FACTS:

RCBC Binondo Branch initially granted a credit facility of P30M to Goyu & Sons,
Inc. GOYUs applied again and through Binondo Branch key officer's Uys and Laos
recommendation, RCBCs executive committee increased its credit facility to P50M
to P90M and finally to P117M.
As security, GOYU executed 2 real estate mortgages and 2 chattel mortgages in
favor of RCBC.
GOYU obtained in its name 10 insurance policy on the mortgaged properties
from Malayan Insurance Company, Inc. (MICO). In February 1992, he was issued 8
insurance policies in favor of RCBC.
April 27, 1992: One of GOYUs factory buildings was burned so he claimed against
MICO for the loss who denied contending that the insurance policies were
either attached pursuant to writs of attachments/garnishments or that creditors are
claiming to have a better right
GOYU filed a complaint for specific performance and damages at the RTC
RCBC, one of GOYUs creditors, also filed with MICO its formal claim over the
proceeds of the insurance policies, but said claims were also denied for the same
reasons that MICO denied GOYUs claims
RTC: Confirmed GOYUs other creditors (Urban Bank, Alfredo Sebastian, and
Philippine Trust Company) obtained their writs of attachment covering an aggregate
amount of P14,938,080.23 and ordered that 10 insurance policies be deposited with
the court minus the said amount so MICO deposited P50,505,594.60.
Another Garnishment of P8,696,838.75 was handed down
RTC: favored GOYU against MICO for the claim, RCBC for damages and to pay RCBC
its loan
CA: Modified by increasing the damages in favor of GOYU
In G.R. No. 128834, RCBC seeks right to intervene in the action between Alfredo C.
Sebastian (the creditor) and GOYU (the debtor), where the subject insurance
policies were attached in favor of Sebastian
RTC and CA: endorsements do not bear the signature of any officer of GOYU concluded that the
endorsements favoring RCBC as defective.

ISSUE: W/N RCBC as mortgagee, has any right over the insurance policies taken by
GOYU, the mortgagor, in case of the occurrence of loss

HELD: YES.
mortgagor and a mortgagee have separate and distinct insurable interests in the
same mortgaged property, such that each one of them may insure the same
property for his own sole benefit
although it appears that GOYU obtained the subject insurance policies naming itself
as the sole payee, the intentions of the parties as shown by their contemporaneous
acts, must be given due consideration in order to better serve the interest of justice
and equity
8 endorsement documents were prepared by Alchester in favor of RCBC
MICO, a sister company of RCBC
GOYU continued to enjoy the benefits of the credit facilities extended to it by RCBC.
GOYU is at the very least estopped from assailing their operative effects.
 The two courts below erred in failing to see that the promissory notes which they
ruled should be excluded for bearing dates which are after that of the fire, are mere
renewals of previous ones
RCBC has the right to claim the insurance proceeds, in substitution of the property lost in the
fire. Having assigned its rights, GOYU lost its standing as the beneficiary of
the said insurance policies
insurance company to be held liable for unreasonably delaying and withholding payment of
insurance proceeds, the delay must be wanton, oppressive, or malevolent - not shown
Sebastians right as attaching creditor must yield to the preferential rights of RCBC over the
Malayan insurance policies as first mortgagee.

First Fil-In Lending Corp. vs Padillo, GR No.

160533, 12 January 2005, 448 SCRA 71
24FEB
FACTS
Gloria Padillo obtained a P500,000 loan from petitioner First-Fil Lending Corp. She also obtained
another loan from petitioner in the same amount. In both loans, Padillo executed a promissory note and
disclosure agreement. Padillo filed an action for sum of money before the RTC of Manila seeking to
recover the amounts she allegedly paid in excess of her obligation, alleging that she only agreed to pay
interest at the rates of 4.5% and 5% per annum for the two loans and not 4.5% and 5% per month. The
trial court dismissed the complaint ordering her to pay her obligation. the court also ruled that by issuing
checks representing interest payment sat 4.5% and 5% monthly interest rates, Padillo is stopped from
questioning the provisions of the PNs.

On appeal , the CA reversed the trial court ruling that, based on disclosure statements, the
interest rates should be imposed on a monthly basis but only for the 3-month term of the loan. legal
interest rate will apply thereafter. The CA also found that the penaty harges of 1% per day of delay as
highly unconscionable. Thus, it was reduced to 1% per month or 12% per annum.

