Case Facts
Eastern Shipping Note: sa lower court, 3 defendant. Si eastern
Lines Inc vs CA shipping (carrier), metro port service (arrastre
operator and si allied brokerage (broker). Si
Eastern lang umakyat sa SC. Yung iba dedma
Eastern Shipping was consigned to deliver a cargo
consisting of 2 fiber drums of riboflavin under a Bill
of Lading which were shipped from Yokohama,
Japan. However, when Allied Brokage Corporation
received the shipment from Metro Port Service, one
of the drum was opened and was not sealed. As a
result, the plaintiff in the lower court contests that
he suffered losses amounting to P19.032.95 . The
lower court and the CA ruled in favor of the plaintiff
stressing that the amount paid by the insurance
company to the consignee be paid and with the
present legal interest of 12%
per annum commencing on the date of filing of the
complaint, until fully paid. Hence this petition.
Issues
When should the reckoning
period be for the computation
of the payment of legal
interest on an award for loss
or damage?
What is the applicable rate of
interest?
Held Doctrine
The Court laid down the following rules in resolving the issue: When an obligation, not constituting
a loan or forbearance of money, is
I. When an obligation, regardless of its source, i.e., law, contracts, breached, an interest on the amount
quasi-contracts, delicts or quasi-delicts is breached, the of damages awarded may be imposed
contravenor can be held liable for damages. The provisions under at the discretion of the court at the
Title XVIII on "Damages" of the Civil Code govern in determining rate of 6% per annum. No interest,
the measure of recoverable damages. however, shall be adjudged on
unliquidated claims or damages
II. With regard particularly to an award of interest in the concept except when or until the demand can
of actual and compensatory damages, the rate of interest, as well be established with reasonable
as the accrual thereof, is imposed, as follows: certainty. Accordingly, where the
demand is established with
1. When the obligation is breached, and it consists in the payment reasonable certainty, the interest shall
of a sum of money, i.e., a loan or forbearance of money, the begin to run from the time the claim
interest due should be that which may have been stipulated in is made judicially or extrajudicially
writing. Furthermore, the interest due shall itself earn legal (Art. 1169, Civil Code) but when such
interest from the time it is judicially demanded. In the absence of certainty cannot be so reasonably
stipulation, the rate of interest shall be 12% per annum to be established at the time the demand is
computed from default, i.e., from judicial or extrajudicial demand made, the interest shall begin to run
under and subject to the provisions of Article 1169 of the Civil only from the date the judgment of
Code. the court is made (at which time the
quantification of damages may be
2. When an obligation, not constituting a loan or forbearance of deemed to have been reasonably
money, is breached, an interest on the amount of damages ascertained). The actual base for the
awarded may be imposed at the discretion of the court at the rate computation of legal interest shall, in
of 6% per annum. No interest, however, shall be adjudged on any case, be on the amount finally
unliquidated claims or damages except when or until the demand adjudged.
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.
WHEREFORE, the petition is partly GRANTED. The appealed
decision is AFFIRMED with the MODIFICATION that 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

