IN THE MATTER OF CREDIT TRANSACTIONS CASE DIGESTS

GR NO. 000001, November 19, 2017

TINAMPAY, J.:

CATHOLIC VICAR APOSTOLIC OF THE MOUNTAIN PROVINCE vs. HON. COURT OF APPEALS
G.R. No. 80294-95 September 21, 1988
GANCAYCO, J.:

FACTS:
VICAR filed an application for registration of title over lots where the sites of their properties
where located. Respondents filed their opposition asseting ownership over the land. The LRC (land
registration court) promulgated its decision confirming registration of the land to VICAR. CA reverse LRC’s
decision. The supreme court, upon motion for review filed by VICAR, denied the motion in a minute
resolution. The Heirs of Octavio filed for execution of judgement praying that they be placed in possession
of the said land. The Court denied the motion on the ground that the CA decision did not grant the heirs
any affirmative relief.

ISSUE:
WON the decisions of the CA and the SC which declared the ownership of land constitutes res
judicata.

HELD:
YES. We see no error in CA’s ruling that said findings are res judicata between the parties because
they have been resolved with finality. CA found that VICAR did not meet the requirement of 30 years for
acquisitive prescription nor did it satisfy that requirement of 10 years possession for ordinary acquisitive
prescription because of the absence of just title. There ws absolutely no documentary evidence to support
it. Private respondents were able to prove that their predecessors' house was borrowed by petitioner
Vicar after the church and the convent were destroyed. They never asked for the return of the house, but
when they allowed its free use, they became bailors in commodatum and the petitioner the bailee. The
bailees' failure to return the subject matter of commodatum to the bailor did not mean adverse
possession on the part of the borrower. The bailee held in trust the property subject matter of
commodatum. The adverse claim of petitioner came only in 1951 when it declared the lots for taxation
purposes. The action of petitioner Vicar by such adverse claim could not ripen into title by way of ordinary
acquisitive prescription because of the absence of just title.
FRANCISCO HERRERA vs. PETROPHIL CORPORATION
G.R. No. L-48349 December 29, 1986
CRUZ, J.:

FACTS:
Herrera and ESSO Standard Eastern Inc (Petrophil Corp.) entered into a “Lease Agreement”
whereby the former leased to the latter a portion of his property for a period of twenty (20) years:
“PROVIDED FINALLY, that the Lessor is paid 8 years advance rental based on P2,930.70 per month
discounted at 12% interest per annum or a total net amount of P130,288.47 before registration
of lease”

The defendant paid advance rentalsfor the first eight years subtracting therefrom the computed
discount of 98, 828.03. The petitioner sued the defendant for the sum of 98,828.03, with interest, cliaming
this had been illegally deducted from him in violation of the Usury Law. Judgement was rendered in favor
of Petrophil. Herrera now prays for the reversal of judgment insisting that the interest was excessive and
violative of Usury Law (the amount of 29, 536.42 only as the total interest should have been deducted).

ISSUE:
WON the computation for the discount was excessive or violative of the Usury Law.

HELD:
NO. The contract between the parties is one of lease and not of loan. It is clearly denominated a
"LEASE AGREEMENT." Nowhere in the contract is there any showing that the parties intended a loan
rather than a lease. The provision for the payment of rentals in advance cannot be construed as a
repayment of a loan because there was no grant or forbearance of money as to constitute an
indebtedness on the part of the lessor. On the contrary, the defendant-appellee was discharging its
obligation in advance by paying the eight years rentals, and it was for this advance payment that it was
getting a rebate or discount.

There is no usury in this case because no money was given by the defendant-appellee to the
plaintiff-appellant, nor did it allow him to use its money already in his possession. There was neither loan
nor forbearance but a mere discount which the plaintiff-appellant allowed the defendant-appellee to
deduct from the total payments because they were being made in advance for eight years. The discount
was in effect a reduction of the rentals which the lessor had the right to determine, and any reduction
thereof, by any amount, would not contravene the Usury Law.

The difference between a discount and a loan or forbearance is that the former does not have to
be repaid. The loan or forbearance is subject to repayment and is therefore governed by the laws on
usury. To constitute usury, "there must be loan or forbearance; the loan must be of money or something
circulating as money; it must be repayable absolutely and in all events; and something must be exacted
for the use of the money in excess of and in addition to interest allowed by law.

It has been held that the elements of usury are (1) a loan, express or implied; (2) an understanding
between the parties that the money lent shall or may be returned; that for such loan a greater rate or
interest that is allowed by law shall be paid, or agreed to be paid, as the case may be; and (4) a corrupt
intent to take more than the legal rate for the use of money loaned. Unless these four things concur in
every transaction, it is safe to affirm that no case of usury can be declared.
INTEGRATED REALTY CORPORATION vs. PHILIPPINE NATIONAL BANK
G.R. No. L-60705 June 28, 1989
REGALADO, J.:

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:
1. WON the liability of IRC and Santos with PNB should be deemed to have been paid by virtue of
the deed of assignment made by the former in favor of PNB.
2. WON the contract entered by Santos with OBM is contract of deposit.

HELD:
I.
NO. Where a certificate of deposit in a bank, payable at a future day, was handed over by a debtor
to his creditor, it was not payment, unless there was an express agreement on the part of the creditor to
receive it as such, and the question whether there was or was not such an agreement, was one of facts to
be decided by the jury.

It Is clear from the Deed of Assignment that it was only by way of security and did not operate as
payment of the loan so as to extinguish the obligations of IRC and Santos with PNB. The facts and
circumstances leading to the execution of the deed of assignment, as found by the court a quo and the
respondent court, yield said conclusion that it is in fact a pledge. The deed of assignment has satisfied the
requirements of a contract of pledge (1) that it be constituted to secure the fulfillment of a principal
obligation; (2) that the pledgor be the absolute owner of the thing pledged; (3) that the persons
constituting the pledge have the free disposal of their property, and in the absence thereof, that they be
legally authorized for the purpose. 11 The further requirement that the thing pledged be placed in the
possession of the creditor, or of a third person by common agreement 12 was complied with by the
execution of the deed of assignment in favor of PNB.
 The unavoidable conclusion is that IRC and Santos should be liable for amount of loan with the
corresponding interest thereon

II.
NO. When PNB demanded from OBM payment of the amounts due on the two time deposits
which matured on January 11, 1968 and February 6, 1968, respectively, there was as yet no obstacle to
the faithful compliance by OBM of its liabilities thereunder. Consequently, for having incurred in delay in
the performance of its obligation, OBM should be held liable for damages. 17 When respondent Santos
invested his money in time deposits with OBM they entered into a contract of simple loan or mutuum, 18
not a contract of deposit.
BPI INVESTMENT CORPORATION vs. HON. COURT OF APPEALS
GR No. 133632, 15 February 2002
377 SCRA 117
QUISUMBING, J.:

FACTS:
Frank Roa obtained a loan from Ayala Investment and Development Corporation (AIDC), for the
construction of his house. Said house and lot were mortgaged to AIDC to secure the loan. Roa sold the
properties to ALS and Litonjua, the latter paid in cash and assumed the balance of Roa’s indebtedness wit
AIDC. AIDC was not willing to extend the old interest to private respondents and proposed a grant of new
loan of P500,000 with higher interest to be applied to Roa’s debt, secured by the same property. Private
respondents executed a mortgage deed containing the stipulation. The loan contract was signed on 31
March 1981 and was perfected on 13 September 1982, when the full loan was released to private
respondents.

BPIIC, AIDC’s predecessor, released to private respondents P7,146.87, purporting to be what was
left of their loan after full payment of Roa’s loan. BPIIC filed for foreclosure proceedings on the ground
that private respondents failed to pay the mortgage indebtedness. Private respondents maintained that
they should not be made to pay amortization before the actual release of the P500,000 loan. The suit was
dismissed and affirmed by the CA.

ISSUE:
WHETHER OR NOT A CONTRACT OF LOAN IS A CONSENSUAL CONTRACT IN THE LIGHT OF THE
RULE LAID DOWN IN BONNEVIE VS. COURT OF APPEALS, 125 SCRA 122.

HELD:
NO. A loan contract is not a consensual contract but a real contract. It is perfected only upon the
delivery of the object of the contract.[5] Petitioner misapplied Bonnevie. The contract in Bonnevie declared
by this Court as a perfected consensual contract falls under the first clause of Article 1934, Civil Code. It is
an accepted promise to deliver something by way of simple loan.

In Saura Import and Export Co. Inc. vs. Development Bank of the Philippines, 44 SCRA 445,
petitioner applied for a loan of P500,000 with respondent bank. The latter approved the application
through a board resolution. Thereafter, the corresponding mortgage was executed and
registered. However, because of acts attributable to petitioner, the loan was not released. Later,
petitioner instituted an action for damages. We recognized in this case, a perfected consensual contract
which under normal circumstances could have made the bank liable for not releasing the loan. However,
since the fault was attributable to petitioner therein, the court did not award it damages.

A perfected consensual contract, as shown above, can give rise to an action for damages.
However, said contract does not constitute the real contract of loan which requires the delivery of the
object of the contract for its perfection and which gives rise to obligations only on the part of the
borrower.[6]
 In the present case, the loan contract between BPI, on the one hand, and ALS and Litonjua, on the
other, was perfected only on September 13, 1982, the date of the second release of the loan. Following
the intentions of the parties on the commencement of the monthly amortization, as found by the Court
of Appeals, private respondents obligation to pay commenced only on October 13, 1982, a month after
the perfection of the contract.[7]

We also agree with private respondents that a contract of loan involves a reciprocal obligation,
wherein the obligation or promise of each party is the consideration for that of the other.[8] As averred by
private respondents, the promise of BPIIC to extend and deliver the loan is upon the consideration that
ALS and Litonjua shall pay the monthly amortization commencing on May 1, 1981, one month after the
supposed release of the loan. It is a basic principle in reciprocal obligations that neither party incurs in
delay, if the other does not comply or is not ready to comply in a proper manner with what is incumbent
upon him.[9] Only when a party has performed his part of the contract can he demand that the other party
also fulfills his own obligation and if the latter fails, default sets in. Consequently, petitioner could only
demand for the payment of the monthly amortization after September 13, 1982 for it was only then when
it complied with its obligation under the loan contract. Therefore, in computing the amount due as of the
date when BPIIC extrajudicially caused the foreclosure of the mortgage, the starting date is October 13,
1982 and not May 1, 1981.
CAROLYN M. GARCIA vs. RICA MARIE S. THIO
GR No. 154878, 16 March 2007
CORONA, J.:

FACTS:
Respondent Thio received from petitioner Garcia two crossed checks which amount to
US$100,000 and US$500,000, respectively, payable to the order of Marilou Santiago. According to
petitioner, respondent failed to pay the principal amounts of the loans when they fell due and so she filed
a complaint for sum of money and damages with the RTC. Respondent denied that she contracted the
two loans and countered that it was Marilou Satiago to whom petitioner lent the money. She claimed she
was merely asked y petitioner to give the checks to Santiago. She issued the checks for P76,000 and
P20,000 not as payment of interest but to accommodate petitioner’s request that respondent use her
own checks instead of Santiago’s.

RTC ruled in favor of petitioner. CA reversed RTC and ruled that there was no contract of loan
between the parties.

ISSUES:
Whether or not there was a contract of loan between petitioner and respondent.