ISSUE
Whether or not the CA erred in finding that the applicable interest should be the legal interest of
12% PA despite the clear agreement of the parties.

HELD
The Court held in the negative. When the terms of the agreement are clear and explicit that they
do not justify an attempt to reas into it any alleged intention of the paies, the terms are to be understood
literally just as they appear on the face pf the contract. Perusal of the PNs and the disclosure statements,
loan obligations of respondent clearly and unambiguously provide interest rates of 4.5% per annum and
5% PA. Nowhere was it stated that the interest rates shall be applied on a monthly basis.
 The same PN provides that xxx any and all remaining amount due on the principal upon maturity
shall earn interest at the rate of _____ from date of maturity until fully paid. The CA thus properly
imposed the legal interest of 12%PA from the time the loans matured until the same has been fully paid.
As held in Eastern Shipping Lines vs CA, In the absence of stipulation, the interest due shall be 12% PA
to be computed fro default.

Integrated Realty Corp vs PNB

GR No. 60705, 28 June 1989
174 SCRA 295

FACTS
Raul Santos made a time deposit with OBM in the amount of P500H and he was issued a
certificate of time deposits. On another date, Santos again made a time deposit with OBM in the amount
of P200H, he was again issued a CTD. IRC, thru its president Raul Santos, applied for a loan and/or
credit line (P700H) with PNB. To secure such, Santos executed a Deed of Assignment of the 2 time
deposits. After due dates of the time deposit certificates, OBM did not pay PNB. PNB then demanded
payment from IRC and Santos, but they replied that the loan was deemed paid with the irrevocable
assignment of the time deposit certificates.

PB then filed with RTC to collect from IRC and Santos with interest. The trial court ruled in favor of
PNB ordering IRC and Santos to pay PNB the total amount of P700H plus interest of 9% PA, 2%
additional interest and 1& PA penalty interest. On appeal, the CA ordered OBM to pay IRC and Santos
whatever amts they will to PNB with interest.

IRC and Santos now claim that OBM should reimburse them for whatever amts they may be
adjudged to pay PNB by way of compensation for damages incurred.

ISSUE
Whether or not the claim of IRC and Santos will prosper.

HELD
The Court held in the affirmative. The 2 time deposits matured on 11 January 1968 and 6
February 1968, respectively. However, OBM was not allowed and suspended to operate only on 31 July
1968 and resolved on 2 August 1968. There was a yet no obstacle to the faithful compliance by OBM of
its liabilities. For having incurred in delay in the performance of its obligation, OBM should be held for
damages. OBM contends that it had agreed to pay interest only up to the dates of maturity of the CTD
and that Santos is not entitled to interest after maturity dates had expired.

While it is true that under Article 1956 of the CC, no interest shall be due unless it has been
expressly stipulated in writing, this applies only to interest for the use of money. It does not comprehend
interest paid as damages. OBM is being required to pay such interest, not as interest income stipulated in
the CTD, but as damages fro failure and delay in the payment of its obligations which thereby compelled
IRC and Santos to resort to the courts.

The applicable rule is that LI, in the nature of damages for non-compliance with an obligation to
puy sum of money, is recoverable from the date judicially or extra-judicially demand is made.
Bataan Seedling vs Republic Credit Digest

Bataan Seedling vs Republic

GR No. 141009, 2 July 2002

383 SCRA 590

FACTS

Petitioner entered into a contract with respondent, represented by the DENR for the reforestation
of a forest land within a period of 3 years. Petitioner undertook to report to DENR any event or condition
which delays or may delay the project. With the contract was the release of mobilization fund but the fund
was to be returned upon completion or deducted from periodic release of moneys to petitioner. Believing
that petitioners failed to comply with their obligations, respondent sent a notice of cancellation. Petitioners
failed to respond to the notice, thus, respondent filed a complaint for damages against petitioners. The
RTC held that respondent had sufficient grounds to cancel the contract but saw no reason why the
mobilization fund and the cash advances should be refunded or that petitioners are liable for liquidated
damages. Both parties appealed to the CA, which affirmed the trial court and that the balnce of the fund
should be returned with 12% interest.