Gil Jardenil v Hefti This is an action for foreclosure of mortgage
Solas entered inbto berween Gil Jardenil and Hefti Solas.
An agreement between the two parties revealed the
intention to pay interest only up to the date of
maturity, or until March 31, 1934, as can be seen in
Paragraph 4 of the mortgage deed.
Hermojina Estores Petitioner, Hermojina Estores and respondent-spouses
v Spouses Arturo Arturo and Laura Supangan entered into a Conditional
and Laura Deed of Sale over a parcel of land located at Naic, Cavite
Supangan for the sum of P4.7 million.
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. Hence, respondent
spouses wrote a letter and demanded the return of the
amount paid within 15 days. In her reply, petitioner
acknowledge the amount paid and promised to pay
Is defendant-appellee bound
to pay the stipulated interest
only up to the date of
maturity as fixed in the
promissory note, or up to the
date payment is effected?
The only issue posed before
us is the propriety of the
imposition of interest and
attorneys fees.
such amount upon finality of this decision until the payment
thereof
There is nothing in the mortgage deed to show that the terms A writing must be interpreted
employed by the parties thereto are at war with their evident according to the legal meaning of its
intent. On the contrary the act of the mortgage of granting to the language (section 286, Act No. 190,
mortgagor on the same date of execution of the deed of mortgage, now section 58, Rule 123), and only
an extension of one year from the date of maturity within which to when the wording of the written
make payment, without making any mention of any interest which instrument appears to be contrary to
the mortgagor should pay during the additional period (see the evident intention of the parties
Exhibit B attached to the complaint), indicates that the true that such intention must prevail.
intention of the parties was that no interest should be paid during (Article 1281, Civil Code.)
the period of grace. What reason the parties may have therefor, we
need not here seek to explore
Plaintiff is, therefore, entitled only to the stipulated interest of 12
per cent on the loan of P2, 400 from November 8, 1932 to March
31, 1934. And it being a fact that extra judicial demands have been
made which we may assume to have been so made on the
expiration of the year of grace, he shall be entitled to legal interest
upon the principal and the accrued interest from April 1, 1935,
until full payment.
Separate Opinions
PARAS, J., dissenting:
Under the facts stated in the decision of the majority, I come to the
conclusion that interest at the rate of 12 per cent per annum
should be paid up to the date of payment of the whole
indebtedness is made. Payment of such interest is expressly
stipulated. True, it is stated in the mortgage contract that interest
was to be paid up to March 31, 1934, but this date was inserted
merely because it was the date of maturity. The extension note is
silent as regards interest, but its payment is clearly implied from
the nature of the transaction which is only a renewal of the
obligation. In my opinion, the ruling of the majority is anomalous
and at war with common practice and everyday business usage.
We sustain the ruling of both the RTC and the CA that it is proper Anent the interest rate, the general
to impose interest notwithstanding the absence of stipulation in rule is that the applicable rate of
the contract. The interest at the rate of 12% is applicable in the interest shall be computed in
instant case. accordance with the stipulation of the
parties. Absent any stipulation, the
The contract involved in this case is admittedly not a loan but a applicable rate of interest shall be 12%
Conditional Deed of Sale. However, the contract provides that the per annum when the obligation arises
seller (petitioner) must return the payment made by the buyer out of a loan or a forbearance of
(respondent-spouses) if the conditions are not fulfilled. There is money, goods or credits. In other
no question that they have in fact, not been fulfilled as the seller cases, it shall be six percent (6%).
(petitioner) has admitted this. Notwithstanding demand by the
 within 120 days, the spouses were amenable to the
proposal upon the condition that an interest of 12%
compounded annually shall be imposed over the 3.5M.
Since petitioner still failed to comply with her obligation,
the spouses were constrained to seek relief to the courts
for collection of sum of money. Petitioner and his agent
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. In their Pre-Trial Brief, they
reiterated that the only remaining issue between the
parties is the imposition of interest. 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. The
RTC rendered ts judgment in favor of the Spouses but
only imposed an interest of 6% per annum. Petioner and
Arias appealed to the CA which affirmed the decision of
the lower court. However, the same shall start to run
only when respondent-spouses formally demanded the
return of their money. Anent the award of attorneys fees,
the CA found the award by the trial court (P50,000.00
plus 20% of the recoverable amount) excessive and thus
reduced the same to P100,000.00. Hence this petition.
Jesus David v CA The Regional Trial Court of Manila, Branch 27, with
Judge Ricardo Diaz issued a writ of attachment
over real properties of private respondents. Judge
Diaz ordered private respondent Afable to pay
petitioner P66,500.00 plus interest from July 24,
1974, until fully paid, plus P5,000.00 as attorneys
fees, and to pay the costs of suit. On June 20, 1980,
however, Judge Diaz issued an Order amending
said Decision, so that the legal rate of interest
should be computed from January 4, 1966, instead
of from July 24, 1974. Respondent Afable appealed
to the Court of Appeals and then to the Supreme
Court. In both instances, the decision of the lower
court was affirmed. Upon petitioners motion,
respondent Judge issued an Alias Writ of Execution
by virtue of which respondent Sheriff Melchor P.
Pea conducted a public auction. The total amount
