Credit Transaction - Case Digest

CASE DIGEST - CREDIT TRANSACTIONS
CHEE KIONG YAM vs. MALIK

G.R. NO-50550-52. OCTOBER 31, 1979
FACTS:
Petitioners filed a petition for certiorari, prohibition and mandamus with preliminary injunction against the
respondent Judge Malik who ruled that several cases of estafa filed against the petitioners should be
admitted for trial in his sala. It must be noted that all complainants admitted that the money which the
petitioners did not return were obtained from them by the latter in a form of loans.
ISSUE:
Can there be a crime of estafa for non-payment of a loan?
HELD:
No. In order that a person be convicted of Swindling (Estafa) under Art. 315 of the Revised Penal Code, it
must be proven that he has the obligation to deliver or return the same money, goods or personal property
that he received. Petitioners had no such obligation to return the same money, i.e., the bills or coins, which
they received from private respondents. This is so because as clearly stated in criminal complaints, the
related civil complaints and the supporting sworn statements, the sums of money that petitioners received
were loans. In U.S. vs. Ibañez, 19 Phil. 559, 560 (1911), the Supreme Court held that it is not estafa for a
person to refuse to pay his debt or to deny its existence.
It is the opinion of the Court that when the relation is purely that of debtor and creditor, the debtor cannot
be held liable for the crime of estafa, under said article, by merely refusing to pay or by denying the
indebtedness.
It appeared that respondent judge failed to appreciate the distinction between the two types of loan,
mutuum and commodatum, when he performed the questioned acts. He mistook the transaction between
petitioners and private respondents to be commodatum wherein the borrower does not acquire ownership
over the thing borrowed and has the duty to return the same thing to the lender.
PEOPLE vs. TERESITA PUIG

G.R. NO. 173654-765. AUGUST 28, 2008
FACTS:
Iloilo Provincial Prosecutor's Office filed 112 cases of Qualified Theft against respondents Teresita Puig
(Puig) and Romeo Porras (Porras) who were the Cashier and Bookkeeper... of private... complainant Rural
Bank of Pototan, Inc. The allegations... above-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 and
with intent of gain, did then and there... willfully, unlawfully and feloniously take, steal and carry away the
sum of FIFTEEN THOUSAND PESOS... to the damage and prejudice of the said bank in the aforesaid amount.
After perusing the Information in these cases, the trial court did not find the existence of probable cause...
based on the... ground... the element of `taking without the consent of the owners' was missing on the
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Case Digest - Credit Transactions
ground that it is the depositors-clients, and not the Bank, which filed the complaint in these cases, who are
the owners of the money allegedly taken by respondents... and hence, are the real parties-in-interest RTC
dismissed the cases.
Petitioner explains that under Article 1980 of the New Civil Code, "fixed, savings, and current deposits of
money in banks and similar institutions shall be governed by the provisions concerning simple loans."
Corollary thereto, Article 1953 of the same Code provides that "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." Thus, it posits that the depositors who place their money with the
bank are considered creditors of... the bank. The bank acquires ownership of the money deposited by its
clients, making the money taken by respondents as belonging to the bank.
Petitioner also insists that the Information sufficiently allege all the elements of the crime of qualified theft.
ISSUES:
Whether or not the 112 information for qualified theft sufficiently allege the element of taking without the
consent of the owner
RULING:
We find merit in the petition.
It is evident that 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 portion of the Information relevant to this discussion 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.
It is beyond doubt that 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.
In a long line of cases involving Qualified Theft, this Court has firmly established the nature of possession
by the Bank of the money deposits therein, and the duties being performed by its employees who have
custody of the money or have come into possession of it. The Court... has consistently considered the
allegations in the Information that such employees acted with grave abuse of confidence, to the damage
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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.
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 Information, therefore, sufficiently allege all the essential
elements constituting the crime of Qualified Theft.
BPI FAMILY BANK vs. FRANCO

G.R. NO. 123498. NOVEMBER 23, 2007
J. NACHURA
FACTS:
On August 15, 1989, Tevesteco opened a savings and current account with BPI-FB. Soon thereafter, FMIC
also opened a time deposit account with the same branch of BPI-FB.
On August 31, 1989, Franco opened three accounts, namely, a current, savings, and time deposit, with BPI-
FB. The total amount of P 2,000,000.00 used to open these accounts is traceable to a check issued
by Tevesteco allegedly in consideration of Franco’s introduction of Eladio Teves, to Jaime Sebastian, who
was then BPI-FB SFDM’s Branch Manager. In turn, the funding for theP2,000,000.00 check was part of the
P80,000,000.00 debited by BPI-FB from FMIC’s time deposit account and credited to Tevesteco’s current
account pursuant to an Authority to Debit purportedly signed by FMIC’s officers.
It appears, however, that the signatures of FMIC’s officers on the Authority to Debit were forged. BPI-FB,
debited Franco’s savings and current accounts for the amounts remaining therein. In the meantime, two
checks drawn by Franco against his BPI-FB current account were dishonored and stamped with a notation
“account under garnishment.” Apparently, Franco’s current account was garnished by virtue of an Order of
Notably, the dishonored checks were issued by Franco and presented for payment at BPI-FB prior to
Franco’s receipt of notice that his accounts were under garnishment. It was only on May 15, 1990, that
Franco was impleaded in the Makati case. Immediately, upon receipt of such copy, Franco filed a Motion
to Discharge Attachment. On May 17, 1990, Franco pre-terminated his time deposit account.
BPI-FB deducted the amount of P63,189.00 from the remaining balance of the time deposit account
representing advance interest paid to him. Consequently, in light of BPI-FB’s refusal to heed Franco’s
demands to unfreeze his accounts and release his deposits therein, Franco filed on June 4, 1990 with the
Manila RTC the subject suit.
ISSUE:
WON Respondent had better right to the deposits in the subject accounts which are part of the proceeds
of a forged Authority to Debit
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. 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
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to pay him an equal amount on demand. 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.
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.
BOBIE ROSE V. FRIAS vs. FLORA SAN DIEGO-SISON

