a fresh chattel mortgage or by
amending the old contract conformably with the form
prescribed by the Chattel Mortgage Law. Refusal on the part
of the borrower to execute the agreement so as to cover the
after-incurred obligation can constitute an act of default on
the part of the borrower of the financing agreement
whereon the promise is written but, of course, the remedy
of foreclosure can only cover the debts extant at the time of
constitution and during the life of the chattel mortgage
sought to be foreclosed.
Olivia Navoa and Ernesto Navoa vs. C.A.,
Teresita Domdoma and Eduardo Domdoma
GR No 59255 20December1995
Facts: On December 1977 Teresita Domdoma and Eduardo
Domdoma filed a case with the RTC for collection of various
sums of money based on loans given by them to Olivia
Navoa. They cased was dismissed on the ground that there
was no cause of action and that the Domdomas do not
have no capacity to sue. They appealed to the C.A. and was
granted a favourable decision.
There were 6 instances in which the Domdomas gave Olivia
Navoa a loan. The first instance is when Teresita gave Olivia
a diamond ring valued at 15,000.00 which was secured by a
PCIB check under the condition that if the ring was not
returned within 15 days from August 15, 1977 the ring is
considered sold. Teresita attempted to deposit the check on
November 1977 but the check was not honoured for lack of
funds. After this instance, there were other loans of various
amounts that were extended by Teresita to Olivia, loans
which were secured by PCIB checks, which were all dated to
1 month after the loan. All these checks were not honoured
under the same reason as the first loan.
Issue: Was the decision of the RTC to dismiss the case due
to having no cause of action valid?
- NO, A cause of action is the fact or combination of facts
which affords a party a right to judicial interference in his
behalf.
- For the first loan it is a fact, that the ring was considered
sold to Olivia Navoa 15 days after August 15, 1977, and
even then, Olivia Navoa failed to pay the price for the ring
when the payment was due (check issued was not
honoured. Thus it is confirmed that Teresitas right under
the agreement was violated.
- As for the other loans extended by Teresita to Olivia, they
were all secured by PCIB checks. It can be inferred that
since the checks were all dated to 1 month after the loan, it
follows that the loans are then payable 1 month after they
were contracted, and also these checks were dishonoured
by the bank for lack of funds.
- Olivia and Ernesto Navoa failed to make good the checks
that were issued as payment for their obligations. Art 1169
of the Civil Code is explicit: those obliged to deliver or to do
something incur in delay from the time the obligee judicially
or extra-judicially demands from them the fulfilment of the
obligations, the continuing refusal of Olivia and Ernesto
Navoa to comply with the demand of payment shows the
existence of a cause of action.
Held: The petition is DENIED and the decision of the C.A.
remanding the case to the RTC for trial on the merits is
affirmed.
Obligations and Contracts terms: Security- A means of
ensuring the enforcement of an obligation or of protecting
some interest in property. It may be personal or property
security.
Cause of Action- is the fact or combination of facts which
affords a party a right to judicial interference in his behalf.
The requisites for a cause of action are: (a) a right in favour
of the plaintiff by whatever means and under whatever law
it arises or created, (b) an obligation on the part of the
defendant to respect and not to violate such right; and, (c)
an act or omission on the part of the defendant constituting
a violation of the plaintiffs right or breach of the obligation
of the defendant to the plaintiff.
PART II : LOAN (Articles 1933 - 1961)
Commodatum
Pajuyo v. CA, G.R. No. 146364, June 3, 2004
FACTS: Pajuyo purchased the rights over a property from
Pedro Perez. Thereafter, he constructed a house and he and
his family lived there. Later, Pajuyo agreed to let Guevarra
live in the house for free provided that Guevarra maintain
cleanliness and orderliness of the house. They also agreed
that Guevarra should leave upon demand. But when Pajuyo
later told Guevarra that he needed the house, Guevarra
refused, hence an ejectment case was filed.
Supreme Court held that the contract is not a commodatum.
In a contract of commodatum, one of the parties delivers
to another something not consumable so that the latter may
use the same for a certain time and return it. An essential
feature of commodatum is that it is gratuitous. Another
feature of commodatum is that the use of the thing
belonging to another is for a certain period. Thus, the bailor
cannot demand the return of the thing loaned until after
expiration of the period stipulated, or after accomplishment
of the use for which the commodatum is constituted. If the
bailor should have urgent need of the thing, he may
demand its return for temporary use. If the use of the thing
is merely tolerated by the bailor, he can demand the return
of the thing at will, in which case the contractual relation is
called a precarium. Under the Civil Code, precarium is a kind
of commodatum.
Commodatum Defined
Art. 1933: By the contract of loan, one of the parties
delivers to another something not consumable so that the
latter may use the same for a certain time and return it, in
which case the contract is called a commodatum. xxx
- the bailee acquires the use of the thing loaned but not its
fruits (Art. 1935), EXCEPT if the parties stipulate use of
fruits (Art. 1940)
Herrera vs Petro Phil Corp 146 Scra 385
FACTS: On December 5, 1969, Herrera and ESSO Standard,
(later substituted by Petrophil Corp.,) entered into a
lease agreement, whereby the former leased to the
latter a portion of his property for a period of 20yrs.
subject to the condition that monthly rentals should be
paid and there should be an advance payment of
rentals for the first eight years of the contract, to
which ESSO paid on December 31, 1969. However,
ESSO deducted the amount of 101, 010.73 as interest
or discount for the eight years advance rental.
On August 20, 1970, ESSO informed Herrera
that there had been a mistake in the computation
of the interest and paid an additional sum of
2,182.70; thus, it was reduced to 98, 828.03.
As such, Herrera sued ESSO for the sum of 98,
828.03, with interest, claiming that this had been
illegally deducted to him in violation of the Usury
Law.
ESSO argued that amount deducted was not
usurious interest but rather a discount given to it
for paying the rentals in advance. Judgment on the
CRED TRANS CASE DIGEST 1st SET Page 4 of 31
 pleadings was rendered in favor of ESSO. Thus, the
matter was elevated to the SC for only questions of
law was involve.
ISSUE: W/N the contract between the parties is one of loan
or lease.
RULING:
Contract between the parties is one of lease and
not of loan. It is clearly denominated a "LEASE
AGREEMENT." Nowhere in the contract is there any
showing that the parties intended a loan rather
than a lease. The provision for the payment of
rentals in advance cannot be construed as a
repayment of a loan because there was no grant or
forbearance of money as to constitute an
indebtedness on the part of the lessor. On the
contrary, the defendant-appellee was discharging
its obligation in advance by paying the eight years
rentals, and it was for this advance payment that it
was getting a rebate or discount.
---
There is no usury in this case because no money
was given by the defendant-appellee to the plaintiff-
appellant, nor did it allow him to use its money
already in his possession. There was neither loan
nor forbearance but a mere discount which the
plaintiff-appellant allowed the defendant-appellee to
deduct from the total payments because they were
being made in advance for eight years. The discount
was in effect a reduction of the rentals which the
lessor had the right to determine, and any reduction
thereof, by any amount, would not contravene the
Usury Law.
The difference between a discount and a loan or
forbearance is that the former does not have to be
repaid. The loan or forbearance is subject to
repayment and is therefore governed by the laws on
usury.
To constitute usury, "there must be loan or
forbearance; the loan must be of money or
something circulating as money; it must be
repayable absolutely and in all events; and
something must be exacted for the use of the
money in excess of and in addition to interest
allowed by law."
It has been held that the elements of usury are (1) a
loan, express or implied; (2) an understanding
between the parties that the money lent shall
or may be returned; that for such loan a
greater rate or interest that is allowed by law
shall be paid, or agreed to be paid, as the case
may be; and (4) a corrupt intent to take more
than the legal rate for the use of money
loaned. Unless these four things concur in every
transaction, it is safe to affirm that no case of usury
can be declared.
Marilou Santiago. According to petitioner, respondent failed
to pay the principal amounts of the loans when they fell due
and so she filed a complaint for sum of money and damages
with the RTC. Respondent denied that she contracted the
two loans and countered that it was Marilou Satiago to
whom petitioner lent the money. She claimed she was
merely asked y petitioner to give the checks to Santiago.
She issued the checks for P76,000 and P20,000 not as
payment of interest but to accommodate petitioners
request that respondent use her own checks instead of
Santiagos.
RTC ruled in favor of petitioner. CA reversed RTC and
ruled that there was no contract of loan between the
parties.
ISSUE
(1) Whether or not there was a contract of loan
between petitioner and respondent.
(2) Who borrowed money from petitioner, the
respondent or Marilou Santiago?
HELD
(1) The Court held in the affirmative. A loan is
a real contract, not consensual, and as such I perfected only
upon the delivery of the object of the contract. Upon
delivery of the contract of loan (in this case the money
received by the debtor when the checks were encashed) the
debtor acquires ownership of such money or loan proceeds
and is bound to pay the creditor an equal amount. It is
undisputed that the checks were delivered to respondent.
(2) However, the checks were crossed and
payable not to the order of the respondent but to the order
of a certain Marilou Santiago. Delivery is the act by which
the res or substance is thereof placed within the actual or
constructive possession or control of another. Although
respondent did not physically receive the proceeds of the
checks, these instruments were placed in her control and
possession under an arrangement whereby she actually re-
lent the amount to Santiago.
Petition granted; judgment and resolution reversed and set
aside.

CAROLYN M. GARCIA -VS- RICA MARIE S. THIO

GR NO. 154878, 16 MARCH 2007
***4. Monte de Piedad vs. Javier C.A. 36 O.G. 2176 ***
FACTS: Respondent Thio received from petitioner
Garcia two crossed checks which amount to US$100,000
and US$500,000, respectively, payable to the order of
CRED TRANS CASE DIGEST 1st SET Page 5 of 31
PRODUCERS BANK OF THE PHILIPPINES V. CA,
397 SCRA 651
FACTS: Doronilla is in the process of incorporating his
business and to comply with one of the requirements of
incorporation, he caused Vives to issue a check which was
then deposited in Doronillas savings account. It was agreed
that Vives can withdraw his money in a months time.
However, what Doronilla did was to open a current account
and instructed the bank to debit from the savings account
and deposit it in his current account. So when Vives checked
the savings account, the money was gone.
ISSUE: Is the contract a mutuum or commodatum?
HELD: Supreme Court held that the contract is a
commodatum. Although in a commodatum, the object is a
non-consumable thing, there are instances where a
consumable thing may be the object of a commodatum,
such as when the purpose is not for consumption of the
object but merely for exhibition (Art. 1936). Thus, if
consumable goods are loaned only for purposes of
exhibition, or when the intention of the parties is to lend
consumable goods and to have the very same goods
returned at the end of the period agreed upon, the loan is a
commodatum and not a mutuum.
CENTRAL BANK OF THE PHILIPPINES V. CA,
139 SCRA 46 (1985)
FACTS: Tolentino made a loan from Island Savings Bank
secured by a mortgage. The Bank did not release the whole
amount but only a portion thereof. Later, the Bank
experienced liquidity problems and the Monetary Board of
Central Bank prohibited it from making new loans and much
later, from doing business in the Philippines. Thereafter, the
Acting Superintendent of Central Bank took charge of its
assets. Upon expiration of the loan term, the Bank filed
extrajudicial foreclosure of the mortgage.
ISSUE: Was there a perfected contract of loan when only a
portion of the amount was delivered?
HELD: The Supreme Court held that there was only partial
delivery. As such, the contract is deemed perfect only in so
far as what has been delivered. The mortgage cannot be
entirely foreclosed, except for up to the amount of the
actual amount released, but the Bank can recover the
interest of the partial loan. Tolentino cannot anymore
demand the remaining amount of the loan from the Bank
because he defaulted on his payment. His liability offsets
the liability of the Bank to him.
MINA V. PASCUAL, 25 PHIL 540
CRED TRANS CASE DIGEST 1st SET Page 6 of 31
FACTS: Francisco is the owner of land and he allowed his
brother, Andres, to erect a warehouse in that lot. Both
Francisco and Andres died and their children became their
respective heirs: Mina for Francisco and Pascual for Andres.
Pascual sold his share of the warehouse and lot. Mina
opposed because the lot is hers because her predecessor
(Francisco) never parted with its ownership when he let
Andres construct a warehouse, hence, it was a contract of
commodatum.
ISSUE: WON the nature of the contract between Francisco
and Andres is a commodatum?
HELD: The Supreme Court held that it was not a
commodatum. It is an essential feature of commodatum
that the use of the thing belonging to another shall be for a
certain period. The parties never fixed a definite period
during which Andres could use the lot and afterwards return
it.
NOTA BENE: It would seem that the Supreme Court failed to
consider the possibility of a contract of precardium between
Francisco and Andres. Precardium is a kind of commodatum
wherein the bailor may demand the object at will if the
contract does not stipulate a period or use to which the
thing is devoted.
REPUBLIC V. BAGTAS, 6 SCRA 262 (1962)
FACTS: Bagtas borrowed three bulls from the Bureau of
Animal Industry for a period of one year with breeding
charge at 10% of book value. After one year, the contract
was renewed only for one bull but Bagtas did not return the
two, one of which died because of gunshot wound during
the Huk raid.
ISSUE: WON Bagtas is liable for the loss of the bull?
HELD: Supreme Court held that Bagtas was liable for the
loss of the bull even though it was caused by a fortuitous
event. If the contract was one of lease, then the 10%
breeding charge is compensation (rent) for the use of the
bull and Bagtas, as lessee, is subject to the responsibilities
of a possessor. He is also in bad faith because he continued
to possess the bull even though the term of the contract has
already expired. If the contract was one of commodatum, he
is still liable because: (1) he kept the bull longer than the
period stipulated; and (2) the thing loaned has been
delivered with appraisal of its value (10%).
DELOS SANTOS V. JARRA DIGEST
G.R. NO. L-4150 FEBRUARY 10, 1910
Facts: The Plaintiff Felix delos Santos filed this suit against
Agustina Jarra. Jarra was the administratix of the estate of
Jimenea. Plaintiff alleged that he owned 10 1st class
carabaos which he lent to his father-in-law Jimenea to be
used in the animal-power mill without compensation. This
was done on the condition of their return after the work at
the latters mill is terminated. When delos Santos demanded
the return of the animals Jimenea refused, hence this suit.
Issue: W/N the contracts is one of a commodatum
Ruling: YES. The carabaos were given on commodatum as
these were delivered to be used by defendant. Upon failure
of defendant to return the cattle upon demand, he is under
the obligation to indemnify the plaintiff by paying him their
value. Since the 6 carabaos were not the property of the
deceased or of any of his descendants, it is the duty of the
administratrix of the estate to either return them or
indemnify the owner thereof of their value.
CATHOLIC VICAR VS. CA
SEPTEMBER 31, 1988
Facts:
- 1962: Catholic Vicar Apostolic of the Mountain Province
(Vicar), petitioner, filed with the court an application for the
registration of title over lots 1, 2, 3 and 4 situated in
Poblacion Central, Benguet, said lots being used as sites of
the Catholic Church, building, convents, high school
building, school gymnasium, dormitories, social hall and
stonewalls.
- 1963: Heirs of Juan Valdez and Heirs of Egmidio Octaviano
claimed that they have ownership over lots 1, 2 and 3. (2
separate civil cases)
- 1965: The land registration court confirmed the registrable
title of Vicar to lots 1 , 2, 3 and 4. Upon appeal by the
private respondents (heirs), the decision of the lower court
was reversed. Title for lots 2 and 3 were cancelled.
- VICAR filed with the Supreme Court a petition for review on
certiorari of the decision of the Court of Appeals dismissing
his application for registration of Lots 2 and 3.
- During trial, the Heirs of Octaviano presented one (1)
witness, who testified on the alleged ownership of the land
in question (Lot 3) by their predecessor-in-interest, Egmidio
Octaviano; his written demand to Vicar for the return of the
land to them; and the reasonable rentals for the use of the
land at P10,000 per month. On the other hand, Vicar
presented the Register of Deeds for the Province of
Benguet, Atty. Sison, who testified that the land in question
is not covered by any title in the name of Egmidio Octaviano
or any of the heirs. Vicar dispensed with the testimony of
Mons. Brasseur when the heirs admitted that the witness if
called to the witness stand, would testify that Vicar has
been in possession of Lot 3, for 75 years continuously and
peacefully and has constructed permanent structures
thereon.