ISSUE

Whether the order to refund the balance of the fund with 12% interest pa is proper

HELD

No. Interest at the rate of 12% pa is impossible if there is no stipulation in the contract. Herein
subject contract does not contain any stipulation as to interest. However, the amount due to respondent
does not represent a loan or forbearance of money. The word forbearance is defined, within, the context
of usury law, as a contractual obligation of lender or creditor to refrain, during given period of time, from
requiring borrower or debtor to repay loan or debt then due and payable. In the absence of stipulation, the
legal interest is 6% pa on the amount finally adjudged by the Court.

SPS ERNESTO AND MINA CATUNGAL V. DORIS HAO (KAPUNAN, 2001)

Back rentals unpaid by possessor in an unlawful detainer case are equivalent

to a loan or forbearance of money. Based on Eastern Shipping Lines v. Court
of Appeals, the interest due thereon is 12% pa.

FACTS: Aniana Galang originally owned the 3-story building along Quirino
Avenue, Baclaran. This building was previously leased to BPI for a period of
15 years (Dec 1972- June 1986). BPI subleased the ground floor of the
building to respondent Doris Hao.

On August 24, 1984, Galang and Hao executed a lease contract on the
second and third floors of the building for 4 years, until August 1988.
On, August 15, 1988, the spouses Catungal bought the building from Galang.
Hao filed a complaint with the RTC of Paranaque to annul the sale based on
her purported right of first refusal stipulated in the lease contract.

On September 27, 1988, the spouses Catungal demanded that Doris Hao
vacate the building. She refused to do so which prompted the spouses to file
an ejection case against her with the MeTC.

In the annulment of sale case, the RTC upheld Hao's right of first refusal but
the CA reversed. In 1996, the SC affirmed the CA and thus the sale was
upheld.

The sale having been upheld, the MeTC decided the ejection cases against
Hao ordering her to pay 8,000 per month for the first floor and 5,000 per
month each for the second and third floor from the date of demand until she
leaves the building. The RTC modified the MeTC decision by increasing the
back rentals from 8,000 to 20,000 and 5,000 to 10,000 a month for the first
floor and the second and third floors, respectively. The CA, under a
technicality and after a motion for reconsideration, reinstated the MeTC
decision saying that the MeTC decision has become final and executory
because the motion for reconsideration filed by the spouses was prohibited
by the Rules of Summary procedure and thus, the spouses had lost their
right to appeal.

ISSUES/HELD:
1. Are the spouses entitled to back rentals and if so, what are the proper
amounts? /Yes, RTC amounts reinstated.

2. (Relevant) Are the spouses entitled to interest for the back rentals and if
so, at what rate, from when, and until when? /Yes, at 12 %pa, from date of
demand (1988) until Hao leaves the building.

RATIO: As to the proper amount of back rentals, the court ratiocinated that
the building was situated in a highly developed area along a major
thoroughfare and was thus in a very attractive spot for commercial
enterprises. Thus, the amounts ordered by the MeTC were too meager and
those of the RTC more appropriate. Furthermore, considering that Hao
deprived petitioners of the rightful possession of their property, the increased
back rentals are justified more so.

(Relevant)
The Supreme Court introduced interest for the back rentals accruing from the
date of demand until Hao leaves the building. The back rentals were
considered as loan or forbearance of money and thus the proper interest rate
is 12% per annum based on the case of Eastern Shipping Lines v. CA.
 DISPOSITIVE: Decision of RTC reinstated ordering Doris Hao to pay back
rentals at an interest rate of 12% pa from the date of notice of demand
(September 27, 1988), attorney's fees, and the costs of the suit.

CASE DIGEST by Ronald

Banco Filipino vs CA
GR No. 129227, 30 May 2000
332 SCRA 241

FACTS
Elsa and Calvin Arcilla secured, on 3 occassions, loan from petitioner as evidenced by promissory
note. REM was also executed. Under said deeds, Banco Filipino may increase rate of interest on said
loans, within the limits allowed by law. at that time, under Usury Law, the maximum rate of interest for
loans secured by REM was 12% pa. later, the Central bank issued Circular No. 494 provinding for the
maximum interest of 19%pa. meanwhile, Skyli Builders, thru President Calvin Arcilla secured loans from
BPI with FGU Insurance as surety. Banco Filipino issued an account statement with 17% pa as interest.
The Arcillas filed for annulment of the loan contracts because the rate of interests charged were usurious.

ISSUE
Whether or not respondents are entitled to refund of the alleged interest overpayments.

