1. Spouses Barrera vs.

Spouses Lorenzo

2. SIGA-AN V. VILLANUEVA, (2009)

(Compensatory, Penalty or Indemnity Interest)
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 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 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 should pay moral damages for the sleepless nights and wounded feelings
experienced by respondent. Further, petitioner should pay exemplary damages by way of example or correction
for the public good, plus attorneys fees and costs of suit.
Issue: (1) Whether or not interest was due to petitioner; and (2) whether the principle of solutio indebiti applies
to the case at bar.
Ruling: (1) No. Compensatory interest is not chargeable in the instant case because it was not duly proven that
respondent defaulted in paying the loan and no interest was due on the loan because there was no written
agreement as regards payment of interest. Article 1956 of the Civil Code, which refers to monetary interest,
specifically mandates that no interest shall be due unless it has been expressly stipulated in writing. As can be
gleaned from the foregoing provision, payment of monetary interest 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 monetary interest. Thus, we have held that
collection of interest without any stipulation therefor in writing is prohibited by law.

(2) Petitioner cannot be compelled to return the alleged excess amount paid by respondent as interest. Under
Article 1960 of the Civil Code, if the borrower of loan pays interest when there has been no stipulation therefor,
the provisions of the Civil Code concerning solutio indebiti shall be applied. Article 2154 of the Civil Code
explains the principle of solutio indebiti. Said provision provides that if something is received when there is no
right to demand it, and it was unduly delivered through mistake, the obligation to return it arises. In such a case,
a creditor-debtor relationship is 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 same. The quasi-contract of solutio indebiti harks back to the
ancient principle that no one shall enrich himself unjustly at the expense of another. The principle of solutio
indebiti applies where (1) a payment is made when there exists no binding relation between the payor, who has
no duty to pay, and the person who received the payment; and (2) the payment is made through mistake, and not
through liberality or some other cause. We have held that the principle of solutio indebiti applies in case of
erroneous payment of undue interest.
Article 2232 of the Civil Code states that in a quasi-contract, such as solutio indebiti, exemplary damages may be
imposed if the defendant acted in an oppressive manner. Petitioner acted oppressively when he pestered
respondent to pay interest and threatened to block her transactions with the PNO if she would not pay interest.
This forced respondent to pay interest despite lack of agreement thereto. Thus, the award of exemplary damages
is appropriate so as to deter petitioner and other lenders from committing similar and other serious
wrongdoings.
Interests:
a)

Monetary interest is a compensation fixed by the parties for the use or forbearance of money.

b)

Compensatory interest - imposed by law or by courts as penalty or indemnity for damages.

The right to interest arises only by virtue of a contract or by virtue of damages for delay or failure to pay the
principal loan on which interest is demanded.
Article 1956 of the Civil Code, which refers to monetary interest, specifically mandates that no interest shall be
due unless it has been expressly stipulated in writing.
I. Hence, payment of monetary interest 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 monetary interest. Thus,
we have held that collection of interest without any stipulation therefor in writing is prohibited by law.
Monetary interest is due only when these requirements are present.
II. However, there are instances in which an interest may be imposed even in the absence of express stipulation,
verbal or written, regarding payment of interest. Article 2209 of the Civil Code states that if the obligation
consists in the payment of a sum of money, and the debtor incurs delay, a legal interest of 12% (now 6%) per

annum may be imposed as indemnity for damages if no stipulation on the payment of interest was agreed upon.
(Compensatory interest)
This interest may be imposed only as a penalty or damages for breach of contractual obligations.
It cannot be charged as a compensation for the use or forbearance of money. This applies only to compensatory
interest and not to monetary interest.
Solutio Indebiti
Under Article 1960 of the Civil Code, if the borrower of loan pays interest when there has been no stipulation
therefor, the provisions of the Civil Code concerning solutio indebiti shall be applied.
Article 2154 provides that if something is received when there is no right to demand it, and it was unduly
delivered through mistake, the obligation to return it arises. We have held that the principle of solutio
indebiti applies in case of erroneous payment of undue interest.
HELD: It was duly established that respondent paid interest to petitioner. Respondent was under no duty to
make such payment because there was no express stipulation in writing to that effect. There was no binding
relation between petitioner and respondent as regards the payment of interest. The payment was clearly a
mistake. Since petitioner received something when there was no right to demand it, he has an obligation to
return it.