Issue: WON Vicar had been in possession of lots 2 and 3
merely as bailee borrower in commodatum, a gratuitous
loan for use.
Held: YES.
Private respondents were able to prove that their
predecessors' house was borrowed by petitioner Vicar after
CRED TRANS CASE DIGEST 1st SET Page 7 of 31
the church and the convent were destroyed. They never
asked for the return of the house, but when they allowed its
free use, they became bailors in commodatum and the
petitioner the bailee.
The bailees' failure to return the subject matter of
commodatum to the bailor did not mean adverse possession
on the part of the borrower. The bailee held in trust the
property subject matter of commodatum. The adverse claim
of petitioner came only in 1951 when it declared the lots for
taxation purposes. The action of petitioner Vicar by such
adverse claim could not ripen into title by way of ordinary
acquisitive prescription because of the absence of just title.
The Court of Appeals found that petitioner Vicar did not
meet the requirement of 30 years possession for acquisitive
prescription over Lots 2 and 3. Neither did it satisfy the
requirement of 10 years possession for ordinary acquisitive
prescription because of the absence of just title. The
appellate court did not believe the findings of the trial court
that Lot 2 was acquired from Juan Valdez by purchase and
Lot 3 was acquired also by purchase from Egmidio
Octaviano by petitioner Vicar because there was absolutely
no documentary evidence to support the same and the
alleged purchases were never mentioned in the application
for registration.
QUINTOS VS BECK 69 PHIL 108
Facts: Quintos and Beck entered into a contract of lease,
whereby the latter occupied the formers house. On Jan 14,
1936, the contract of lease was novated, wherein the
QUintos gratuitously granted to Beck the use of the
furniture, subject to the condition that Beck should return
the furnitures to Quintos upon demand. Thereafter, Quintos
sold the property to Maria and Rosario Lopez. Beck was
notified of the conveyance and given him 60 days to vacate
the premises. IN addition, Quintos required Beck to return
all the furniture. Beck refused to return 3 gas heaters and 4
electric lamps since he would use them until the lease was
due to expire. Quintos refused to get the furniture since
Beck had declined to return all of them. Beck deposited all
the furniture belonging to QUintos to the sheriff.
ISSUE: WON Beck complied with his obligation of returning
the furnitures to Quintos when it deposited the furnitures to
the sheriff.
RULING: The contract entered into between the parties is
one of commadatum, because under it the plaintiff
gratuitously granted the use of the furniture to the
defendant, reserving for herself the ownership thereof; by
this contract the defendant bound himself to return the
furniture to the plaintiff, upon the latters demand (clause 7
of the contract, Exhibit A; articles 1740, paragraph 1, and
1741 of the Civil Code). The obligation voluntarily assumed
by the defendant to return the furniture upon the plaintiff's
demand, means that he should return all of them to the
plaintiff at the latter's residence or house. The defendant
did not comply with this obligation when he merely placed
them at the disposal of the plaintiff, retaining for his benefit
the three gas heaters and the four eletric lamps.
As the defendant had voluntarily undertaken to return all
the furniture to the plaintiff, upon the latter's demand, the
Court could not legally compel her to bear the expenses
occasioned by the deposit of the furniture at the
defendant's behest. The latter, as bailee, was nt entitled to
place the furniture on deposit; nor was the plaintiff under a
duty to accept the offer to return the furniture, because the
defendant wanted to retain the three gas heaters and the
four electric lamps.
CITIBANK vs. SABENIANO Case Digest
G.R.No. 156132, October 16, 2006
FACTS: Petitioner Citibank is a banking corporation duly
authorized under the laws of the USA to do commercial
banking activities n the Philippines. Sabeniano was a client
of both Petitioners Citibank and FNCB Finance. Respondent
filed a complaint against petitioners claiming to have
substantial deposits, the proceeds of which were supposedly
deposited automatically and directly to respondents
account with the petitioner Citibank and that allegedly
petitioner refused to despite repeated demands. Petitioner
alleged that respondent obtained several loans from the
former and in default, Citibank exercised its right to set-off
respondents outstanding loans with her deposits and
money. RTC declared the act illegal, null and void and
ordered the petitioner to refund the amount plus interest,
ordering Sabeniano, on the other hand to pay Citibank her
indebtedness. CA affirmed the decision entirely in favor of
the respondent.
ISSUE: Whether petitioner may exercise its right to set-off
respondents loans with her deposits and money in Citibank-
Geneva
RULING: Petition is partly granted with modification.
1. Citibank is ordered to return to respondent the principal
amount of P318,897.34 and P203,150.00 plus 14.5% per
annum
2. The remittance of US $149,632.99 from respondents
Citibank-Geneva account is declared illegal, null and void,
thus Citibank is ordered to refund said amount in Philippine
currency or its equivalent using exchange rate at the time of
payment.
3. Citibank to pay respondent moral damages of P300,000,
exemplary damages for P250,000, attorneys fees of
P200,000.
4. Respondent to pay petitioner the balance of her
outstanding loans of P1,069,847.40 inclusive off interest.
CITIBANK, N.A. & INVESTOR FINANCE CORPORATION
V. SABENIANO, (2006)
Pledge: Right to Payment, Art. 2102, Art. 2118
The liquidation of respondents outstanding loans were valid
in so far as petitioner Citibank used respondents savings
account with the bank and her money market placements
with petitioner FNCB Finance; but illegal and void in so far
as petitioner Citibank used respondents dollar accounts
with Citibank-Geneva.
Without the Declaration of Pledge, petitioner Citibank had
no authority to demand the remittance of respondents
dollar accounts with Citibank-Geneva and to apply them to
her outstanding loans. It cannot effect legal compensation
under Article 1278 of the Civil Code since, petitioner
Citibank itself admitted that Citibank-Geneva is a distinct
and separate entity. As for the dollar accounts, respondent
was the creditor and Citibank-Geneva is the debtor; and as
for the outstanding loans, petitioner Citibank was the
creditor and respondent was the debtor. The parties in
these transactions were evidently not the principal creditor
of each other.
Therefore, this Court declares that the remittance of
respondents dollar accounts from Citibank-Geneva and the
application thereof to her outstanding loans with petitioner
Citibank was illegal, and null and void.
SIMPLE LOAN/MUTUUM & USURY LAW
BPI FAMILY BANK VS. FRANCO
G.R. No. 123498 November 23, 2007
FACTS:
On August 15, 1989, Tevesteco opened a savings and
current account with BPI-FB. Soon thereafter, FMIC also
opened a time deposit account with the same branch of BPI-
FB
On August 31, 1989, Franco opened three accounts, namely,
a current, savings, and time deposit, with BPI-FB. The total
amount of P2,000,000.00 used to open these accounts is
traceable to a check issued by Tevesteco allegedly in
consideration of Francos introduction of Eladio Teves, to
Jaime Sebastian, who was then BPI-FB SFDMs Branch
Manager. In turn, the funding for the P2,000,000.00 check
was part of the P80,000,000.00 debited by BPI-FB from
FMICs time deposit account and credited to Tevestecos
current account pursuant to an Authority to Debit
purportedly signed by FMICs officers.
It appears, however, that the signatures of FMICs
officers on the Authority to Debit were forged. BPI-FB,
debited Francos savings and current accounts for the
amounts remaining therein. In the meantime, two checks
drawn by Franco against his BPI-FB current account were
dishonored and stamped with a notation account under
garnishment. Apparently, Francos current account was
garnished by virtue of an Order of
Notably, the dishonored checks were issued by
Franco and presented for payment at BPI-FB prior to
Francos receipt of notice that his accounts were under
garnishment. It was only on May 15, 1990, that Franco was
CRED TRANS CASE DIGEST 1st SET Page 8 of 31
impleaded in the Makati case. Immediately, upon receipt of
such copy, Franco filed a Motion to Discharge Attachment.
On May 17, 1990, Franco pre-terminated his time deposit
account.
BPI-FB deducted the amount of P63,189.00 from
the remaining balance of the time deposit account
representing advance interest paid to him. Consequently, in
light of BPI-FBs refusal to heed Francos demands to
unfreeze his accounts and release his deposits therein,
Franco filed on June 4, 1990 with the Manila RTC the subject
suit.
ISSUE: WON Respondent had better right to the deposits in
the subject accounts which are part of the proceeds of a
forged Authority to Debit
HELD: NO
There is no doubt that BPI-FB owns the deposited
monies in the accounts of Franco, but not as a legal
consequence of its unauthorized transfer of FMICs deposits
to Tevestecos account. BPI-FB conveniently forgets that the
deposit of money in banks is governed by the Civil Code
provisions on simple loan or mutuum. As there is a debtor-
creditor relationship between a bank and its depositor, BPI-
FB ultimately acquired ownership of Francos deposits, but
such ownership is coupled with a corresponding obligation
to pay him an equal amount on demand. Although BPI-FB
owns the deposits in Francos accounts, it cannot prevent
him from demanding payment of BPI-FBs obligation by
drawing checks against his current account, or asking for
the release of the funds in his savings account. Thus, when
Franco issued checks drawn against his current account, he
had every right as creditor to expect that those checks
would be honored by BPI-FB as debtor.
More importantly, BPI-FB does not have a unilateral
right to freeze the accounts of Franco based on its mere
suspicion that the funds therein were proceeds of the multi-
million peso scam Franco was allegedly involved in. To grant
BPI-FB, or any bank for that matter, the right to take
whatever action it pleases on deposits which it supposes are
derived from shady transactions, would open the floodgates
of public distrust in the banking industry.
Ineluctably, BPI-FB, as the trustee in the fiduciary
relationship, is duty bound to know the signatures of its
customers. Having failed to detect the forgery in the
Authority to Debit and in the process inadvertently facilitate
the FMIC-Tevesteco transfer, BPI-FB cannot now shift liability
thereon to Franco and the other payees of checks issued by
Tevesteco, or prevent withdrawals from their respective
accounts without the appropriate court writ or a favorable
final judgment.
BONNEVIE V. CA (1983)
G.R. NO. L-49101 OCTOBER 24, 1983
LESSONS APPLICABLE: SIMPLE LOAN
Laws Applicable:
Facts:
December 6, 1966: Spouses Jose M. Lozano and
Josefa P. Lozano secured their loan of P75K from
Philippine Bank of Commerce (PBC) by mortgaging their
property
December 8, 1966: Executed Deed of Sale with
Mortgage to Honesto Bonnevie where P75K is payable
to PBC and P25K is payable to Spouses Lanzano.
April 28, 1967 to July 12, 1968: Honesto
Bonnevie paid a total of P18,944.22 to PBC
May 4, 1968: Honesto Bonnevie assigned all his
rights under the Deed of Sale with Assumption of
Mortgage to his brother, intervenor Raoul Bonnevie
June 10, 1968: PBC applied for the foreclosure of
the mortgage, and notice of sale was published
January 26, 1971: Honesto Bonnevie filed in the CFI
of Rizal against Philippine Bank of Commerce for the
annulment of the Deed of Mortgage dated December 6,
1966 as well as the extrajudicial foreclosure made on
September 4, 1968.
CFI: Dismissed the complaint with costs against the
Bonnevies
CA: Affirmed
ISSUE: W/N the forclosure on the mortgage is validly
executed.
HELD: YES. CA affirmed
A contract of loan being a consensual contract is
perfected at the same time the contract of mortgage
was executed. The promissory note executed on
December 12, 1966 is only an evidence of indebtedness
and does not indicate lack of consideration of the
mortgage at the time of its execution.
Respondent Bank had every right to rely on the
certificate of title. It was not bound to go behind the
same to look for flaws in the mortgagor's title, the
doctrine of innocent purchaser for value being
applicable to an innocent mortgagee for value.
Thru certificate of sale in favor of appellee was
registered on September 2, 1968 and the one year
redemption period expired on September 3, 1969. It
was not until September 29, 1969 that Honesto
Bonnevie first wrote respondent and offered to redeem
the property.
loan matured on December 26, 1967 so when
respondent Bank applied for foreclosure, the loan was
already six months overdue. Payment of interest on July
12, 1968 does not make the earlier act of PBC
inequitous nor does it ipso facto result in the renewal of
the loan. In order that a renewal of a loan may be
effected, not only the payment of the accrued interest
is necessary but also the payment of interest for the
proposed period of renewal as well. Besides, whether or
not a loan may be renewed does not solely depend on
the debtor but more so on the discretion of the bank.
YONG CHAN KIM V PP
CRED TRANS CASE DIGEST 1st SET Page 9 of 31
FACTS: Y was granted P6,438.00 under Travel Order No.
2222 as cash advance to defray his travel expenses as an
employee of SEAFDEC. . When the Travel Expense Reports
were audited, it was discovered that there was an overlap of
four days in the two travel orders for which Y collected per
diems twice. In sum, the total amount in the form of per
diems and allowances charged and collected by Y under
Travel Order No. 2222, when he did not actually and
physically travel as represented by his liquidation papers,
was P1,230.00. He was charged and found guilty with the
felony of estafa under A. 315 1(b) of the RPC. Is estafa
committed by an employee when he fails to liquidate his
cash advances?
No. A. 315 1(b) of the RPC provides the ground for estafa
committed by abuse of confidence: By misappropriating or
converting, to the prejudice of another, money, goods, or
any other personal property received by the offender in
trust or on commission, or for administration, or under any
other obligation involving the duty to make delivery of; or to
return, the same, even though such obligation be totally or
partially guaranteed by a bond; or by denying having
received such money, goods, or other property."
In order that a person can be convicted under the
abovequoted provision, it must be proven that he had the
obligation to deliver or return the same money, goods or
personal property that he had received. Was petitioner
under obligation to return the same money (cash advance)
which he had received? No.
Liquidation simply means the settling of an indebtedness.
An employee, such as herein petitioner, who liquidates a
cash advance is in fact paying back his debt in the form of a
loan of money advanced to him by his employer, as per
diems and allowances. Similarly, as stated in the assailed
decision of the lower court, "if the amount of the cash
advance he received is less than the amount he spent for
actual travel . . . he has the right to demand reimbursement
from his employer the amount he spent coming from his
personal funds." In other words, the money advanced by
either party is actually a loan to the other. Hence, petitioner
was under no legal obligation to return the same cash or
money, i.e., the bills or coins, which he received from the
private respondent.
The ruling of the trial judge that ownership of the cash
advanced to the petitioner by private respondent was not
transferred to the latter is erroneous. Ownership of the
money was transferred to the petitioner.
Since ownership of the money (cash advance) was
transferred to petitioner, no fiduciary relationship was
created. Absent this fiduciary relationship between
petitioner and private respondent, which is an essential
element of the crime of estafa by misappropriation or
conversion, petitioner could not have committed estafa.
CRED TRANS CASE DIGEST 1st SET Page 10 of 31
ALLIED BANKING CORP. V. LIM SIO WAN (2008)
G.R. NO. 133179 MARCH 27, 2008
LESSONS APPLICABLE: LIABILITIES OF THE
PARTIES (NEGOTIABLE INSTRUMENTS LAW)
FACTS:
Lim Sio Wan (deposited 1st money market) > Allied Bank >
(pre-terminated and withdrawn) Santos > (through forged
indorsement of Lim Sio Wan deposited in FCC account)
Metrobank > (release in exchange of undertaking of
reimbursement) FCC > (through Santos, as officer of
Producers bank, deposited money market) Producers Bank
September 21, 1983: FCC had deposited a money
market placement for P 2M with Producers Bank
Santos was the money market trader
assigned to handle FCCs account
Such deposit is evidenced by Official
Receipt and a Letter
When the placement matured, FCC
demanded the payment of the proceeds of the
placement
November 14, 1983: Lim Sio Wan deposited with
Allied Banking Corporation (Allied) a money market
placement of P 1,152,597.35 for a term of 31 days
December 5, 1983: a person claiming to be Lim Sio
Wan called up Cristina So, an officer of Allied, and
instructed the latter to pre-terminate Lim Sio Wans
money market placement, to issue a managers check
representing the proceeds of the placement, and to
give the check to Deborah Dee Santos who would pick
up the check. Lim Sio Wan described the appearance of
Santos
Santos arrived at the bank and signed the application
form for a managers check to be issued
The bank issued Managers Check
representing the proceeds of Lim Sio Wans money
market placement in the name of Lim Sio Wan, as
payee, cross-checked "For Payees Account Only" and
given to Santos
Allied managers check was deposited in the
account of Filipinas Cement Corporation (FCC) at
Metropolitan Bank and Trust Co. (Metrobank), with the
forged signature of Lim Sio Wan as indorser
Metrobank stamped a guaranty on the check, which
reads: "All prior endorsements and/or lack of
endorsement guaranteed."