HELD:
YES. A loan is a real contract, not consensual, and as such is perfected only upon the delivery of
the object of the contract.[25] This is evident in Art. 1934 of the Civil Code which provides:

An accepted promise to deliver something by way of commodatum or simple loan is binding upon
the parties, but the commodatum or simple loan itself shall not be perfected until the delivery
of the object of the contract. (Emphasis supplied)

Upon delivery of the object of the contract of loan (in this case the money received by the debtor
when the checks were encashed) the debtor acquires ownership of such money or loan proceeds and is
bound to pay the creditor an equal amount.[26]

It is undisputed that the checks were delivered to respondent. However, these checks were
crossed and payable not to the order of respondent but to the order of a certain Marilou Santiago.

Delivery is the act by which the res or substance thereof is placed within the actual or constructive
possession or control of another.[30] Although respondent did not physically receive the proceeds of the
checks, these instruments were placed in her control and possession under an arrangement whereby she
actually re-lent the amounts to Santiago.

(LESS IMPORTANT PART BUT INTEGRAL TO THE CASE)

Several factors support this conclusion.
 First, respondent admitted that petitioner did not personally know Santiago.[31] It was highly
improbable that petitioner would grant two loans to a complete stranger without requiring as much as
promissory notes or any written acknowledgment of the debt considering that the amounts involved were
quite big. Respondent, on the other hand, already had transactions with Santiago at that time.[32]

Second, Leticia Ruiz, a friend of both petitioner and respondent (and whose name appeared in
both parties list of witnesses) testified that respondents plan was for petitioner to lend her money at a
monthly interest rate of 3%, after which respondent would lend the same amount to Santiago at a higher
rate of 5% and realize a profit of 2%.[33] This explained why respondent instructed petitioner to make the
checks payable to Santiago. Respondent has not shown any reason why Ruiz testimony should not be
believed.

Third, for the US$100,000 loan, respondent admitted issuing her own checks in the amount
of P76,000 each (peso equivalent of US$3,000) for eight months to cover the monthly interest. For
the P500,000 loan, she also issued her own checks in the amount of P20,000 each for four
months.[34] According to respondent, she merely accommodated petitioners request for her to issue her
own checks to cover the interest payments since petitioner was not personally acquainted with
Santiago.[35] She claimed, however, that Santiago would replace the checks with cash.[36] Her explanation
is simply incredible. It is difficult to believe that respondent would put herself in a position where she
would be compelled to pay interest, from her own funds, for loans she allegedly did not contract. We
declared in one case that:

In the assessment of the testimonies of witnesses, this Court is guided by the rule that for
evidence to be believed, it must not only proceed from the mouth of a credible witness, but must
be credible in itself such as the common experience of mankind can approve as probable under
the circumstances. We have no test of the truth of human testimony except its conformity to our
knowledge, observation, and experience. Whatever is repugnant to these belongs to the
miraculous, and is outside of juridical cognizance.[37]

Fourth, in the petition for insolvency sworn to and filed by Santiago, it was respondent, not
petitioner, who was listed as one of her (Santiagos) creditors.[38]

Last, respondent inexplicably never presented Santiago as a witness to corroborate her

[39]
story. The presumption is that evidence willfully suppressed would be adverse if
produced.[40]Respondent was not able to overturn this presumption.
CELESTINA T. NAGUIAT vs. HON. COURT OF APPEALS AND QUEAÑO
GR No. 118375, 03 October 2003
412 SCRA 591
TINGA, J.:

FACTS:
Queaño applied with Naguiat a loan for P200,000, which the latter granted. Naguiat indorsed to
Queaño Associated bank Check No. 090990 for the amount of P95,000 and issued also her own
Filmanbank Check to the order of Queaño for the amount of P95,000. The proceeds of these checks were
to constitute the loan granted by Naguiat to Queaño. To secure the loan, Queaño executed a Deed of Real
Estate Mortgage in favor of Naguiat, and surrendered the owner’s duplicates of titles of the mortgaged
properties. The deed was notarized and Queaño issued to Naguiat a promissory note for the amount of
P200,000. Queaño also issued a post-dated check amounting to P200,000 payable to the order of Naguait.
The check was dishonoured for insufficiency of funds. Demand was sent to Queaño. Shortly, Queaño, and
one Ruby Reubenfeldt met with Naguiat. Queaño told Naguiat that she did not receive the loan proceeds,
adding that the checks were retained by Reubenfeldt, who purportedly was Naguiat’s agent.

Naguiat applied for extrajudicial foreclosure of the mortgage. RTC declared the Deed as null and
void and ordered Naguiat to return to Queaño the owner’s duplicates of titles of the mortgaged lots.

ISSUE:
Whether or not the there was perfection of the loan contract.

HELD:
NO. No evidence was submitted by Naguiat that the checks she issued or endorsed were actually
encashed or deposited. The mere issuance of the checks did not result in the perfection of the contract of
loan. The Civil Code provides that the delivery of bills of exchange and mercantile documents such as
checks shall produce the effect of payment only when they have been cashed. It is only after the checks
have been produced the effect of payment that the contract of loan may have been perfected.

Article 1934 of the Civil Code provides:

An accepted promise to deliver something by way of commodatum or simple loan is
binding upon the parties, but the commodatum or simple loan itsel shall not be perfected until
the delivery of the object of the contract. A loan contract is a real contract, not consensual, and
as such, is perfected only upon the delivery of the objects of the contract.

A loan contract is a real contract, not consensual, and, as such, is perfected only upon the delivery
of the object of the contract.[21] In this case, the objects of the contract are the loan proceeds which
Queao would enjoy only upon the encashment of the checks signed or indorsed by Naguiat. If indeed the
checks were encashed or deposited, Naguiat would have certainly presented the corresponding
documentary evidence, such as the returned checks and the pertinent bank records. Since Naguiat
presented no such proof, it follows that the checks were not encashed or credited to Queaos account.
POLO S. PANTALEON vs. AMERICAN EXPRESS INTERNATIONAL, INC.
G.R. No. 174269 August 25, 2010
BRION, J.:

FACTS:
Pantaleon has been an AMEX cardholder since 1980. Pantaleon, together with his wife (Julialinda),
daughter (Regina), and son (Adrian Roberto), went on a guided European tour. While at Coster, Mrs.
Pantaleon decided to purchase some diamond pieces worth a total of US$13,826. Subsequently, the store
manager informed Pantaleon that AMEX was asking for bank references; Pantaleon responded by giving
the names of his Philippine depository banks.

At around 10 a.m., or 45 minutes after Pantaleon presented his credit card, AMEX still had not
approved the purchase. Since the city tour could not begin until the Pantaleons were on board the tour
bus, Coster decided to release at around 10:05 a.m. the purchased items to Pantaleon even without
AMEXs approval. From the records, it appears that after Pantaleons purchase was transmitted for
approval to AMEXs Amsterdam office at 9:20 a.m.; was referred to AMEXsManila office at 9:33 a.m.; and
was approved by the Manila office at 10:19a.m. At 10:38 a.m., AMEXs Manila office finally transmitted
the Approval Code to AMEXs Amsterdam office. Again, Pantaleon experienced delay in securing approval
for purchases using his American Express credit card on two separate occasions.

Upon return to Manila, Pantaleon sent AMEX a letter demanding an apology for the humiliation
and inconvenience he and his family experienced due to the delays in obtaining approval for his credit
card purchases. AMEX responded by explaining that the delay in Amsterdam was due to the amount
involved the charged purchase of US$13,826.00 deviated from Pantaleons established charge purchase
pattern. Dissatisfied with this explanation, Pantaleon filed an action for damages against the credit card
company with the Makati City Regional Trial Court (RTC).

ISSUE:
1. Whether or not the use of credit card is a mere offer to enter into loan agreements?
2. Whether or not AMEX is guilty of culpable delay?
3. Whether or not AMEX is obliged to act on the offer within specific period of time?

HELD:
I.
When cardholders use their credit cards to pay for their purchases, they merely offer to enter into
loan agreements with the credit card company—only after the latter approves the purchase requests that
the parties enter into binding loan contracts.—Although we recognize the existence of a relationship
between the credit card issuer and the credit card holder upon the acceptance by the cardholder of the
terms of the card mem¬bership agreement (customarily signified by the act of the cardholder in signing
the back of the credit card), we have to distinguish this contractual relationship from the creditor-debtor
relation¬ship which only arises after the credit card issuer has approved the cardholder’s purchase
request. The first relates merely to an agreement providing for credit facility to the cardholder. The latter
involves the actual credit on loan agreement involving three contracts, namely: the sales contract
between the credit card holder and the merchant or the business establishment which accepted the credit
card; the loan agreement between the credit card issuer and the credit card holder; and the promise to
pay between the credit card issuer and the merchant or business establishment. From the loan agreement
perspective, the contractual relationship begins to exist only upon the meeting of the offer and
acceptance of the parties involved. In more concrete terms, when cardholders use their credit cards to
pay for their purchases, they merely offer to enter into loan agreements with the credit card company.
Only after the latter approves the purchase requests that the parties enter into binding loan contracts, in
keeping with Article 1319 of the Civil Code.

Article 1319. Consent is manifested by the meeting of the offer and the acceptance upon the thing
and the cause which are to constitute the contract. The offer must be certain and the acceptance
absolute. A qualified acceptance constitutes a counter-offer.

This view finds support in the reservation found in the card membership agreement itself,
particularly paragraph 10, which clearly states that AMEX reserve[s] the right to deny authorization for
any requested Charge. By so providing, AMEX made its position clear that it has no obligation to approve
any and all charge requests made by its card holders.

II.
Since the credit card company has no obligation to approve the purchase requests of its credit
cardholders, the cardholder cannot claim that the former defaulted in its obligation—without a
demandable obligation, there can be no finding of default.—Since American Express International, Inc.
(AMEX) has no obligation to approve the purchase requests of its credit cardholders, Pantaleon cannot
claim that AMEX defaulted in its obligation. Article 1169 of the Civil Code, which provides the requisites
to hold a debtor guilty of culpable delay, states: “Article 1169. Those obliged to deliver or to do something
incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of
their obligation.” x x x. The three requisites for a finding of default are: (a) that the obligation is
demandable and liquidated; (b) the debtor delays performance; and (c) the creditor judicially or
extrajudicially requires the debtor’s performance. Based on the above, the first requisite is no longer met
because AMEX, by the express terms of the credit card agreement, is not obligated to approve Pantaleon’s
purchase request. Without a demandable obligation, there can be no finding of default.

A demand presupposes the existence of an obligation between the parties.—Apart from the lack
of any demandable obligation, we also find that Pantaleon failed to make the demand required by Article
1169 of the Civil Code. As previously established, the use of a credit card to pay for a purchase is only an
offer to the credit card company to enter a loan agreement with the credit card holder. Before the credit
card issuer accepts this offer, no obligation relating to the loan agreement exists between them. On the
other hand, a demand is defined as the “assertion of a legal right; x x x an asking with authority, claiming
or challenging as due.” A demand presupposes the existence of an obligation between the parties.

Thus, every time that Pantaleon used his AMEX credit card to pay for his purchases, what the
stores transmitted to AMEX were his offers to execute loan contracts. These obviously could not be
classified as the demand required by law to make the debtor in default, given that no obligation could
arise on the part of AMEX until after AMEX transmitted its acceptance of Pantaleons offers. Pantaleons
act of insisting on and waiting for the charge purchases to be approved by AMEX[28] is not the demand
contemplated by Article 1169 of the Civil Code.
 For failing to comply with the requisites of Article 1169, Pantaleons charge that AMEX is guilty of
culpable delay in approving his purchase requests must fail.