G.R. NO. 155223. APRIL 03, 2007
FACTS:
On December 7, 1990, petitioner, as the FIRST PARTY, and Dra. Flora San Diego-Sison (respondent), as the
SECOND PARTY, entered into a Memorandum of Agreement
Petitioner received from respondent two million pesos in cash and one million pesos in a post-dated check
dated February 28, 1990, instead of 1991, which rendered said check stale.
On April 1, 1993, respondent filed with the Regional Trial Court (RTC) of Manila, a complaint for sum of
money with preliminary attachment against petitioner.
t... the RTC issued a decision
Ordering defendant to pay plaintiff the sum of P2 Million plus interest thereon at the rate of thirty two
(32%) per cent per annum beginning December 7, 1991 until fully paid.
Ordering defendant to pay plaintiff the sum of P70,000.00 representing premiums paid by plaintiff on the
attachment bond with legal interest thereon counted from the date of this decision until fully paid.
Ordering defendant to pay plaintiff the sum of P100,000.00 by way of moral, corrective and exemplary
damages.
Ordering defendant to pay plaintiff attorney's fees of P100,000.00 plus cost of litigation.
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ISSUES:
(A) WHETHER OR NOT THE COMPOUNDED BANK INTEREST SHOULD BE LIMITED TO SIX (6) MONTHS AS
CONTAINED IN THE MEMORANDUM OF AGREEMENT.
(B) WHETHER OR NOT THE RESPONDENT IS ENTITLED TO MORAL DAMAGES.
(C) WHETHER OR NOT THE GRANT OF CORRECTIVE AND EXEMPLARY DAMAGES AND ATTORNEY'S FEES
IS PROPER EVEN IF NOT MENTIONED IN THE TEXT OF THE DECISION
RULING:
We are not persuaded.
In this case, the phrase "for the last six months only" should be taken in the context of the entire agreement.
We agree with and adopt the CA's interpretation
Petitioner and respondent stipulated that the loaned amount shall earn compounded bank interests, and
per the certification issued by Prudential Bank, the interest rate for loans in 1991 ranged from 25% to 32%
per annum.
Petitioner next claims that moral damages were awarded on the erroneous finding that she used a
fraudulent scheme to deprive respondent of her security for the loan; that such finding is baseless
We agree.
Article 2208[41] of the New Civil Code enumerates the instances where such may be awarded and, in all
cases, it must be reasonable, just and equitable if the same were to be granted. Attorney's fees as part of
damages are not meant... to enrich the winning party at the expense of the losing litigant.
WHEREFORE, in view of all the foregoing, the Decision dated June 18, 2002 and the Resolution dated
September 11, 2002 of the Court of Appeals in CA-G.R. CV No. 52839 are AFFIRMED with MODIFICATION
that the award of attorney's fees is DELETED.
SEBASTIAN SIGA-AN vs. ALICIA VILLANUEVA

G.R. NO. 173227. JANUARY 20, 2009
FACTS:
Respondent filed a complaint for sum of money against petitioner. Respondent claimed that petitioner
approached her inside the PNO and offered to loan her the amount of P540,000.00 of which the loan
agreement was not reduced in writing and there was no stipulation as to the payment of interest for the
loan. Respondent issued a check worth P500,000.00 to petitioner as partial payment of the loan. She then
issued another check in the amount of P200,000.00 to petitioner as payment of the remaining balance of
the loan of which the excess amount of P160,000.00 would be applied as interest for the loan. Not satisfied
with the amount applied as interest, petitioner pestered her to pay additional interest and threatened to
block or disapprove her transactions with the PNO if she would not comply with his demand. Thus, she paid
additional amounts in cash and checks as interests for the loan. She asked petitioner for receipt for the
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payments but was told that it was not necessary as there was mutual trust and confidence between them.
According to her computation, the total amount she paid to petitioner for the loan and interest accumulated
to P1,200,000.00.
The RTC rendered a Decision holding that respondent made an overpayment of her loan obligation to
petitioner and that the latter should refund the excess amount to the former. It ratiocinated that
respondent’s obligation was only to pay the loaned amount of P540,000.00, and that the alleged interests
due should not be included in the computation of respondent’s total monetary debt because there was no
agreement between them regarding payment of interest. It concluded that since respondent made an
excess payment to petitioner in the amount of P660,000.00 through mistake, petitioner should return the
said amount to respondent pursuant to the principle of solutio indebiti. Also, petitioner should pay moral
damages for the sleepless nights and wounded feelings experienced by respondent. Further, petitioner
should pay exemplary damages by way of example or correction for the public good, plus attorney’s fees
and costs of suit.
ISSUE:
(1) Whether or not interest was due to petitioner; and
(2) Whether the principle of solutio indebiti applies to the case at bar.
RULING:
(1) No. Compensatory interest is not chargeable in the instant case because it was not duly proven that
respondent defaulted in paying the loan and no interest was due on the loan because there was no written
agreement as regards payment of interest. Article 1956 of the Civil Code, which refers to monetary interest,
specifically mandates that no interest shall be due unless it has been expressly stipulated in writing. As can
be gleaned from the foregoing provision, payment of monetary interest is allowed only if: (1) there was an
express stipulation for the payment of interest; and (2) the agreement for the payment of interest was
reduced in writing. The concurrence of the two conditions is required for the payment of monetary
interest. Thus, we have held that collection of interest without any stipulation therefor in writing is
prohibited by law.
(2) Petitioner cannot be compelled to return the alleged excess amount paid by respondent as interest.
Under Article 1960 of the Civil Code, if the borrower of loan pays interest when there has been no stipulation
therefor, the provisions of the Civil Code concerning solutio indebiti shall be applied. Article 2154 of the
Civil Code explains the principle of solutio indebiti. Said provision provides that if something is received
when there is no right to demand it, and it was unduly delivered through mistake, the obligation to return
it arises. In such a case, a creditor-debtor relationship is created under a quasi-contract whereby the payor
becomes the creditor who then has the right to demand the return of payment made by mistake, and the
person who has no right to receive such payment becomes obligated to return the same. The quasi-
contract of solutio indebiti harks back to the ancient principle that no one shall enrich himself unjustly at
the expense of another. The principle of solutio indebiti applies where (1) a payment is made when there
exists no binding relation between the payor, who has no duty to pay, and the person who received the
payment; and (2) the payment is made through mistake, and not through liberality or some other cause. We
have held that the principle of solutio indebiti applies in case of erroneous payment of undue interest.
Article 2232 of the Civil Code states that in a quasi-contract, such as solutio indebiti, exemplary damages
may be imposed if the defendant acted in an oppressive manner. Petitioner acted oppressively when he
pestered respondent to pay interest and threatened to block her transactions with the PNO if she would
not pay interest. This forced respondent to pay interest despite lack of agreement thereto. Thus, the award
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of exemplary damages is appropriate so as to deter petitioner and other lenders from committing similar
and other serious wrongdoings.
SPOUSES JUICO vs. CHINA BANKING CORP.

