JARDENIL V. SOLAS
Article 1755 of the
G.R. No. L-47878
24 July 1942
Article 1956: No interest shall be due unless it has
been expressly stipulated in writing.
FACTS:
The case is an action for foreclosure of mortgage.
Paragraph 4 of the mortgage deed between the parties
states that Solas agrees to pay Jardenil on or before 31
March 1934 the amount of P 2,400 with the interests of
the sum at the rate of 12% per year starting from the date
of execution until its maturity date on 31 March 1934.
The mortgage also includes an extension note of one year
from the date of maturity within which to make payment,
without making any mention of any interest which the
mortgagor should pay during the additional period.
ISSUE:
Whether or not defendant-appellee (Solas) is bound to pay
the stipulated interest continuously up to the date of
payment, regardless whether the actual date of payment
is beyond the stipulated maturity date
HELD
No.
The Court ruled that Solas clearly agreed to pay interest
only up to the date of maturity, or until March 31, 1934.
As the contract is silent as to whether after that date, in
the event of non-payment, the debtor would continue to
pay interest, the Court cannot in law, indulge in any
presumption as to such interest; otherwise, the Court
would be imposing upon the debtor an obligation that the
parties have not chosen to agree upon.
(old) Civil Code provides that "interest shall be due only
when it has been expressly stipulated."
There is nothing in the mortgage deed to show that
the terms stipulated go against the intention of the
parties. Neither has either of the parties shown that, by
mutual mistake, the deed of mortgage fails to express
their agreement since the plaintiff, Jardenil, did not
adduce evidence to establish such mistake. Since the
parties included an extension note of one year within
which to make payment without mentioning that
additional interests should be paid during that extended
period, it can be deduced that parties intended that no
interest should be paid during the period of grace.
The contract is clear and unmistakable and the
terms employed therein have not been shown to belie or
otherwise fail to express the true intention of the parties
and that the deed has not been assailed on the ground of
mutual mistake which would require its reformation,
same should be given its full force and effect.
Plaintiff is, therefore, entitled only to the stipulated
interest of 12 per cent on the loan of P2,400 from
November 8, 1932 to March 31, 1934. And it being a fact
that extra judicial demands have been made on the
expiration of the year of grace, he shall be entitled to legal
interest upon the principal and the accrued interest from
April 1, 1935, until full payment.
CU UNJIENG E HIJOS, Plaintiffs-Appellees, v. THE
MABALACAT SUGAR COMPANY, ET AL., defendants.
THE MABALACAT SUGAR COMPANY, Appellant.
Facts:
Petitioner Cu Unjieng E Hijos, filed an action in the CFI of
Pampanga for purpose of recovering from the Mabalacat
Sugar Company an indebtedness amounting to P
163,000, with interest, and to foreclose a mortgage given
by the debtor, as well as attorneys fees and insurance of
the mortgaged property.
Judgement was rendered in favor of the petitioner.
Respondent Mabalacat Sugar appealed. It raised two
errors from the judgment.
(1) as to whether the action was prematurely started
although, non compliance on the part of the mortgage
debtor will cause the entire debt due and foreclosure of
the mortgage, the petitioner agreed to extend the time for
payment of the mortgage until June 30, 1929 with certain
interim payments to be made.
According to the respondent, the agreement for the
extension of time of payment had the effect of abrogating
the stipulation of the original contract with respect to the
acceleration of the maturity of the debt by non-
compliance with the terms of mortgage.
(2) as to the propriety of the interest charges made by the
petitioner in estimating the amount of the indebtedness.
Interest should be calculated upon the indebtedness at
the rate 12 per cent per annum.
(3) excessive of the attorneys fees allowed by the court
(4) failure of the trial court to permit an amendment to be
filed by the debtor to its answer
Issue: WON the payment charged was usurious being in
excess of 12% percent?
Held:
Yes.
It is well settled that, under article 1109 of the Civil Code,
as well as under section 5 of the Usury Law (Act No.
2655), the parties may stipulate that interest shall be
compounded; and rests for the computation of compound
interest can certainly be made monthly, as well as
quarterly, semiannually, or annually. But in the absence
of express stipulation for the accumulation of compound
interest, no interest can be collected upon interest until
the debt is judicially claimed, and then the rate at which
interest upon accrued interest must be computed is fixed
at 6 per cent per annum.
In the present case, however, the language which we have
quoted above does not justify the charging of interest
upon interest, so far as interest on the capital is
concerned. The provision quoted merely requires the
debtor to pay interest monthly at the end of each month,
such interest to be computed upon the capital of the loan
not already paid. Clearly this provision does not justify
the charging of compound interest upon the interest
accruing upon the capital monthly. It is true that in
subsections (a), (b) and (c) of article IV of the mortgage, it
is stipulated that the interest can be thus computed upon
sums which the creditor would have to pay out (a) to
maintain insurance upon the mortgaged property, (b) to
pay the land tax upon the same property, and (c) upon
disbursements that might be made by the mortgagee to
maintain the property in good condition. But the chief
thing is that interest cannot be thus accumulated on
unpaid interest accruing upon the capital of the debt.
THE GOVERNMENT SERVICE INSURANCE
SYSTEM, petitioner-appellant,
vs.
HONORABLE COURT OF APPEALS, NEMENCIO R.
MEDINA and JOSEFINA G. MEDINA, respondents-
appellants.
G.R. No. L-52478 October 30, 1986
PARAS, J.:
Facts:
Private respondents spouses Nemencio R. Medina and
Josefina G. Medina (Medinas for short) applied with the
herein petitioner Government Service Insurance System
(GSIS for short) for a loan of P600,000.00.
The GSIS Board of Trustees approved under Resolution
No. 5041 only the amount of P350,000.00, subject to the
following conditions: that the rate of interest shall be 9%
per annum compounded monthly; repayable in ten (10)
years at a monthly amortization of P4,433.65 including
principal and interest, and that any installment or
amortization that remains due and unpaid shall bear
interest at the rate of 9%/12% per month.
The Office of the Economic Coordinator, in a 2nd
Indorsement dated March 26, 1962, further reduced the
approved amount to P295,000.00. The Medinas accepting
the reduced amount, executed a promissory note and a
real estate mortgage in favor of GSIS.
GSIS and the Office of the Economic Coordinator, upon
request of the Medinas, both approved the restoration of
the amount of P350,000.00 (P295,000.00 + P55,000.00)
originally approved by the GSIS. This P350,000.00 loan
was denominated by the GSIS as Account No. 31055.
The Medinas executed in favor of the GSIS an
Amendment of Real Estate Mortgage
Upon application by the Medinas, the GSIS Board of
Trustees adopted Resolution No. 121 on January 18,
1963, as amended by Resolution No. 348 dated February
25, 1963, approving an additional loan of P230,000.00 in
favor of the Medinas on the security of the same
mortgaged properties and the additional properties
covered by TCT Nos. 49234, 49235 and 49236, to bear
interest at 9% per annum compounded monthly and
repayable in ten years. This additional loan of
P230,000.00 was denominated by the GSIS as Account
No. 31442.
The Medinas having defaulted in the payment of the
monthly amortization on their loan, the GSIS imposed
9%/12% interest on an installments due and unpaid. In
1967, the Medinas began defaulting in the payment of fire
insurance premiums.
GSIS notified the Medinas that they had arrearages in the
aggregate amount of P575,652.42 as of April 18, 1974
and demanded payment within seven (7) days from notice
thereof, otherwise, it would foreclose the mortgage.
GSIS filed an Application for Foreclosure of Mortgage with
the Sheriff of the City of Manila.
The Medinas filed with the Court of First Instance of
Manila a complaint, praying, among other things, that a
restraining order or writ of preliminary injunction be
issued to prevent the GSIS and the Sheriff of the City of
Manila from proceeding with the extra-judicial foreclosure
of their mortgaged properties.
 However, in view of Section 2 of Presidential Decree No.
385, no restraining order or writ of preliminary injunction
was issued by the trial court .
Under a Notice of Sale on Extra-Judicial Foreclosure
dated June 18, 1975, the real properties of the Medinas
were sold at public auction.
The Medinas filed an Amended Complaint with the trial
court, praying for (a) the declaration of nullity of their two
real estate mortgage contracts with the GSIS as well as of
the extra-judicial foreclosure proceedings; and (b) the
refund of excess payments, plus damages and attorney's
fees.
Dissatisfied with the said judgment, both parties
appealed with the Court of Appeals.
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,...
In the Bachrach case (supra) the Supreme Court ruled
that the Civil Code permits the agreement upon a penalty
apart from the interest. Should there be such an
agreement, the penalty does not include the interest, and
as such the two are different and distinct things which
may be demanded separately. Reiterating the same
principle in the later case of Equitable Banking Corp.
(supra), where this Court held that the stipulation about
payment of such additional rate partakes of the nature of
a penalty clause, which is sanctioned by law.