Upon the presentment of the check, Allied funded the
check even without checking the authenticity of Lim Sio
Wans purported indorsement.

amount on the face of the check was credited to the
account of FCC
December 9, 1983: Lim Sio Wan deposited with
Allied a second money market placement to mature on
January 9, 1984
December 14, 1983: upon the maturity date of the
first money market placement, Lim Sio Wan went to
Allied to withdraw it. She was then informed that the
placement had been pre-terminated upon her
instructions which she denied
Lim Sio Wan filed with the RTC against Allied to
recover the proceeds of her first money market
placement
Allied filed a third party complaint against Metrobank
and Santos
Metrobank filed a fourth party complainagainst FCC
FCC for its part filed a fifth party complaint against
Producers Bank.
Summonses were duly served upon all the parties
except for Santos, who was no longer connected with
Producers Bank
May 15, 1984: Allied informed Metrobank that the
signature on the check was forged
Metrobank withheld the amount represented by the
check from FCC.
Metrobank agreed to release the amount to FCC after
the FCC executed an undertaking, promising to
indemnify Metrobank in case it was made to reimburse
the amount
Lim Sio Wan thereafter filed an amended complaint to
include Metrobank as a party-defendant, along with
Allied.
RTC : Allied Bank to pay Lim Sio Wan plus damages
and atty. fees
Allied Banks cross-claim against Metrobank is
DISMISSED.
Metrobanks third-party complaint as against Filipinas
Cement Corporation is DISMISSED
Filipinas Cement Corporations fourth-party complaint
against Producers Bank is DISMISSED
CA: Modified. Allied Banking Corporation to pay
60% and Metropolitan Bank and Trust Company 40%
ISSUE: W/N Allied should be solely liable to Lim Sio Wan.
HELD: YES. CA affirmed. Modified Porudcers Bank to
reimburse Allied and Metrobank.
Articles 1953 and 1980 of the Civil Code
CRED TRANS CASE DIGEST 1st SET Page 11 of 31
Art. 1953. A person who receives a loan of money or any
other fungible thing acquires the ownership thereof, and is
bound to pay to the creditor an equal amount of the same
kind and quality.
Art. 1980. Fixed, savings, and current deposits of money in
banks and similar institutions shall be governed by the
provisions concerning simple loan.
bank deposit is in the nature of a simple loan or
mutuum
money market is a market dealing in
standardized short-term credit instruments (involving
large amounts) where lenders and borrowers do not
deal directly with each other but through a middle man
or dealer in open market. In a money market
transaction, the investor is a lender who loans his
money to a borrower through a middleman or dealer.
Lim Sio Wan, as creditor of the bank for her money
market placement, is entitled to payment upon her
request, or upon maturity of the placement, or until the
bank is released from its obligation as debtor
GR: collecting bank which indorses a check bearing
a forged indorsement and presents it to the drawee
bank guarantees all prior indorsements, including the
forged indorsement itself, and ultimately should be held
liable therefor
EX: when the issuance of the check itself was
attended with negligence.
Allied negligent in issuing the managers check and
in transmitting it to Santos without even a written
authorization
Allied did not even ask for the certificate evidencing the
money market placement or call up Lim Sio Wan at her
residence or office to confirm her instructions.
Allieds negligence must be considered as the
proximate cause of the resulting loss.
When Metrobank indorsed the check without
verifying the authenticity of Lim Sio Wans indorsement
and when it accepted the check despite the fact that it
was cross-checked payable to payees account only
contributed to the easier release of Lim Sio Wans
money and perpetuation of the fraud
Given the relative participation of Allied and
Metrobank to the instant case, both banks cannot be
adjudged as equally liable. Hence, the 60:40 ratio of the
liabilities of Allied and Metrobank, as ruled by the CA,
must be upheld.
FCC, having no participation in the negotiation of
the check and in the forgery of Lim Sio Wans
indorsement, can raise the real defense of forgery as
against both banks
Producers Bank was unjustly enriched at the
expense of Lim Sio Wan
 Producers Bank should reimburse Allied and Metrobank
for the amounts ordered to pay Lim Sio Wan
TOLENTINO(PLAINTIFF-APELLANT) V
GONZALES SY CHIAM (DEFENDANT-APPELLEE)
G.R. NO. 26085 AUGUST 12, 1927
FACTS:
1. Before Nov 28, 1922, Severino Tolentino and
Potenciana Manio purchased Luzon Rice Mills, Inc.,
parcel of land in Tarlac for P25,000.00 to be paid in
three installments.
a. First installment is P2,000 due on or before
May 2, 1921
b. Second installment is P8,000 due on or
before May 31, 1921
c. Third installment of P15,000 at 12%
interest due on or before Nov 30, 1922
One of the conditions of the contract of purchase
was that if Tolentino and Manio failed to pay the
balance of any of the installments on the date
agreed upon, the property bought would revert to
the original owner.
The first and second installments were paid but the
balance was paid on Dec 1, 1922
2. On Nov 7, 1922, a representative of vendor of said
property wrote Manio , notifying her that if the
balance of said indebtedness was not paid, they
would recover the property with damages for non
compliance with the condition of the contract of
purchase.
3. Tolentino and Manio borrowed money from Benito
Gonzales Sy Chiam to satisfy their indebtedness to
the vendor.
4. Gonzales agreed to loan the P17,500 upon
condition that they execute and deliver to him a
pacto de retro of the property.
5. The contract includes a contract of lease on the
property whereby the lessees as vendors
apparently bind themselves to pay rent at the rate
of P375 per month and whereby "Default in the
payment of the rent agreed for two consecutive
months will terminate this lease and will forfeit our
right of repurchase, as though the term had expired
naturally"
6. Upon maturation of loan, Tolentino defaulted
payment and Gonzales demanded recovery of land.
Tolentinos argument: that the pacto de retro sale is a
mortgage and not an absolute sale and that the rental
price paid during the period of the existence of the right
to repurchase, or the sum of P375 per month, based
upon the value of the property, amounted to usury.
ISSUE: WoN the contract in question is a mortgage
HELD: No.
RATIO: The contract is a pacto de retro and not a mortgage.
There is not a word, a phrase, a sentence or a
paragraph in the entire record, which justifies this court
in holding that the said contract of pacto de retro is a
mortgage and not a sale with the right to repurchase.
CRED TRANS CASE DIGEST 1st SET Page 12 of 31
The purpose of the contract is expressed clearly that there
can certainly be no doubt as to the purpose of the Tolentino
to sell the property in question, reserving the right only to
repurchase the same:
Second. That is a condition of this sale that
if in the course of five (5) years from the
1st of December, 1922, we return to Don
Benito Gonzales Sy Chiam the above-
mentioned price of seventeen thousand
five hundred (P17,500), Mr. Benito
Gonzales Sy Chiam is forced to return the
farm; but if it passes the above mentioned
term of five (5) years without exercising to
the right of redemption that we have saved
ourselves, then this sale will be absolute
and irrevocable.
From the foregoing, we are driven to the following
conclusions: First, that the contract of pacto de retro is an
absolute sale of the property with the right to repurchase
and not a mortgage; and, second, that by virtue of the said
contract the vendor became the tenant of the purchaser,
under the conditions mentioned in paragraph 3 of said
contact. When the vendor of property under a pacto de
retro rents the property and agrees to pay a rental value for
the property during the period of his right to repurchase, he
thereby becomes a "tenant" and in all respects stands in the
same relation with the purchaser as a tenant under any
other contract of lease.
In the present case the property in question was sold. It was
an absolute sale with the right only to repurchase. During
the period of redemption the purchaser was the absolute
owner of the property. During the period of redemption the
vendor was not the owner of the property. During the period
of redemption the vendor was a tenant of the purchaser.
During the period of redemption the relation which existed
between the vendor and the vendee was that of landlord
and tenant. That relation can only be terminated by a
repurchase of the property by the vendor in accordance
with the terms of the said contract. The contract was one of
rent. The contract was not a loan, as that word is used in Act
No. 2655.
Loan v Rent as discussed under Usury Law in relation to Act
No. 2655 "An Act fixing rates of interest upon 'loans' and
declaring the effect of receiving or taking usurious rates."
Usury, generally speaking, may be defined as contracting
for or receiving something in excess of the amount allowed
by law for the loan or forbearance of moneythe taking of
more interest for the use of money than the law allows.
It will be noted that said statute imposes a penalty upon a
"loan" or forbearance of any money, goods, chattels or
credits, etc. The central idea of said statute is to prohibit a
rate of interest on "loans." A contract of "loan," is very
different contract from that of "rent". A "loan," as that term
is used in the statute, signifies the giving of a sum of
money, goods or credits to another, with a promise to repay,
but not a promise to return the same thing. To "loan," in
general parlance, is to deliver to another for temporary use,
on condition that the thing or its equivalent be returned; or
to deliver for temporary use on condition that an equivalent
in kind shall be returned with a compensation for its use.
The word "loan," however, as used in the statute, has a
technical meaning. It never means the return of the same
thing. It means the return of an equivalent only, but never
the same thing loaned. A "loan" has been properly defined
as an advance payment of money, goods or credits upon a
contract or stipulation to repay, not to return, the thing
loaned at some future day in accordance with the terms of
the contract. Under the contract of "loan," as used in said
statute, the moment the contract is completed the money,
goods or chattels given cease to be the property of the
former owner and becomes the property of the obligor to be
used according to his own will, unless the contract itself
expressly provides for a special or specific use of the same.
At all events, the money, goods or chattels, the moment the
contract is executed, cease to be the property of the former
owner and becomes the absolute property of the obligor.
A contract of "loan" differs materially from a contract of
"rent." In a contract of "rent" the owner of the property does
not lose his ownership. He simply loses his control over the
property rented during the period of the contract. In a
contract of "loan" the thing loaned becomes the property of
the obligor. In a contract of "rent" the thing still remains the
property of the lessor. He simply loses control of the same in
a limited way during the period of the contract of "rent" or
lease. In a contract of "rent" the relation between the
contractors is that of landlord and tenant. In a contract of
"loan" of money, goods, chattels or credits, the relation
between the parties is that of obligor and obligee. "Rent"
may be defined as the compensation either in money,
provisions, chattels, or labor, received by the owner of the
soil from the occupant thereof. It is defined as the return or
compensation for the possession of some corporeal
inheritance, and is a profit issuing out of lands or
tenements, in return for their use. It is that, which is to paid
for the use of land, whether in money, labor or other thing
agreed upon. A contract of "rent" is a contract by which one
of the parties delivers to the other some nonconsumable
thing, in order that the latter may use it during a certain
period and return it to the former; whereas a contract of
"loan", as that word is used in the statute, signifies the
delivery of money or other consumable things upon
condition of returning an equivalent amount of the same
kind or quantity, in which cases it is called merely a "loan."
In the case of a contract of "rent," under the civil law, it is
called a "commodatum."
BPI INVESTMENT CORP V. CA (2002)
G.R. NO. 133632 FEBRUARY 15, 2002
LESSONS APPLICABLE: SIMPLE LOAN
Facts:
Frank Roa obtained a loan with interest rate of 16
1/4%/annum from Ayala Investment and Development
Corporation (AIDC), the predecessor of BPI Investment
Corp. (BPIIC), for the construction of a house on his lot
in New Alabang Village, Muntinlupa.
He mortgaged the house and lot to AIDC as security
for the loan.
1980: Roa sold the house and lot to ALS
Management & Development Corp. and Antonio
CRED TRANS CASE DIGEST 1st SET Page 13 of 31
Litonjua for P850K who paid P350K in cash and
assumed the P500K indebtness of ROA with AIDC.
AIDC proposed to grant ALS and Litonjua a
new loan for P500K with interested rate of 20%/annum
and service fee of 1%/annum on the outstanding
balance payable within 10 years through equal
monthly amortization of P9,996.58 and penalty interest
of 21%/annum/day from the date
the amortization becomes due and payable.
March 1981: ALS and Litonjua executed a mortgage
deed containing the new stipulation with the provision
that the monthly amortization will commence on May 1,
1981
August 13, 1982: ALS and Litonjua paid
BPIIC P190,601.35 reducing the P500K principal loan to
P457,204.90.
September 13, 1982: BPIIC released to ALS and
Litonjua P7,146.87, purporting to be what was left of
their loan after full payment of Roas loan
June 1984: BPIIC instituted foreclosure proceedings
against ALS and Litonjua on the ground that they failed
to pay the mortgage indebtedness which from May 1,
1981 to June 30, 1984 amounting to P475,585.31
August 13, 1984: Notice of sheriff's sale was
published
February 28, 1985: ALS and Litonjua filed Civil Case
No. 52093 against BPIIC alleging that they are not in
arrears and instead they made an overpayment as
of June 30, 1984 since the P500K loan was only
released September 13, 1982 which marked the start of
the amortization and since only P464,351.77 was
released applying legal compensation the balance
of P35,648.23 should be applied to the monthly
amortizations
RTC: in favor of ALS and Litonjua and against BPIIC
that the loan granted by BPI to ALS and Litonjua was
only in the principal sum of P464,351.77 and awarding
moral damages, exemplary damages and attorneys
fees for the publication
CA: Affirmed reasoning that a simple loan is
perfected upon delivery of the object of the contract
which is on September 13, 1982
ISSUE: W/N the contract of loan was perfected only on
September 13, 1982 or the second release of the loan?
HELD: YES. AFFIRMED WITH MODIFICATION as to the award
of damages. The award of moral and exemplary damages
in favor of private respondents is DELETED, but the award to
them of attorneys fees in the amount of P50,000 is
UPHELD. Additionally, petitioner is ORDERED to pay private
respondents P25,000 as nominal damages. Costs against
petitioner.
obligation to pay commenced only on October 13,
1982, a month after the perfection of the contract
contract of loan involves a reciprocal obligation,
wherein the obligation or promise of each party is the
consideration for that of the other. It is a basic principle
in reciprocal obligations that neither party incurs in
delay, if the other does not comply or is not ready to
comply in a proper manner with what is incumbent
upon him. Consequently, petitioner could only demand
for the payment of the monthly amortization after
September 13, 1982 for it was only then when it
complied with its obligation under the loan contract.
BPIIC was negligent in relying merely on the entries
found in the deed of mortgage, without checking and
 correspondingly adjusting its records on the amount
actually released and the date when it was released.
Such negligence resulted in damage for which an
award of nominal damages should be given
SSS where we awarded attorneys fees because
private respondents were compelled to litigate, we
sustain the award of P50,000 in favor of private
respondents as attorneys fees
GELANO V. CA (1981)
G.R. NO. L-39050 FEBRUARY 24, 1981
Lessons Applicable: Who are liable after dissolution and
winding-up? (Corporate Law)
FACTS:
Insular Sawmill, Inc. leased the paraphernal
property of Guillermina M. Gelano (wife) for
P1.2K/month
November 19, 1947-December 26, 1950: Carlos
Gelano (husband) obtained cash advances of
P25,950 on account of rentals
agreement: Insular Sawmill, Inc.
could deduct the same from the monthly rentals of the
leased premises until the cash advances are fully paid
Carlos Gelano was able to pay only
P5,950.00 thereby leaving an unpaid balance of
P20,000.00 which he refused to pay
Guillermina M. Gelano refused to pay on
the ground that said amount was for the personal
account of her husband asked for by, and given to him,
without her knowledge and consent and did not benefit
the family
May 4, 1948 to September 11, 1949: Spouses
Gelanos purchased lumber materials on credit
leaving P946.46 unpaid
July 14, 1952: Joseph Tan Yoc Su, as accomdating
party, executed a joint and several promissory note
with Carlos Gelano in favor of China Banking
Corporation bank in the amount of P8,000.00 payable in
60 days to help renew the previous loan of the spouses
the bank collected P9,106.00 including interests by
debiting the current account of the corp.