HELD
Yes. Private respondents aver that they are entitled to the refund inasmuch as the escalation
clause incorporated in the loan contracts do not have a corresponding de-escalation clause and is
therefore, illegal.

In Banco Filipino Savings & Mortgage Bank vs Navarro, the Court ruled that Central Bank Circular
494, although it has the force and effect of law, is not a law and is not the law contemplated by the parties
which authorizes the petitioner to unilaterally raise the interest rate of loan. The reliance on the circular
was without any legal basis.
Consolidated Bank vs CA
GR No. 114286, 19 April 2001
356 SCRA 671

FACTS
Continental Cement Corp obtained from Consolidated Bank letter of credit used to purchased
500,000 liters of bunker fuel oil. Respondent Corporation made a marginal deposit to petitioner. A trust
receipt was executed by respondent corporation, with respondent Gregory Lim as signatory. Claiming that
respondents failed to turn over the goods or proceeds, petitioner filed a complaint for sum of money
before the RTC of Manila. In their answer, respondents aver that the transaction was a simple loan and
not a trust receipt one, and tht the amount claimed by petitioner did not take into account payments
already made by them. The court dismissed the complaint, CA affirmed the same.

ISSUE
Whether or not the marginal deposit should not be deducted outright from the amount of the letter
of credit.

HELD
No. petitioner argues that the marginal deposit should be considered only after computing the
principal plus accrued interest and other charges. It could be onerous to compute interest and other
charges on the face value of the letter of credit which a bank issued, without first crediting or setting off
the marginal deposit which the borrower paid to it-compensation is proper and should take effect by
operation of law because the requisited in Art. 1279 are present and should extinguish both debts to the
concurrent amount. Unjust enrichment.
Mendoza vs CA
GR No. 116710, 25 June 2001
359 SCRA 438

FACTS
Petitioner was granted by respondent PNB a credit line for 500H and 1M for LoC/TR line. As
security, the former mortgaged properties. The REM provided for an escalation clause that rate of interest
charged on the obligation secured shall be subject to such increase, during the life of the contract, within
the rates allowed by law. Two PNs were executed for the credit line and stipulated therein : with interest
thereon at the rate of 12% pa, until paid, with interest rate the Bank may, at any tie, without notice, raise
within the limits allowed by law xxx. Thereafter, PNB advised Mendoza that the bank raised its interest
rates to 14% pa, in ine with CBMB Reso No 2126. Petitioner failed to payand requested for restructuring
of loans. Two promissory notes were signed by Mendoza and his wife. Petitioner testified that respondent
allegedly inserted in first promissory note No. 127/82 an interest rate of 21% instead of 18% covering the
principal amount,and on the second promissory note 128/82 the interest of 18% instead of 12%
representing accrued interest.

ISSUE
Whether or not the interests provided by respondent is proper.

HELD
No. it appears that respondent bank increased the interest rates on the 2 promissory notes
without prior consent of the petitioner. The petitioner did not agree to the increase in the stipulated
interest. As held in several cases, the unilateral determination and imposition of increased interest rates
by respondent bank is violative of the principle of mutuality of contracts ordained in Art. 1308 of the CC.
irst Metro vs Este del Sol
GR No. 141811, 15 November 2001
369 SCRA 99

FACTS
FMIC granted Este del Sol a loan to finance a sports/resort complex in Montalban, Rizal. Under
the agreement, the interest was 16% pa based on the diminishing balance. In case of default, an
acceleration clause was provided and the amount due is subject to 20% one-time penalty on the amount
due and such amount shall bear interest at the highest rate permitted by law. respondent executed a
REM, individual continuing suretyship and an underwriting agreement whereby FMIC shall underwrite the
public offering of one P120,000 common shares of respondents capital stock for one-time underwriting
fee of P200,000. For failure to pay its obligation, FMIC caused the foreclosure of the REM. At the public
auction, FIC was the highest bidder. Petitioner filed to collect for alleged deficiency balance against
respondents since it failed to collect from the sureties, plus interest at 21% pa. the trial court ruled in favor
of FMIC. Respondents appealed before the CA which held that the fees provided for in the Underwriting
and Consultacy Agreements were mere subterfuges to camouflage the excessively usurious interest
charged. The CA ordered FMIC to reimburse petitioner representing what is ue to petitioner and what is
due to respondent.