CA ruled in favor of the Medinas. Hence, this petition.

Issue:

WHETHER OR NOT THE COURT OF APPEALS ERRED IN

HOLDING THAT THE INTEREST RATES ON THE LOAN
ACCOUNTS OF RESPONDENT-APPELLEE SPOUSES ARE
USURIOUS?

Held:

As to whether or not the interest rates on the loan

accounts of the Medinas are usurious, it has already been
settled that the Usury Law applies only to interest by way
of compensation for the use or forbearance of money
(Lopez v. Hernaez, 32 Phil. 631; Bachrach Motor Co. v.
Espiritu, 52 Phil. 346; Equitable Banking Corporation v.
Liwanag, 32 SCRA 293, March 30, 1970). Interest by way
of damages is governed by Article 2209 of the Civil Code
of the Philippines which provides:
TOLOMEO LIGUTAN and LEONIDAS DE LA principal obligation has been partly or irregularly
LLANA, petitioners, vs. HON. COURT OF APPEALS & complied with.
SECURITY BANK & TRUST COMPANY, respondents The question of whether a penalty is reasonable or
[G.R. No. 138677. February 12, 2002] iniquitous can be partly subjective and partly
objective. Its resolution would depend on such factors as,
VITUG, J.: 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
Facts: realities, the standing and relationship of the parties, and
Petitioners Tolomeo Ligutan and Leonidas dela Llana obta the like, the application of which, by and large, is
ined a loan in the amount of P120,000.00 from addressed to the sound discretion of the court.
respondent Security Bank and Trust The CA exercised good judgment in reducing the
Company. Petitioners executed a promissory note stipulated penalty interest from 5% to 3% a month. It was
binding themselves, jointly and severally, with an interest also been held that the 15.189% per annum stipulated
of 15.189% per annum upon maturity and to pay a interest and the 10% attorneys is reasonable and not
penalty of 5% every month on the outstanding principal excessive. The interest prescribed in loan financing
and interest in case of default and also a 10% attorneys arrangements is a fundamental part of the banking
fees if the matter were indorsed to a lawyer for business and the core of a bank's existence.
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?
Held:
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
Issue:
Whether the interest and penalty charge imposed by
private respondent bank on petitioners loan are
manifestly exorbitant, iniquitous and unconscionable?
Held:
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.