Carlos only paid P5,000
Guillermina refused to pay on the ground that she had
no knowledge of such accomodation
May 29, 1959: Insular thru Atty. German Lee, filed a
complaint for collection against the spouses before the
CFI
In the meantime, private respondent amended its
Articles of Incorporation to shorten its term of existence
up to December 31, 1960 only
CRED TRANS CASE DIGEST 1st SET Page 14 of 31
November 20, 1964: CFI favored Insular holding
Carlos Gelano liable
August 23, 1973: held spouses jointly ad severally
liable
ISSUE: W/N a corporation, whose corporate life had ceased
by the expiration of its term of existence, could still continue
prosecuting and defending suits after its dissolution and
beyond the period of 3 years provided for under Act No.
1459, otherwise known as the Corporation law, to wind up
its affairs, without having undertaken any step to transfer
its assets to a trustee or assignee.
HELD: YES. Affirmed with mod - conjugal property is liable
time during which the corporation, through its own
officers, may conduct the liquidation of its assets and
sue and be sued as a corporation is limited to 3 years
from the time the period of dissolution commences; but
that there is no time limited within which the trustees
must complete a liquidation placed in their hands
only the conveyance to the trustees must be made
within the 3-year period
effect of the conveyance is to make the trustees the
legal owners of the property conveyed, subject to the
beneficial interest therein of creditors and stockholders
trustee may commence a suit which can proceed to
final judgment even beyond the 3-year period
"trustee" = general concept - include the counsel
to whom was entrusted in the instant case
The purpose in the transfer of the assets of the
corporation to a trustee upon its dissolution is more for
the protection of its creditor and stockholders
Debtors may not take advantage of the failure of the
corporation to transfer its assets to a trustee
Section 77 of the Corporation Law, when the corporate
existence is terminated in any legal manner, the corporation
shall nevertheless continue as a body corporate for 3 years
after the time when it would have been dissolved, for the
purpose of prosecuting and defending suits by or against it
G.R. Nos. 173654-765 August 28, 2008
PEOPLE OF THE PHILIPPINES vs. TERESITA
PUIG and ROMEO PORRAS
(Simple Loan)
Depositors who place their money with the bank are
considered creditors of the bank. The bank acquires
ownership of the money deposited by its clients, making the
money taken by respondents as belonging to the bank.
The relationship between banks and depositors
has been held to be that of creditor and debtor.
Articles 1953 and 1980 of the New Civil Code, as
appropriately pointed out by petitioner, provide as
follows:
 Article 1953. A person who receives a loan of
money or any other fungible thing acquires the
ownership thereof, and is bound to pay to the
creditor an equal amount of the same kind and
quality.
Article 1980. (supra)
In summary, the Bank acquires ownership of the
money deposited by its clients; and the employees
of the Bank, who are entrusted with the possession
of money of the Bank due to the confidence
reposed in them, occupy positions of confidence.
The Informations, therefore, sufficiently allege all
the essential elements constituting the crime of
Qualified Theft.
Facts: On 7 November 2005, the Iloilo Provincial
Prosecutor's Office filed before RTC in Dumangas, Iloilo, 112
cases of Qualified Theft against respondents Teresita Puig
(Puig) and Romeo Porras (Porras) who were the Cashier and
Bookkeeper, respectively, of private complainant Rural Bank
of Pototan, Inc. It was alleged in the information that
Teresita Puig and Romeo Porras took away P15,000 without
the consent of the owner Bank to the prejudice and damage
of the bank. The RTC dismissed the case for insufficiency of
the information ruling that the real parties in interest are the
depositors-clients and not the bank because the bank does
not acquire ownership of the money deposited in it. Hence
petitioner Rural Bank went directly to the court via petition
for certiorari. Petitioner explains that under Article 1980 of
the New Civil Code, "fixed, savings, and current deposits of
money in banks and similar institutions shall be governed
by the provisions concerning simple loans." Corollary
thereto, Article 1953 of the same Code provides that "a
person who receives a loan of money or any other fungible
thing acquires the ownership thereof, and is bound to pay to
the creditor an equal amount of the same kind and quality."
Thus, it posits that the depositors who place their money
with the bank are considered creditors of the bank. The
bank acquires ownership of the money deposited by its
clients, making the money taken by respondents as
belonging to the bank.
Issue: Whether or not the Bank acquired ownership of the
money deposited in it to be able to hold the respondents
liable for qualified theft which requires that there must be
taking of the money without the consent of the owners.
Held: The petition is meritorious. Banks where monies are
deposited, are considered the owners thereof. This is very
clear not only from the express provisions of the law, but
from established jurisprudence. The relationship between
banks and depositors has been held to be that of creditor
and debtor. Articles 1953 and 1980 of the New Civil Code,
as appropriately pointed out by petitioner, provide as
follows:
Article 1953.A person who receives a loan
of money or any other fungible thing
acquires the ownership thereof, and is
bound to pay to the creditor an equal
amount of the same kind and quality.
Article 1980. Fixed, savings, and current
deposits of money in banks and similar
CRED TRANS CASE DIGEST 1st SET Page 15 of 31
institutions shall be governed by the
provisions concerning loan.
In a long line of cases involving Qualified Theft, the
Court has firmly established the nature of possession by the
Bank of the money deposits therein, and the duties being
performed by its employees who have custody of the money
or have come into possession of it. The Court has
consistently considered the allegations in the Information
that such employees acted with grave abuse of confidence,
to the damage and prejudice of the Bank, without
particularly referring to it as owner of the money deposits,
as sufficient to make out a case of Qualified Theft. In
summary, the Bank acquires ownership of the money
deposited by its clients; and the employees of the Bank,
who are entrusted with the possession of money of the Bank
due to the confidence reposed in them, occupy positions of
confidence. The Informations, therefore, sufficiently allege
all the essential elements constituting the crime of Qualified
Theft.
WHEREFORE, premises considered, the Petition for
Review on Certiorari is hereby GRANTED. The Orders dated
30 January 2006 and 9 June 2006 of the RTC dismissing
Criminal cases No. 05-3054 to 05-3165 are REVERSED and
SET ASIDE.
SPS Juico vs CHINA BANK
DOCTRINE : the escalation clause is void if it grants
respondent the power to impose an increased rate of
interest without a written notice to petitioners and
their written consent.
These points must be considered by creditors and debtors in
the drafting of valid escalation clauses. Firstly, as a matter
of equity and consistent with P.O. No. 1684, the escalation
clause must be paired with a de-escalation clause. 9
Secondly, so as not to violate the principle of mutuality, the
escalation must be pegged to the prevailing market rates,
and not merely make a generalized reference to "any
increase or decrease in the interest rate" in the event a law
or a Central Bank regulation is passed. Thirdly, consistent
with the nature of contracts, the proposed modification
must be the result of an agreement between the parties. In
this way, our credit system would be facilitated by firm loan
provisions that not only aid fiscal stability, but also avoid
numerous disputes and litigations between creditors and
debtors.
Spouses Ignacio F. Juico and Alice P. Juico (petitioners)
obtained a loan from China Banking Corporation
(respondent) as evidenced by two Promissory Notes both
dated October 6, 1998 and numbered 507-001051-3 4and
507-001052-0,5 for the sums of !!6,216,000 and P4,
139,000, respectively. The loan was secured by a Real
Estate Mortgage (REM) over petitioners property located at
49 Greensville St., White Plains, Quezon City
respondent demanded the full payment of the outstanding
balance with accrued monthly interests.
As of February 23, 2001, the amount due on the two
promissory notes totaled P19,201,776. On the same day,
the mortgaged property was sold at public auction, with
respondent China bank as highest bidder for the amount of
P10,300,000.
petitioners received 8a demand letter9 dated May 2, 2001
from respondent for the payment ofP8,901,776.63, the
amount of deficiency after applying the proceeds of the
foreclosure sale
respondent prayed that judgment be rendered ordering the
petitioners to pay jointly and severally: (1)P8,901,776.63
representing the amount of deficiency, plus interests at the
legal rate, from February 23, 2001 until fully paid; (2) an
additional amount equivalent to 1/10 of 1% per day of the
total amount, until fully paid, as penalty; (3) an amount
equivalent to 10% of the foregoing amounts as attorneys
fees; and (4) expenses of litigation and costs of suit.
Ms. Annabelle Cokai Yu, its Senior Loans Assistant stated
that as of now the outstanding balance of petitioners was
P15,190,961.48. Yu reiterated that the interest rate changes
every month based on the prevailing market rate. she
notified petitioners of the prevailing rate by calling them
monthly .It was increased unilaterally
RTC: ordered Spouses to pay bank 9M plus the interest
which amounted to 15M.CA AFFIRMED
PETITIONER: They insist that the increase in interest rates
were unilaterally imposed by the bank and thus violate the
principle of mutuality of contracts.
Issue: whether the increase in interest rates is void for
violating the mutuality of contracts
HELD:Yes
RATIO:
Article 1308. The contract must bind both contracting
parties; its validity or compliance cannot be left to the will of
one of them. Article 1956 of the Civil Code likewise ordains
that "no interest shall be due unless it has been expressly
stipulated in writing."
The binding effect of any agreement between parties to a
contract is premised on xxx (2) that there must be mutuality
between the parties based on their essential equality. Any
contract which appears to be heavily weighed in favor of
one of the parties so as to lead to an unconscionable result
is void. Any stipulation regarding the validity or compliance
of the contract which is left solely to the will of one of the
parties, is likewise, invalid
Escalation clauses refer to stipulations allowing an increase
in the interest rate agreed upon by the contracting parties.
This Court has long recognized that there is nothing
inherently wrong with escalation clauses
Nevertheless, an escalation clause "which grants the
creditor an unbridled right to adjust the interest
independently and upwardly, completely depriving the
debtor of the right to assent to an important modification in
the agreement" is void. A stipulation of such nature violates
the principle of mutuality of contracts. In a case,SC said that
petitioners assent to the modifications in the interest rates
cannot be implied from their lack of response to the memos
sent by respondent
It is now settled that an escalation clause is void where the
CRED TRANS CASE DIGEST 1st SET Page 16 of 31
creditor unilaterally determines and imposes an increase in
the stipulated rate of interest without the express
conformity of the debtor. Such unbridled right given to
creditors to adjust the interest independently and upwardly
would completely take away from the debtors the right to
assent to an important modification in their agreement and
would also negate the element of mutuality in their
contracts.
More recently in Solidbank Corporation v. Permanent
Homes, Incorporated,39 we upheld as valid an escalation
clause which required a written notice to and conformity by
the borrower to the increased interest rate
In Polotan, Sr. v. CA ,On petitioners contention that the
interest rate was unilaterally imposed and based on the
standards and rate formulated solely by respondent credit
card company, we held: Cardholder hereby authorizes
Security Diners to correspondingly increase the rate of such
interest in the event of changes in prevailing market rates x
x x" is an escalation clause. However, it cannot be said to
be dependent solely on the will of private respondent as it is
also dependent on the prevailing market rates. Thus, it was
valid because it wasnt solely potestative as it was based on
the market rates(something outside the control of
respondent)
Here, the interest rates would vary as determined by
prevailing market rates. Evidently, the parties intended the
interest on petitioners loan, including any upward or
downward adjustment, to be determined by the prevailing
market rates and not dictated by respondents policy.
HOWEVER, SC hold that the escalation clause here is
still void because it grants respondent the power to
impose an increased rate of interest without a
written notice to petitioners and their written
consent. Respondents monthly telephone calls to
petitioners advising them of the prevailing interest rates
would not suffice. A detailed billing statement based on the
new imposed interest with corresponding computation of
the total debt should have been provided by the respondent
to enable petitioners to make an informed decision. An
appropriate form must also be signed by the
petitioners to indicate their conformity to the new
rates. Compliance with these requisites is essential to
preserve the mutuality of contracts. For indeed, one-sided
impositions do not have the force of law between the
parties, because such impositions are not based on the
parties essential equality.
In the absence of consent on the part of the petitioners to
the modifications in the interest rates, the adjusted rates
cannot bind them. Hence, we consider as invalid the interest
rates in excess of 15%, the rate charged for the first year.
Based on the August 29, 2000 demand letter of China Bank,
petitioners total principal obligation under the two
promissory notes which they failed to settle is P10,355,000.
However, due to China Banks unilateral increases in the
interest rates from 15% to as high as 24.50% and penalty
charge of 1/10 of 1% per day or 36.5% per annum for the
period November 4, 1999 to February 23, 2001, petitioners
balance ballooned to P19,201,776.63. Note that the original
amount of principal loan almost doubled in only 16 months.
The Court also finds the penalty charges imposed excessive
and arbitrary, hence the same is hereby reduced to 1% per
month or 12% per annum.
Concurring by CJ Sereno:
not all escalation clauses in loan agreements are void per se
.it is to maintain fiscal stability and to retain the value of
money in long term contracts.however, a contract
containing a provision that makes its fulfillment exclusively
dependent upon the uncontrolled will of one of the
contracting parties is void.
Hence the provision on the promissory note:
I/We hereby authorize the CHINA BANKING
CORPORATION to increase or decrease as the case
may be, the interest rate/service charge presently
stipulated in this note without any advance notice
to me/us in the event a law or Central Bank
regulation is passed or promulgated by the Central
Bank of the Philippines or appropriate government
entities, increasing or decreasing such interest rate
or service charge.
Is void.
The floating rate of interest in the trust receipt
agreement is also void. It reads:
I, WE jointly and severally agree to any increase or decrease
in the interest rate which may occur after July 1, 1981, when
the Central Bank floated the interest rate, and to pay
additionally the penalty of I% per month until the amount/s
or installments/s due and unpaid under the trust receipt on
the reverse side hereof is/are fully paid.
It is ok, for banks to stipulate that interest rates on a loan
not be fixed and instead be made dependent upon
prevailing market conditions as long as there should always
be a reference rate upon which to peg such variable interest
rates. An example of such a valid variable interest rate was
found in Polotan, Sr. v. Court of Appeals. 10 In that case, the
contractual provision stating that "if there occurs any
change in the prevailing market rates, the new interest rate
shall be the guiding rate in computing the interest due on
the outstanding obligation without need of serving notice to
the Cardholder other than the required posting on the
monthly statement served to the Cardholder" was
considered valid. The aforequoted provision was upheld
notwithstanding that it may partake of the nature of an
escalation clause, because at the same time it provides for
the decrease in the interest rate in case the prevailing
market rates dictate its reduction.
Here, the use of the phrase "any increase or decrease in the
interest rate" is without reference to the prevailing market
rate actually imposed by the regulations of the Central
Bank.8 It is thus not enough to state, as akin to China Bank's
provision, that the bank may increase or decrease the
interest rate in the event a law or a Central Bank regulation
is passed. To adopt that stance will necessarily involve a
determination of the interest rate by the creditor since the
CRED TRANS CASE DIGEST 1st SET Page 17 of 31
provision spells a vague condition - it only requires that any
change in the imposable interest must conform to the
upward or downward movement of borrowing rates.
And if that determination is not subjected to the mutual
agreement of the contracting parties, then the resulting
interest rates to be imposed by the creditor would be
unilaterally determined. Consequently, the escalation clause
violates the principle of mutuality of contracts.
Based on jurisprudence, therefore, these points must be
considered by creditors and debtors in the drafting of valid
escalation clauses. Firstly, as a matter of equity and
consistent with P.O. No. 1684, the escalation clause must be
paired with a de-escalation clause. 9 Secondly, so as not to
violate the principle of mutuality, the escalation must be
pegged to the prevailing market rates, and not merely make
a generalized reference to "any increase or decrease in the
interest rate" in the event a law or a Central Bank regulation
is passed. Thirdly, consistent with the nature of contracts,
the proposed modification must be the result of an
agreement between the parties. In this way, our credit
system would be facilitated by firm loan provisions that not
only aid fiscal stability, but also avoid numerous disputes
and litigations between creditors and debtors.