ISSUE
Whether or not the interests are lawful

HELD
No. an apparently lawful loan is usurious when it is intended that additional compensation for the
loan be disguised by an ostensibly unrelated contract for the payment by the borrower for the lenders
services which re of little value or which are not in fact to be rendered. Article 1957 clearly provides:
contracts and stipulations, under any cloak or device whatever, intended to circumvent the law agaistn
usury shall be void. The borrower may recover in accordance with the laws on usury
 Frias v. San Diego-Sison
BOBIE ROSE FRIAS v. FLORA SAN DIEGO-SISON
2007 / Austria-Martinez
On 7 Dec 1990, Bobie Rose Frias and Dr. Flora San-Diego Sison entered into a MOA over Friasproperty

MOA consideration is 3M
Sison has 6 months from the date of contracts execution to notify Frias of her intention to purchase the property
with the improvements at 6.4M
Prior to this 6 month period, Frias may still offer the property to other persons, provided that 3M shall be paid to
Sison including interest based on prevailing compounded bank interest + amount of sale in excess of 7M [should
the property be sold at a price greater than 7M]
In case Frias has no other buyer within 6 months from the contracts execution, no interest shall be charged by
Sison on the 3M
In the event that on the 6th month, Sison would decide not to purchase the property, Frias has 6 months to pay 3M
(amount shall earn compounded bank interest for the last 6 months only)
3M treated as a loan and the property considered as the security for the mortgage
Upon notice of intention to purchase, Sison has 6 months to pay the balance of 3.4M (6.4M less 3M MOA
consideration)
Frias received from Sison 3M (2M in cash; 1M post-dated check dated February 28, 1990, instead of 1991, which
rendered the check stale). Frias gave Sison the TCT and the Deed of Absolute Sale over the property. Sison decided
not to purchase the property, so shenotified Frias through a letter dated March 20, 1991 [Frias received it only on
June 11, 1991],and Sison reminded Frias of their agreement that the 2M Sison paid should be considered as a loan
payable within 6 months. Frias failed to pay this amount.

Sison filed a complaintfor sum of money with preliminary attachment. Sison averred that Frias tried to deprive her of
the security for the loan by making a false report of the loss of her owners copy of TCT, executing an affidavit of loss
and by filing a petition[1] for the issuance of a new owners duplicate copy. RTC issued a writ of preliminary
attachment upon the filing of a 2M bond.

RTC found that Frias was under obligation to pay Sison 2M with compounded interest pursuant to their MOA. RTC
ordered Frias to pay Sison:

2M + 32% annual interest beginning December 7, 1991 until fully paid

70k representing premiums paid by Sison on the attachment bond with legal interest counted from the date of this
decision until fully paid
100k moral, corrective, exemplary damages [liable for moral damages because of Frias fraudulent scheme]
100k attorneys fees + cost of litigation
CA affirmed RTC with modification32% reduced to 25%. CA said that there was no basis for Frias to say that the
interest should be charged for 6 months only. It said that a loan always bears interest; otherwise, it is not a loan. The
interest should commence on June 7, 1991 until fully paid, with compounded bank interest prevailing at the time
[June 1991] the 2M was considered as a loan (as certified by the bank).

ISSUES & HOLDING Ratio only discusses topic of INTEREST (as per syllabus)
WON compounded bank interest should be limited to 6 months as contained in the MOA. NO
WON Sison is entitled to moral damages. YES
WON the grant of attorneys fees is proper, even if not mentioned in the body of the decision. NO
CA committed no error in awarding an annual 25% interest on the 2M even beyond the 6-month stipulated period. In
this case, the phrase for the last six months only should be taken in the context of the entire agreement.

SC notes that the agreement speaks of two (2) periods of 6 months each (see FACTSwords in bold & underline).
No interest will be charged for the 1st 6-month period [while Sison was making up her mind], but only for the 2nd 6-
month period after Sison decided not to buy the property. There is nothing in the MOA that suggests that interest will
be charged for 6 months only even if it takes forever for Frias to pay the loan.

The payment of regular interest constitutes the price or cost of the use of money, and until the principal sum due is
returned to the creditor, regular interest continues to accrue since the debtor continues to use such principal amount.
For a debtor to continue in possession of the principal of the loan and to continue to use the same after maturity of
the loan without payment of the monetary interest constitutes unjust enrichment on the part of the debtor at the
expense of the creditor.