G.R. NO. 187678. APRIL 10, 2013
DOCTRINE:
The escalation clause is void if it grants respondent the power to impose an increased rate of interest
without a written notice to petitioners and their written consent.
Concurring doctrine by CJ Sereno

these points must be considered by creditors and debtors in the drafting of valid escalation clauses. Firstly,
as a matter of equity and consistent with P.O. No. 1684, the escalation clause must be paired with a de-
escalation clause.Secondly, so as not to violate the principle of mutuality, the escalation must be pegged to
the prevailing market rates, and not merely make a generalized reference to "any increase or decrease in
the interest rate" in the event a law or a Central Bank regulation is passed. Thirdly, consistent with the nature
of contracts, the proposed modification must be the result of an agreement between the parties. In this
way, our credit system would be facilitated by firm loan provisions that not only aid fiscal stability, but also
avoid numerous disputes and litigations between creditors and debtors.
Spouses Ignacio F. Juico and Alice P. Juico (petitioners) obtained a loan from China Banking Corporation
(respondent) as evidenced by two Promissory Notes both dated October 6, 1998 and numbered 507-
001051-34and 507-001052-0,5 for the sums of !!6,216,000 and P4, 139,000, respectively. The loan was
secured by a Real Estate Mortgage (REM) over petitioners’ property located at 49 Greensville St., White
Plains, Quezon City respondent demanded the full payment of the outstanding balance with accrued
monthly interests. As of February 23, 2001, the amount due on the two promissory notes totaled
P19,201,776. On the same day, the mortgaged property was sold at public auction, with respondent China
bank as highest bidder for the amount of P10,300,000.petitioners received 8a demand letter9 dated May 2,
2001 from respondent for the payment of P8,901,776.63, the amount of deficiency after applying the
proceeds of the foreclosure sale respondent prayed that judgment be rendered ordering the petitioners
to pay jointly and severally: (1)P8,901,776.63representing the amount of deficiency, plus interests at the
legal rate, from February 23, 2001 until fully paid; (2) an additional amount equivalent to 1/10 of 1% per
day of the total amount, until fully paid, as penalty; (3) an amount equivalent to 10% of the foregoing
amounts as attorney’s fees; and (4) expenses of litigation and costs of suit. Ms. Annabelle Cokai Yu, its Senior
Loans Assistant stated that as of now the outstanding balance of petitioners was P15,190,961.48. Yu
reiterated that the interest rate changes every month based on the prevailing market rate. she notified
petitioners of the prevailing rate by calling them monthly. It was increased unilaterally
RTC: ordered Spouses to pay bank 9M plus the interest which amounted to 15M. CA AFFIRMED
PETITIONER: They insist that the increase in interest rates were unilaterally imposed by the bank and thus
violate the principle of mutuality of contracts.
ISSUE:
Whether the increase in interest rates is void for violating the mutuality of contracts
HELD: Yes
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RATIO:
Article 1308. The contract must bind both contracting parties; its validity or compliance cannot be left to
the will of one of them. Article 1956 of the Civil Code likewise ordains that "no interest shall be due unless
it has been expressly stipulated in writing. "The binding effect of any agreement between parties to a
contract is premised on xxx (2) that there must be mutuality between the parties based on their essential
equality. Any contract which appears to be heavily weighted in favor of one of the parties so as to lead to
an unconscionable result is void. Any stipulation regarding the validity or compliance of the contract which
is left solely to the will of one of the parties, is likewise, invalid.
Escalation clauses refer to stipulations allowing an increase in the interest rate agreed upon by the
contracting parties. This Court has long recognized that there is nothing inherently wrong with escalation
clauses.
Nevertheless, an escalation clause "which grants the creditor an unbridled right to adjust the interest
independently and upwardly, completely depriving the debtor of the right to assent to an important
modification in the agreement" is void. A stipulation of such nature violates the principle of mutuality of
contracts. In a case, SC said that petitioner’s assent to the modifications in the interest rates cannot be
implied from their lack of response to the memos sent by respondent.
It is now settled that an escalation clause is void where the creditor unilaterally determines and imposes an
increase in the stipulated rate of interest without the express conformity of the debtor. Such unbridled right
given to creditors to adjust the interest independently and upwardly would completely take away from the
debtors the right to assent to an important modification in their agreement and would also negate the
element of mutuality in their contracts.
More recently in Solidbank Corporation v. Permanent Homes, Incorporated, we upheld as valid an escalation
clause which required a written notice to and conformity by the borrower to the increased interest rate.
In Polotan, Sr. v. CA, On petitioner’s contention that the interest rate was unilaterally imposed and based
on the standards and rate formulated solely by respondent credit card company, we held: Cardholder
hereby authorizes Security Diners to correspondingly increase the rate of such interest in the event of
changes in prevailing market rates x x x" is an escalation clause. However, it cannot be said to be dependent
solely on the will of private respondent as it is also dependent on the prevailing market rates. Thus, it was
valid because it wasn’t solely potestative as it was based on the market rates (something outside the control
of respondent)
Here, the interest rates would vary as determined by prevailing market rates. Evidently, the parties intended