III.
Even if the cardholder did prove that the credit card company, as a matter of practice or custom,
acted on its customers’ purchase requests in a matter of seconds, this would still not be enough to
establish a legally demandable right—as a general rule, a practice or custom is not a source of a legally
demandable or enforceable right.—As for Pantaleon’s previous experiences with AMEX (i.e., that in the
past 12 years, AMEX has always approved his charge requests in three or four seconds), this record does
not establish that Pantaleon had a legally enforceable obligation to expect AMEX to act on his charge
requests within a matter of seconds. For one, Pantaleon failed to present any evidence to support his
assertion that AMEX acted on purchase requests in a matter of three or four seconds as an established
practice. More importantly, even if Pantaleon did prove that AMEX, as a matter of practice or custom,
acted on its customers’ purchase requests in a matter of seconds, this would still not be enough to
establish a legally demandable right; as a general rule, a practice or custom is not a source of a legally
demandable or enforceable right.

AMEX is neither contractually bound nor legally obligated to act on its cardholders purchase
requests within any specific period of time, much less a period of a matter of seconds that Pantaleon uses
as his standard. The standard therefore is implicit and, as in all contracts, must be based on fairness and
reasonableness.
COLITO T. PAJUYO vs. HON. COURT OF APPEALS
G.R. No. 146364 June 3, 2004
CARPIO, J.:

FACTS:
Petitioner Colito T. Pajuyo (Pajuyo) paid P400 to a certain Pedro Perez for the rights over a 250-
square meter lot in Barrio Payatas, Quezon City. Pajuyo then constructed a house made of light materials
on the lot. Pajuyo and his family lived in the house from 1979 to 7 December 1985.

On 8 December 1985, Pajuyo and private respondent Eddie Guevarra (Guevarra) executed a
Kasunduan or agreement. Pajuyo, as owner of the house, allowed Guevarra to live in the house for free
provided Guevarra would maintain the cleanliness and orderliness of the house. Guevarra promised that
he would voluntarily vacate the premises on Pajuyos demand.

In September 1994, Pajuyo informed Guevarra of his need of the house and demanded that
Guevarra vacate the house. Guevarra refused. Pajuyo filed an ejectment case against Guevarra with the
Metropolitan Trial Court of Quezon City, Branch 31 (MTC).

ISSUE:
Whether or not the Kasunduan entered into by the parties was in fact a commodatum?

HELD:
No. The Kasunduan is not a commodatum.

In a contract of commodatum, one of the parties delivers to another something not consumable
so that the latter may use the same for a certain time and return it. An essential feature of commodatum
is that it is gratuitous. Another feature of commodatum is that the use of the thing belonging to another
is for a certain period. Thus, the bailor cannot demand the return of the thing loaned until after expiration
of the period stipulated, or after accomplishment of the use for which the commodatum is constituted. If
the bailor should have urgent need of the thing, he may demand its return for temporary use. If the use
of the thing is merely tolerated by the bailor, he can demand the return of the thing at will, in which case
the contractual relation is called a precarium. Under the Civil Code, precarium is a kind of commodatum.

The Kasunduan reveals that the accommodation accorded by Pajuyo to Guevarra was not
essentially gratuitous. While the Kasunduan did not require Guevarra to pay rent, it obligated him to
maintain the property in good condition. The imposition of this obligation makes the Kasunduan a contract
different from a commodatum. The effects of the Kasunduan are also different from that of a
commodatum. Case law on ejectment has treated relationship based on tolerance as one that is akin to a
landlord-tenant relationship where the withdrawal of permission would result in the termination of the
lease. The tenants withholding of the property would then be unlawful. This is settled jurisprudence.

Even assuming that the relationship between Pajuyo and Guevarra is one of commodatum,
Guevarra as bailee would still have the duty to turn over possession of the property to Pajuyo, the bailor.
The obligation to deliver or to return the thing received attaches to contracts for safekeeping, or contracts
of commission, administration and commodatum. These contracts certainly involve the obligation to
deliver or return the thing received.
MARGARITA QUINTOS vs. BECK.
G.R. No. L-46240 November 3, 1939
IMPERIAL, J.:

FACTS:
The defendant was a tenant of the plaintiff and as such occupied the latter's house on M. H. del
Pilar street, No. 1175. On January 14, 1936, upon the novation of the contract of lease between the
plaintiff and the defendant, the former gratuitously granted to the latter the use of the furniture described
in the third paragraph of the stipulation of facts, subject to the condition that the defendant would return
them to the plaintiff upon the latter's demand. The plaintiff sold the property to Maria Lopez and Rosario
Lopez and on September 14, 1936, these three notified the defendant of the conveyance, giving him sixty
days to vacate the premises under one of the clauses of the contract of lease. There after the plaintiff
required the defendant to return all the furniture transferred to him for them in the house where they
were found. On November 5, 1936, the defendant, through another person, wrote to the plaintiff
reiterating that she may call for the furniture in the ground floor of the house. On the 7th of the same
month, the defendant wrote another letter to the plaintiff informing her that he could not give up the
three gas heaters and the four electric lamps because he would use them until the 15th of the same month
when the lease in due to expire. The plaintiff refused to get the furniture in view of the fact that the
defendant had declined to make delivery of all of them. On November 15th, before vacating the house,
the defendant deposited with the Sheriff all the furniture belonging to the plaintiff and they are now on
deposit in the warehouse situated at No. 1521, Rizal Avenue, in the custody of the said sheriff.

ISSUES:
1. Whether or not the contract entered between the parties is one of commodatum?
2. Whether or not the defendant complied with his obligation to return the furniture upon the
plaintiff’s demand?

HELD:
I.
Yes. The contract entered into between the parties is one of commadatum, because under it the
plaintiff gratuitously granted the use of the furniture to the defendant, reserving for herself the ownership
thereof; by this contract the defendant bound himself to return the furniture to the plaintiff, upon the
latter’s demand. The obligation voluntarily assumed by the defendant to return the furniture upon the
plaintiff's demand, means that he should return all of them to the plaintiff at the latter's residence or
house.

II.
The defendant did not comply with this obligation when he merely placed them at the disposal of
the plaintiff, retaining for his benefit the three gas heaters and the four electric lamps. The provisions of
article 1169 of the Civil Code cited by counsel for the parties are not squarely applicable. The trial court,
therefore, erred when it came to the legal conclusion that the plaintiff failed to comply with her obligation
to get the furniture when they were offered to her.
PRODUCERS BANK OF THE PHILIPPINES vs. HON. COURT OF APPEALS
G.R. No. 115324, February 19, 2003
397 SCRA 651
CALLEJO, SR., J.:

FACTS:
Private respondent Vives was asked by his friend Sanchez to help Col. Arturo Doronilla in
incorporating Doronilla’sbusiness, the Sterela Marketing and Services (Sterela). Specifically, Sanchez
asked Vives to deposit in a bank a certain amount of money in the bank account of Sterela for purposes
of its incorporation. She assured Vives that he could withdraw his money from said account within a
month’s time. Vives issued a check worth P 200,000 in favor of Sterela. Said money was used to open a
savings account in the name of Sterela in petitioner Producers Bank (Bank). However, when Vives and his
wife later went to the bank to verify if their money in Sterela’s account was still intact, they were informed
that part of the money in the savings account had been withdrawn by Doronilla and that only P 90,000
remained therein. They were also told that said remaining amount cannot be withdrawn because it had
to answer for some postdated checks issued by Doronilla. When Vives tried to get in touch with Doronilla
through Sanchez, he was again reassured that his money was intact and would be returned to him.
Doronilla thereafter issued a postdated check for P212,000 in favor of Vives. However, this check was
dishonored. Vives instituted an action for recovery of sum of money in the RTC against Doronilla.

RTC ruled in favor of Vives, and held petitioner bank jointly and severally liable with Doronilla
because the bank’s employee Mr. Atienza was found partly responsible for the loss of Vives’s money. CA
affirmed in toto. Petitioner bank’s contention: The transaction between Vives and Doronilla is a simple
loan (mutuum) since all the elements of a mutuum are present: first, what was delivered by private
respondent to Doronilla was money, a consumable thing; and second, the transaction was onerous as
Doronilla was obliged to pay interest, as evidenced by the check issued by Doronilla in the amount of
P212,000.00.

ISSUE:
WON the transaction between Doronilla and Vives was one of simple loan (mutuum)– NO, it was
a commodatum.

HELD:
Commodatum even if what is involved is a consumable thing.
The transaction between Vives and Doronilla was a commodatum and not a mutuum. A
circumspect examination of the records reveals that the transaction between them was a commodatum.
Article 1933 of the CC distinguishes between the two kinds of loans (see provision for reference). The said
provision seems to imply that if the subject of the contract is a consumable thing, such as money, the
contract would be a mutuum. However, there are some instances where a commodatum may have for its
object a consumable thing.
Article 1936 of the CC provides:
Consumable goods may be the subject of commodatum if the purpose of the contract is
not the consumption of the object, as when it is merely for exhibition.
 Thus, if consumable goods are loaned only for purposes of exhibition, or when the intention of
the parties is to lend consumable goods and to have the very same goods returned at the end of the
period agreed upon, the loan is a commodatum and not a mutuum. The rule is that the intention of the
parties thereto shall be accorded primordial consideration in determining the actual character of a
contract. In case of doubt, the contemporaneous and subsequent acts of the parties shall be considered
in such determination.

In the case at bar, evidence shows that Vives agreed to deposit his money in the savings account
of Sterela specifically for the purpose of making it appear "that said firm had sufficient capitalization for
incorporation, with the promise that the amount shall be returned within thirty (30) days." Vives merely
"accommodated" Doronilla by lending his money without consideration, as a favor to his good friend
Sanchez. It was however clear to the parties to the transaction that the money would not be removed
from Sterela’s savings account and would be returned to Vives after thirty (30) days.

The additional P 12,000 did not convert commodatum to mutuum.

Doronilla’s attempts to return to Vives the amount of P200,000 which the latter deposited in
Sterela’s account together with an additional P12,000, allegedly representing interest on the mutuum, did
not convert the transaction from a commodatum into a mutuum because such was NOT THE INTENT of
the parties and because the additional P12,000 corresponds to the fruits of the lending of the P200,000.

Article 1935 of the CC expressly states:

The bailee in commodatum acquires the use of the thing loaned but not its fruits.

Hence, it was only proper for Doronilla to remit to Vives the interest accruing to the latter’s money
deposited with petitioner bank.Petition denied. Take note SC said that whether it is a mutuum or a
commodatum has no bearing on the question of bank’s liability for the return of Vives’s money because
the factual circumstances of the case clearly show that petitioner bank, through its employee Mr. Atienza,
was partly responsible for the loss of Vives’s money and is liable for its restitution.

POLICY: You cannot automatically say that contract is mutuum if the subject matter is a consumable thing,
such as money. Such contract may be commodatum if the purpose of the contract is not the consumption
of the object, as when it is merely for exhibition. The INTENTION of the parties must always be
ascertained.
REPUBLIC OF THE PHILIPPINES vs. JOSE V. BAGTAS
G.R. No. L-17474 October 25, 1962
PADILLA, J.:

FACTS:
On May 8, 1948, Jose Bagtas borrowed from the Bureau of Animal Industry 3 bulls for 1 year for
breeding purposes, subject to breeding fee for 10% of the book value of the bulls. Upon the expiration of
the contract, Bagtas asked for a renewal for another year. The renewal granted was only for 1 bull. Bagtas
offered to buy the bulls at book value less depreciation, but the Bureau told him that he should either
return the bulls or pay for their book value. Bagtas failed to pay the book value, and so the Republic
commenced an action with the CFI Manila to order the return of the bulls of the payment of book value.
Felicidad Bagtas, the surviving spouse and administratrix of the decedent’s estate, stated that the 2 bulls
have already been returned in 1952, and that the remaining one died of gunshot during a Huk raid. As
regards the two bulls, is was proven that they were returned and thus, there is no more obligation on the
part of the appellant. As to the bull not returned, Felicidad contends that the obligation is extinguished
since the contract is that of a commodatum and that the loss through fortuitous event should be borne
by the owner.