3. SPOUSES JUICO V. CHINA BANKING CORP.

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.
Concurring doctrine by CJ Sereno
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 507-00105134and 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 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.
(Conventional Interest; Escalation Clause)
(Include Concurring Opinion)
Bank: that the interest rate changes every month based on the prevailing market rate and
notified petitioners of the prevailing rate by calling them thru a telephone monthly before their account becomes
past due. When asked if there was any written authority from petitioners for respondent to increase the interest
rate unilaterally, respondent answered that petitioners signed a promissory note indicating that they agreed to
pay interest at the prevailing rate.
China Bank unilaterally increased the interest rates from 15% to as high as 24.50%.
RULES on Escalation Clauses:
a)

Escalation clauses are not void per se.

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
which are valid stipulations in commercial contracts to maintain fiscal stability and to retain the value of money
in long term contracts. Hence, such stipulations are not void per se.
b)

Escalation clauses violating the principle of mutuality of contracts are void.

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. Thus, this
Court has previously nullified the unilateral determination and imposition by creditor banks of increases in the
rate of interest provided in loan contracts.
Banco Filipino Savings & Mortgage Bank v. Navarro: While escalation clauses in general are considered valid,
we ruled that Banco Filipino may not increase the interest on respondent borrowers loan, pursuant to Circular
No. 494 issued by the Monetary Board, because said circular is not a law although it has the force and effect of
law and the escalation clause has no de-escalation clause.
De-escalation Clause: provision for reduction of the stipulated interest "in the event that the applicable
maximum rate of interest is reduced by law or by the Monetary Board."
It is now settled that an escalation clause is void where the 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.34 While a ceiling on interest rates under the Usury Law was already lifted under

Central Bank Circular No. 905, nothing therein "grants lenders carte blanche authority to raise interest rates to
levels which will either enslave their borrowers or lead to a hemorrhaging of their assets."
Ecalation clause in this case: 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.
RULING: At no time did petitioners protest the new rates imposed on their loan even when their property was
foreclosed by respondent. This notwithstanding, we hold that the escalation clause 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.
Effect: Modifications in the rate of interest for loans pursuant to an escalation clause must be the result of an
agreement between the parties. Unless such important change in the contract terms is mutually agreed upon, it
has no binding effect. In the absence of consent on the part of the petitioners to the modifications in the interest
rates, the adjusted rates cannot bind them.
NOTE: The lender and the borrower should agree on the imposed rate, and such imposed rate should be in
writing. Escalation clauses are not basically wrong or legally objectionable as long as they are not solely
potestative but based on reasonable and valid grounds.

4. EASTERN SHIPPING LINES, INC. V. CA (1994)

(Compensatory, Penalty or Indemnity Interest)

Eastern Shipping Lines, Inc. v CA (Credit Transactions)

G.R. No. 97412 July 12, 1994
EASTERN SHIPPING LINES, INC., petitioner, vs. HON. COURT OF APPEALS AND MERCANTILE
INSURANCE COMPANY, INC., respondents.
VITUG, J.:
FACTS:

This is an action against defendants shipping company, arrastre operator and broker-forwarder for
damages sustained by a shipment while in defendants' custody, filed by the insurer-subrogee who
paid the consignee the value of such losses/damages.
the losses/damages were sustained while in the respective and/or successive custody and
possession of defendants carrier (Eastern), arrastre operator (Metro Port) and broker (Allied
Brokerage).
As a consequence of the losses sustained, plaintiff was compelled to pay the consignee
P19,032.95 under the aforestated marine insurance policy, so that it became subrogated to all the
rights of action of said consignee against defendants.
DECISION OF LOWER COURTS: * trial court: ordered payment of damages, jointly and severally *
CA: affirmed trial court.
ISSUES AND RULING:
(a) whether or not a claim for damage sustained on a shipment of goods can be a solidary, or joint
and several, liability of the common carrier, the arrastre operator and the customs broker;
YES, it is solidary. Since it is the duty of the ARRASTRE to take good care of the goods that are in
its custody and to deliver them in good condition to the consignee, such responsibility also
devolves upon the CARRIER. Both the ARRASTRE and the CARRIER are therefore charged with the
obligation to deliver the goods in good condition to the consignee.
The common carrier's duty to observe the requisite diligence in the shipment of goods lasts from
the time the articles are surrendered to or unconditionally placed in the possession of, and
received by, the carrier for transportation until delivered to, or until the lapse of a reasonable time
for their acceptance by, the person entitled to receive them (Arts. 1736-1738, Civil Code; Ganzon
vs. Court of Appeals, 161 SCRA 646; Kui Bai vs. Dollar Steamship Lines, 52 Phil. 863). When the
goods shipped either are lost or arrive in damaged condition, a presumption arises against the
carrier of its failure to observe that diligence, and there need not be an express finding of
negligence to hold it liable.
(b) whether the payment of legal interest on an award for loss or damage is to be computed from
the time the complaint is filed or from the date the decision appealed from is rendered; and
FOLLOW THESE VERY IMPORTANT RULES (GUIDANCE BY THE SUPREME COURT)
I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or
quasi-delicts is breached, the contravenor can be held liable for damages. The provisions under
Title XVIII on "Damages" of the Civil Code govern in determining the measure of recoverable
damages.
II. With regard particularly to an award of interest in the concept of actual and compensatory
damages, the rate of interest, as well as the accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan
or forbearance of money, the interest due should be that which may have been stipulated in
writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially
demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be
computed from default, i.e., from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest

on the amount of damages awarded may be imposed at the discretion of the court at the rate of
6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except
when or until the demand can be established with reasonable certainty. Accordingly, where the
demand is established with reasonable certainty, the interest shall begin to run from the time the
claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot
be so reasonably established at the time the demand is made, the interest shall begin to run only
from the date the judgment of the court is made (at which time the quantification of damages
may be deemed to have been reasonably ascertained). The actual base for the computation of
legal interest shall, in any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory, the
rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be
12% per annum from such finality until its satisfaction, this interim period being deemed to be by
then an equivalent to a forbearance of credit.
(c) whether the applicable rate of interest, referred to above, is twelve percent (12%) or six
percent (6%).
SIX PERCENT (6%) on the amount due computed from the decision, dated 03 February 1988, of
the court a quo (Court of Appeals) AND A TWELVE PERCENT (12%) interest, in lieu of SIX
PERCENT (6%), shall be imposed on such amount upon finality of the Supreme Court decision
until the payment thereof.
RATIO: when the judgment awarding a sum of money becomes final and executory, the monetary
award shall earn interest at 12% per annum from the date of such finality until its satisfaction,
regardless of whether the case involves a loan or forbearance of money. The reason is that this
interim period is deemed to be by then equivalent to a forbearance of credit.
NOTES: the Central Bank Circular imposing the 12% interest per annum applies only to loans or
forbearance of money, goods or credits, as well as to judgments involving such loan or
forbearance of money, goods or credits, and that the 6% interest under the Civil Code governs
when the transaction involves the payment of indemnities in the concept of damage arising from
the breach or a delay in the performance of obligations in general. Observe, too, that in these
cases, a common time frame in the computation of the 6% interest per annum has been applied,
i.e., from the time the complaint is filed until the adjudged amount is fully paid.