CA DECISION AND RESOLUTION AFFIRMED WITH MODIFICATIONAward of attorneys fees deleted

[1] At first, Frias petition was granted, but it was eventually set aside, since RTC granted Sisons petition for relief
from judgment (as Sison was in possession of the owners duplicate copy).
CARPO vs. CHUA & DY NG, GR. Nos. 150773 & 153599, September 30, 2005 FACTS: Herein
petitioner spouses David Carpo and Rechilda Carpo contracted a loan from Eleanor Chua and Elma
Dy Ng for a certain sum of money payable within six (6) months with an interest rate of six percent
(6%) per month secured by a mortgaged of the spouses Carpo of their residential house and lot.
Petitioners failed to pay the loan upon demand. Consequently, the real estate mortgage was
extrajudicially foreclosed, mortgaged property sold at a public auction, and the house and lot was
awarded to respondents, who were the only bidders. Unable to exercise their right of redemption by
petitioners, a certificate of sale was issued in the name of respondents. However, petitioners
continued to occupy the said house and lot, thus respondents file a petition for writ of possession
which was granted by the Trial Court. Petitioners filed a complaint for annulment of real estate
mortgage and the consequent foreclosure proceedings claiming that the rate of interest stipulated in
the principal loan agreement is clearly null and void for being excessive, iniquitous, unconscionable
and exorbitant. Consequently, they also argue that the nullity of the agreed interest rate affects the
validity of the real estate mortgage.

ISSUE: Whether or not the agreed rate of interest of 6% per month or 72% per annum is so
excessive, iniquitous, unconscionable and exorbitant that it should have been declared null and void.

HELD: In a long line of cases, the Supreme Court has invalidated similar stipulations on interest
rates for being excessive, iniquitous, unconscionable and exorbitant. Pursuant to the freedom of
contract principle embodied in Article 1306 of the Civil Code, contracting parties may establish such
stipulations, clauses, terms and conditions as they may deem convenient, provided they are not
contrary to law, morals, good customs, public order, or public policy. In the ordinary course, the
codal provision may be invoked to annul the excessive stipulated interest. In the case at bar, the
stipulated interest rate is 6% per month, or 72% per annum. By the standards set by jurisprudence,
this stipulation is similarly invalid

Ligutan vs. CA G.R#138677

Facts: Petitioners Tolomeo Ligutan and Leonidas dela Llana obtained a loan in the amount of
P120,000.00 from respondent Security Bank and Trust Company. Petitioners executed a promissory
note binding themselves, jointly and severally, with an interest of 15.189% per annum upon maturity
and to pay a penalty of 5% every month on the outstanding principal and interest in case of default and
also a 10% attorneys fees if the matter were indorsed to a lawyer for collection.

The obligation matured, the petitioners were not able to settle the obligation; The bank gave an
extension, still the same happened. Since the petitioners still defaulted, the former filed a complaint for
recovery of the due amount.
Issue: Whether the interest and penalty charge imposed by private respondent bank on petitioners loan
are manifestly exorbitant, iniquitous and unconscionable?

Ruling: The obligor would then be bound to pay the stipulated indemnity without the necessity of proof
on the existence and on the measure of damages caused by the breach. Although a court may not at
liberty ignore the freedom of the parties to agree on such terms and conditions as they see fit that
contravene neither law nor morals, good customs, public order or public policy, a stipulated penalty,
nevertheless, may be equitably reduced by the courts if it is iniquitous or unconscionable or if the
principal obligation has been partly or irregularly complied with.

The question of whether a penalty is reasonable or iniquitous can be partly subjective and partly
objective. Its resolution would depend on such factors as, but not necessarily confined to, the type,
extent and purpose of the penalty, the nature of the obligation, the mode of breach and its
consequences, the supervening realities, the standing and relationship of the parties, and the like, the
application of which, by and large, is addressed to the sound discretion of the court.

The CA exercised good judgment in reducing the stipulated penalty interest from 5% to 3% a month. It
was also been held that the 15.189% per annum stipulated interest and the 10% attorneys is reasonable
and not excessive. The interest prescribed in loan financing arrangements is a fundamental part of the
banking business and the core of a bank's existence.

Eastern Shipping vs CA Credit Digest

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

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.