ISSUE:
Whether, depending on the nature of the contract, the respondent is liable for the death of the
bull.

HELD:
A contract of commodatum is essentially gratuitous. If the breeding fee be considered a
compensation, then the contract would be a lease of the bull. Under article 1671 of the Civil Code the
lessee would be subject to the responsibilities of a possessor in bad faith, because she had continued
possession of the bull after the expiry of the contract. And even if the contract be commodatum, still the
appellant is liable, because article 1942 of the Civil Code provides that a bailee in a contract of
commodatum –
XXX
is liable for loss of the things, even if it should be through a fortuitous event:
(2) If he keeps it longer than the period stipulated…
(3) If the thing loaned has been delivered with appraisal of its value, unless there is a
stipulation exempting the bailee from responsibility in case of a fortuitous event.

The loan of one bull was renewed for another period of one year to end on 8 May 1950. But the
appellant kept and used the bull until November 1953 when during a Huk raid it was killed by stray bullets.
Furthermore, when lent and delivered to the deceased husband of the appellant the bulls had each an
appraised book value. It was not stipulated that in case of loss of the bull due to fortuitous event the late
husband of the appellant would be exempt from liability. Special proceedings for the administration and
settlement of the estate of the deceased Jose V. Bagtas having been instituted in the Court of First
Instance of Rizal (Q-200), the money judgment rendered in favor of the appellee cannot be enforced by
means of a writ of execution but must be presented to the probate court for payment by the appellant,
the administratrix appointed by the court.
ANTONIO TAN vs. COURT OF APPEALS and the CULTURAL CENTER OF THE PHILIPPINES
G.R. No. 116285. October 19, 2001
DE LEON, JR., J.:

FACTS:
On May 14, 1978 and July 6, 1978, petitioner Antonio Tan obtained two (2) loans each in the
principal amount of (P2,000,000.00), or in the total principal amount of Four Million Pesos (P4,000,000.00)
from respondent Cultural Center of the Philippines (CCP) evidenced by two (2) promissory notes with
maturity dates on May 14, 1979 and July 6, 1979, respectively. Petitioner defaulted but after a few partial
payments he had the loans restructured by respondent CCP, and petitioner accordingly executed a
promissory note on August 31, 1979 in the amount of (P3,411,421.32) payable in five (5) installments.
Petitioner Tan failed to pay any installment on the said restructured loan of (P3,411,421.32), the last
installment falling due on December 31, 1980.

In a letter dated January 26, 1982, petitioner requested and proposed to respondent CCP a mode
of paying the restructured loan, i.e., (a) twenty percent (20%) of the principal amount of the loan upon
the respondent giving its conformity to his proposal; and (b) the balance on the principal obligation
payable in thirty-six (36) equal monthly installments until fully paid.

On October 20, 1983, petitioner again sent a letter to respondent CCP requesting for a
moratorium on his loan obligation until the following year allegedly due to a substantial deduction in the
volume of his business and on account of the peso devaluation.

No favorable response was made to said letters. Instead, respondent CCP, through counsel, wrote
a letter dated May 30, 1984 to the petitioner demanding full payment, within ten (10) days from receipt
of said letter, of the petitioner’s restructured loan which as of April 30, 1984 amounted to (P6,088,735.03).

On August 29, 1984, respondent CCP filed in the RTC of Manila a complaint for collection of a sum
of money against the petitioner after the latter failed to settle his said restructured loan obligation. The
petitioner interposed the defense that he merely accommodated a friend, Wilson Lucmen, who allegedly
asked for his help to obtain a loan from respondent CCP. Petitioner claimed that he has not been able to
locate Wilson Lucmen.

While the case was pending in the trial court, the petitioner filed a Manifestation wherein he
proposed to settle his indebtedness to respondent CCP by proposing to make a down payment of
(P140,000.00) and to issue twelve (12) checks every beginning of the year to cover installment payments
for one year, and every year thereafter until the balance is fully paid. However, respondent CCP did not
agree to the petitioner’s proposals and so the trial of the case ensued. TC: Ruled in favor of CCP. CA:
Affirmed trial court’s decision.

ISSUE:
1. Whether there are contractual and legal bases for the imposition of the penalty, interest on the
penalty and attorney’s fees. YES
2. Whether interest may accrue on the penalty or compensatory interest without violating the
provisions of Article 1959 of the New Civil Code. YES
HELD:
I.
The petitioner imputes error on the part of the appellate court in not totally eliminating the award
of attorney’s fees and in not reducing the penalties considering that the petitioner, contrary to the
appellate court’s findings, has allegedly made partial payments on the loan. And if penalty is to be
awarded, the petitioner is asking for the non- imposition of interest on the surcharges inasmuch as the
compounding of interest on surcharges is not provided in the promissory note marked Exhibit “A”. The
petitioner takes exception to the computation of the private respondent whereby the interest, surcharge
and the principal were added together and that on the total sum interest was imposed. Petitioner also
claims that there is no basis in law for the charging of interest on the surcharges for the reason that the
New Civil Code is devoid of any provision allowing the imposition of interest on surcharges.

We find no merit in the petitioner’s contention. Article 1226 of the New Civil Code provides that:

In obligations with a penal clause, the penalty shall substitute the indemnity for damages
and the payment of interests in case of non-compliance, if there is no stipulation to the
contrary. Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or
is guilty of fraud in the fulfillment of the obligation.

The penalty may be enforced only when it is demandable in accordance with the provisions of
this Code. In the case at bar, the promissory note (Exhibit “A”) expressly provides for the imposition of
both interest and penalties in case of default on the part of the petitioner in the payment of the subject
restructured loan. The pertinent portion of the promissory note (Exhibit “A”) imposing interest and
penalties provides that:

xxx xxx xxx

With interest at the rate of FOURTEEN per cent (14%) per annum from the date hereof
until paid. PLUS THREE PERCENT (3%) SERVICE CHARGE. In case of non-payment of this note at
maturity/on demand or upon default of payment of any portion of it when due, I/We jointly and
severally agree to pay additional penalty charges at the rate of TWO per cent (2%) per month on
the total amount due until paid, payable and computed monthly. Default of payment of this note
or any portion thereof when due shall render all other installments and all existing promissory
notes made by us in favor of the CULTURAL CENTER OF THE PHILIPPINES immediately due and
demandable.
xxx xxx xxx

The stipulated fourteen percent (14%) per annum interest charge until full payment of the loan
constitutes the monetary interest on the note and is allowed under Article 1956 of the New Civil Code.
On the other hand, the stipulated two percent (2%) per month penalty is in the form of penalty charge
which is separate and distinct from the monetary interest on the principal of the loan.

Penalty on delinquent loans may take different forms. In Government Service Insurance System
v. Court of Appeals, this Court has ruled that the New Civil Code permits an agreement upon a penalty
apart from the monetary interest. If the parties stipulate this kind of agreement, the penalty does not
include the monetary interest, and as such the two are different and distinct from each other and may be
demanded separately.

The penalty charge of two percent (2%) per month in the case at bar began to accrue from the
time of default by the petitioner. There is no doubt that the petitioner is liable for both the stipulated
monetary interest and the stipulated penalty charge. The penalty charge is also called penalty or
compensatory interest.
II.

Art. 1959. Without prejudice to the provisions of Article 2212, interest due and unpaid shall not
earn interest. However, the contracting parties may by stipulation capitalize the interest due and unpaid,
which as added principal, shall earn new interest.

According to the petitioner, there is no legal basis for the imposition of interest on the penalty
charge for the reason that the law only allows imposition of interest on monetary interest but not the
charging of interest on penalty. He claims that since there is no law that allows imposition of interest on
penalties, the penalties should notearn interest. But as we have already explained, penalty clauses can be
in the form of penalty or compensatory interest. Thus, the compounding of the penalty or compensatory
interest is sanctioned by and allowed pursuant to the above-quoted provision of Article 1959 of the New
Civil Code considering that:

First, there is an express stipulation in the promissory note (Exhibit “A”) permitting the
compounding of interest. The fifth paragraph of the said promissory note provides that: “Any
interest which may be due if not paid shall be added to the total amount when due and shall
become part thereof, the whole amount to bear interest at the maximum rate allowed by law.”
Therefore, any penalty interest not paid, when due, shall earn the legal interest of twelve percent
(12%) per annum, in the absence of express stipulation on the specific rate of interest, as in the
case at bar.

Second, Article 2212 of the New Civil Code provides that “Interest due shall earn legal interest
from the time it is judicially demanded, although the obligation may be silent upon this point.” In
the instant case, interest likewise began to run on the penalty interest upon the filing of the
complaint in court by respondent CCP on August 29, 1984. Hence, the courts a quo did not err in
ruling that the petitioner is bound to pay the interest on the total amount of the principal, the
monetary interest and the penalty interest.

In the case at bar, however, equity cannot be considered inasmuch as there is a contractual
stipulation in the promissory note whereby the petitioner expressly agreed to the compounding of
interest in case of failure on his part to pay the loan at maturity. Inasmuch as the said stipulation on the
compounding of interest has the force of law between the parties and does not appear to be inequitable
or unjust, the said written stipulation should be respected.
 The said statement of account also shows that the amounts stated therein are net of the partial
payments amounting to a total of (P452,561.43) which were made during the period from May 13, 1983
to September 30, 1983. The petitioner now seeks the reduction of the penalty due to the said partial
payments. The principal amount of the promissory note (Exhibit “A”) was (P3,411,421.32) when the loan
was restructured on August 31, 1979. As of August 28, 1986, the principal amount of the said restructured
loan has been reduced to (P2,838,454.68). Thus, petitioner contends that reduction of the penalty is
justifiable pursuant to Article 1229 of the New Civil Code which provides that: “The judge shall equitably
reduce the penalty when the principal obligation has been partly or irregularly complied with by the
debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is
iniquitous or unconscionable.” Petitioner insists that the penalty should be reduced to ten percent (10%)
of the unpaid debt in accordance with Bachrach Motor Company v. Espiritu.

There appears to be a justification for a reduction of the penalty charge but not necessarily to ten
percent (10%) of the unpaid balance of the loan as suggested by petitioner. Inasmuch as petitioner has
made partial payments which showed his good faith, a reduction of the penalty charge from two percent
(2%) per month on the total amount due, compounded monthly, until paid can indeed be justified under
the said provision of Article 1229 of the New Civil Code.

In other words, we find the continued monthly accrual of the two percent (2%) penalty charge on
the total amount due to be unconscionable inasmuch as the same appeared to have been compounded
monthly.

Considering petitioner’s several partial payments and the fact he is liable under the note for the
two percent (2%) penalty charge per month on the total amount due, compounded monthly, for twenty-
one (21) years since his default in 1980, we find it fair and equitable to reduce the penalty charge to a
straight twelve percent (12%) per annum on the total amount due starting August 28, 1986, the date of
the last Statement of Account.
ARWOOD INDUSTRIES, INC. vs. D.M. CONSUNJI, INC.
G.R. No. 142277. December 11, 2002
CORONA, J .:

FACTS:
The parties therein entered into an agreement for the construction of a condominium. Despite its
completion, the petitioner failed to pay its remaining balance. Thus an action for the recovery of the
balance of the contract price and damages was ensued against the petitioner. The trial court resolved to
grant the relief prayed for by the respondent.