6. SPS.

MALLARI vs. PRUDENTIAL BANK

[G.R. No. 197861. June 5, 2013. 697 SCRA 555]

DOCTRINE:
Unconscionable interest rates The SC has ruled in the following cases that the interest is unconscionable:
3% and 3.81% per month on a P10 Million loan (Toring vs. Sps. Ganzon-Olan, 2008); 66% per annum or 5.5% per
month on a P500 thousand loan (Medel vs. Court of Appeals,1998) and; 7% and 5% or 84% and 60% per annum
(Chua vs. Timan, 2008). The Court has also ruled affirmed in a plethora of cases that stipulated interest rates
of 3% per month and higher are excessive, unconscionable and exorbitant.
Conscionable interest rates In this case 23% per annum or 2% per month as agreed upon by petitioner and
respondent bank is NOT unconscionable. It is much lower than the above mentioned unconscionable interest
rates and there is no similarity of factual milieu.
FACTS:

[Decided 2013] In 1984, Petitioner Florentino Mallari obtained a loan from respondent Prudential
Bank in the amount of P300,000.00. It was subject to an interest rate of 21% per annum and, in
case of default, a penalty of 12% per annum of the total amount due and attorneys fees
equivalent of 15% of the total amount due. This was secured by a Deed of Assignment (DOA) over
petitioner's time deposit account. In 1989, Spouses Florentino and Aurea Mallari obtained another
loan from respondent for P1.7 million, stipulating interest of 23% per annum with the same
penalties in case of default. This was secured by Real Estate Mortgage (REM).
Petitioners defaulted. When computed in 1992, the total debt was P571,218.54 and P2,991,294.82
for the first and second loans respectively.
Respondent tried to extrajudicially foreclose the mortgage. Petitioners on the other hand tried to
nullify the mortgage claiming that the Bank imposed onerous terms and conditions and that the
bank was unilaterally increasing its charges and interest over and above those stipulated. The
Bank claimed that the basis for its computation was all written in the Promissory Notes.
The RTC ruled in favor of respondent bank. CA affirmed.
ISSUE: Whether or not an interest rate of 23% per annum and 12% per annum penalty is
unconscionable.
HELD:
No. The Court has also ruled affirmed in a plethora of cases that stipulated interest rates of 3% per
month and higher are excessive, unconscionable and exorbitant. thus, the 23% per annum interest
rate imposed on petitioners loan in this case can by no means be considered excessive or
unconscionable. And neither is the 12% per annum penalty charge unconscionable as the counrt
found in DBP vs. Family Foods (2009) and Ruiz vs. Court of Appeals (2003).

7. SPOUSES DEO AGNER and MARICON AGNER vs. BPI FAMILY SAVINGS BANK,
INC.G.R. No. 182963 June 3, 2013 697 SCRA
SPOUSES DEO AGNER AND MARICON AGNER V. BPI FAMILY SAVINGS BANK INC. GRNO.
182963 JUNE 3, 2013
TOPIC:
ON PAYMENT: One who pleads payment has the burden of proving it; the burden rests on defendant
toprove payment, rather than on the plaintiff to prove non-payment. When the creditor is in possession
ofthe document of credit, proof of non-payment is not needed for it is presumed.
ON INTEREST: Stipulated interest of 3 % per month and higher are excessive,
iniquitous,unconscionable, and exorbitant.
ON DEMAND: Article 1169 of the NCC provides that one incurs in delay or is in default from the
timethe obligor demands the fulfillment of the obligation from the obligee. However, the law
expresslyprovides that demand is not necessary under certain circumstances, and one of these
circumstances iswhen the parties expressly waive demand.
FACTS: Spouses Agner obtained a 800 K loan from CITIMOTORS. Spouses executed a promissorynote
with chattel mortgage over a Mitsubishi vehicle in favor of Citimotors, Inc. The contract stated thatthe
spouses would make a monthly payment of 17K and that 6% interest per month shall be imposed
forfailure to pay each installment. The PN also stated that in case of failure to pay, the entire amount
shallbe due and payable without need of prior notice or demand. Citimotors assigned all its interests in the