of the judgment is P270,940.52. The amount
included a computation of simple
interest. Petitioner, however, claimed that the
judgment award should be P3,027,238.50, because
the amount due ought to be based on compounded
interest. Although the auctioned properties were
sold to the petitioner, Sheriff Pea did not issue the
Certificate of Sale because there was an excess in
the bid price in the amount of P2,941,524.47, which
whether respondent appellate
court erred in affirming
respondent Judges order for
the payment of simple
interest only rather than
compounded interest.
buyer
(respondentspouses), 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.
Forbearance of money, goods or credits should therefore refer to
arrangements other than loan agreements, where a person
acquiesces to the temporary use of his money, goods or credits
pending happening of certain events or fulfillment of certain
conditions. In this case, the respondent-spouses parted with their
money even before the conditions were fulfilled. They have
therefore allowed or granted forbearance to the seller (petitioner)
to use their money pending fulfillment of the conditions. They
were deprived of the use of their money for the period pending
fulfillment of the conditions and when those conditions were
breached, they are entitled not only to the return of the principal
amount paid, but also to compensation for the use of their
money. And the compensation for the use of their money, absent
any stipulation, should be the same rate of legal interest applicable
to a loan since the use or deprivation of funds is similar to a loan.
Article 2212 contemplates the presence of stipulated or The judgment which was sought to be
conventional interest which has accrued when demand was executed ordered the payment of
judicially made. In cases where no interest had been stipulated by simple legal interest only. It said
the parties, as in the case of Philippine American Accident nothing about the payment of
Insurance, no accrued conventional interest could further earn compound interest. Accordingly,
interest upon judicial demand. when the respondent judge ordered
the payment of compound interest he
In the said case, we further held that when the judgment sought to went beyond the confines of his own
be executed ordered the payment of simple legal interest only and judgment which had been affirmed by
said nothing about payment of compound interest, but the the Court of Appeals and which had
respondent judge orders payment of compound interest, then, he become final. Fundamental is the rule
goes beyond the confines of a judgment which had become final that execution must conform to that
ordained or decreed in the dispositive
part of the decision. Likewise, a court
cannot, except for clerical errors or
omissions amend a judgment that has
become final
 the petitioner failed to pay despite notice. This
excess was computed by the Sheriff on the basis of
petitioners bid price of P3,027,238.50 minus the
amount of P270,940.52 computed in the judgment
award. Petitioner filed a Motion praying that
judgment be in his favor, placing therein the
amount of the judgment as P3,027,238.50 insisting
on the compound interest as provided for in Article
2212 of the Civil Code. However, respondent judge
denied such petition. Petitioner appealed to the CA
but denied the same. Hence this petition.
Jose soncuya v By reason of the proceedings had in case No. 11489
Juan azarraga of the Court of First Instance of Manila, entitled
"Testate Estate of the Deceased Juan Azarraga y
Galvez", the defendants surnamed Azarraga
became indebted to Attorney Leodegario Azarraga,
who represented them in said case, for attorney's
fees, which on October 21, 1919 the court, which
took cognizance of the case, fixed at P3,000
The defendants Azarraga had previously agreed
among themselves to pay Attorney Leodegario
Azarraga attorney's fees The parties also agree that
the parcels of land located in Bay-ang, New
Washington, Capiz, P. I are specially mortgaged
and subject to the payment of the fees of said
attorney of the testate estate, which fees shall be
fixed by the court, and said attorney may hold said
lands under no obligation to pay any rent until his
fees shall have been fully paid upon the condition
that if the parties failed to pay the attorneys fee at
the end of the period of five years from the date of
the approval of this project of partition shall be
definitely adjudicated to said attorney, Mr.
Leodegario Azarraga, as his property, in payment of
his fees, and all sums which he may have received
from time to time from the interested parties in
these testate proceedings, within the said period,
shall be returned to said parties. About nine
months after the court approved Exhibit A, or to be
exact, on June 9, 1920, which was long before the
expiration of the period of five years within which
the defendants Azarraga were bound to pay
Attorney Leodegario Azarraga his fees, which had
been fixed at P3,000, said attorney decided to sell
and did sell to the plaintiff his credit against the
defendants for the sum of P2,500 with all the rights
inherent therein in accordance with the agreements
and stipulations appearing in said document
When the plaintiff became the creditor of the
I. Was the contract entered
into by-the Azarraga
brothers, the defendants
herein, with Attorney
Leodegario Azarraga from
whom the plaintiff derived
his right, a sale with pacto de
retro, or an assignment in
payment of a debt, or was it
an antichresis partaking of
the nature of what was
anciently known as pacto
comisorio, or a mortgage, or
was it merely a loan with real
estate security?
II. Was the contract executed
by the defendant Joaquin
Azarraga, on the one hand,
and the plaintiff, on the other,
embodied in Exhibit E, a sale
with pacto de retro or simply
a loan with real estate
security?
The first question offers no difficulty if account is taken of the what perhaps could have been
established facts and the conduct of the interested parties after the considered as a antichresis or pacto