EASTERN SHIPPING VS CA
GR NO. 97412, 12 JULY 1994
234 SCRA 78
FACTS
Two fiber drums were shipped owned by Eastern
Shipping from Japan. The shipment as insured with a marine
policy. Upon arrival in Manila unto the custody of metro Port
Service, which excepted to one drum, said to be in bad
order and which damage was unknown the Mercantile
Insurance Company. Allied Brokerage Corporation received
the shipment from Metro, one drum opened and without
seal. Allied delivered the shipment to the consignees
warehouse. The latter excepted to one drum which
contained spillages while the rest of the contents was
adulterated/fake. As consequence of the loss, the insurance
company paid the consignee, so that it became subrogated
to all the rights of action of consignee against the
defendants Eastern Shipping, Metro Port and Allied
Brokerage. The insurance company filed before the trial
court. The trial court ruled in favor of plaintiff an ordered
defendants to pay the former with present legal interest of
12% per annum from the date of the filing of the complaint.
On appeal by defendants, the appellate court denied the
same and affirmed in toto the decision of the trial court.
ISSUE
(1) Whether the applicable rate of legal interest is
12% or 6%.
 (2) Whether the payment of legal interest on the
award for loss or damage is to be computed
from the time the complaint is filed from the
date the decision appealed from is rendered.
HELD
(1) The Court held that the legal interest is
6% computed from the decision of the court a quo. When an
obligation, not constituting a loan or forbearance of money,
is breached, an interest on the amount of damaes awarded
may be imposed at the discretion of the court at the rate of
6% per annum. No interest shall be adjudged on
unliquidated claims or damages except when or until the
demand can be established with reasonable certainty.
When the judgment of the court awarding a
sum of money becomes final and executor, the rate of legal
interest shall be 12% per annum from such finality until
satisfaction, this interim period being deemed to be by then
an equivalent to a forbearance of money.
The interest due shall be 12% PA to be
computed fro default, J or EJD.
(2) From the date the judgment is made.
Where the demand is established with reasonable certainty,
the interest shall begin to run from the time the claim is
made judicially or EJ but when such certainty cannot be so
reasonably established at the time the demand is made, the
interest shll begin to run only from the date of judgment of
the court is made.
(3) The Court held that it should be computed
from the decision rendered by the court a quo.
REPUBLIC VS GRIJALDO
Facts:
Grijaldo obtained five loans from the Bank of Taiwan
in the total sum of P1,281.97 with interest at the
rats of 6% per annum compounded quarterly.
These were evidenced by five promissory notes.
These loans were crop loans and was considered to
be due one year after they were incurred.
As a security for the payment of the loans, a chattel
mortgage was executed on the standing crops of
his land.
The assets in the Bank of Taiwan were vested in the
US Govt which were subsequently transferred to
the Republic of the Philippines
RP is now demanding the payment of the account.
Justice of Peace dismisses the case on the ground of
prescription. CA rendered a decision ordering the
appellant to pay the appellee
Defendants contentions:
CRED TRANS CASE DIGEST 1st SET Page 18 of 31
1) The appellee has no cause of action against
appellant since the transaction was with Taiwan
Bank.
2) That if the appellee has a cause of action at all, it
had prescribed
3) The lower court erred in ordering the appellant to
pay P2,377.23
Issue:
Can RP still collect from Grijaldo?
Held: Yes
Ratio: The obligation of the contract was not to deliver a
determinate thing, it was a generic thing the amount of
money representing the total sum of his loans. The
destruction of anything of the same kind does not
extinguish the obligation. The loss of the crops did not
extinguish his obligation to pay because the account could
still be paid from other sources aside from the mortgaged
crops. Also, prescription does not run against the State.
Crismina Garments V. CA (1999)
G.R. No. 128721 March 9, 1999
Lessons Applicable: Interest (Torts and Damages)
Laws Applicable: Article 1589 on the Civil Code, Article 2209
of the Civil Code
FACTS:
February 1979 - April 1979: Crismina Garments,
Inc. contracted the services of D'Wilmar Garments, for
the sewing of 20,762 pieces of assorted girls denims
for P76,410
At first, the Crismina was told that the sewing of
some of the pants were defective so it offered to take
them back but then she was told it was good already
and asked her to return for her check.
Crismina failed to pay and told her that 6,164 pairs
were defective and asked for actual damages
of P49,925.51
RTC: favored D'Wilmar P76,140 at 12% per annum,
P5,000 attorney's fees and cost of suit
CA: affirmed but delete the attorney's fees
ISSUE: W/N they should impose 12% interest for an
obligation which is not a loan in the absence of stipulation
HELD: NO. Appealed Decision is MODIFIED. The rate of
interest shall be 6%/annum, computed from the time of the
filing of the Complaint in the trial court until the finality of
the judgment. If the adjudged principal and the interest (or
any part thereof) remain unpaid thereafter, the interest rate
shall be 12% per annum computed from the time the
judgment becomes final and executory until it is fully
satisfied.
Article 1589 on the Civil Code
[t]he vendee [herein petitioner] shall owe interest for
the period between the delivery of the thing and the
payment of the price . . . should he be in default from
the time of judicial or extrajudicial demand for the
payment of the price.
Article 2209 of the Civil Code
If the obligation consists in the payment 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
in the absence of stipulation, the legal interest, which is
6%/annum
Usury Law
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 be twelve per cent (12%) per
annum
award of interest in the concept of actual and
compensatory damages, the rate of interest, as well as
the accrual thereof
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
interest due shall itself earn legal interest from the time
it is judicially demanded
In the absence of stipulation, the rate of interest shall
be 12% per annum to be computed from default, i.e.,
from judicial or extrajudicial demand under and subject
to the provisions of Article 1169 of the Civil Code
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
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 . . .
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 12% per annum from such
finality until its satisfaction, this interim period being
deemed to be by then an equivalent to forbearance of
credit
amount due in this case arose from a contract for a
piece of work, not from a loan or forbearance of money,
the legal interest of six percent (6%) per annum should
be applied.
Furthermore, since the amount of the demand could be
established with certainty when the Complaint was
filed, the six percent (6%) interest should be computed
from the filing of the said Complaint.
But after the judgment becomes final and exuecutory
until the obligation is satisfied, the interest should be
reckoned at twelve percent (%12) per year.
PNB v CA, IBARROLA
FACTS:
- Province of Isabela issued several checks drawn
against its account with PNB (P) in favor of Ibarrola
(R), as payments for the purchase of medicines.
- The checks were delivered to Rs agents who turned
them over to R, except 23 checks amounting to
P98k.
CRED TRANS CASE DIGEST 1st SET Page 19 of 31
- Due to failure to receive full amount, R filed case
against P
- LC, CA and SC ordered PNB to pay however, all 3
courts failed to specify the legal rate of interest
6% or 12%
ISSUE: WoN the rate to be used is 6%
SC: YES!
- This case does not involve a loan, forbearance of
money or judgment involving a loan or forbearance
of money as it arose from a contract of sale
whereby R did not receive full payment for her
merchandise.
- When an obligation arises from a contract of
purchase and sale and not from a contract of loan
or mutuum, the applicable rate is 6% per annum
as provided in Art. 2209 of the NCC
- 6% from filing of complaint until full payment
before finality of judgment
- 12% from finality of judgment
-
MEDEL VS COURT OF APPEALS, 299 SCRA
481; GR NO. 131622, NOVEMBER 27, 1998,
DIGESTED
Posted by Pius Morados on November 30, 2011
(Credit Transactions Loans, Usury Law, Interest Rates)
Facts: Defendants obtained a loan from Plaintiff in the
amount P50, 000.00, payable in 2 months and executed a
promissory note. Plaintiff gave only the amount of P47,
000.00 to the borrowers and retained P3, 000.00 as
advance interest for 1 month at 6% per month.
Defendants obtained another loan from Defendant in the
amount of P90, 000.00, payable in 2 months, at 6% interest
per month. They executed a promissory note to evidence
the loan and received only P84, 000.00 out of the proceeds
of the loan.
For the third time, Defendants secured from Plaintiff another
loan in the amount of P300, 000.00, maturing in 1 month,
and secured by a real estate mortgage. They executed a
promissory note in favor of the Plaintiff. However, only the
sum of P275, 000.00, was given to them out of the proceeds
of the loan.
Upon maturity of the three promissory notes, Defendants
failed to pay the indebtedness.
Defendants consolidated all their previous unpaid loans
totalling P440, 000.00, and sought from Plaintiff another
loan in the amount of P60, 000.00, bringing their
indebtedness to a total of P50,000.00. They executed
another promissory note in favor of Plaintiff to pay the sum
of P500, 000.00 with a 5.5% interest per month plus 2%
service charge per annum, with an additional amount of 1%
per month as penalty charges.
On maturity of the loan, the Defendants failed to pay the
indebtedness which prompt the Plaintiffs to file with the RTC
a complaint for collection of the full amount of the loan
including interests and other charges.
Declaring that the due execution and genuineness of the
four promissory notes has been duly proved, the RTC ruled
that although the Usury Law had been repealed, the interest
charged on the loans was unconscionable and revolting to
the conscience and ordered the payment of the amount of
the first 3 loans with a 12% interest per annum and 1% per
month as penalty.
On appeal, Plaintiff-appellants argued that the promissory
note, which consolidated all the unpaid loans of the
defendants, is the law that governs the parties.
The Court of Appeals ruled in favor of the Plaintiff-appellants
on the ground that the Usury Law has become legally
inexistent with the promulgation by the Central Bank in
1982 of Circular No. 905, the lender and the borrower could
agree on any interest that may be charged on the loan, and
ordered the Defendants to pay the Plaintiffs the sum of
P500,000, plus 5.5% per month interest and 2& service
charge per annum , and 1% per month as penalty charges.
Defendants filed the present case via petition for review on
certiorari.
Issue: WON the stipulated 5.5% interest rate per month on
the loan in the sum of P500, 000.00 is usurious.
Held: No.
A stipulated rate of interest at 5.5% per month on the P500,
000.00 loan is excessive, iniquitous, unconscionable and
exorbitant, but it cannot be considered usurious because
Central Bank Circular No. 905 has expressly removed the
interest ceilings prescribed by the Usury Law and that the
Usury Law is now legally inexistent.
Doctrine: A CB Circular cannot repeal a law. Only a law can
repeal another law.
Jurisprudence provides that CB Circular did not repeal nor in
a way amend the Usury Law but simply suspended the
latters effectivity (Security Bank and Trust Co vs RTC).
Usury has been legally non-existent in our jurisdiction.
Interest can now be charged as lender and borrower may
agree upon.
Law: Article 2227, Civil Code
The courts shall reduce equitably liquidated damages,
whether intended as an indemnity or a penalty if they are
iniquitous or unconscionable.
Note: While the Usury Law ceiling on interest rates was
lifted by the CB Circular 905, nothing in the said circular
could possibly be read as granting carte blanche authority
to lenders to raise interest rates to levels which would either
enslave their borrowers or lead to a haemorrhaging of their
assets (Almeda vs. CA, 256 SCRA 292 [1996]).
UCPB V. SPOUSES BELUSO
FACTS: The UCPB granted the spouses Beluso a Promissory
Note Line under a Credit Agreement. The spouses Beluso
constituted other than their promissory notes, a real estate
mortgage over parcels of land as additional security for the
obligation. UCPB unilaterally applied interest rates on the
different promissory notes ranging from 18% to 34%: FOR
VALUE RECEIVED, I, and/or We, on or before due date, SPS.
SAMUEL AND ODETTE BELUSO (BORROWER), jointly and
severally promise to pay to UNITED COCONUT PLANTERS
BANK (LENDER) or order at UCPB Bldg., Makati Avenue,
Makati City, Philippines, the sum of ______________ PESOS,
(P_____), Philippine Currency, with interest thereon at the
rate indicative of DBD retail rate or as determined by the
Branch Head. The spouses, however, failed to pay their
obligations with the bank. Due to this, the bank foreclosed
the property which was under mortgage. Spouses Beluso
filed a petition for the annulment, accounting and damages
against UCPB. Issue:
ISSUE: UCPB authorized to unilaterally fix the interest
rates?
Ruling:
No! A promissory note which grants the creditor the power
to unilaterally fix the interest rate means that the
promissory note does not contain a clear statement in
writing of the finance charge. Such provision is illegal
because it violates the provisions of the Civil Code on
mutuality of contracts Ratio:
Art. 1308. The contract must bind both contracting parties;
its validity or compliance cannot be left to the will of one of
them.
We applied this provision in Philippine National Bank v.
Court of Appeals, where we held: In order that obligations
arising from contracts may have the force of law between
the parties, there must be mutuality between the parties
based on their essential equality. A contract containing a
condition which makes its fulfillment dependent exclusively
upon the uncontrolled will of one of the contracting parties,
is void (Garcia vs. Rita Legarda, Inc., 21 SCRA 555). Hence,
even assuming that the loan agreement between the PNB
and the private respondent gave the PNB a license
(although in fact there was none) to increase the interest
rate at will during the term of the loan, that license would
have been null and void for being violative of the principle
of mutuality essential in contracts. It would have invested
the loan agreement with the character of a contract of
adhesion, where the parties do not bargain on equal footing,
the weaker party's (the debtor) participation being reduced
to the alternative "to take it or leave it" (Qua vs. Law Union
& Rock Insurance Co., 95 Phil. 85). Such a contract is a
veritable trap for the weaker party whom the courts of
justice must protect against abuse and imposition. Moral:
Interest Agreements must always be mutually agreed upon
by the parties! Thank you!
IMPERIAL VS. JAUCIAN
FACTS:
Petitioner obtained six (6) separate loans
amounting to P 320,000.00 from the respondent. In the
written agreement, they agreed upon the 16% interest per
CRED TRANS CASE DIGEST 1st SET Page 20 of 31
month plus penalty charge of 5% per month and the 25%
attorneys fee, failure to pay the said loans on the stipulated
date.
Petitioner executed six (6) separate promissory
notes and issued several checks as guarantee for payment.
When the said loans become overdue and unpaid, especially
when the petitioners checks issued were dishonored,
respondent made repeated oral and written demands for
payment.
The petitioner was able to pay only P 116,540.00
as found by the RTC. Although she alleged that she had
already paid the amount of P 441,780.00 and the excess of
P 121,780.00 is more than the interest that could be legally
charged, the Court affirms the findings of RTC that petitioner
is still indebted to the respondent.
ISSUE:
Whether or not the stipulated interest of 16% per
month, 5% per month for penalty charge and 25%
attorneys fee are usurious.
HELD:
YES. The rate must be equitably reduced for being
iniquitous, unconscionable and exorbitant. While the Usury
Law ceiling on interest rates was lifted by C.B. Circular No.
905, nothing in the said circular grants lenders carte
blanche authority to raise interests rates to levels which will
either enslave their borrowers or lead to a hemorrhaging of
their assets.
When the agreed rate is iniquitous or
unconscionable, it considered contrary to morals, if not
against the law. Such stipulation is void. Since the
stipulation is void, it is as if there was no express contract
thereon. Hence, courts may reduce the interest rate as
reason and equity demand.
The interest rate of 16% per month was reduced to
1.167% per month or 14% per annum and the penalty
charge of 5% per month was also reduced to 1.167% per
month or 14% per annum.
The attorneys fees here are in the nature of
liquidated damages and the stipulation therefor is aptly
called a penal clause. So long as the stipulation does not
contravene the law, morals, public order or public policy, it
is binding upon the obligor. Nevertheless, in the case at bar,
petitioners failure to comply fully with her obligation was
not motivated by ill will or malice. The partial payments she
made were manifestations of her good faith. Hence the
attorneys fees were reduced to 10% of the total due and
payable.
LIAM LAW VS OLYMPIC SAWMILL CO. AND
ELINO LEE CHI 129 SCRA 449 (1984)
March 15, 2016
CRED TRANS CASE DIGEST 1st SET Page 21 of 31
Ponente: J. Melencio-Herrera
FACTS- Liam Law loaned P10,000.00 without interest to the
Olympic Sawmill Co. and Elino Lee Chi, as the managing
partner. When the loan became due, the debtors asked for
extension and another loan was executed, extending the
payment of the loan and adding P6,000.00 as answer for
attorneys fees, legal interest and other cost incident
thereto.