PN to ABN AMRO BANK, which assigned the same to BPIFAMILY. Spouses defaulted in payment. BPI
sent a demand letter to petitioners, declaring the entire obligation asdue and demandable, and requiring
them to pay 570K or the surrender of the mortgaged vehicle. As thedemand was unheeded, BPI filed an
action for REPLEVIN and DAMAGES before MANILA RTC. Awrit of Replevin was issued; however,
the vehicle was not seized. THE RTC and CA ruled for BPI.
ISSUE: w/n petitioners could be considered to have defaulted in payment for lack of competent proof that
they received the demand letter.
(YES)HELD: Both verbal and written demands were in fact made by respondents prior to the institution
of the case against petitioners. Even assuming, that no demand letter was sent by BPI, there is really no
need for it because petitioner waived the necessity of notice or demand in the PN. The Civil Code in
Article1169 provides that one incurs in delay or is in default from the time the obligor demands the
fulfilment of the obligation from the obligee. However, the law expressly provides that demand is not
necessary under certain circumstances, and one of these circumstances is when the parties expressly
waive demand. BPIs possession of the evidence of debt is proof that the debt has not been discharged by
payment. One who pleads payment has the burden of proving it; the burden rests on defendant to prove
payment, rather than on the plaintiff to prove non-payment. When the creditor is in possession of the
document of credit, proof of non-payment is not needed for it is presumed
8.Andal vs. PNB

9. LAND BANK OF THE PHILIPPINES, PETITIONER, VS. EMMANUEL OATE,

RESPONDENT.

Facts:
Oate opened and maintained seven trust accounts with Land Bank. Each trust account was covered by
an Investment Management Account (IMA) with Full Discretion and has a corresponding passbook
where deposits and withdrawals were recorded.
In a letter dated October 8, 1981, Land Bank demanded from Oate the return of P4 million it claimed
to have been inadvertently deposited to Trust Account No. 01-125 as his additional funds but actually
represents the total amount of the checks issued to Land Bank by its corporate borrowers as payment
for their pre-terminated loans. Oate refused hence the issue of miscrediting remained unsettled.
Then on June 21, 1991, Land Bank unilaterally applied the outstanding balance in all of Oates trust
accounts against his resulting indebtedness by reason of the miscrediting of funds. Although it
exhausted the funds in all of Oates trust accounts, Land Bank was able to debit the amount of
P1,528,583.48 only.
To recoup the remaining balance of Oates indebtedness, Land Bank filed a Complain for Sum of
Money seeking to recover the amount of P8,222,687.89 plus interest at the legal rate of 12% per annum
computed from May 15, 1992 until fully paid.
Oate asserted that the setoff was without legal and factual bases. He specifically denied any