expiration of the term of five years fixed in Exhibit A. When the comisorio — not an assignment in
plaintiff extended the period to February 16, 1926 within which payment of a debt, or a sale
the defendants Azarraga could pay him his credit, but imposed on with pacto de retro because there is
them the condition that they pay him 12 per cent annual interest nothing in Exhibit A to indicate that
from August 30, 1924 on the principal of P3,000 (Exh. 5) and gave such was the intention of the
them another extension up to April 26, 1926, under the same defendants Azarraga or, at least, that
conditions as regard interest (Exh. M), what perhaps could have they bound themselves to deliver the
been considered as a antichresis or pacto comisorio — not an land in question to the plaintiff and
assignment in payment of a debt, or a sale with pacto de that the latter should pay them the
retro because there is nothing in Exhibit A to indicate that such value thereof; and because there was
was the intention of the defendants Azarraga or, at least, that they what may be considered the
bound themselves to deliver the land in question to the plaintiff resolutory condition of five years —
and that the latter should pay them the value thereof; and because was converted into a simple loan by
there was what may be considered the resolutory condition of five the decisive circumstance that
years — was converted into a simple loan by the decisive plaintiff chose to collect thereafter,
circumstance that plaintiff chose to collect thereafter, and the and the obligors agreed to pay him, 12
obligors agreed to pay him, 12 per cent annual interest. It is only in per cent annual interest. It is only in
contracts of loan, with or without guaranty, that interest may be contracts of loan, with or without
demanded guaranty, that interest may be
demanded
There is also no difficulty in disposing of the second question,
considering the various novations which, as has been said, had
taken place and had been extended not only to the Azarraga
brothers with respect to their obligation of P3,000 or P2,700, but
also to the defendant Joaquin Azarraga as regard his personal debt
of P4,000. We must not lose sight of the fact that the plaintiff
never considered the contract entered into by him with Joaquin
Azarraga as, strictly speaking, a sale with pacto de retro. And if he
had ever considered it as such, it is, nevertheless, true that he
novated it on February 16, 1926, considering it from the time on as
a simple loan, inasmuch as on that date he began to charge the
said defendant 12 per cent annual interest with the latter's assent
and confirmity. This clearly appears in Exhibit M which must be
considered together with paragraphs 7 and 8 of Exhibit E, as the
plaintiff himself does in his brief (brief for the plaintiff as
appellant, pages 4 and 5), because the term of five years to which
said Exhibit E refers and which should have expired on February
defendants Azarraga by virtue of the sale and 16, 1926 was extended by the said plaintiff, by Exhibit M, up to
cession which Attorney Azarraga had made in his April 26, 1926 under the aforementioned condition that he should
favor of the rights which said attorney had under be paid 12 per cent annual interest.
Exhibit A, he allowed the defendants an extension
of a few years over the five years with in which they In view of all the foregoing and in resume, we hold that the
would have to pay him his credit. The plaintiff plaintiff alone has the right (1) to recover from the defendants
granted another extension to expire on October 31, Azarraga, by virtue of the assignment and sale made to him by
1928, but subject to the condition that instead of Attorney Leodegario Azarraga of the latters' credit of P2,700
seven thousand and odd pesos, which undoubtedly against the said defendants, the aforesaid sum plus interest at the
referred to the interest of 12 per cent per annum rate of 12 per cent per annum from August 30, 1924; (2) to recover
charged the defendants, they should pay him from the defendant Joaquin Azarraga, in particular, the sum of
P12,000 . Aside from the above transactions P4,000 plus interest at the rate of 12 per cent per annum from
between the plaintiff and the defendants Azarraga, April 26, 1926. We also hold that the defendants are not entitled to
one of the latter, Joaquin Azarraga, executed in anything under their counterclaims.
favor of the former, the deed known as Exhibit E of
the record and dated October 14, 1922, by which he
sold to the plaintiff, for the sum of P4,000, his
portion of the inheritance in the testate estate of the
late Juan Azarraga y Galvez, consisting of an
undivided tract of land containing an estimated
area of 63 hectares and located in Bay-ang Chico,
New Washington, Capiz.
When the plaintiff took possession of part of the
land in question he found fruit-bearing and young
coconut trees, the latter being more numerous. In
1925, 1926 and 1927, Joaquin Azarraga, either by
himself or his laborers, planted therein hundreds of
coconut trees of which but a few hundreds, as we
the case with the old ones, remained on account of
the long droughts or other causes. Sometimes in
May, 1928, the plaintiff went to the house of the
defendants Joaquin Azarraga to collect not only his
credit against all the defendants Azarraga, but also
the special credit which, according to him, he had
against Joaquin Azarraga.
At the time of the filing of the original complaint,
plaintiff simultaneously asked for and obtained on
February 7, 1931, upon posting a bond in the
amount of P2,000, a writ of preliminary injunction
against the defendants. In connection with the
issuance of the writ of preliminary injunction, the
following facts must be mentioned: After the
plaintiff commenced the present case against the
defendants Azarraga on January 28, 1929 by means
of his original complaint, he instituted another
action against them, which was civil case No. 2643,
for the purpose of obtaining a writ of injunction to
prevent them from securing the aforementioned
loan of P25,000 from "Hijos de I. de la Rama".