“The sum of P962,434.78 representing the balance of contract price with interest at 2% per month
from November 1990 up to the time of payment”

ISSUE:
Petitioner now questions the correctness of the imposition of the 2% interest per month.
Petitioner argues that the trial court has no basis in imposing such because the provision in the agreement
regarding interesst does not apply to the claim of respondent since the amount is not a monthly progress
billing.

RULE:
It must be noted that the Agreement provided the contractor, respondent in this case, two
options in case of delay in monthly payments, to wit: a) suspend work on the project until payment is
remitted by the owner or b) continue the work but the owner shall be required to pay interest at a rate
of two percent (2%) per month or a fraction thereof. Evidently, respondent chose the latter option, as the
condominium project was in fact already completed. The payment of the 2% monthly interest, therefore,
cannot be jettisoned overboard.

Monthly progress billings refers to a portion of the contract price payable to the owner
(petitioner) of the project to the contractor (respondent) based on the percentage of completion of the
project or on work accomplished at a particular stage. It refers to that portion of the contract price still to
be paid as work progresses, after the downpayment is made.

Moreover, even assuming that there was a default of stipulation or agreement on interest,
respondent may still recover on the basis of the general provision of law, which is Article 2209 of the Civil
Code, thus:

Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs in
delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment
of the interest agreed upon, and in the absence of stipulation, the legal interest, which is six
percent per annum.

The appropriate measure for damages in case of delay in discharging an obligation consisting of
the payment of a sum of money, is the payment of penalty interest at the rate agreed upon; and in the
absence of a stipulation of a particular rate of penalty interest, then the payment of additional interest at
a rate equal to the regular monetary interest; and if no regular interest had been agreed upon, then
payment of legal interest or six percent (6%) per annum.
BOBIE ROSE V. FRIAS vs. FLORA SAN DIEGO-SISON
G.R. NO. 155223 : April 4, 2007
AUSTRIA-MARTINEZ, J.:

FACTS:
Petitioner, owner of a house and lot, entered into a memorandum of agreement with the
respondent over the said property.

1. Petitioner received from the respondent 2M (2/28/90; late, rendered the check stale). Petitioner
gave the TCT to the respondent
2. Respondent decided not to purchase the property and notified (March, received only on June)
the petitioner and reminded her that the amount she received should be considered as a loan
payable within 6 months.
3. Petitioner failed to pay the respondent.

Repondent then filed a complaint for collection of sum of money against the petitioner. An
interest of 32% per annum (RTC) / 25% per annum (CA) was awarded.

ISSUE:
WON the imposition of said interest rates is contrary to the MOA.

HELD:
NO. The Agreement is fair and reasonable.

The agreement that the amount given shall bear compounded bank interest for the last six
months only, i.e., referring to the second six-month period, does not mean that interest will no longer be
charged after the second six-month period since such stipulation was made on the logical and reasonable
expectation that such amount would be paid within the date stipulated. Considering that petitioner failed
to pay the amount given which under the Memorandum of Agreement shall be considered as a loan, the
monetary interest for the last six months continued to accrue until actual payment of the loaned amount.

The payment of regular interest constitutes the price or cost of the use of money and thus, until
the principal sum due is returned to the creditor, regular interest continues to accrue since the debtor
continues to use such principal amount.28 It has been held that 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, would constitute unjust enrichment on the part of the debtor at the expense of
the creditor.
BPI FAMILY BANK vs. AMADO FRANCO and COURT OF APPEALS
G.R. No. 123498 November 23, 2007
NACHURA, J.:

FACTS:
Tevesteco opened a savings and current account with BPI-FB. Soon thereafter, FMIC also opened
a time deposit account with the same branch to mature one year thence.

Franco opened three accounts with same bank. The total amount of 2M used to open these
accounts is traceable to a check issued by Tevesteco’s bussiness transcations to Jaime Sebastian (BPI
Branch Manager). In turn, the 2M check was part of 80M debited by BPI-FB from FMIC’s time deposit
credited to Tevesteco’s current account.

It appears, however, that the signatures of FMIC’s officers on the Authority to Debit were forged.

Unfortunately, Tevesteco had already effected several withdrawals from its current account (to
which had been credited the ₱80,000,000.00 covered by the forged Authority to Debit) amounting
to ₱37,455,410.54, including the ₱2,000,000.00 paid to Franco.

Impelled by the need to protect its interests in light of FMIC’s forgery claim, BPI-FB, thru its Senior
Vice-President, Severino Coronacion, instructed Jesus Arangorin10 to debit Franco’s savings and current
accounts for the amounts remaining therein. However, Franco’s time deposit account could not be
debited due to the capacity limitations of BPI-FB’s computer.

Apparently, Franco’s current account was garnished by virtue of an Order of Attachment issued
by the Regional Trial Court of Makati (Makati RTC) in Civil Case No. 89-4996 (Makati Case), which had been
filed by BPI-FB against Franco et al.,14 to recover the ₱37,455,410.54 representing Tevesteco’s total
withdrawals from its account.

In light of BPI-FB’s refusal to heed Franco’s demands to unfreeze his accounts and release his
deposits therein, the latter filed with the Manila RTC the subject suit.

ISSUE:
WON the BPI-FB has the right to freeze Franco’s Accounts?

HELD:
NO. There is no doubt that BPI-FB owns the deposited monies in the accounts of Franco, but not
as a legal consequence of its unauthorized transfer of FMIC’s deposits to Tevesteco’s account. BPI-FB
conveniently forgets that the deposit of money in banks is governed by the Civil Code provisions on simple
loan or mutuum.36 As there is a debtor-creditor relationship between a bank and its depositor, BPI-FB
ultimately acquired ownership of Franco’s deposits, but such ownership is coupled with a corresponding
obligation to pay him an equal amount on demand.37 Although BPI-FB owns the deposits in Franco’s
accounts, it cannot prevent him from demanding payment of BPI-FB’s obligation by drawing checks
against his current account, or asking for the release of the funds in his savings account. Thus, when Franco
issued checks drawn against his current account, he had every right as creditor to expect that those checks
would be honored by BPI-FB as debtor.

More importantly, BPI-FB does not have a unilateral right to freeze the accounts of Franco based
on its mere suspicion that the funds therein were proceeds of the multi-million peso scam Franco was
allegedly involved in. To grant BPI-FB, or any bank for that matter, the right to take whatever action it
pleases on deposits which it supposes are derived from shady transactions, would open the floodgates of
public distrust in the banking industry.

The banking system is an indispensable institution in the modern world and plays a vital role in
the economic life of every civilized nation. Whether as mere passive entities for the safekeeping and
saving of money or as active instruments of business and commerce, banks have become an ubiquitous
presence among the people, who have come to regard them with respect and even gratitude and, most
of all, confidence. Thus, even the humble wage-earner has not hesitated to entrust his life’s savings to the
bank of his choice, knowing that they will be safe in its custody and will even earn some interest for him.
The ordinary person, with equal faith, usually maintains a modest checking account for security and
convenience in the settling of his monthly bills and the payment of ordinary expenses. x x x.

In every case, the depositor expects the bank to treat his account with the utmost fidelity,
whether such account consists only of a few hundred pesos or of millions. The bank must record every
single transaction accurately, down to the last centavo, and as promptly as possible. This has to be done
if the account is to reflect at any given time the amount of money the depositor can dispose of as he sees
fit, confident that the bank will deliver it as and to whomever directs. A blunder on the part of the bank,
such as the dishonor of the check without good reason, can cause the depositor not a little embarrassment
if not also financial loss and perhaps even civil and criminal litigation.

The point is that as a business affected with public interest and because of the nature of its
functions, the bank is under obligation to treat the accounts of its depositors with meticulous care, always
having in mind the fiduciary nature of their relationship.

Ineluctably, BPI-FB, as the trustee in the fiduciary relationship, is duty bound to know the
signatures of its customers. Having failed to detect the forgery in the Authority to Debit and in the process
inadvertently facilitate the FMIC-Tevesteco transfer, BPI-FB cannot now shift liability thereon to Franco
and the other payees of checks issued by Tevesteco, or prevent withdrawals from their respective
accounts without the appropriate court writ or a favorable final judgment.
CU UNJIENG E HIJOS vs. THE MABALACAT SUGAR CO., ET AL.,
G.R. No. L-32644 October 4, 1930
STREET, J.:

FACTS:
Mabalacat was indebted to Hijos, with mortgage and interest. Hijos now seeks payment. He
imposed compounded interest charges in estimating the amount of indebtedness.

Hijos argued that in the mortgage, there had been a stipulation that, “Interest, to be computed
upon the still unpaid capital of the loan, shall be paid monthly, at the end of each month.” Thus, this
justifies the imposition of compounded interest charges.

ISSUE:
Whether or not the imposition of compounded interest charges is justified.

HELD:
NO. The provision in the mortgage quoted by Hijos 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. 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.

Where interest is improperly charged, at an unlawful rate, the mere voluntary payment of it to
the creditor by the debtor is not binding. Such payment, in the case before us, was usurious, being in
excess of 12 per cent which is allowed to be charged, under section 2 of the Usury Law, when a debt is
secured by mortgage upon real property.

The first point assigned as error has relation to the question whether the action was prematurely
stated. Non-compliance on the part of the mortgage debtor with any of the obligations assumed in virtue
of this contract will cause the entire debt to become due and give occasion for the foreclosure of the
mortgage. The mortgage creditor, Cu Unjieng e Hijos, agreed to extend the time for payment of the
mortgage indebtedness until June 30, 1929

The second error is directed to the propriety of the interest charges made by the plaintiff in
estimating the amount of the indebtedness. 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.

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. But the exhibit referred to is
merely a receipt showing that the sum of P256.28 was, on March 19, 1928, paid by the debtor to the
plaintiff as interest upon interest. But where interest is improperly charged, at an unlawful rate, the mere
voluntary payment of it to the creditor by the debtor is not binding. It follows that the appealed judgment
must be modified by deducting the sum of P1,136.12 from the principal debt, so that the amount of said
indebtedness shall be P162,398.61, with interest at 12 per cent per annum.
DARIO NACAR vs. GALLERY FRAMES AND/OR FELIPE BORDEY, JR.
G.R. No. 189871 August 13, 2013
PERALTA, J.:

FACTS:
Petitioner Dario Nacar filed a complaint for constructive dismissal before the National Labor
Relations Commission (NLRC) against Gallery Frames (GF) and/or Felipe Bordey, Jr. On October 15, 1998,
the Labor Arbiter rendered a Decision in favor of petitioner and found that he was dismissed from
employment without a valid or just cause and was never afforded due process. Thus, petitioner was
awarded backwages and separation pay in lieu of reinstatement, in the amount of P158,919.92, computed
only up to promulgation of this decision. Length of service was 8 yrs and 1 day.

On November 5, 2002, petitioner filed a Motion for Correct Computation, praying that his
backwages be computed from the date of his dismissal on January 24, 1997 up to the finality of the
Resolution of the Supreme Court on May 27, 2002. Upon recomputation, NLRC arrived at an updated
amount in the sum of P471,320.31. Respondents filed a Motion to Quash Writ of Execution, arguing that
no more recomputation is required after the decision becomes final and executory, the same cannot be
altered or amended anymore. Denied.