Hermojina Estores vs. Spouses Arturo and Laura Supangan

G.R. No. 175139 April 18, 2012

DEL CASTILLO, J.:

Facts:

1. In Oct. 1993, Hermojina Estores and Spouses Supangan entered into a Conditional Deed of
Sale where Estores offered to sell, and Spouses offered to buy a parcel of land in Cavite for
P4.7M.
2. After almost 7 years and despite the payment of P3.5M by the Spouses, Estores still failed
to comply with her obligation to handle the peaceful transfer of ownership as stated in 5
provisions in the contract.
3. In a letter in 2000, Spouses demanded the return of the amount within 15 days from receipt
4. In reply, Estores promised to return the same within 120 days
5. Spouses agreed but imposed an interest of 12% annually
6. Estores still failed despite demands
7. Spouses filed a complaint with the RTC against Estores and Roberto Arias (allegedly acted as
Estores agent)
8. In Answer, Estores said they were willing to pay the principal amount but without the
interest as it was not agreed upon
a. That since the Conditional Deed of Sale provided only for the return of the
downpayment in case of breach, they cant be liable for legal interest as well
9. RTC ruled saying that the Spouses are entitled to the interest but only at 6% per annum and
also entitled to attys fees
10. On appeal, CA said that the issue to resolve is
a. whether it is proper to impose interest for an obligation that does not involve a loan
or forbearance of money in the absence of stipulation of the parties
11. CA affirmed RTC
a. That interest should start on date of formal demand by Spouses to return the money
not when contract was executed as stated by the RTC
b. That Arias not be solidarily liable as he acted as agent only and did not expressly
bind himself or exceeded his authority
12. Estores contends:
a. Not bound to pay interest because the deed only provided for the return of the
downpayment in case of failure to comply with her obligations
b. That atty fees not proper because both RTC and CA sustained her contention that
12% interest was uncalled for so it showed that Spouses did not win
13. Spouses contend:
a. It is only fair that interest be imposed because Estores failed to return the amount
upon demand and used the money for her benefit
b. Estores failed to relocate the house outside the perimeter of the subject lot and
complete the necessary documents
c. As to the fees, they claim that they were forced to litigate when Estores unjustly
held the amount

Issue:

Is the imposition of interest and attorneys fees is proper? YES

Interest based on Art 2209 of CC (6%) or under Central Bank Circular 416 (12%)? 12%

Held:

Interest may be imposed even in the absence of stipulation in the contract.

Article 2210 of the Civil Code expressly provides that [i]nterest may, in the discretion of the court,
be allowed upon damages awarded for breach of contract.
Estores failed on her obligations despite demand.
o She admitted that the conditions were not fulfilled and was willing to return the full
amount of P3.5M but hasnt done so
o She is now in default
The interest at the rate of 12% is applicable in the instant case.

Gen Rule: the applicable interest rate shall be computed in accordance with the stipulation of
the parties
Exc: if no stipulation, applicable rate of interest shall be 12% per annum
o When obligation arises out of a loan or forbearance of money, goods or credits
In other cases, it shall be 6%
In this case, no stipulation was made
 Contract involved in this case is not a loan but a Conditional Deed of Sale.
o No question that the obligations were not met and the return of money not made
Even if transaction was a Conditional Deed of Sale, the stipulation governing the return
of the money can be considered as a forbearance of money which requires 12% interest
In Crismina Garments, Inc. v. Court of Appeals, Forbearance-- contractual obligation of lender or
creditor to refrain during a given period of time, from requiring the borrower or debtor to repay a loan
or debt then due and payable.
o In such case, forbearance of money, goods or credits will have no distinct definition from a
loan.
o however, the phrase forbearance of money, goods or credits is meant to have a separate
meaning from a loan, otherwise there would have been no need to add that phrase as a loan is
already sufficiently defined in the Civil Code
o Forbearance of money, goods or credits should therefore refer to arrangements other than
loan agreements, where a person acquiesces to the temporary use of his money, goods or
credits pending happening of certain events or fulfillment of certain conditions.
Estores unwarranted withholding of the money amounts to forbearance of money which can be
considered as an involuntary loan so rate is 12% starting in Sept. 2000
The award of attorneys fees is warranted.

no doubt that the Spouses were forced to litigate to protect their interest, i.e., to recover their
money. The amount of P50,000.00 more appropriate