It appears from the allegations of the complaint

thus amended that the plaintiff has four causes of
 action.

1. Plaintiff-appellant seeks to recover from the

defendants the sum of P118,635.68 as damages,
which he alleges to have been caused by the
defendants in fraudulently depriving him of the
possession of four parcels of land with a total area
of 296 hectares, 58 ares and 92 centares, which
they, with knowledge that said real properties
belonged to him exclusively, registered in their
names in the registry of property and mortgaged in
favor of "Hijos de I. de la Rama" to pay a certain
obligation which they had contracted with the
Panay Municipal Cadastre.

2. Plaintiff-appellant seeks to recover P6,080 as the

supposed value of the heads of cattle belonging to
him, which the tenants of the defendants had
slaughtered

3. Plaintiff-appellant seeks payment of the sum of

P5,575 as the supposed value of 1,115 coconut trees
which he had planted on the four parcels of land in
question

4. Plaintiff-appellant prays that the defendants

surnamed Azarraga, with the exception of Joaquin
Azarraga, be ordered to make up to 123 hectares, 13
ares and 99 centares the land which the latter had
sold to him, because plaintiff did not take
possession of the land, except a portion thereof,
having an area of 72 hectares, 83 areas and 5
centares.

Medel vs Court of On November 7, 1985, Servando Franco and Leticia
Appeals Medel obtained a loan from Veronica R. Gonzales
who was engaged in the money lending business
under the name "Gonzales Credit Enterprises", in
the amount of P50,000.00, payable in two
months. However, Veronica only gave the amount
of P47,000.00, as the P3,000.00 served as advance
interest for one month at 6% per monh. Servado
and Leticia executed a promissory note
for P50,000.00, to evidence the loan, payable on
January 7, 1986.
Another loan was executed by servando and leticia
in the amount of P90,000.00, payable in two
months, at 6% interest per month. To which they
again, executed a promissory note to evidence the
loan. They received only P84,000.00, out of the
proceeds of the loan. However, On maturity of the
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?
We agree with petitioners that the stipulated rate of interest at In Security Bank and Trust
5.5% per month on the P500,000.00 loan is excessive, iniquitous, Company vs. Regional Trial Court of
unconscionable and exorbitant. However, we can not consider the Makati, Branch 61 the Court held that
rate "usurious" because this Court has consistently held that CB Circular No. 905 "did not repeal
Circulr No. 905 of the Central Bank, adopted on December 22, nor in anyway amend the Usury Law
1982, has expressly removed the interest ceilings prescribed by the but simply suspended the latter's
Usury Law and that the Usury Law is now "legally inexistent" effectivity." Indeed, we have held that
"a Central Bank Circular can not
Nevertheless, we find the interest at 5.5% per month, or 66% per repeal a law. Only a law can repeal
annum, stipulated upon by the parties in the promissory note another law.
iniquitous or unconscionable, and, hence, contrary to morals
("contra bonos mores"), if not against the law. In the recent case of Florendo vs.
The stipulation is void. The courts shall reduce equitably Court of Appeals, the Court reiterated
liquidated damages, whether intended as an indemnity or a the ruling that "by virtue of CB
penalty if they are iniquitous or unconscionable. Circular 905, the Usury Law has been
rendered ineffective". "Usury has
Consequently, the Court of Appeals erred in upholding the been legally non-existent in our
stipulation of the parties. Rather, we agree with the trial court jurisdiction. Interest can now be
two promissory notes, the borrowers failed to pay that, under the circumstances, interest at 12% per annum, and an charged as lender and borrower may
the indebtedness. Nevertheless, Servando and additional 1% a month penalty charge as liquidated damages may agree upon
Leticia secured from Veronica still another loan in be more reasonable.
the amount of P300,000.00, maturing in one
month, secured by a real estate mortgage over a WHEREFORE, the Court hereby REVERSES and SETS ASIDE
property belonging to Leticia Makalintal the decision of the Court of Appeals
Yaptinchay, who issued a special power of attorney
in favor of Leticia Medel, authorizing her to execute
the mortgage. Servando and Leticia executed a
promissory note in favor of Veronica to pay the sum
of P300,000.00, after a month, or on July 11,
1986. However, only the sum of P275,000.00, was
given to them out of the proceeds of the loan. On
July 23, 1986, Servando and Leticia with the latter's
husband, Dr. Rafael Medel, consolidated all their
previous unpaid loans totaling P440,000.00, and
sought from Veronica another loan in the amount
of P60,000.00, bringing their indebtedness to a
total of P500,000.00, payable on August 23, 1986.