the interest on petitioners’ loan, including any upward or downward adjustment, to be determined by the
prevailing market rates and not dictated by respondent’s policy.
HOWEVER, SC hold that the escalation clause here is still void because it grants respondent the power
to impose an increased rate of interest without a written notice to petitioners and their written
consent. Respondent’s monthly telephone calls to petitioners advising them of the prevailing interest rates
would not suffice. A detailed billing statement based on the new imposed interest with corresponding
computation of the total debt should have been provided by the respondent to enable petitioners to make
an informed decision. An appropriate form must also be signed by the petitioners to indicate their
conformity to the new rates. Compliance with these requisites is essential to preserve the mutuality of
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contracts. For indeed, one-sided impositions do not have the force of law between the parties, because
such impositions are not based on the parties’ essential equality.
In the absence of consent on the part of the petitioners to the modifications in the interest rates, the
adjusted rates cannot bind them. Hence, we consider as invalid the interest rates in excess of 15%, the rate
charged for the first year.
Based on the August 29, 2000 demand letter of China Bank, petitioners’ total principal obligation under the
two promissory notes which they failed to settle is P10,355,000. However, due to China Bank’s unilateral
increases in the interest rates from15% to as high as 24.50% and penalty charge of 1/10 of 1% per day or
36.5% per annum for the period November 4, 1999to February 23, 2001, petitioners’ balance ballooned to
P19,201,776.63. Note that the original amount of principal loan almost doubled in only 16 months. The
Court also finds the penalty charges imposed excessive and arbitrary, hence the same is hereby reduced to
1% per month or 12% per annum.
Concurring by CJ Sereno: not all escalation clauses in loan agreements are void per se .it is to maintain fiscal
stability and to retain the value of money in long term contracts. however, a contract containing a provision
that makes its fulfillment exclusively dependent upon the uncontrolled will of one of the contracting parties
is void.
Hence the provision on the promissory note:

I/We hereby authorize the CHINA BANKING CORPORATION to increase or decrease as the case may
be, the interest rate/service charge presently stipulated in this note without any advance notice to
me/us in the event a law or Central Bank regulation is passed or promulgated by the Central Bank of
the Philippines or appropriate government entities, increasing or decreasing such interest rate or
service charge.
Is void.
The floating rate of interest in the trust receipt agreement is also void. It reads:
I, WE jointly and severally agree to any increase or decrease in the interest rate which may occur after
July 1, 1981, when the Central Bank floated the interest rate, and to pay additionally the penalty
of I% per month until the amount/s or installments/s due and unpaid under the trust receipt on
the reverse side hereof is/are fully paid.
It is ok, for banks to stipulate that interest rates on a loan not be fixed and instead be made dependent
upon prevailing market conditions as long as there should always be a reference rate upon which to peg
such variable interest rates. An example of such a valid variable interest rate was found in Polotan, Sr. v.
Court of Appeals. In that case, the contractual provision stating that "if there occurs any change in the
prevailing market rates, the new interest rate shall be the guiding rate in computing the interest due on the
outstanding obligation without need of serving notice to the Cardholder other than the required posting
on the monthly statement served to the Cardholder" was considered valid. The afore quoted provision was
upheld notwithstanding that it may partake of the nature of an escalation clause, because at the same time
it provides for the decrease in the interest rate in case the prevailing market rates dictate its reduction.
Here, the use of the phrase "any increase or decrease in the interest rate” is without reference to the
prevailing market rate actually imposed by the regulations of the Central Bank. It is thus not enough to
state, as akin to China Bank's provision, that the bank may increase or decrease the interest rate in the event
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a law or a Central Bank regulation is passed. To adopt that stance will necessarily involve a determination
of the interest rate by the creditor since the provision spells a vague condition - it only requires that any
change in the imposable interest must conform to the upward or downward movement of borrowing rates.
And if that determination is not subjected to the mutual agreement of the contracting parties, then the
resulting interest rates to be imposed by the creditor would be unilaterally determined. Consequently, the
escalation clause violates the principle of mutuality of contracts.
Based on jurisprudence, therefore, these points must be considered by creditors and debtors in the drafting
of valid escalation clauses. Firstly, as a matter of equity and consistent with P.O. No. 1684, the escalation
clause must be paired with a de-escalation clause. Secondly, so as not to violate the principle of mutuality,
the escalation must be pegged to the prevailing market rates, and not merely make a generalized reference
to "any increase or decrease in the interest rate" in the event a law or a Central Bank regulation is passed.
Thirdly, consistent with the nature of contracts, the proposed modification must be the result of an
agreement between the parties. In this way, our credit system would be facilitated by firm loan provisions
that not only aid fiscal stability, but also avoid numerous disputes and litigations between creditors and
debtors.
SPOUSES EDUARDO & LYDIA SILOS vs. PHILIPPINE NATIONAL BANK