knowledge or involvement in the transaction between Land Bank and its clients Philippine Virginia
Tobacco Administration (PVTA) and Philippine Virginia Tobacco Board (PVTB). He also denied that
he made fraudulent misrepresentation to induce the bank to deposit to his Trust Account No. 01-125 as
his additional capital the payments allegedly tendered by the banks corporate borrowers. He
maintained that all the funds in his accounts came from legitimate sources and that he was totally
unaware of and had nothing to do with the alleged miscrediting.
By way of compulsory counterclaim, Oate pointed out that per Balance Sheets as of June 30, 1982 the
funds in his trust accounts already totaled P35,555,464.78. And as of January 1993, the accumulated
balance of his accounts reached P229,222,160.25 and $3,472,683.94.
Hence, even if the amount of P8,222,687.89 as of May 15, 1992 is deducted from the outstanding
balance of his trust accounts as of January 1993, the bank still owes him P220,999,472.36 on top of his
dollar deposits amounting to $3,472,683.94.
Oate prayed that a judgment be issued dismissing the Complaint and ordering Land Bank to pay him.
In a report submitted by the Board investigating the case, it was found out that balance of each trust
account may not be accurate considering that it was not given ample opportunity to collate and sort out
the documents related to each trust account and that there may have been double take up of accounts
since the documents previously reviewed may have been considered again in subsequent reports.
In his Comment, Oate asserted that the undocumented withdrawals mentioned in the consolidated
report should not be considered as cash outflows. Rather, they should be treated as unauthorized
transactions and the amounts subject thereof must be credited back to his accounts. Oate reiterated
that Land Bank should be held liable for the undocumented withdrawals and drawings.
On May 31, 2006, the RTC rendered a Decision dismissing Land Banks Complaint for its failure to
establish that the amount of P4,086,888.89 allegedly miscredited to Oates Trust Account No. 01125 actually came from the investments of PVTA and PVTB. Hence, the RTC ordered Land Bank to
restore the total amount of P1,471,416.52 which the bank unilaterally debited from Oates five trust
accounts with legal rate of interest of 12% per annum, compounded yearly, effective on 21 June 1991
until fully paid. The RTC also ruled that Oate is deemed to have approved the entries in the
statements of account that were sent to him as he never interposed any objection thereto within the
period given him to do so. Consequently, the CA denied Land Banks appeal and granted that of Oate.
The CA affirmed the RTCs ruling that Land Bank failed to establish the source of the funds it claimed
to have been erroneously credited to Oates account.
Land Bank filed a Motion for Reconsideration dated May 27, 2010, however, the CA denied its motion.
Hence, Land Bank filed the instant Petition for Review on Certiorari.
Issues:
Whether or not the award of interest to Oate at the rate of twelve percent (12%) per annum,
compounded yearly from june 21, 1991 until fully paid, is violative of article 1959 of the civil code.
Ruling:
Supreme Court denied the petition. From the very start the issues involved in this case are factual the
very reason why the RTC created a Board of Commissioners to assist it in examining the records
pertaining to Oates accounts and determine the respective cash inflows and outflows in said accounts.
Land Banks argument that the lower courts erred in imposing 12% per annum rate of interest is devoid
of merit. The unilateral offsetting of funds without legal justification and the undocumented
withdrawals are tantamount to forbearance of money. Land Bank is estopped from assailing the award
of 12% per annum rate of interest. In its Complaint, Land Bank arrived at P8,222,687.89 as the

outstanding indebtedness of Oate by using the same 12% per annum rate of interest. It was only after
the lower courts rendered unfavorable decisions that Land Bank started to insist that the applicable rate
of interest is 6% per annum. The compounding of interest, on the other hand, was based on the
provision of the IMAs granting Land Bank to hold, invest and reinvest the Fund and keep the same
invested, in your sole discretion, without distinction between principal and income. As for the
commencement date, it was suggested that 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). In
accordance to that, the Court ruled that the debited amount of P1,471,416.52, shall earn interest
beginning May 31, 2006 or the day the RTC rendered its Decision granting said amount to Oate. As
to the undocumented withdrawals of P60,663,488.11 and US$3,210,222.85, the legal rate of interest
should start to run the day the CA promulgated its Decision on December 18, 2009.
During the pendency of this case, however, the Monetary Board issued Resolution No. 796 dated May
16, 2013, stating that in the absence of express stipulation between the parties, the rate of interest in
loan or forbearance of any money, goods or credits and the rate allowed in judgments shall be 6% per
annum. Said Resolution is embodied in Bangko Sentral ng Pilipinas Circular No. 799, Series of 2013,
which took effect on July 1, 2013. Hence, the 12% annual interest mentioned above shall apply only
up to June 30, 2013. Thereafter, or starting July 1, 2013, the applicable rate of interest for both the
debited amount and undocumented withdrawals shall be 6% per annum, compounded annually, until
fully paid.
10.

Republic vs Soriano

11.

Dela Paz vs L & J Devt

12.

Albos vs Embisan