Consequently, on the maturity of the loan, the

borrowers still failed to pay the indebtedness of
500,000 plus interest and penalties. This fact
prompted Veronica Gonzales and her husband
Danilo Gonzales to file a complaint against herein
defendants.

In his answer, Servando claims that he did not

obtain the loan and that it was defendants Leticia
and Rafael Medel who borrowed from the plaintiffs
and that he merely signed the promissory note as a
witness. On the other hand, Leticia and Rafael that
the loan was the transaction of Leticia Magpantay
and that the interest rate of 5.5% per month is
excessive. Judgment was rendered in favor of the
plaintiff the court fixing the interest rate at 12% per
annum. Both plaintiffs and defendants appealed to
the CA. plaintiffs-appellants argued that the
promissory note, which consolidated all the unpaid
loans of the defendants, is the law that governs the
parties. They further argued that Circular No. 416
of the Central Bank prescribing the rate of interest
for loans or forbearance of money, goods or credit
at 12% per annum, applies only in the absence of a
stipulation on interest rate, but not when the
parties agreed thereon.

The Court of Appeals sustained the plaintiffs-

appellants' contention. It ruled that "the Usury Law
having become 'legally inexistent' with the
promulgation by the Central Bank in 1982 of
Circular No. 905, the lender and borrower could
 agree on any interest that may be charged on the
loan". Defendants-appellants filed for a motion for
reconsideration but was denied. Hence this
petition.
Lirag textile mills On September 4, 1961, the plaintiff and the
vs SSS defendants Lirag Textile Mills, Inc. and Basilio
Lirag entered into a Purchase Agreement under
which the plaintiff agreed to purchase from the said
defendant preferred shares of stock worth ONE
MILLION PESOS subject to condition. Thereafter,
plaintiff, paid the defendant Lirag Textile Mills, Inc.
the sum of FIVE HUNDRED THOUSAND PESOS
for which the latter issued to plaintiff 5,000
preferred shares with a par value of one hundred
pesos per share as evidenced by stock Certificate
and another in the sum of 500,000. An agreement
of repurchase by Lirag Textile Mills Inc was also
entered into. However, defendant corporation
failed to redeem the Stock Certificates as well as to
comply with its obligation to pay dividends.
Consequently, a demand letter was sent to the
corporation and to Basilio L. Lirag requiring him to
make good his obligation as surety. The Stock
Certificates issued to plaintiff are still unredeemed
and no dividends have been paid on said stock
certificates notwithstanding such letters of demand
to the defendant Basilio L. Lirag,For failure of Lirag
Textile Mills, Inc. and Basilio L. Lirag to comply
with the terms of the Purchase Agreement, the SSS
filed an action for specific performance. The lower
court, ruling that the purchase agreement was a
debt instrument, decided in favor of SSS Hence,
this petition.
Lucia Tan v Arador That the parcel of land described in the first cause
Valdehueza of action was the subject matter of the public
auction sale held on May 6, 1955 at the Capitol
Building in Oroquieta, Misamis Occidental,
wherein the plaintiff was the highest bidder and as
such a Certificate of Sale was executed by MR.
VICENTE D. ROA who was then the Ex-Officio
Provincial Sheriff in favor of LUCIA TAN the herein
plaintiff. Due to the failure of defendant Arador
Valdehueza to redeem the said land within the
period of one year as being provided by law, MR.
VICENTE D. ROA who was then the Ex-Officio
Provincial Sheriff executed an ABSOLUTE DEED
OF SALE in favor of the plaintiff. Defendants have
executed two documents of DEED OF PACTO DE
Whether or not the Purchase
Agreement entered into by
petitioners and respondent
SSS is a debt instrument.
WON the lower court erred in
failing to adjudge on the first
cause of action that there
exists res judicata; and
WON the lower court erred in
making a finding on the
second cause of action that
the transactions between the
parties were simple loan,
instead, it should be declared
as equitable mortgage
We uphold the lower court's finding that the Purchase Agreement A stockholder sinks or swims with the
is, indeed, a debt instrument. Its terms and conditions corporation and there is no obligation