G.R. NO. 181045. JULY 02, 2014
DEL CASTILLO, J.
DOCTRINE:
In loan agreements, it cannot be denied that the rate of interest is a principal condition, if not the most
important component. Thus, any modification thereof must be mutually agreed upon;
otherwise, it has no binding effect.
FACTS:
Spouses Eduardo and Lydia Silos secureda revolving credit line with Philippine National Bank (PNB) through
a real estate mortgage as a security. After two years, their credit line increased. Spouses Silos then signed a
Credit Agreement, which was also amended two years later, and several Promissory Notes (PN) as regards
their Credit Agreements with PNB.The said loan was initially subjected to a 19.5% interest rate per annum.
In the Credit Agreements, Spouses Silos bound themselves to the power of PNB to modify the interest rate
depending on whatever policy that PNB may adopt in the future, without the need of notice upon them.
Thus, the said interest rates played from 16% to as high as 32% per annum. Spouses Silos acceded to the
policy by pre-signing a total of twenty-six (26) PNs leaving the individual applicable interest rates at hand
blank since it would be subject to modification by PNB.
Spouses Silos regularly renewed and made good on their PNs, religiously paid the interests without
objection or fail. However, during the 1997 Asian Financial Crisis, Spouses Silos faltered when the interest
rates soared. Spouses Silos’ 26thPN became past due, and despite repeated demands by PNB, they failed
to make good on the note. Thus, PNB foreclosed and auctioned the involved security for the mortgage.
Spouses Silos instituted an action to annul the foreclosure sale on the ground that the succeeding interest
rates used in their loan agreements was left to the sole will of PNB, the same fixed by the latter without
their prior consent and thus, void. The Regional Trial Court (RTC) ruled that such stipulation authorizing
both the increase and decrease of interest rates as may be applicable is valid. The
Court of Appeals (CA) affirmed the RTC decision.
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ISSUE:
May the bank, on its own, modify the interest rate in a loan agreement without violating the mutuality of
contracts?
RULING:
No. Any modification in the contract, such as the interest rates, must be made with the consent of the
contracting parties. The minds of all the parties must meet as to the proposed modification, especially when
it affects an important aspect of the agreement. In the case of loan agreements, the rate of interest is a
principal condition, if not the most important component. UST Law Review, Vol. LIX, No. 1, May 2015
Loan and credit arrangements may be made enticing by, or "sweetened" with, offers of low initial interest
rates, but actually accompanied by provisions written in fine print that allow lenders to later on increase or
decrease interest rates unilaterally, without the consent of the borrower, and depending on complex and
subjective factors. Because they have been lured into these contracts by initially low interest rates, borrowers
get caught and stuck in the web of subsequent steep rates and penalties, surcharges and the like. Being
ordinary individuals or entities, they naturally dread legal complications and cannot afford court litigation;
they succumb to whatever charges the lenders impose. At the very least, borrowers should be charged
rightly; but then again this is not possible in a one-sided credit system where the temptation to abuse is
strong and the willingness to rectify is made weak by the eternal desire for profit.
SPOUSES SALVADOR ABELLA vs. SPOUSES ROMEO ABELLA

G.R. NO. 195166. JULY 08, 2015
LEONEN, J.
FACTS:
Petitioners Spouses Salvador and Alma Abella filed a Complaint for sum of money and damages against
respondents Spouses Romeo and Annie Abella wherein it was alleged that respondents obtained a loan
from them in the amount of P500K. The loan was evidenced by an acknowledgment receipt dated March
22, 1999 and was payable within one (1) year. Petitioners added that respondents were able to pay a total
of P200K—P100K paid on two separate occasions—leaving an unpaid balance of P300K. In their Answer,
respondents alleged that the amount involved did not pertain to a loan but was part of the capital for a
joint venture involving the lending of money when respondents that they were approached by petitioners,
who proposed that if respondents were to "undertake the management of whatever money [petitioners]
would give them, [petitioners] would get 2.5% a month with a 2.5% service fee to [respondents]." Moreover,
they claimed that the entire amount of P500,000.00 was disposed of in accordance with their agreed terms
and conditions and that petitioners terminated the joint venture, prompting them to collect from the joint
venture's borrowers. They were, however, able to collect only to the extent of P200,000.00; hence, the
P300,000.00 balance remained unpaid. The RTC ruled in favor of petitioners. On respondents' appeal, the
Court of Appeals ruled that while respondents had indeed entered into a simple loan with petitioners,
respondents were no longer liable to pay the outstanding amount of P300,000.00.
ISSUE [1]:
What contract was entered into by the parties?
HELD [1]:
Respondents entered into a simple loan or mutuum, rather than a joint venture, with petitioners.
Respondents' claims, as articulated in their testimonies before the trial court, cannot prevail over the clear
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terms of the document attesting to the relation of the parties. "If the terms of a contract are clear and leave
no doubt upon the intention of the contracting parties, the literal meaning of its stipulations shall control.”
ISSUE [2]:
Whether interest accrued on respondents' loan from petitioner and if in the affirmative, at what rate?
HELD [2]:
First issue - Guided by the decision in Nacar v. Gallery Frames: In the absence of an express stipulation as
to the rate of interest that would govern the parties, the rate of legal interest for loans or forbearance of
any money, goods or credits and the rate allowed in judgments shall no longer be twelve percent (12%) per
annum — as reflected in the case of Eastern Shipping Lines and Subsection X305.1 of the Manual of
Regulations for Banks and Sections 4305Q.1, 4305S.3 and 4303P.1 of the Manual of Regulations for Non-
Bank Financial Institutions, before its amendment by BSP-MB Circular No. 799 — but will now be six percent
(6%) per annum effective July 1, 2013. It should be noted, nonetheless, that the new rate could only be
applied prospectively and not retroactively. Consequently, the twelve percent (12%) per annum legal
interest shall apply only until June 30, 2013. Come July 1, 2013 the new rate of six percent (6%) per annum
shall be the prevailing rate of interest when applicable.
TOLOMEO LIGUTAN vs. CA