Reappealed and a recomputation was granted but only in the amount of P147,560.19. Nacar then
filed a Motion praying for the re- computation of the monetary award to include the appropriate interests.
The Labor Arbiter granted the motion, but reasoned that it is the October 15, 1998 Decision that should
be enforced considering that it was the one that became final and executory. However, the Labor Arbiter
reasoned that since the decision states that the separation pay and backwages are computed only up to
the promulgation of the said decision, it is the amount of P158,919.92 that should be executed. Thus,
since petitioner already received P147,560.19, he is only entitled to the balance of P11,459.73.

Nacar appealed to the CA. Denied. It opined that since petitioner no longer appealed the October
15, 1998 Decision of the Labor Arbiter, which already became final and executory, a belated correction
thereof is no longer allowed. The CA stated that there is nothing left to be done except to enforce the said
judgment.

ISSUES:
Whether or not a re-computation in the course of execution of the labor arbiter's original
computation of the awards made is legally proper.

HELD:
YES. Computation should start from the time Nacar was illegally dismissed until judgment has
become final and executory on May 27, 2013. Moreover, a recomputation is necessary and is not a
violation of the principle of immutability of final judgments. The recomputation of the consequences of
illegal dismissal upon execution of the decision does not constitute an alteration or amendment of the
final decision being implemented. The illegal dismissal ruling stands; only the computation of monetary
consequences of the dismissal is affected.
 As to the payment of legal interest, the guidelines laid down in the case of Eastern Shipping Lines
are accordingly modified to embody BSP-MB Circular No. 799, as follows: 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 6% per annum
to be computed from default, i.e., from judicial or extrajudicial demand under and subject to
the provisions of Article 1169 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest

on the amount of damages awarded may be imposed at the discretion of the court at the rate
of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages,
except when or until the demand can be established with reasonable certainty. Accordingly,
where the demand is established with reasonable certainty, the interest shall begin to run
from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code), but when
such certainty cannot be so reasonably established at the time the demand is made, the
interest shall begin to run only from the date the judgment of the court is made (at which
time the 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 6% per annum from such finality until its satisfaction, this interim period being deemed to
be by then an equivalent to a forbearance of credit.

The Decision of the CA is reversed and set aside. The case is remanded back to the LA for the
proper recomputation.

NOTE: The rate of interest starting July 1, 2013 is 6% per annum (since the original case was decided in
2002, 12% int was still applied) and applies prospectively. Computation of backwages and separation pay
should start from the time an employee is illegally dismissed to the time judgment has become final and
executory. Interest of such amount acrrues until full payment is made.
EASTERN SHIPPING LINES, INC. vs. HON. COURT OF APPEALS
G.R. No. 97412 July 12, 1994
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. On December 4, 1981, two fiber drums of riboflavin were
shipped from Yokohama, Japan for delivery vessel "SS EASTERN COMET" owned by defendant Eastern
Shipping Lines. The shipment was insured under plaintiff's Marine Insurance Policy No. 81/01177 for
P36,382,466.38. Upon arrival of the shipment in Manila on December 12, 1981, it was discharged unto
the custody of defendant Metro Port Service, Inc. The latter excepted to one drum, said to be in bad order,
which damage was unknown to plaintiff. On January 7, 1982 defendant Allied Brokerage Corporation
received the shipment from defendant Metro Port Service, Inc., one drum opened and without seal. On
January 8 and 14, 1982, defendant Allied Brokerage Corporation made deliveries of the shipment to the
consignee's warehouse. The latter excepted to one drum which contained spillages, while the rest of the
contents was adulterated/fake. Plaintiff contended that due to the losses/damage sustained by said drum,
the consignee suffered losses totaling P19,032.95, due to the fault and negligence of defendants. Claims
were presented against defendants who failed and refused to pay the same.

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 The Court, among others, ordered defendants to pay
plaintiff, jointly and severally The amount of P19,032.95, with the present legal interest of 12% per annum
from October 1, 1982, the date of filing of this complaints, until fully paid (the liability of defendant Eastern
Shipping, Inc. shall not exceed US$500 per case or the CIF value of the loss, whichever is lesser, while the
liability of defendant Metro Port Service, Inc. shall be to the extent of the actual invoice value of each
package, crate box or container in no case to exceed P5,000.00 each, pursuant to Section 6.01 of the
Management Contract)

ISSUE:
1. 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.
2. 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.
3. Whether the applicable rate of interest, referred to above, is twelve percent (12%) or six percent
(6%). 6%

HELD:
I.
YES. 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.
II.
It may not be unwise, by way of clarification and reconciliation, to suggest the following rules of
thumb for future guidance. 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.

III.
The legal interest to be paid is SIX PERCENT (6%) on the amount due computed from the decision,
dated 03 February 1988, of the court a quo. A TWELVE PERCENT (12%) interest, in lieu of SIX PERCENT
(6%), shall be imposed on such amount upon finality of this decision until the payment thereof.
NOTE: 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.
EMERITO M. RAMOS, et al. vs. CENTRAL BANK OF THE PHILIPPINES
G.R. No. L-29352 July 22, 1985
TEEHANKEE, J.:

FACTS:
Pending final determination is respondent Central Bank's motion for reconsideration dated
December 28, 1982 of the Court's Resolution of October 19, 1982 which ruled "applying the Tapia ruling
as reaffirmed by the Court in the subsequent cases cited above OBM vs. Vicente Cordero, 113 SCRA 303
(March 30, 1982), per Escolin, J.; OBM vs. Julian Cordero, 113 SCRA 778 (April 27, 1982), per Barredo, J.)
that the bank is not liable for interest on the Central Bank loans and advances during the period of its
closure from August 21 1968 to January 8, 1981."

In the Tapia ruling (105 SCRA 49, June 11, 1981), the Court held that "the obligation to pay interest
on the deposit ceases the moment the operation of the bank is completely suspended by the duly
constituted authority, the Central Bank," and that "for the guidance of those who might be concerned,
and so that unnecessary litigations may be avoided from further clogging the dockets of the courts, that
in the light of the considerations expounded in the above opinion, the same formula that exempts
petitioner from the payment of interest to its depositors during the whole period of factual stoppage of
its operations by orders of the Central Bank, modified in effect by the decision as well as the approval of
a formula of rehabilitation by this Court, should be, as a matter of consistency, applicable or followed in
respect to all other obligations of petitioner which could not be paid during the period of its actual
complete closure."

ISSUE:
Whether or not the Overseas Bank of Manila is liable to the Central Bank for loans and advances
made during its closure from Aug. 2, 1968 to Jan. 8, 1981?

HELD:
NO. Respondents have failed to adduce any cogent argument to persuade the Court to reconsider
its Resolution at bar that the Tapia ruling as reaffirmed by the aforecited cases is fully applicable to the
non-payment of interest, during the period of the bank's forcible closure, on loans and advances made by
respondent Central Bank. Respondent Central Bank itself when it was then managing the Overseas Bank
of Manila (now Commercial Bank of Manila) under a holding trust agreement, held the same position in
Idelfonso D. Yap vs. OBM and CB (CA-G.R. No. 48887-R) wherein it argued in its brief that “(I)n a suit
against the receiver of a national bank for money loaned to the Bank while it was a going concern, it was
error to permit plaintiff to recover interest on the loan after the bank’s suspension” (citing Zollman, Banks
and Banking). In Pablo R. Roman, et al. vs. Central Bank (CA-G.R. No. 49144-R, October 18, 1973, per then
Court of Appeals Justice Hermogenes Concepcion, Jr.), the appellate court by final judgment affirmed the
trial court’s judgment ordering appellant Central Bank to condone all interests on Central Bank loans to
the Republic Bank, as well as penalties imposed on it which would be tantamount “to force the Republic
Bank to liquidate as an insolvent.” It should be further noted that the respondent Central Bank when
called upon to deal with commercial banks and extend to them emergency loans and advances, deals with
them not as an ordinary creditor engaged in business; but as the ultimate monetary authority of
government charged with the supervision and preservation of the banking system.
MELENCIO-HERRERA, J., dissenting:
I agree with the Solicitor General that loans and advances made by the Central Bank to the then
Overseas Bank of Manila OBM can not be treated in the same manner as deposits made by ordinary
depositors. The Tapia ruling, to my mind, is doctrinal only insofar as it holds that payment of interest on
deposits ceases the moment the operation of the bank is completely suspended by the Central Bank, but
not when it applies said ruling to interest on loans and advances made by the Central Bank, that point not
having been in issue since the Central Bank was not a party therein.

PLANA, J., dissenting:

With all due respect, I dissent from the main resolution for the following reasons:

The loans and advances in question were granted by the Central Bank to OBM before the latter's
closure in 1968 to enable it to meet its obligations to its depositors whose money (deposits) it had been
able to use in the generation of income.

For the period during which OBM stopped banking operations, it collected interests on loans
granted by it to its clients. Money does not come gratuitously to the Central Bank. It has cost. This is now
of common knowledge because the JOBO bills and the high interests rates they carry are familiar to all.
But even before the advent of JOBO bills, the Central Bank was borrowing money locally and/or from
external sources and paying interests on borrowed funds. By all relevant standards, it is only fair and
proper that the Central Bank should be allowed to recover its investment and the cost thereof.
GIL JARDENIL vs. HEFTI SOLAS (alias HEPTI SOLAS, JEPTI SOLAS)
G.R. No. L-47878 July 24, 1942
MORAN, J.:

FACTS:
The defendant executed a promissory note secured by a mortgage which provides that defendant
will pay interest up to the date of maturity on March 31,1934 and that payment is extendable by one year
but without mention of interest. Plaintiff sought to recover payment of interest during the grace period.
The trial court decided for defendant.

ISSUE:
Whether or not the defendant is bound to pay interest of 12% per annum as of maturity date only
or up to the date of payment

HELD:
The defendant has agreed to pay interest only up to the date of maturity. As the contract is silent
as to whether after that date, in the event of non-payment, debtor would continue to pay interest, no
legal presumption as to such interest can be indulged for this would be imposing upon the debtor an
obligation that the parties have not chosen to agree upon. The law provides that the interest shall be due
only when it has been expressly stipulated.

Only when the wording of the written instrument appears to be contrary to the evident intention
of the parties that such intention must prevail. (Article 1281, Civil Code.) There is nothing in the mortgage
deed to show that the terms employed by the parties thereto are at war with their evident intent. On the
contrary the act of the mortgage of granting to the mortgagor on the same date of execution of the deed
of mortgage, an extension 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,
indicates that the true intention of the parties was that no interest should be paid during the period of
grace.

As 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. When a party sues on a written contract and no attempt is made to show any vice
therein, he cannot be allowed to lay any claim more than what its clear stipulations accord. His omission,
to which the law attaches a definite warning as an in the instant case, cannot by the courts be arbitrarily
supplied by what their own notions of justice or equity may dictate. Judgment affirmed.
HERMOJINA ESTORES vs. SPOUSES ARTURO and LAURA SUPANGAN
G.R. No. 175139 April 18, 2012
DEL CASTILLO, J.:

FACTS:
Petitioner Hermojina Estores and respondent-spouses Arturo and Laura Supangan entered into a
Conditional Deed of Sale5 whereby petitioner offered to sell, and respondent-spouses offered to buy, a
parcel of land at Cavite for the sum of P4.7 million. The parties likewise stipulated, among others:

1. Vendor will secure approved clearance from DAR requirements

4. Vendee shall be informed as to the status of DAR clearance within 10 days upon signing of
the documents.
6. Regarding the house located within the perimeter of the subject [lot] owned by spouses
[Magbago], said house shall be moved outside the perimeter of this subject property to the 300
sq. m. area allocated for [it]. Vendor hereby accepts the responsibility of seeing to it that such
agreement is carried out before full payment of the sale is made by vendee.
7. If and after the vendor has completed all necessary documents for registration of the title and
the vendee fails to complete payment as per agreement, a forfeiture fee of 25% or downpayment,
shall be applied. However, if the vendor fails to complete necessary documents within thirty days
without any sufficient reason, or without informing the vendee of its status, vendee has the right
to demand return of full amount of down payment.
9. As to the boundaries and partition of the lots (15,018 sq. m. and 300 sq. m.) Vendee shall be
informed immediately of its approval by the LRC.
10. The vendor assures the vendee of a peaceful transfer of ownership.