unmistakably show that the parties intended the repurchase of the to return the value of his shares by
preferred shares on the respective scheduled dates to be an means of repurchase if the
absolute obligation which does not depend upon the financial corporation incurs losses and
ability of petitioner corporation. This absolute obligation on the financial reverses, much less
part of petitioner corporation is made manifest by the fact that a guarantee such repurchase through a
surety was required to see to it that the obligation is fulfilled in the surety.
event of the principal debtor's inability to do so. The unconditional
undertaking of petitioner corporation to redeem the preferred
shares at the specified dates constitutes a debt which is defined "as
an obligation to pay money at some fixed future time, or at a time
which becomes definite and fixed by acts of either party and which
they expressly or impliedly, agree to perform in the contract.
We affirm in part and modify in part. Under article 1875 of the Civil Code of
1889, registration was a necessary
The Valdehuezas submit that the dismissal of civil case 2002 requisite for the validity of a mortgage
operated, upon the principle of res judicata, as a bar to the first even as between the parties, but
cause of action in civil case 2574. We rule that this contention is under article 2125 of the new Civil
untenable as the causes of action in the two cases are not Code (in effect since August 30,1950),
identical. The judgment in the first case could not and did not this is no longer so.
encompass the judgment in the second, although the second
judgment would encompass the first. If the instrument is not recorded, the
mortgage is nonetheless binding
The trial court treated the registered deed of pacto de retro as an between the parties. (Article 2125,
equitable mortgage but considered the unregistered deed of pacto 2nd sentence).
de retro "as a mere case of simple loan, secured by the property
thus sold under pacto de retro," on the ground that no suit lies to
foreclose an unregistered mortgage. It would appear that the trial
 RETRO SALE in favor of Lucia Tan of two portions
of a parcel of land which are marked as 'Annex D'
and Annex E'. That from the execution of the Deed
of Sale with right to repurchase mentioned,
defendants remained in the possession of the land;
that land taxes to the said land were paid by the
same said defendants. A complaint for injunction
filed by against the Valdehuezas, to enjoin them
"from entering the above-described parcel of land
and gathering the nuts therein. The Deed of Pacto
de Retro referred to as "Annex D" was not
registered in the Registry of Deeds, while the Deed
of Pacto de Retro referred to as "Annex E" was
registered. Trial ensued and judgment is rendered
in favor of the plaintiff. Hence, this petition
On January 5, 1993, respondent Rebecca Salud,
joined by her husband Rolando Salud, instituted a
suit for foreclosure of real estate mortgage with
damages against petitioner Mansueto Cuaton and
his mother, Conchita Cuaton, with the Regional
Trial Court of General Santos City. The trial court
rendered a decision declaring the mortgage
constituted on October 31, 1991 as void, because it
was executed by Mansueto Cuaton in favor of
Rebecca Salud without expressly stating that he was
merely acting as a representative of Conchita
Cuaton, in whose name the mortgaged lot was
titled. The court ordered petitioner to pay Rebecca
Salud, inter alia, the loan secured by the mortgage
in the amount of One Million Pesos plus a total
P610,000.00 representing interests of 10% and 8%
per month for the period February 1992 to August
1992. The lower court rendered judgment in favor
of the spouses Salud. Both parties appealed to the
CA which affirmed the decision of the lower court.
Overseas bank of Private respondent opened a 1-year time deposit
manila v Vicente with petitioner bank amounting to P80,000, with
judge had not updated himself on law and jurisprudence; he cited,
in support of his ruling, article 1875 of the old Civil Code and
decisions of this Court circa 1910 and 1912.
Under article 1875 of the Civil Code of 1889, registration was a
necessary requisite for the validity of a mortgage even as between
the parties, but under article 2125 of the new Civil Code (in effect
since August 30,1950), this is no longer so.