G.R. NO. 138677. FEBRUARY 12, 2002
FACTS:
On 16 November 1998, petitioners filed an omnibus motion for reconsideration and to admit newly
discovered evidence,[6] alleging that while the case was pending before the trial court, petitioner Tolomeo
Ligutan and his wife Bienvenida Ligutan executed a... real estate mortgage on 18 January 1984 to secure
the existing indebtedness of petitioners Ligutan and dela Llana with the bank.
Petitioners contended that the execution of the real estate mortgage had the effect of novating the contract
between them and the bank.
Petitioners further averred that the mortgage was extrajudicially foreclosed on 26 August 1986, that they
were not informed about it, and the bank did not credit them with the proceeds of the sale.
The appellate court denied the omnibus motion for reconsideration and to... admit newly discovered
evidence, ratiocinating that such a second motion for reconsideration cannot be entertained under Section
2, Rule 52, of the 1997 Rules of Civil Procedure.
ISSUES:
The respondent Court of Appeals seriously erred in not holding that the 15.189% interest and the penalty
of three (3%) percent per month or thirty-six (36%) percent per annum imposed by private respondent bank
on petitioners' loan obligation are still... manifestly exorbitant, iniquitous and unconscionable.
The respondent Court of Appeals gravely erred in not reducing to a reasonable level the ten (10%) percent
award of attorney's fees... he respondent Court of Appeals gravely erred in not admitting petitioners' newly
discovered evidence
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The respondent Court of Appeals seriously erred in not holding that there was a novation of the cause of
action of private respondent's complaint in the instant case
RULING:
Anent the stipulated interest of 15.189% per annum, petitioners, for the first time, question its
reasonableness and prays that the Court reduce the amount.
Petitioners next assail the award of 10% of the total amount of indebtedness by way of attorney's fees for
being grossly excessive, exorbitant and unconscionable vis-a-vis the time spent and the extent of services
rendered by counsel for the bank and the nature of the... case. either can the appellate court be held to
have erred in rejecting petitioners' call for a new trial or to admit newly discovered evidence.
Extinctive novation requires, first, a previous valid obligation; second, the agreement of all the parties to the
new contract; third, the extinguishment of the obligation; and fourth, the validity of the new one.[
WHEREFORE, the petition is DENIED.
PRINCIPLES:
Under Section 2, Rule 52 of the 1997 Rules of Civil Procedure, no second motion for reconsideration of a
judgment or final resolution by the same party shall be entertained. Considering that the instant motion
is already a second motion for reconsideration,... the same must therefore be denied.
EASTERN SHIPPING vs. CA

G.R. NO. 97412. JULY 12, 1994
234 SCRA 78
FACTS;
Two fiber drums were shipped owned by Eastern Shipping from Japan. The shipment as insured with a
marine policy. Upon arrival in Manila unto the custody of metro Port Service, which excepted to one drum,
said to be in bad order and which damage was unknown the Mercantile Insurance Company. Allied
Brokerage Corporation received the shipment from Metro, one drum opened and without seal. Allied
delivered the shipment to the consignee’s warehouse. The latter excepted to one drum which contained
spillages while the rest of the contents was adulterated/fake. As consequence of the loss, the insurance
company paid the consignee, so that it became subrogated to all the rights of action of consignee against
the defendants Eastern Shipping, Metro Port and Allied Brokerage. The insurance company filed before the
trial court. The trial court ruled in favor of plaintiff an ordered defendant to pay the former with present
legal interest of 12% per annum from the date of the filing of the complaint. On appeal by defendants, the
appellate court denied the same and affirmed in toto the decision of the trial court.
ISSUES:
1. Whether the applicable rate of legal interest is 12% or 6%.
2. Whether the payment of legal interest on the award for loss or damage is to be computed from the
time the complaint is filed from the date the decision appealed from is rendered.
HELD:
(1) The Court held that the legal interest is 6% computed from the decision of the court a quo. When
an obligation, not constituting a loan or forbearance of money, is breached, an interest on the
amount of damaes awarded may be imposed at the discretion of the court at the rate of 6% per
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annum. No interest shall be adjudged on unliquidated claims or damages except when or until the
demand can be established with reasonable certainty.
When the judgment of the court awarding a sum of money becomes final and executor, the rate of
legal interest shall be 12% per annum from such finality until satisfaction, this interim period being
deemed to be by then an equivalent to a forbearance of money.
The interest due shall be 12% PA to be computed fro default, J or EJD.
(2) From the date the judgment is made. Where the demand is established with reasonable certainty,
the interest shall begin to run from the time the claim is made judicially or EJ but when such
certainty cannot be so reasonably established at the time the demand is made, the interest shall
begin to run only from the date of judgment of the court is made.
(3) The Court held that it should be computed from the decision rendered by the court a quo.
DARIO NACAR vs. GALLERY FRAMES AND/OR FELIPE BORDEY, JR.