After almost seven years from the time of the execution of the contract and notwithstanding
payment of P3.5 million on the part of respondent-spouses, petitioner still failed to comply with her
obligation as expressly provided in paragraphs 4, 6, 7, 9 and 10 of the contract. Hence, in a letter dated
September 27, 2000, respondent-spouses demanded the return of the amount of P3.5 million within 15
days from receipt of the letter. In reply, petitioner acknowledged receipt of the P3.5 million and promised
to return the same within 120 days. Respondent-spouses were amenable to the proposal provided an
interest of 12% compounded annually shall be imposed on the P3.5 million. When petitioner still failed to
return the amount despite demand, respondent-spouses were constrained to file a Complaint for sum of
money against herein petitioner as well as Roberto U. Arias (Arias) who allegedly acted as petitioner’s
agent.

In their Answer with Counterclaim, petitioner and Arias averred that they are willing to return the
principal amount of P3.5 million but without any interest as the same was not agreed upon. They argued
that since the Conditional Deed of Sale provided only for the return of the downpayment in case of breach,
they cannot be held liable to pay legal interest as well.

ISSUE:
Whether or not the respondent-spouses are entitled to legal interest?
HELD:
Interest may be imposed even in the absence of stipulation in the contract.

We sustain the ruling of both the RTC and the CA that it is proper to impose interest
notwithstanding 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.” In this case, there is no question that petitioner is legally obligated to return the P3.5 million
because of her failure to fulfill the obligation under the Conditional Deed of Sale, despite demand. She
has in fact admitted that the conditions were not fulfilled and that she was willing to return the full
amount of P3.5 million but has not actually done so. Petitioner enjoyed the use of the money from the
time it was given to her30 until now. Thus, she is already in default of her obligation from the date of
demand, i.e., on September 27, 2000.

The interest at the rate of 12% is applicable in the instant case.

Anent the interest rate, the general rule is that the applicable rate of interest “shall be computed
in accordance with the stipulation of the parties.” Absent any stipulation, the applicable rate of interest
shall be 12% per annum “when the obligation arises out of a loan or a forbearance of money, goods or
credits. In other cases, it shall be six percent (6%).” In this case, the parties did not stipulate as to the
applicable rate of interest. The only question remaining therefore is whether the 6% as provided under
Article 2209 of the Civil Code, or 12% under Central Bank Circular No. 416, is due.

The contract involved in this case is admittedly not a loan but a Conditional Deed of Sale. However,
the contract provides that the seller (petitioner) must return the payment made by the buyer
(respondent-spouses) if the conditions are not fulfilled. There is no question that they have in fact, not
been fulfilled as the seller (petitioner) has admitted this. Notwithstanding demand by the buyer
(respondent-spouses), the seller (petitioner) has failed to return the money and should be considered in
default from the time that demand was made on September 27, 2000.

Even if the transaction involved a Conditional Deed of Sale, can the stipulation governing the
return of the money be considered as a forbearance of money which required payment of interest at the
rate of 12%? We believe so.

Since the date of demand which is September 27, 2000 was satisfactorily established during trial,
then the interest rate of 12% should be reckoned from said date of demand until the principal amount
and the interest thereon is fully satisfied.
JESUS T. DAVID vs. HON. COURT OF APPEALS
G.R. No. 115821. October 13, 1999
QUISUMBING, J.:

FACTS:
The dispute in this case concerns only the execution of the Decision of the RTC, Manila, Br. 27 in
a previous civil case (Civil Case No. 94781).

The RTC of Manila in Civil Case No. 94781 issued a writ of attachment over properties of private
respondents. In the case’s Decision, private respondent Afable was ordered to pay petitioner David PhP
65,000.00 plus interest from July 24, 1974 until fully paid. Such Decision was subsequently amended to
be computed from January 4, 1966, instead of July 24, 1974. The amended Decision in the decretal portion
reads:

WHEREFORE, judgment is hereby rendered against the defendant, Valentin Afabale, Jr., ordering
him to pay to the plaintiff the sum of PhP 66,500.00 plus the legal rate of interest thereon from
January 4, 1966 up to the time the same is fully paid X X X.

Afable appealed the foregoing decision to the CA and then to the SC. In both instances, the
decision of the lower court was affirmed. Entries of judgment were made and the record of the case was
remanded to the RTC for the final execution of the Decision.

Upon petitioner's motion, respondent Judge issued an Alias Writ of Execution by virtue of which
respondent Sheriff Melchor P. Peña conducted a public auction. Sheriff Peña informed the petitioner that
the total amount of the judgment is PhP 270,940.52. The amount included a computation of simple
interest. Petitioner, however, claimed that the judgment award should be PhP 3,027,238.50, because the
amount due ought to be based on compounded interest.

Although the auctioned properties were sold to the petitioner, Sheriff Peña did not issue the
Certificate of Sale because there was an excess in the bid price in the amount of PhP 2,941,524.47, which
the petitioner failed to pay despite notice. This excess was computed by the Sheriff on the basis of
petitioner's bid price of PhP 3,027,238.50 minus the amount of P270,940.52 computed in the judgment
award.

On May 18, 1993, petitioner filed a Motion praying that the RTC issue an order directing
respondent Sheriff Peña to prepare and execute a certificate of sale in favor of the petitioner, placing
therein the amount of the judgment as P3,027,238.50, the amount he bid during the auction which he
won. His reason is that compound interest, which is allowed by Article 2212 of the Civil Code, should apply
in this case.

The RTC denied his Motion. It subsequently denied as well his Motion for Reconsideration of the
denial of such Motion. The petitioner elevated the matter to the CA, which dismissed his petition. Hence,
the instant petition.

ISSUE:
 Whether the CA erred in affirming the RTC’s order for the payment of simple interest only rather
than the compounded interest.

HELD:
NO. The SC has already interpreted Article 2212, and defined standards for its application
in Philippine American Accident Insurance vs. Flores. As therein held, Article 2212 contemplates the
presence of stipulated or conventional interest which has accrued when demand was judicially made.
In cases where no interest had been stipulated by the parties, as in the case of Philippine American
Accident Insurance, no accrued conventional interest could further earn interest upon judicial demand.

In the said case, we further held that when the judgment sought to be executed ordered the
payment of simple "legal interest" only and said nothing about payment of compound interest, but the
respondent judge orders payment of compound interest, then, he goes beyond the confines of a judgment
which had become final.

Note that in the case now before us, the Court of Appeals made the finding that ". . . no interest
was stipulated by the parties. In the promissory note denominated as "Compromise Agreement" signed
by the private respondent which was duly accepted by petitioner no interest was mentioned. In his
complaint, petitioner merely prayed that defendant be ordered to pay plaintiff the sum of PhP 66,500.00
with interest thereon at the legal rate from the date of the filing of the complaint until fully paid. Clearly
here the Philippine American Accident Insurance ruling applies.
LETICIA Y. MEDEL DR. RAFAEL MEDEL and SERVANDO FRANCO vs. HON. COURT OF APPEALS
G.R. No. 131622. November 27, 1998
PARDO, J.:

FACTS:
Servando Franco and Leticia Medel obtained a loan from Veronica R. Gonzales in the amount of
PhP 50,000.00, payable in two months. Veronica gave only the amount of PhP 47,000.00 to the borrowers,
as she retained PhP 3,000.00, as advance interest for one month at 6% per month. A promissory note was
executed to evidence the loan.

Not long after the first loan, a second loan in the amount of PhP 90,000.00, payable in two months,
at 6% monthly interest, was executed between the parties. Servando and Leticia received only PhP
84,000.00 as proceeds. Again, it was evidenced by another promissory note.

Then, a third loan was secured in the amount of PhP 300,000.00, maturing in one month, secured
by a REM over a property belonging to Leticia M. Yaptinchay, who issued an SPA in favor of Leticia.
Servando and Leticia failed to pay the three foregoing loans upon their maturity.

Then, on July 23, 1986, Servando and Leticia with the latter’s husband, Dr. Medel, consolidated
all their previous unpaid loans totaling PhP 440,000.00, and sought from Veronica another loan in the
amount of PhP 60,000.00, bringing their indebtedness to a total of PhP 500,000.00. The promissory note
executed as security thereon contains a stipulation which provided that the interest on the PhP
500,000.00 indebtedness is at the rate of “5.5% per month plus 2% service charge per annum from date
hereof until fully paid.” Said stipulation also provided that should the petitioners fail to pay any
amortization or portion of the PhP 500,000.00 when due, they shall pay “an additional amount equivalent
to 1% per month of the amount due and demandable as penalty charges in the form of liquidated damages
until fully paid.”

On maturity of the loan, the borrowers still failed to pay.

This prompted Veronica to file with the RTC of Bulacan, Br. 16, a collection of the full amount of
the loan including interests and other charges.

The RTC held that the interest charged by the plaintiffs on the loans was unconscionable and
“revolting to the conscience.” Hence, the trial court applied “the provision of the New Civil Code that the
“legal rate of interest or forbearance of money, goods, or credit is 12% per annum.

When the private respondent elevated the matter to the CA however, the latter reversed the
ruling of the RTC. Hence, the instant petition brought by the Sps. Medel, and Franco.

ISSUE:
Whether or not the stipulated rate of interest at 5.5% per month on the PhP 500,000.000 loan is
usurious. In other words, is the Usury Law still effective, or has it been repealed by Central Bank Circular
No. 905, adopted on December 22, 1982, pursuant to its powers under P.D. No.116, as amended by P.D.
No. 1684?

HELD:
NO, it is not usurious. The Usury Law is already “legally inexistent.” Nonetheless, the interest rate
must still be modified for being unconscionable.

The SC agrees with petitioners that the stipulated rate of interest at 5.5% per month on the PhP
500,000.00 loan is excessive, iniquitous, unconscionable and exorbitant. However, it cannot be
considered as "usurious" because the SC has consistently held that Circular No. 905 of the Central Bank,
adopted on December 22, 1982, has expressly removed the interest ceilings prescribed by the Usury
Law and that the Usury Law is now "legally inexistent.”

In Security Bank and Trust Company vs. Regional Trial Court of Makati, Branch 61 the Court held
that CB Circular No. 905 "did not repeal nor in anyway amend the Usury Law but simply suspended the
latter's effectivity." Indeed, we have held that "a Central Bank Circular cannot repeal a law. Only a law can
repeal another law." In the recent case of Florendo vs. Court of Appeals, the Court reiterated the ruling
that "by virtue of CB Circular 905, the Usury Law has been rendered ineffective.” Usury has been legally
non-existent in our jurisdiction. Interest can now be charged as lender and borrower may agree upon.
Nevertheless, the interest at 5.5% per month, or 66% per annum, stipulated upon by the parties in the
promissory note is iniquitous or unconscionable, and, hence, contrary to morals ("contra bonos mores"),
if not against the law. The stipulation is void. The courts shall reduce equitably liquidated damages,
whether intended as an indemnity or a penalty if they are iniquitous or unconscionable.