Law filed a collection case when the defendants were
unable to pay the second time. The CFI of Bulacan decided
in favor of the plaintiff. On appeal, the Court of Appeals
endorsed the case to the Supreme Court, stating that the
issue involved was one of law.
ISSUE- Whether or not the agreement to pay P6,000.00 in
addition to the principal obligation is lawful.
HELD- Yes. Article 1354 of the Civil Code states that:
Article 1354. Although the cause is not stated in
the contract, it is presumed that it exists and is lawful,
unless the debtor proves the contrary.
In relation to the case, the agreement of the
parties relative to the P6,000.00 obligation, without an
evidentiary hearing, it has to be concluded that defendants
had not proven that the P6,000.00 obligation was illegal.
Hence, it is presumed that the agreement of the parties
relative to the P6,000.00 exists and is lawful.
PRISMA VS. MENCHAVEZ
MARCH 28, 2013 ~ VBDIAZ
PRISMA CONSTRUCTION & DEVELOPMENT CORPORATION
and ROGELIO S. PANTALEON vs ARTHUR F. MENCHAVEZ
G.R. No. 160545; March 9, 2010
FACTS:
December 8, 1993, Pantaleon, President and Chairman of
the Board of PRISMA, obtained a P1M loan from the
respondent, with monthly interest of P40,000.00 payable for
6 months, or a total obligation of P1,240,000.00 payable
within 6 mos. To secure the payment of the loan, Pantaleon
issued a promissory. Pantaleon signed the promissory note
in his personal capacity and as duly authorized by the Board
of Directors of PRISMA. The petitioners failed to completely
pay the loan within the 6-month period.
As of January 4, 1997, respondent found that the petitioners
still had an outstanding balance of P1,364,151.00, to which
respondent applied a 4% monthly interest.
On August 28, 1997, respondent filed a complaint for sum of
money to enforce the unpaid balance, plus 4% monthly
interest. In their Answer, the petitioners admitted the loan
of P1,240,000.00, but denied the stipulation on the 4%
monthly interest, arguing that the interest was not provided
in the promissory note. Pantaleon also denied that he made
himself personally liable and that he made representations
that the loan would be repaid within six (6) months.
RTC found that the respondent issued a check for P1M in
favor of the petitioners for a loan that would earn an
interest of 4% or P40,000.00 per month, or a total of
P240,000.00 for a 6-month period. RTC ordered the
petitioners to jointly and severally pay the respondent the
amount of P3,526,117.00 plus 4% per month interest from
February 11, 1999 until fully paid.
Petitioners appealed to CA insisting that there was no
express stipulation on the 4% monthly interest. CA favored
respondent but noted that the interest of 4% per month, or
48% per annum, was unreasonable and should be reduced
to 12% per annum. MR denied hence this petition.
ISSUE:
Whether the parties agreed to the 4% monthly interest on
the loan. If so, does the rate of interest apply to the 6-
month payment period only or until full payment of the
loan?
RULING:
Petition is meritorious. Interest due should be stipulated in
writing; otherwise, 12% per annum
Obligations arising from contracts have the force of law
between the contracting parties and should be complied
with in good faith. When the terms of a contract are clear
and leave no doubt as to the intention of the contracting
parties, the literal meaning of its stipulations governs.
Courts have no authority to alter the contract by
construction or to make a new contract for the parties; a
courts duty is confined to the interpretation of the contract
the parties made for themselves without regard to its
wisdom or folly, as the court cannot supply material
stipulations or read into the contract words the contract
does not contain. It is only when the contract is vague and
ambiguous that courts are permitted to resort to the
interpretation of its terms to determine the parties intent.
In the present case, the respondent issued a check for P1M.
In turn, Pantaleon, in his personal capacity and as
authorized by the Board, executed the promissory note.
Thus, the P1M loan shall be payable within 6 months. The
loan shall earn an interest of P40,000.00 per month, for a
total obligation of P1,240,000.00 for the six-month period.
We note that this agreed sum can be computed at 4%
interest per month, but no such rate of interest was
stipulated in the promissory note; rather a fixed sum
equivalent to this rate was agreed upon.
Article 1956 of the Civil Code specifically mandates that no
interest shall be due unless it has been expressly stipulated
in writing. The payment of interest in loans or forbearance
of money is allowed only if: (1) there was an express
stipulation for the payment of interest; and (2) the
agreement for the payment of interest was reduced in
writing. The concurrence of the two conditions is required
for the payment of interest at a stipulated rate. The
collection of interest without any stipulation in writing is
prohibited by law.
The interest of P40,000.00 per month corresponds only to
the six-month period of the loan, or from January 8, 1994 to
June 8, 1994, as agreed upon by the parties in the
promissory note. Thereafter, the interest on the loan should
be at the legal interest rate of 12% per annum.
When the obligation is breached, and it consists in the
payment of a sum of money, i.e., a loan or forbearance of
CRED TRANS CASE DIGEST 1st SET Page 22 of 31
money, the interest due should be that which may have
been stipulated in writing. Furthermore, the interest due
shall itself earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of interest
shall be 12% per annum to be computed from default, i.e.,
from judicial or extrajudicial demand under and subject to
the provisions of Article 1169 of the Civil Code.
The facts show that the parties agreed to the payment of a
specific sum of money of P40,000.00 per month for six
months, not to a 4% rate of interest payable within a 6-
month period.
No issue on the excessiveness of the stipulated amount of
P40,000.00 per month was ever put in issue by the
petitioners; they only assailed the application of a 4%
interest rate, since it was not agreed upon.
It is a familiar doctrine in obligations and contracts that the
parties are bound by the stipulations, clauses, terms and
conditions they have agreed to, which is the law between
them, the only limitation being that these stipulations,
clauses, terms and conditions are not contrary to law,
morals, public order or public policy. The payment of the
specific sum of money of P40,000.00 per month was
voluntarily agreed upon by the petitioners and the
respondent. There is nothing from the records and, in fact,
there is no allegation showing that petitioners were victims
of fraud when they entered into the agreement with the
respondent.
Therefore, as agreed by the parties, the loan of P1M shall
earn P40,000.00 per month for a period of 6 months, for a
total principal and interest amount of P1,240,000.00.
Thereafter, interest at the rate of 12% per annum shall
apply. The amounts already paid by the petitioners during
the pendency of the suit, amounting toP1,228,772.00 as of
February 12, 1999, should be deducted from the total
amount due, computed as indicated above. We remand the
case to the trial court for the actual computation of the total
amount due.
WHEREFORE, in light of all the foregoing, we hereby
REVERSE and SET ASIDE the Decision CA
PILIPINAS BANK, vs. THE HONORABLE COURT OF
APPEALS, and LILIA R. ECHAUS
G.R. No. 97873 August 12, 1993
J. Quiason
Facts: Echaus filed a complaint against Pilipinas Bank and
its president, Constantino Bautista, for collection of a sum of
money. Echuas alleged that Greatland realty conveyed to
Pilipinas Bank by virtue of a contract of Dacion en Pago
parcels of land for a consideration of P7,776,335.69; that
Greatland assigned P2,300,000.00 out of the total
consideration of the Dacion en Pago, in her favor; and that
despite demand Pilipinas Bank refused to give her amount.
The RTC and the CA, when appealed, ruled in favor of
Echaus and ordered Pilipinas Bank to pay her the P2, 300,
000.00 with legal interest and other monetary awards
amounting to P5,517.707.00. Echaus filed a motion for
execution pending appeal which was granted by the court.
Pilipinas Bank complied with the writ of execution pending
appeal by issuing two mangers checks in the total amount
of P5,517,707.00. However, CA later on decreased the
award of damages and ordered Pilipinas Bank to pay a total
of P2,655,000.00 which became final and executory.
Pilipinas Bank filed a motion in the trial court praying for
respondent to refund to her the excess payment of
P1,898,623.67 with interest at 6%.
Contention of the PILIPINAS BANK: The interest rate
due on the amount of P2, 300, 000.00 should be 6% and the
excess amount paid must be refunded to it with interest of
6% per annum.
Contention of the ECHAUS: The interest rate due on the
amount of P2,300.000.00 should be 12% per annum and the
amount to be refunded to Pilipinas bank at 6% per annum.
Ruling: In favour of petitioner.
As to the amount to be paid to Echaus:
P.D. No. 116, the Monetary Board of Central Bank issued
Central Bank Circular No. 416, which provides:
By virtue of the authority granted to it under Section 1 of
Act 2655, as amended, otherwise known as the "Usury Law"
the Monetary Board in its Resolution No. 1622 dated July 29,
1974, has prescribed that 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 be twelve (12%) per cent per
annum.
Note that Circular No. 416, fixing the rate of interest at 12%
per annum, deals with (1) loans; (2) forbearance of any
money, goods or credit; and (3) judgments. Judgments
spoken of and referred to in Circular No. 416 are "judgments
CRED TRANS CASE DIGEST 1st SET Page 23 of 31
in litigation involving loans or forbearance of any money,
goods or credits. Any other kind of monetary judgment
which has nothing to do with nor involving loans or
forbearance of any money, goods or credits does not fall
within the coverage of the said law for it is not, within the
ambit of the authority granted to the Central Bank."
The amount to be paid was a portion of the P7,776,335.69
which petitioner was obligated to pay Greatland as
consideration for the sale of several parcels of land by
Greatland to petitioner. The amount of P2,300,000.00 was
assigned by Greatland in favor of private respondent. The
said obligation therefore arose from a contract of purchase
and sale and not from a contract of loan or mutuum. Hence,
what is applicable is the rate of 6% per annum as provided
in Article 2209 of the Civil Code of the Philippines and not
the rate of 12% per annum as provided in Circular No. 416.
As to the amount to be refunded to Pilipinas Bank:
Private respondent was paid in advance the amount of
P5,517,707.00 by petitioner to the order for the execution
pending appeal of the judgment of the trial court. On
appeal, the Court of Appeals reduced the total damages to
P3,619,083.33, leaving a balance of P1,898,623.67 to be
refunded by private respondent to petitioner. In an
execution pending appeal, funds are advanced by the losing
party to the prevailing party with the implied obligation of
the latter to repay former, in case the appellate court
cancels or reduces the monetary award.
In the case before us, the excess amount ordered to
refunded by private respondent falls within the ruling in
Viloria and Buiser that Circular No. 416 applies to cases
where money is transferred from one person to another and
the obligation to return the same or a portion thereof is
subsequently adjudged.
SOLIDBANK VS. PERMANENT HOMES
G.R. No. 171925 : July 23, 2010 SOLIDBANK CORPORATION,
(now Metroplolitan Bank and Trust Company), Petitioner, vs.
PERMANENT HOMES, INCORPORATED, Respondent.
FACTS: The records disclose that PERMANENT HOMES is a
real estate development company, and to finance its
housing project known as the Buena Vida Townhome
located within Merville Subdivision, Paraaque City, it
applied and was subsequently granted by SOLIDBANK with
an Omnibus Line credit facility in the total amount of
SIXTY MILLION PESOS. Of the entire loan, FIFTY NINE
MILLION as time loan for a term of up to three hundred sixty
(360) days, with interest thereon at prevailing market rates,
and subject to monthly repricing. The remaining ONE
MILLION was available for domestic bills purchase. To secure
the aforesaid loan, PERMANENT HOMES initially mortgaged
three(3) townhouse units within the Buena Vida project in
Paraaque. At the time, however, the instant complaint was
filed against SOLIDBANK, a total of thirty six (36) townhouse
units were mortgaged with said bank. Of the 60 million
available to PERMANENT HOMES, it availed of a total of 41.5
million pesos covered by three(3) promissory notes. There
was a standing agreement by the parties that any increase
or decrease in interest rates shall be subject to the mutual
agreement of the parties. For the three loan availments that
PERMANENT HOMES obtained, the herein respondent
argued that SOLIDBANK unilaterally and arbitrarily
accelerated the interest rates without any declared basis of
such increases, of which PERMANENT HOMES had not
agreed to, or at the very least, been informed of. On July 5,
2002, the trial court promulgated its Decision in favor of
Solidbank. Permanent then filed an appeal before the
appellate court which was granted, in which reversed and
set aside the assailed decision dated July 5, 2002. Hence,
the present petition.
ISSUES: (1) WON the Honorable Court of Appeals was
correct in ruling that the increases in the interest rates on
Permanents loans are void for having been unilaterally
imposed without basis.
(2) WON the Honorable Court of Appeals was correct in
ordering the parties to enter into an express agreement
regarding the applicable interest rates on Permanents loan
availments subsequent to the initial thirty-day (30) period.
RULING: (1) Yes. Although interest rates are no longer
subject to a ceiling, the lender still does not have an
unbridled license to impose increased interest rates. The
lender and the borrower should agree on the imposed rate,
and such imposed rate should be in writing of which was not
provided by petitioner. (2) Yes. In order that obligations
arising from contracts may have the force of law between
the parties, there must be mutuality between the parties
based on their essential quality. A contract containing a
condition which makes its fulfillment dependent exclusively
upon the uncontrolled will of one of the contracting parties
is void. There was no showing that either Solidbank or
Permanent coerced each other to enter into the loan
agreements. The terms of the Omnibus Line Agreement and
the promissory notes were mutually and freely agreed upon
by the parties.
CHUA VS TIMAN
Interest Rate Usurious Rates 12% Per Annum Interest
Rate Central Bank Circular No. 905-82 Legal Rate
In February and March 1999 Chua loaned the Timans 6
loans amounting to P864k. The interest rate agreed upon
was 7%. The Timans paid at that rate until September 1999.
In October 1999, the % rate was reduced to 5%. In March
2000, the Timans offered to pay P764k. Chua did not accept
payment as they wanted the full amount of P864k. The
Timans then consigned with the court the amount of P864k.
The RTC ruled that the 7% and the reduced rate of 5%
stipulated rate is excessive, iniquitous, unconscionable and
exorbitant (equivalent to 84% and 60% per annum rate).
Chua averred that by virtue of CB Circular 905, the ceiling
on interest rate has been removed hence the 5-7% rate is
valid and in the first place, Timan agreed to it.
ISSUE: Whether or not the rate is valid.
HELD: No. As has been ruled by the Supreme Court in a
multitude of cases, interest rates of 3% and higher are
already excessive. The rate should then be reduced to 12%
per annum or 1% per month. The Usury Law has been
rendered ineffective by the said CB Circular but it has not
repealed the law, it merely suspended it. Note that only
laws can repeal laws, not circulars.
While C.B. Circular No. 905-82, which took effect on January
1, 1983, effectively removed the ceiling on interest rates for
both secured and unsecured loans, regardless of maturity,
nothing in the said circular could possibly be read as
granting carte blanche authority to lenders to raise interest
rates to levels which would either enslave their borrowers or
lead to a hemorrhaging of their assets.
GULLAS VS PNB
Facts: On august 2, 1933 the Treasurer of the United states
Veterans Bureau issued a warrant in the amount of $361.
Atty. Paulino Gullas and Pedro Lopez signed as endorsers of
this check which was cashed by PNB and dishonored by
insular treasurer. The outstanding balance of Atty. Gullas on
the books of the bank was P509. Gullas left his residence for
Manila so the notices of dishonor, informing him that the
amount of $366 was applied to his outstanding balance, was
not received by him. Upon his return from Cebu, he paid the
balance inconvenience to his account, which are the
insurance unpaid due to lack of credit and the periodicals in
the vicinity
ISSUE: Whether or not the bank had the right to
automatically credit Gullas account, and it was not
prejudicial to him
RULING: It has been held a long line of authorities that
notice of dishonor is in order to charge all the endorser and
that the right of action against him does not accrue until the
notice is given. A bank has a right to set off the deposits in
its hands for the payment of any indebtness to in on the
part of a depositor. However this may be, as to an endorser
the situation is different, and notices should actually have
been given to him in order that he might protect his
interests.
G.R 154129 TERESITA DIO, PETITIONER, VS.