G.R. NO. 189871. AUGUST 13, 2013
FACTS:
On January 24, 1997, Dario Nacar got dismissed by his employer, Gallery Frames. He filed a complaint; the
Labor Arbiter ruled that petitioner was dismissed without just cause. A computation for the separation pay
and back wages were made it amounted to Php 158,919.92. The respondent sought appeal to the NLRC,
CA and Supreme Court, but they were all dismissed, thus the judgment became final on April 17, 2002.
During the execution of the final judgment, the petitioner filed a motion for the re-computation of the
damages. The amount previously computed includes the separation pay and back wages up to the time of
his dismissal. The petitioner argued that the damages should cover the period until the date of final
judgment. A re-computation was made and the damages was increased to 471,320.31. Respondent prayed
for the quashal of such motion on the ground that the judgment made by the SC is already final and the
amount should not be further altered.
Petitioner also filed another motion asking the court to order the respondent to pay the appropriate legal
interest of the damages from the date of final judgment until full payment.
ISSUES:
1. Whether or not a subsequent correction of the damages awarded during the final judgment of the
Supreme Court violates the rule on immutability of judgments.
2. Whether or not the re-computation made by the Labor Arbiter is correct.
3. Whether or not appropriate interests may be claimed by the petitioner.
RULING:
1. Whether or not a subsequent correction of the damages awarded during the final judgment
of the Supreme Court violates the rule on immutability of judgments.
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The Supreme Court ruled that a correction in the computation of the damages does not violate the rule on
immutability of judgments. The final decision made by the Supreme Court to award the petitioner with
damages with regards to the dismissal without justifiable cause can be divided into two important parts.
One is the finding that an illegal dismissal was indeed made. And the other is the computation of damages.
According to a previous case of Session Delights Ice Cream and Fast Foods v. Court of Appeals, the Supreme
Court held that the second part of the decision - being merely a computation of what the first part of the
decision established and declared - can, by its nature, be re-computed. The re-computation 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 this dismissal is affected, and this is not a violation of the
principle of immutability of final judgments.
2. Whether or not the re-computation made by the Labor Arbiter is correct.
The Supreme Court believes that the amount of 471,320.31 as damages is correct. According to Article 279
of the Labor Code, reliefs in case of illegal dismissal continue to add up until its full satisfaction. The original
computation clearly includes damages only up to the finality of the labor arbiter's decision. Therefore, the
Supreme Court approves the decision confirming that a re-computation is necessary. The labor arbiter re-
computed the award to include the separation pay and the back wages due up to the finality of the decision
that fully terminated the case on the merits.
3. Whether or not appropriate interests may be claimed by the petitioner.
The Supreme Court ruled that the petitioner shall be entitled to interest. In the case of Eastern Shipping
Lines, Inc. v. Court of Appeals, among the guidelines laid down by the Supreme Court regarding the manner
of computing legal interest is - when the judgment of the court awarding a sum of money becomes final
and executory, the rate of legal interest shall be 12% per annum from such finality until its satisfaction. In
addition to this, the Bangko Sentral ng Pilipinas Monetary Board (BSP-MB), in its Resolution No. 796 dated
May 16, 2013 declared that the rate of interest for the loan or forbearance of any money, goods or credits
and the rate allowed in judgments, in the absence of an express contract as to such rate of interest, shall be
six percent (6%) per annum. Consequently, the twelve percent (12%) per annum legal interest shall apply
until June 30, 2013. Afterwards, the new rate of six percent (6%) per annum shall be the prevailing rate of
interest when applicable.
The respondent was ordered to pay interest of twelve percent (12%) per annum of the total monetary
awards, computed from May 27, 2002 to June 30, 2013 and six percent (6%) per annum from July 1, 2013
until their full satisfaction.
HERMOJINA ESTORES vs. SPOUSES ARTURO AND LAURA SUPANGAN