If the instrument is not recorded, the mortgage is nonetheless
binding between the parties. (Article 2125, 2nd sentence).
The Valdehuezas having remained in possession of the land and
the realty taxes having been paid by them, the contracts which
purported to be pacto de retro transactions are presumed to be
equitable mortgages, whether registered or not, there being no
third parties involved.
ACCORDINGLY, the judgment a quo is hereby modified, as
follows: (a) the amounts of P1,200 and P300 mentioned in
Annexes E and D shall bear interest at six percent per annum from
the finality of this decision; and (b) the parcel of land covered by
Annex D shall be treated in the same manner as that covered by
Annex E, should the defendants fail to pay to the plaintiff the sum
of P300 within 90 days from the finality of this decision. In all
other respects the judgment is affirmed. No costs
whether the 8% and 10% We find merit in the petition. Stipulations authorizing iniquitous or
monthly interest rates unconscionable interests are contrary
imposed on the one-million- Citing Ruiz v. Court of Appeals, the Court declared that the Usury to morals (contra bonos mores), if not
peso loan obligation of Law was suspended by Central Bank Circular No. 905, s. 1982, against the law. Under Article 1409 of
petitioner to respondent effective on January 1, 1983, and that parties to a loan agreement the Civil Code, these contracts are
Rebecca Salud are valid. have been given wide latitude to agree on any interest inexistent and void from the
rate. However, nothing in the said Circular grants lenders carte beginning. They cannot be ratified nor
blanche authority to raise interest rates to levels which will either the right to set up their illegality as a
enslave their borrowers or lead to a hemorrhaging of their defense be waived.
assets. The stipulated interest rates are illegal if they are
unconscionable.
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
Whether respondent is We consider it of trivial consequence that the stoppage of the The stubborn fact remained that the
entitled to interest and bank's operations by the Central Bank has been subsequently petitioner was totally crippled from
cordero interest of 6% per annum. Due to its distressed
financial condition, the bank was unable to pay.
Cordero instituted an action before the CFI Manila.
Petitioner raised the defenses of insolvency and
prejudice to other depositors. The lower court, and
the Court of Appeals, ruled in favor of Cordero.
Hence, the instant petition for review on certiorari.
Certain supervening events rendered the issue
moot and academic. Respondent’s brother and
attorney-in-fact sent a letter to the Commercial
Bank of Manila (petitioner’s successor-in-interest),
acknowledging receipt of P10,000, and another
manifestation for P73,840, with waiver of damages.
Upon further examination, it was found that the
respondent’s brother has no SPA. Respondent’s
brother submitted the SPA, with explanatory
comment that the waiver applies only to third party
claims, suits and damages, not to interest and
attorney’s fees.
attorney’s fees declared illegal by the Supreme Court, for before the Court's order, then on from earning the income
the bank had no alternative under the law than to obey the orders needed to meet its obligations to its
of the Central Bank. Whatever be the juridical significance of the depositors. If such a situation cannot,
subsequent action of the Supreme Court, the stubborn fact strictly speaking be legally
remained that the petitioner was totally crippled from then on denominated as "force majeure" as
from earning the income needed to meet its obligations to its maintained by private respondent, We
depositors. If such a situation cannot, strictly speaking be legally hold it is a matter of simple equity
denominated as "force majeure" as maintained by private that it be treated as such.
respondent, We hold it is a matter of simple equity that it be
treated as such.
Neither can respondent Cordero recover attorney's fees. The trial
court found that herein petitioner's refusal to pay was not due to a
willful and dishonest refusal to comply with its obligation but to
restrictions imposed by the Central Bank. Since respondent did
not appeal from this decision, he is now barred from contesting
the same.