SPOUSES VIRGILIO AND LUZ ROCES JAPOR
AND MARTA[1]
FACTS- JAPOR, respondents July 8, 2005 Central Bank
Circular No. 905, which took effect on January 1, 1983,
CRED TRANS CASE DIGEST 1st SET Page 24 of 31
effectively removed the ceiling on interest rates for both
secured and unsecured loans, regardless of maturity.
However, nothing in said Circular grants lenders carte
blanche authority to impose interest rates which would
result in the enslavement of their borrowers or to the
hemorrhaging of their assets. While a stipulated rate of
interest may not technically and necessarily be usurious
under Circular No. 905, usury now being legally non-existent
in our jurisdiction, nonetheless, said rate may be equitably
reduced should the same be found to be iniquitous,
unconscionable, and exorbitant, and hence, contrary to
morals (contra bonos mores), if not against the law. FACTS:
Herein respondents Spouses Virgilio Japor and Luz Roces
Japor were the owners of an 845.5 square-meter residential
lot including its improvements, situated in Barangay
Ibabang Mayao, Lucena City, as shown by Transfer
Certificate of Title (TCT) No. T-39514. Adjacent to the
Japors lot is another lot owned by respondent Marta
Japor, which consisted of 325.5 square meters and titled
under TCT No. T-15018. On August 23, 1982, the
respondents obtained a loan of P90,000 from the Quezon
Development Bank (QDB), and as security therefor, they
mortgaged the lots covered by TCT Nos. T-39514 and T-
15018 to QDB, as evidenced by a Deed of Real Estate
Mortgage duly executed by and between the respondents
and QDB. On December 6, 1983, respondents and QDB
amended the Deed of Real Estate Mortgage increasing
respondents loan to P128,000. The respondents failed
to pay their aforesaid loans. However, before the bank
could foreclose on the mortgage, respondents, thru their
broker, one Lucia G. Orian, offered to mortgage their
properties to petitioner Teresita Dio. Petitioner prepared a
Deed of Real Estate Mortgage, whereby respondents
mortgaged anew the two properties already mortgaged with
QDB to secure the timely payment of a P350,000 loan that
respondents had from petitioner Dio. The Deed of Real
Estate Mortgage, though dated January 1989, was actually
executed on February 13, 1989 and notarized on February
17, 1989. Under the terms of the deed, respondents agreed
to pay the petitioner interest at the rate of five percent (5%)
a month, within a period of two months or until April 14,
1989. In the event of default, an additional interest
equivalent to five percent (5%) of the amount then due, for
every month of delay, would be charged on them. The
respondents failed to settle their obligation to petitioner on
April 14, 1989, the agreed deadline for settlement. On
August 27, 1991, petitioner made written demands upon
the respondents to pay their debt. Despite repeated
demands, respondents did not pay, hence petitioner applied
for extrajudicial foreclosure of the mortgage. The auction of
the unredeemed properties was set for February 26, 1992.
ISSUE: Whether or not the stipulated penalty and interest
are excessive, iniquitous, unconscionable, exorbitant, and
contrary to morals?
HELD: Yes. In the instant case, the Court of Appeals found
that the 5% interest rate per month and 5% penalty rate per
month for every month of default or delay is in reality
interest rate at 120% per annum. This Court has held that a
stipulated interest rate of 5.5% per month or 66% per
annum is void for being iniquitous or unconscionable. We
have likewise ruled that an interest rate of 6% per month or
72% per annum is outrageous and inordinate. Conformably
to these precedent cases, a combined interest and penalty
rate at 10% per month or 120% per annum, should be
deemed iniquitous, unconscionable, and inordinate. The
evidence shows that it was indeed the respondents who
proposed the 5% interest rate per month for two (2)
months. Having agreed to said rate, the parties are now
CRED TRANS CASE DIGEST 1st SET Page 25 of 31
estopped from claiming otherwise. For the succeeding
period after the two months, however, the Court of Appeals
correctly reduced the interest rate to 12% per annum and
the penalty rate to 1% per month, in accordance with Article
2227 of the Civil Code.
DARIO NACAR VS GALLERY FRAMES
703 SCRA 439 Civil Law Torts and Damages Actual and
Compensatory Damages Legal Rate of Interest is now 6%
Labor Law Labor Relations Illegal Dismissal
Computation of Monetary Benefits
Dario Nacar filed a labor case against Gallery Frames and its
owner Felipe Bordey, Jr. Nacar alleged that he was dismissed
without cause by Gallery Frames on January 24, 1997. On
October 15, 1998, the Labor Arbiter (LA) found Gallery
Frames guilty of illegal dismissal hence the Arbiter awarded
Nacar P158,919.92 in damages consisting of backwages and
separation pay.
Gallery Frames appealed all the way to the Supreme Court
(SC). The Supreme Court affirmed the decision of the Labor
Arbiter and the decision became final on May 27, 2002.
After the finality of the SC decision, Nacar filed a motion
before the LA for recomputation as he alleged that his
backwages should be computed from the time of his illegal
dismissal (January 24, 1997) until the finality of the SC
decision (May 27, 2002) with interest. The LA denied the
motion as he ruled that the reckoning point of the
computation should only be from the time Nacar was
illegally dismissed (January 24, 1997) until the decision of
the LA (October 15, 1998). The LA reasoned that the said
date should be the reckoning point because Nacar did not
appeal hence as to him, that decision became final and
executory.
ISSUE: Whether or not the Labor Arbiter is correct.
HELD: No. There are two parts of a decision when it comes
to illegal dismissal cases (referring to cases where the
dismissed employee wins, or loses but wins on appeal). The
first part is the ruling that the employee was illegally
dismissed. This is immediately final even if the employer
appeals but will be reversed if employer wins on appeal.
The second part is the ruling on the award of backwages
and/or separation pay. For backwages, it will be computed
from the date of illegal dismissal until the date of the
decision of the Labor Arbiter. But if the employer appeals,
then the end date shall be extended until the day when the
appellate courts decision shall become final. Hence, as a
consequence, the liability of the employer, if he loses on
appeal, will increase this is just but a risk that the
employer cannot avoid when it continued to seek recourses
against the Labor Arbiters decision. This is also in
accordance with Article 279 of the Labor Code.
Anent the issue of award of interest in the form of actual or
compensatory damages, the Supreme Court ruled that the
old case of Eastern Shipping Lines vs CA is already modified
by the promulgation of the Bangko Sentral ng Pilipinas
Monetary Board Resolution No. 796 which lowered the legal
rate of interest from 12% to 6%. Specifically, the rules on
interest are now as follows:
1. Monetary Obligations ex. Loans:
a. If stipulated in writing:
a.1. shall run from date of judicial demand (filing of the
case)
a.2. rate of interest shall be that amount stipulated
b. If not stipulated in writing
b.1. shall run from date of default (either failure to pay upon
extra-judicial demand or upon judicial demand whichever is
appropriate and subject to the provisions of Article 1169 of
the Civil Code)
b.2. rate of interest shall be 6% per annum
2. Non-Monetary Obligations (such as the case at bar)
a. If already liquidated, rate of interest shall be 6% per
annum, demandable from date of judicial or extra-judicial
demand (Art. 1169, Civil Code)
b. If unliquidated, no interest
Except: When later on established with certainty. Interest
shall still be 6% per annum demandable from the date of
judgment because such on such date, it is already deemed
that the amount of damages is already ascertained.
3. Compounded Interest
This is applicable to both monetary and non-monetary
obligations
6% per annum computed against award of damages
(interest) granted by the court. To be computed from the
date when the courts decision becomes final and executory
until the award is fully satisfied by the losing party.
4. The 6% per annum rate of legal interest shall be applied
prospectively:
Final and executory judgments awarding damages prior to
July 1, 2013 shall apply the 12% rate;
Final and executory judgments awarding damages on or
after July 1, 2013 shall apply the 12% rate for unpaid
obligations until June 30, 2013; unpaid obligations with
respect to said judgments on or after July 1, 2013 shall still
incur the 6% rate.
PRESIDENTIAL AD HOC FACT-FINDING
COMMITTEE vs DESIERTO
528 SCRA 9 (G.R. No. 130140. October 25, 1999)
FACTS:
On 8 October 1992, President Fidel V. Ramos issued
Administrative Order No. 13, creating the Presidential Ad
Hoc Fact-Finding Committee on Behest Loans, with the
Chairman of the PCGG as Chairman; the Solicitor General as
Vice Chairman; and one representative each from the Office
CRED TRANS CASE DIGEST 1st SET Page 26 of 31
of the Executive Secretary, Department of Finance,
Department of Justice, Development Bank of the Philippines,
Philippine National Bank, Asset Privatization Trust,
Government Corporate Counsel, and the Philippine Export
and Foreign Loan Guarantee Corporation as members. In its
FOURTEENTH (14TH) REPORT ON BEHEST LOANS to
President Ramos, dated 15 July 1993, the COMMITTEE
reported that the Philippine Seeds, Inc., (hereafter PSI) of
which the respondents in OMB-0-96-0968 were the
Directors, was one of the twenty-one corporations which
obtained behest loans. On 2 March 1996, the COMMITTEE
through Orlando O. Salvador, the PCGG consultant detailed
with the COMMITTEE, filed with the OMBUDSMAN a sworn
complaint against the Directors of PSI namely, Jose Z. Osias,
Pacifico E. Marcos, Eduardo V. Romualdez, Fernando C.
Ordoveza, and Juanito Ordoveza; and the Directors of the
Development Bank of the Philippines who approved the
loans for violation of paragraphs (e) and (g) of Section 3 of
Republic Act No. 3019, otherwise known as Anti-Graft and
Corrupt Practices.
ISSUE:
Does the imprescriptibility of the right of the State to
recover ill-gotten wealth apply to both civil and criminal
cases?
RULING:
No. The so-called imprescriptibility as provided in Section 15
of Article XI of the Constitution applies only to civil actions
for recovery of ill-gotten wealth, and not to criminal cases,
such as the complaint against the respondents in OMB-0-96-
0968. This is clear from the proceedings of the
Constitutional Commission of 1986. Since the law alleged to
have been violated, i.e., paragraphs (e) and (g) of Section 3,
R.A. No. 3019, as amended, is a special law, the applicable
rule in the computation of the prescriptive period is Section
2 of Act No. 3326, as amended, which provides,
Prescription shall begin to run from the day of the
commission of the violation of the law, and if the same be
not known at the time, from the discovery thereof and
institution of judicial proceedings for its investigation and
punishment. In the present case, it was well-nigh
impossible for the State, the aggrieved party, to have
known the violations of R.A. No. 3019 at the time the
questioned transactions were made because, as alleged, the
public officials concerned connived or conspired with the
beneficiaries of the loans. Thus, the prescriptive period for
the offenses with which the respondents in OMB-0-96-0968
were charged should be computed from the discovery of the
commission thereof and not from the day of such
commission.
ECE Realty and Devt vs. Hernandez
GR no. 212689, Aug. 11, 2014
Civil Law
Reyes, J.:
Incomplete facts to support further your issue
of legal interest.
Facts: Respondent filed a complaint for specific
performance against the petitioner because of its failure to
turnover the condominium unit on the promised date.
Issue: Whether or not the imposition of legal interest is
proper.

Ruling: Yes, Article 2209 of the New Civil Code 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 in the
absence of stipulation, the legal interest, which is six
percent per annum.Article 2209 of the New Civil Code
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 in the
absence of stipulation, the legal interest, which is six
percent per annum. There is no doubt that ECE incurred in
delay in delivering the subject condominium unit, for which
reason the trial court was justified in awarding interest to
the respondent from the filing of his complaint. There being
no stipulation as to interest, under Article 2209 the
imposable rate is six percent (6%) by way of damages,
following the guidelines laid down in the landmark case of
Eastern Shipping Lines v. Court of Appeals, 234 SCRA 78
(1994).
ROLANDO C. DE LA PAZ vs. L & J
DEVELOPMENT COMPANY
G.R. No. 183360, September 08, 2014
FACTS: ???
ISSUE:
RULING:
Under Article 1956 of the Civil Code, no interest shall be due
unless it has been expressly stipulated in writing.
Jurisprudence on the matter also holds that for interest to
be due and payable, two conditions must concur: a) express
stipulation for the payment of interest; and b) the
agreement to pay interest is reduced in writing.
Here, it is undisputed that the parties did not put down in
writing their agreement. Thus, no interest is due. The
collection of interest without any stipulation in writing is
prohibited by law. Moreover, as the creditor, he could have
requested or required that all the terms and conditions of
the loan agreement, which include the payment of interest,
be put down in writing to ensure that he and L&J are on the
same page. Rolando had a choice of not acceding and to
insist that their contract be put in written form as this will
favor and safeguard him as a lender. Unfortunately, he did
not. It must be stressed that [c]ourts cannot follow one
every step of his life and extricate him from bad bargains,
protect him from unwise investments, relieve him from one-
sided contracts, or annul the effects of foolish acts. Courts
cannot constitute themselves guardians of persons who are
not legally incompetent. Even if the payment of interest has
been reduced in writing, a 6% monthly interest rate on a
loan is unconscionable, regardless of who between the
parties proposed the rate.
SPOUSES TAGUMPAY N. ALBOS AND AIDA C.
ALBOS vs. SPOUSES NESTOR M. EMBISAN
AND ILUMINADA A. EMBISAN, DEPUTY
SHERIFF MARINO V. CACHERO, AND THE
REGISTER OF DEEDS OF QUEZON CITY
G.R. No. 210831, November 26, 2014
FACTS:
ISSUE:
RULING:
Article 1956 of the New Civil Code, which refers to monetary
interest, provides:
Article 1956. No interest shall be due unless it has been
expressly stipulated in writing.
As mandated by the foregoing provision, payment of
monetary interest shall be due only if: (1) there was an
express stipulation for the payment of interest; and (2) the
agreement for such payment was reduced in writing. Thus,
We have held that collection of interest without any
stipulation thereof in writing is prohibited by
law.13chanrobleslaw
In the case at bar, it is undisputed that the parties have
agreed for the loan to earn 5% monthly interest, the
stipulation to that effect put in writing. When the petitioners
defaulted, the period for payment was extended, carrying
over the terms of the original loan agreement, including the
5% simple interest. However, by the third extension of the
loan, respondent spouses decided to alter the agreement by
changing the manner of earning interest rate, compounding
it beginning June 1986. This is apparent from the Statement
of Account prepared by the spouses Embisan themselves.
Given the circumstances, We rule that the first
requirementthat there be an express stipulation for the
payment of interestis not sufficiently complied with, for
purposes of imposing compounded interest on the loan. The
requirement does not only entail reducing in writing the
interest rate to be earned but also the manner of earning
the same, if it is to be compounded. Failure to specify the
manner of earning interest, however, shall not automatically
render the stipulation imposing the interest rate void since
it is readily apparent from the contract itself that the parties
herein agreed for the loan to bear interest. Instead, in
default of any stipulation on the manner of earning interest,
simple interest shall accrue.
Nevertheless, even if there was such an agreement that
interest will be compounded, We agree with the petitioners
that the 5% monthly rate, be it simple or compounded,
written or verbal, is void for being too exorbitant, thus
running afoul of Article 1306 of the New Civil Code, which
provides:
Article 1306. The contracting parties may establish such
stipulations, clauses, terms and conditions as they may
deem convenient, provided they are not contrary
tolaw, morals, good customs, public order, or public policy.
(emphasis added)
As case law instructs, the imposition of an unconscionable
rate of interest on a money debt, even if knowingly and
voluntarily assumed, is immoral and unjust. It is tantamount
to a repugnant spoliation and an iniquitous deprivation of
property, repulsive to the common sense of man. It has no
support in law, in principles of justice, or in the human
conscience nor is there any reason whatsoever which may
justify such imposition as righteous and as one that may be
sustained within the sphere of public or private morals.
RURAL BANK of CALOOCAN v CA
CRED TRANS CASE DIGEST 1st SET Page 27 of 31
 1981
ANTONIO TAN VS. COURT OF APPEALS/CCP
GR NO. 116285
FACTS:
1 Petition for review.
2 TAN OBTAINED 2 LOANS, EACH FOR P2,000,000 FROM
CCP.