Consequently, the Court of Appeals erred in upholding the stipulation of the parties. Rather, the
SC agrees with the trial court that, under the circumstances, interest at 12% per annum, and an additional
1% a month penalty charge as liquidated damages may be more reasonable.
MANSUETO CUATON vs. REBECCA SALUD and COURT OF APPEALS (Special Fourteenth Division)
G.R. No. 158382. January 27, 2004
YNARES-SANTIAGO, J.:

FACTS:
Private respondent, Rebecca Salud, joined by her husband Rolando Salud, instituted a suit for
foreclosure of real estate mortgages and damages against petitioner Mansueto Cuaton and his
mother, Conchita Cuaton, with the RTC of General Santos City, Br. 35.

The trial court rendered a decision declaring the mortgage as void, as it was executed by
Mansueto in favor of Rebecca without expressly stating therein that he was merely acting as a
representative of his mother, in whose name the mortgaged lot was titled. The court then ordered
the petitioner to pay Rebecca, among others, the loan secured by the mortgage in the amount of PhP
1,000,000.00 plus a total PhP 610,000.00 representing interests of 10% per month (February – June
1992), and 8% per month (July – August 1992)

The petitioner appealed the foregoing decision insofar as the amount of the interest (PhP
610,000.000) is concerned – which was denied by the Court of Appeals.
Hence, the instant petition.

ISSUE:
Whether the interest rates of 8% per month, and 10% per month imposed on the one-million peso
loan obligation of petitioner to private respondent were valid.

HELD:
NO. In Ruiz v. Court of Appeals, the SC declared that the Usury Law was suspended by Central
Bank Circular No. 905, s. 1982, effective on January 1, 1983, and that parties to a loan agreement have
been given wide latitude to agree on any interest rate. However, nothing in the said Circular 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. The stipulated interest rates are illegal if they are
unconscionable.

Thus, in Medel v. Court of Appeals, and Spouses Solangon v. Salazar, the SC annulled a stipulated
5.5% per month or 66% per annum interest on a P500,000.00 loan and a 6% per month or 72% per annum
interest on a P60,000.00 loan, respectively, for being excessive, iniquitous, unconscionable and
exorbitant. In both cases, the interest rates were reduced to 12% per annum.
In the present case, the 10% and 8% interest rates per month on the one-million-peso loan of petitioner
are even higher than those previously invalidated by the Court in the above cases. Accordingly, the
reduction of said rates to 12% per annum is fair and reasonable.

Stipulations authorizing iniquitous or unconscionable interests are contrary to morals (‘contra

bonos mores’), if not against the law. Under Article 1409 of the Civil Code, these contracts are inexistent
and void from the beginning. They cannot be ratified nor the right to set up their illegality as a defense
be waived.
THE OVERSEAS BANK OF MANILA vs. VICENTE CORDERO and COURT OF APPEALS
G.R. No. L-33582 March 30, 1982
ESCOLIN, J.:

FACTS:
Vicente Cordero (PR) opened a one- year time deposit with petitioner bank in the amount of 80k.
However, bank failed to pay PR his said time deposit with the interest. Bank raised as defense the finding
by the Monetary Board of its state of insolvency. Said board authorized petitioner's board of directors to
suspend all its operations, and ordered the Superintendent of banks to take over the assets of the
petitioner for the purposes of liquidation.

ISSUE:
Whether PR is entitled to interest on his time deposit during the period that petitioner was closed

HELD:
NO. What enables a bank to pay stipulated interest on money deposited with it is that thru the
other aspects of its operation, it is able to generate funds to cover the payment of such interest.

Unless a bank can lend money, engage in international transactions, acquire foreclosed
mortgaged properties or their proceeds and generally engage in other banking and financing activities,
from which it can derive income, it is inconceivable how it can carry on as a depository obligated to pay
stipulated interest.

It should be deemed read into every contract of deposit with a bank that the obligation to pay
interest on the deposit ceases the moment the operation of the bank is completely suspended by the duly
constituted authority, the Central Bank.

Petitioner's refusal to pay was not due to a wilful and dishonest refusal to comply with its
obligation but to restrictions imposed by the Central Bank.

Irrelevant part of the case:

ISSUE:
WON PR is barred in recovering his time deposit by the state of insolvency by the Monetary Board

HELD:
Supervening events held this issue moot and academic.
 PR received from the Philippine Deposit Insurance Company the amount of P10,000.00.
 Julian Cordero (atty in fact and brother of Vicente) acknowledged receipt of the sum of P73,840.00
from Commercial Bank (successor of OBM)
 There was also a manifestation that states:

“We also agree to hold free and harmless the Commercial Bank any third party or any suit that may arise
against this agreement of payment, and We also confirm receipt of Seventy Three Thousand Eight Hundred
Forty Pesos (P73,840.00) with our full satisfaction.”
PEOPLE OF THE PHILIPPINES vs. TERESITA PUIG and ROMEO PORRAS
G.R. Nos. 173654-765 August 28, 2008
CHICO-NAZARIO, J.:

FACTS:
There were 112 cases of Qualified Theft filed against the respondents who were the cashier and
bookkeeper of private complainant Rural Bank of Pototan, Inc. However, the RTC Judge dismissed the
case based on the conclusion that there was no probable cause due to the insufficiency of the
allegations in the Informations concerning the facts constitutive of the elements of the offense charged.

ISSUE:
WON there is an insufficiency of the allegations in the Informations

HELD:
NO. To fall under the crime of Qualified Theft, the following elements must concur:
6. That it be done with grave abuse of confidence.

On the manner of how the Information should be worded, the Information need not use the
exact language of the statute in alleging the acts or omissions complained of as constituting the offense.
The test is whether it enables a person of common understanding to know the charge against him, and
the court to render judgment properly.

The Information in the case at bar reads:

[A]bove-named [respondents], conspiring, confederating, and helping one another, with grave
abuse of confidence, being the Cashier and Bookkeeper of the Rural Bank of Pototan, Inc., Pototan, Iloilo,
without the knowledge and/or consent of the management of the Bank x x x.

Tellers, Cashiers, Bookkeepers and other employees of a Bank who come into possession of the
monies deposited therein enjoy the confidence reposed in them by their employer. Banks, on the other
hand, where monies are deposited, are considered the owners thereof.

The relationship between banks and depositors has been held to be that of creditor and debtor.
Articles 1953 and 1980 of the New Civil Code, as appropriately pointed out by petitioner, provide as
follows:

Article 1953. A person who receives a loan of money or any other fungible thing acquires the
ownership thereof, and is bound to pay to the creditor an equal amount of the same kind and
quality.
Article 1980. Fixed, savings, and current deposits of money in banks and similar institutions shall
be governed by the provisions concerning loan.

The Court has consistently considered the allegations in the Information that such employees
acted with grave abuse of confidence, to the damage and prejudice of the Bank, without particularly
referring to it as owner of the money deposits, as sufficient to make out a case of Qualified Theft.
 The respondents acted with grave abuse of confidence. The Information which alleged grave
abuse of confidence by accused herein is even more precise, as this is exactly the requirement of the law
in qualifying the crime of Theft.

In summary, the Bank acquires ownership of the money deposited by its clients; and the
employees of the Bank, who are entrusted with the possession of money of the Bank due to the
confidence reposed in them, occupy positions of confidence. The Informations, therefore, sufficiently
allege all the essential elements constituting the crime of Qualified Theft.
PHILIPPINE NATIONAL BANK vs. HON. COURT OF APPEALS and AMBROSIO PADILLA
G.R. No. 88880. April 30, 1991
GRIÑO-AQUINO, J.:

FACTS:
PR Padilla applied for, and was granted by petitioner PNB, a credit line of P1.8 million, secured by
a real estate mortgage for 2 years with 18% interest. PR executed in favor of the PNB a Credit Agreement,
two promissory notes in the amount of P900,000.00 each, and a Real Estate Mortgage Contract.

The promissory notes executed by the PR authorized the PNB to increase the stipulated 18%
interest per annum “within the limits allowed by law at any time depending on whatever policy it [PNB]
may adopt in the future; Provided, that, the interest rate on this note shall be correspondingly decreased
in the event that the applicable maximum interest rate is reduced by law or by the Monetary Board.”

PR paid his loan, but from July 1984 up to October 1984 the interest on the promissory notes went
up from 18% to 42%. Which prompted PR to file a complaint against PNB praying among other things that
judgment be rendered:

“a. Declaring that the unilateral increase of interest rates from 18% to 32%, then to 41% and again
to 48% are illegal, not valid nor binding on plaintiff, and that an adjustment of his interest rate
from 18% to 24% is reasonable, fair and just;xxx”

ISSUE:
Whether the bank, within the term of the loan which it granted to the private respondent, may
unilaterally change or increase the interest rate stipulated therein at will and as often as it pleased.

HELD:
NO. PNB’s successive increases of the interest rate on the private respondent’s loan, over the
latter’s protest, were arbitrary as they violated an express provision of the Credit Agreement Section 9.01
that its terms “may be amended only by an instrument in writing signed by the party to be bound as
burdened by such amendment.” The increases imposed by PNB also contravene Art. 1956 of the Civil Code
which provides that “no interest shall be due unless it has been expressly stipulated in writing.”

The debtor herein never agreed in writing to pay the interest increases fixed by the PNB beyond
24% per annum, hence, he is not bound to pay a higher rate than that.

Section 2, P.D. No. 116 of January 29, 1973, authorizes the Monetary Board to prescribe the
maximum rate or rates of interest for loans or renewal thereof and to change such rate or rates whenever
warranted by prevailing economic and social conditions, it expressly provides that “such changes shall not
be made oftener than once every twelve months.”

PNB without authority from the Monetary Board, within a period of only four months, increased
the 18% interest rate on the private respondent’s loan obligation three times: (a) to 32% in July 1984; (b)
to 41% in October 1984; and (c) to 48% in November 1984. Those increases were null and void, for if the
Monetary Board itself was not authorized to make such changes oftener than once a year, even less so
may a bank which is subordinate to the Board.
PR did agree in the Deed of Real Estate Mortgage that the interest rate may be increased during the life
of the contract “to such increase within the rate allowed by law, as the Board of Directors of the
MORTGAGEE may prescribe” or “within the limits allowed by law”, no law was ever passed in July to
November 1984 increasing the interest rates on loans or renewals thereof to 32%, 41% and 48% (per
annum), and no documents were executed and delivered by the debtor to effectuate the increases.

Escalation clauses to be valid should specifically provide:

(1) that there can be an increase in interest if increased by law or by the Monetary Board; and
(2) in order for such stipulation to be valid, it must include a 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.’

In the present case, the PNB relied on its own Board Resolution No. 681, PNB Circular No. 40-79-
84, and PNB Circular No. 40-129-84 , but those resolution and circulars are neither laws nor resolutions of
the Monetary Board.

CB Circular No. 905, Series of 1982 removed the Usury Law ceiling on interest rates—

“x x x increases in interest rates are not subject to any ceiling prescribed by the Usury
Law.”

but it did not authorize the PNB, or any bank for that matter, to unilaterally and successively
increase the agreed interest rates from 18% to 48% within a span of four (4) months, in violation of P.D.
116 which limits such changes to “once every twelve months.
SEBASTIAN SIGA-AN vs. ALICIA VILLANUEVA
G.R. No. 173227
CHICO-NAZARIO, J.:

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