1 Executed a promissory note in amount of
P3,411,421.32; payable in 5 installments.
2 TAN failed to pay any installment on the said
restructured loa.
3 In a letter, TAN requested and proposed to
respondent CCP a mode of paying the
restructured loan
i. 20% of the principal amount of the
loan upon the respondent giving its
conformity to his proposal
ii. Balance on the principal obligation
payable 36 monthly installments until fully
paid.
4 TAN requested for a moratorium on his loan
obligation until the following year allegedly due to
a substantial deduction in the volume of his
business and on account of the peso
devaluation.
i. No favorable response was made to
said letters.
ii. CCP demanded full payment, within
ten (10) days from receipt of said letter
P6,088,735.03.
3 CCP FILED COMPLAINT collection of a sum of money
1 TAN interposed the defense that he
accommodated a friend who asked for help to
obtain a loan from CCP.
i. Claimed that cannot find the
friend.
2 TAN filed a Manifestation wherein he proposed
to settle his indebtedness to CCP by down
payment of P140,000.00 and to issue1 2
checks every beginning of the year to cover
installment payments for one year, and every
year thereafter until the balance is fully paid.
i. CCP did not agree to the
petitioners proposals and so the trial of
the case ensued.
4 TRIAL COURT ORDERED TAN TO PAY CCP P7,996,314.67,
representing defendants outstanding account as of
August 28, 1986, with the corresponding stipulated
interest and charges thereof, until fully paid, plus
attorneys fees in an amount equivalent to 25% of said
outstanding account, plus P50,000.00, as exemplary
damages, plus costs.
1 REASONS:
i. Reason of loan for accommodation
of friend was not credible.
ii. Assuming, arguendo, that the TAN
did not personally benefit from loan, he
should have filed a 3rd-party complaint
against Wilson Lucmen
iii. 3 times the petitioner offered to
settle his loan obligation with CCP.
iv. TAN may not avoid his liability to
pay his obligation under the promissory
note which he must comply with in good
faith.
CRED TRANS CASE DIGEST 1st SET Page 28 of 31
v. TAN is estopped from denying his
liability or loan obligation to the private
respondent.
5 TAN APPEALED TO CA, asked for the reduction of the
penalties and charges on his loan obligation.
1 Judgment appealed from is hereby AFFIRMED.
1. No alleged partial or irregular performance.
2. However, the appellate court modified the
decision of the trial court by deleting
exemplary damages because not
proportionate to actual damage caused by
the non-performance of the contract
ISSUES:
WON there are contractual and legal bases for the
imposition of the penalty, interest on the penalty and
attorneys fees.
TAN imputes error on CA in not fully eliminating
attorney fees and in not reducing the penalties
considering that he made partial payments on the
loan.
And if penalty is to be awarded, TAN asking for non-
imposition of interest on the surcharges because
compounding of these are not included in promissory
note.
No basis in law for the charging of interest on the
surcharges for the reason that the New Civil Code is
devoid of any provision allowing the imposition of
interest on surcharges.
WON interest may accrue on the penalty or
compensatory interest without violating ART
1959: Without prejudice to the provisions of Article
2212, interest due and unpaid shall not earn interest.
However, the contracting parties may by stipulation
capitalize the interest due and unpaid, which as added
principal, shall earn new interest.
TAN- No legal basis for the imposition of interest on the
penalty charge for the reason that the law only allows
imposition of interest on monetary interest but not the
charging of interest on penalty. Penalties should not
earn interest.
WON TAN can file reduction of penalty due to made
partial payments.
Petitioner contends that reduction of the penalty is
justifiable under ART 1229: The judge shall equitably
reduce the penalty when the principal obligation has
been partly or irregularly complied with by the debtor.
Even if there has been no performance, the penalty
may also be reduced by the courts if it is iniquitous or
unconscionable.
HELD
CA DECISION AFFIRMED with MODIFICATION in that the
penalty charge of two percent (2%) per month on the
total amount due, compounded monthly, is hereby
reduced to a straight twelve percent (12%) per annum
starting from August 28, 1986. With costs against the
petitioner.
1 WON there are contractual and legal bases for the
imposition of the penalty, interest on the penalty and
attorneys fees. YES. WITH LEGAL BASES.
 1 ART 1226: In obligations with a penal clause,
the penalty shall substitute the indemnity
for damages and the payment of interests in
case of non-compliance, 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.
i. The penalty may be
enforced only when it is
demandable in accordance with the
provisions of this Code.
2 CASE AT BAR: promissory note expressed the imposition
of both interest and penalties in case of default on the
part of the petitioner in the payment of the subject
restructured loan.
3 PENALTY IN MANY FORMS:
i. If the parties stipulate penalty apart monetary
interest, two are different and distinct from each other
and may be demanded separately.
ii. If stipulation about payment of an additional
interest rate partakes of the nature of a penalty clause
which is sanctioned by law:
1. ART 2209: 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 in the absence of stipulation, the
legal interest, which is six per cent per annum.
4 CASE AT BAR: Penalty charge of 2% per month began to
accrue from the time of default by the petitioner.
i. No doubt petitioner is liable for both the
stipulated monetary interest and the stipulated penalty
charge.
1. PENALTY CHARGE = penalty or compensatory interest.
2 WON interest may accrue on the penalty or
compensatory interest without violating ART 1959.
1 Penalty clauses can be in the form of penalty or
compensatory interest.
i. Thus, the compounding of the penalty or
compensatory interest is sanctioned by and allowed
pursuant to the above-quoted provision of Article 1959
of the New Civil Code considering that:
1. There is an express stipulation in the promissory note
(Exhibit A) permitting the compounding of interest.
a. 5th paragraph of the said promissory note provides
that: Any interest which may be due if not paid shall
be added to the total amount when due and shall
become part thereof, the whole amount to bear interest
at the maximum rate allowed by law..
2. Therefore, any penalty interest not paid, when due,
shall earn the legal interest of twelve percent (12%) per
annum, in the absence of express stipulation on the
specific rate of interest, as in the case at bar.
2 ART 2212: Interest due shall earn legal interest from
the time it is judicially demanded, although the
obligation may be silent upon this point.
3 CASE AT BAR: interest began to run on the penalty
interest upon the filing of the complaint in court by
CCP.
i. Hence, the courts did not err in ruling that the
petitioner is bound to pay the interest on the total
amount of the principal, the monetary interest and the
penalty interest.
3 WON TAN can file reduction of penalty due to made
partial payments. YES. BUT NOT 10% REDUCTION AS
SUGGESTED BY PETITIONER.
1 REDUCED TO 2% REDUCTION:
i. PARTIAL PAYMENTS showed his good faith
despite difficulty in complying with his loan obligation
due to his financial problems.
1. However, we are not unmindful of the respondents long
overdue deprivation of the use of its money collectible.
4 The petitioner also imputes error on the part of the
appellate court for not declaring the suspension of the
running of the interest during period when the CCP
allegedly failed to assist the petitioner in applying for
relief from liability
1 Alleges that his obligation to pay the
interest and surcharge should have been
suspended because the obligation to pay
such interest and surcharge has become
conditional
i. Dependent on a future and
uncertain event which consists of
whether the petitioners request for
condonation of interest and
surcharge would be recommended
by the Commission on Audit.
1. Since the condition has not happened due to the private
respondents reneging on its promise, his liability to pay
the interest and surcharge on the loan has not arisen.
2 COURT ANSWER:
i. Running of the interest and surcharge
was not suspended.
ii. CCP correctly asserted that it was the
primary responsibility of petitioner to inform
the Commission on Audit of his application for
condonation of interest and surcharge.
***ZOBEL v CITY OF MANILA***
Sebastian Siga-an, petitioner, vs. Alicia
Villanueva, respondent.
Facts: Respondent filed a complaint for sum of money
against petitioner. Respondent claimed that petitioner
approached her inside the PNO and offered to loan her the
amount of P540,000.00 of which the loan agreement was
not reduced in writing and there was no stipulation as to the
payment of interest for the loan. Respondent issued a check
worth P500,000.00 to petitioner as partial payment of the
loan. She then issued another check in the amount
of P200,000.00 to petitioner as payment of the remaining
balance of the loan of which the excess amount
of P160,000.00 would be applied as interest for the loan.
Not satisfied with the amount applied as interest, petitioner
pestered her to pay additional interest and threatened to
block or disapprove her transactions with the PNO if she
would not comply with his demand. Thus, she paid
additional amounts in cash and checks as interests for the
loan. She asked petitioner for receipt for the payments but
was told that it was not necessary as there was mutual trust
and confidence between them. According to her
computation, the total amount she paid to petitioner for the
loan and interest accumulated to P1,200,000.00.
The RTC rendered a Decision holding that respondent made
an overpayment of her loan obligation to petitioner and that
the latter should refund the excess amount to the former. It
ratiocinated that respondents obligation was only to pay
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the loaned amount of P540,000.00, and that the alleged
interests due should not be included in the computation of
respondents total monetary debt because there was no
***MONZON v IAC and DAVIES***
agreement between them regarding payment of interest. It
concluded that since respondent made an excess payment
to petitioner in the amount of P660,000.00 through mistake,
petitioner should return the said amount to respondent
pursuant to the principle of solutio indebiti. Also, petitioner ADVOCATES FOR TRUTH in LENDING v BSP
should pay moral damages for the sleepless nights and
(2013)
wounded feelings experienced by respondent. Further,
petitioner should pay exemplary damages by way of
Facts: Advocates for Truth in Lending, Inc. (AFTIL) is a
example or correction for the public good, plus attorneys
nonprofit, non-stock corporation organized to engage in pro
fees and costs of suit.
bono concerns and activities relating to money lending
issues. It was incorporated on July 9,
Issue: (1) Whether or not interest was due to petitioner;
2010, and a month later, it filed this petition, joined by its
and (2) whether the principle of solutio indebiti applies to
founder and president, Eduardo B. Olaguer, suing as a
the case at bar.
taxpayer and a citizen.
Ruling: (1) No. Compensatory interest is not chargeable in
R.A. No. 265, which created the Central Bank (CB) of the
the instant case because it was not duly proven that
Philippines on June 15, 1948, empowered the CB-MB to,
respondent defaulted in paying the loan and no interest was
among others, set the maximum interest rates which banks
due on the loan because there was no written agreement as
may charge for all types of loans and other credit
regards payment of interest. Article 1956 of the Civil Code,
operations, within limits prescribed by the Usury Law.
which refers to monetary interest, specifically mandates
Section 109 of R.A. No. 265 reads:
that no interest shall be due unless it has been expressly
stipulated in writing. As can be gleaned from the foregoing
Sec. 109. Interest Rates, Commissions and Charges. The
provision, payment of monetary interest is allowed only if:
Monetary Board may fix the maximum rates of interest
(1) there was an express stipulation for the payment of
which banks may pay on deposits and on other obligations.
interest; and (2) the agreement for the payment of interest
was reduced in writing. The concurrence of the two
On March 17, 1980, the Usury Law was amended by
conditions is required for the payment of monetary interest.
Presidential Decree (P.D.) No. 1684, giving the CB-MB
Thus, we have held that collection of interest without any
authority to prescribe different maximum rates of interest
stipulation therefor in writing is prohibited by law.
which may be imposed for a loan or renewal thereof or the
forbearance of any money, goods or credits, provided that
(2) Petitioner cannot be compelled to return the alleged
the changes are effected gradually and announced in
excess amount paid by respondent as interest. Under Article
advance. Provided, that changes in such rate or rates may
1960 of the Civil Code, if the borrower of loan pays interest
be effected gradually on scheduled dates announced in
when there has been no stipulation therefor, the provisions
advance.
of the Civil Code concerning solutio indebiti shall be
applied. Article 2154 of the Civil Code explains the principle
In its Resolution No. 2224 dated December 3, 1982, the CB-
of solutio indebiti. Said provision provides that if something
MB issued CB Circular No. 905, Series of 1982, effective on
is received when there is no right to demand it, and it was
January 1, 1983. Section 1 of the Circular, under its General
unduly delivered through mistake, the obligation to return it
Provisions, removed the ceilings on interest rates on loans
arises. In such a case, a creditor-debtor relationship is
or forbearance of any money, goods or credits.
created under a quasi-contract whereby the payor becomes
the creditor who then has the right to demand the return of
payment made by mistake, and the person who has no right
to receive such payment becomes obligated to return the On June 14, 1993, President Fidel V. Ramos signed into law
same. The quasi-contract of solutio indebiti harks back to R.A. No. 7653 establishing the Bangko Sentral ng Pilipinas to
the ancient principle that no one shall enrich himself replace the CB.
unjustly at the expense of another. The principle of solutio
indebiti applies where (1) a payment is made when there Petitioners, claiming that they are raising issues of
exists no binding relation between the payor, who has no transcendental importance to the public, filed directly with
duty to pay, and the person who received the payment; and SC this Petition for Certiorari, seeking to declare that the
(2) the payment is made through mistake, and not through Bangko Sentral ng Pilipinas Monetary Board (BSP-MB),
liberality or some other cause. We have held that the replacing the Central Bank Monetary Board (CB-MB) by
principle of solutio indebiti applies in case of erroneous virtue of Republic Act (R.A.) No. 7653, has no authority to
payment of undue interest. continue enforcing Central Bank Circular No. 905, issued by
the CB-MB in 1982, which suspended Act No. 2655, or the
Article 2232 of the Civil Code states that in a quasi-contract, Usury Law of 1916.
such as solutio indebiti, exemplary damages may be
imposed if the defendant acted in an oppressive manner. Petitioners contend that under Section 109 of R.A. No. 265,
Petitioner acted oppressively when he pestered respondent the authority of the CB-MB was clearly only to fix the banks
to pay interest and threatened to block her transactions maximum rates of interest, but always within the limits
with the PNO if she would not pay interest. This forced prescribed by the Usury Law.
respondent to pay interest despite lack of agreement
thereto. Thus, the award of exemplary damages is Thus, according to petitioners, CB Circular No. 905, which
appropriate so as to deter petitioner and other lenders from was promulgated without the benefit of any prior public
committing similar and other serious wrongdoings. hearing, is void because it violated Article 5 of the New Civil
Code, which provides that Acts
CRED TRANS CASE DIGEST 1st SET Page 30 of 31
executed against the provisions of mandatory or prohibitory
laws shall be void, except when the law itself authorizes
their validity. They further claim that just weeks after the
issuance of CB Circular
No. 905, Jobo treasury bills shot up to 40% per annum, as
a result.
Petitioners claim that the BSP-MB has been stripped of the
power either to prescribe the maximum rates of interest
which banks may charge for different kinds of loans and
credit transactions, or to suspend Act No. 2655 and continue
enforcing CB Circular No. 905.
Ruling
1. The CB-MB merely suspended the effectivity of the Usury
Law when it issued CB Circular No. 905.
The power of the CB to effectively suspend the Usury Law
pursuant to P.D. No. 1684 has long been recognized and
upheld in many cases. As the Court explained in the
landmark case of Medel v. CA,
citing several cases, CB Circular No. 905 did not repeal nor
in anyway amend the Usury Law but simply suspended the
latters effectivity; that a [CB] Circular cannot repeal a law,
[for] only a law can repeal another law; that by virtue of
CB Circular No. 905, the Usury Law has been rendered
ineffective; and Usury has been legally non-existent in our
jurisdiction.
2. The lifting of the ceilings for interest rates does not
authorize stipulations charging excessive,
unconscionable, and iniquitous interest.
Interest can now be charged as lender and borrower may
agree upon. Stipulations authorizing iniquitous or
unconscionable interests have been invariably struck down
for being contrary to morals, if not against the law. Indeed,
under Article 1409 of the Civil Code, these contracts are
deemed inexistent and void ab initio, and therefore cannot
be ratified, nor may the right to set up their illegality as a
defense be waived. The nullity of the stipulation of usurious
interest does not affect the lenders right to recover the
principal of a loan, nor affect the other terms thereof. Thus,
in a usurious loan with mortgage, the right to foreclose the
mortgage subsists, and this right can be exercised by the
creditor upon failure by the debtor to pay the debt due. The
debt due is considered as without the stipulated excessive
interest, and a legal interest of 12% per annum
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