G.R. NO. 175139. APRIL 18, 2012
DEL CASTILLO, J.
FACTS:
 In Oct. 1993, Hermojina Estores and Spouses Supangan entered into a Conditional Deed of Sale
where Estores offered to sell, and Spouses offered to buy a parcel of land in Cavite for P4.7M. After
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almost 7 years and despite the payment of P3.5M by the Spouses, Estores still failed to comply with
her obligation to handle the peaceful transfer of ownership as stated in 5 provisions in the contract.
 In a letter in 2000, Spouses demanded the return of the amount within 15 days from receipt.
 In reply, Estores promised to return the same within 120 days Spouses agreed but imposed an
interest of 12% annually Estores still failed despite demands Spouses filed a complaint with the RTC
against Estores and Roberto Arias (allegedly acted as Estores’ agent). In Answer, Estores said they
were willing to pay the principal amount but without the interest as it was not agreed upon. That
since the Conditional Deed of Sale provided only for the return of the downpayment in case of
breach, they can’t be liable for legal interest as well RTC ruled saying that the Spouses are entitled
to the interest but only at 6% per annum and also entitled to atty’s fees.
 On appeal, CA said that the issue to resolve is whether it is proper to impose interest for an
obligation that does not involve a loan or forbearance of money in the absence of stipulation of
the parties CA affirmed RTC That interest should start on date of formal demand by Spouses to
return the money not when contract was executed as stated by the RTC That Arias not be solidarily
liable as he acted as agent only and did not expressly bind himself or exceeded his authority
Estores contends:
1. Not bound to pay interest because the deed only provided for the return of the downpayment in
case of failure to comply with her obligations
2. That atty fees not proper because both RTC and CA sustained her contention that 12% interest was
uncalled for so it showed that Spouses did not win
Spouses contend:
1. It is only fair that interest be imposed because Estores failed to return the amount upon demand
and used the money for her benefit Estores failed to relocate the house outside the perimeter of
the subject lot and complete the necessary documents As to the fees, they claim that they were
forced to litigate when Estores unjustly held the amount
ISSUE:
1. Is the imposition of interest and attorney’s fees is proper? YES
2. Interest based on Art 2209 of CC (6%) or under Central Bank Circular 416 (12%)? 12%
HELD:
 Interest may be imposed even in the absence of stipulation in the contract. Article 2210 of the Civil
Code expressly provides that “[i]interest may, in the discretion of the court, be allowed upon damages
awarded for breach of contract.”Estores failed on her obligations despite demand.
 She admitted that the conditions were not fulfilled and was willing to return the full amount of
P3.5M but hasn’t done so. She is now in default.
 The interest at the rate of 12% is applicable in the instant case.
 Gen Rule: the applicable interest rate shall be computed in accordance with the stipulation of the
parties
 Exc: if no stipulation, applicable rate of interest shall be 12% per annum
 When obligation arises out of a loan or forbearance of money, goods or credits
 In other cases, it shall be 6%
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 In this case, no stipulation was made

 Contract involved in this case is not a loan but a Conditional Deed of Sale.
 No question that the obligations were not met and the return of money not made
 Even if transaction was a Conditional Deed of Sale, the stipulation governing the return of the
money can be considered as a forbearance of money which requires 12% interest
 In Crismina Garments, Inc. v. Court of Appeals, Forbearance-- “contractual obligation of lender or creditor to
refrain during a given period of time, from requiring the borrower or debtor to repay a loan or debt then due
and payable.”
 In such case, “forbearance of money, goods or credits” will have no distinct definition from a loan.
 however, the phrase “forbearance of money, goods or credits” is meant to have a separate meaning from a
loan, otherwise there would have been no need to add that phrase as a loan is already sufficiently defined in
the Civil Code
 Forbearance of money, goods or credits should therefore refer to arrangements other than loan agreements,
where a person acquiesces to the temporary use of his money, goods or credits pending happening of certain
events or fulfillment of certain conditions.
 Estores’ unwarranted withholding of the money amounts to forbearance of money which can be considered
as an involuntary loan so rate is 12% starting in Sept. 2000
 The award of attorney’s fees is warranted.
 no doubt that the Spouses were forced to litigate to protect their interest, i.e., to recover their money. The
amount of P50,000.00 more appropriate
UCPB VS. BELUSO

G.R. NO. 159912. AUGUST 17, 2007
FACTS:
On April 1997, spouses Beluso constituted other than promissory notes, a real estate mortgage over parcels
of land. 3 of their promissory notes were renewed several times. Subsequently, spouses failed to deliver
payment upon UPCB’s demand. As a result, their mortgage was foreclosed. Spouses filed Petition for
Annulment, Accounting and Damages against UCPB. Trial court ruled in favor of the spouses. CA affirmed
the same decision.
ISSUE:
Whether the contract between the spouses Beluso and UPCB is valid.
HELD:
No. Article 1308 of the Civil Code provides:
Art. 1308. The contract must bind both contracting parties; its validity or compliance cannot be left to the
will of one of them.
The provision stating that the interest shall be at the “rate indicative of DBD retail rate or as determined by
the Branch Head” is indeed dependent solely on the will of petitioner UCPB. Under such provision,
petitioner UCPB has two choices on what the interest rate shall be: (1) a rate indicative of the DBD retail
rate; or (2) a rate as determined by the Branch Head. As UCPB is given this choice, the rate should be
categorically determinable in both choices. If either of these two choices presents an opportunity for UCPB
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to fix the rate at will, the bank can easily choose such an option, thus making the entire interest rate
provision violative of the principle of mutuality of contracts.
ADVOCATES FOR TRUTH IN LENDING, INC. vs. BANGKO SENTRAL NG PILIPINAS ADVOCATES FOR
TRUTH IN LENDING, INC. VS. BSP, ET. AL.
G.R. NO. 192986. JANUARY 15, 2013
REYES, J.
FACTS:
Advocates for Truth in Lending, Inc. and its President, Eduardo Olaguer claim that they are raising issues of
transcendental importance to the public and so they filed Petition for Certiorari under Rule 65 ROC seeking
to declare that the Bangko Sentral ng Pilipinas Monetary Board (BSP-MB), replacing the Central Bank
Monetary Board (CB-MB) by virtue of R.A. No. 7653, has no authority to continue enforcing Central Bank
Circular No. 905, issued by the CB-MB in 1982, which "suspended" the Usury Law of 1916 (Act No. 2655).
R.A. No. 265, which created the Central Bank (CB) of the Philippines, empowered the CB-MB to, among
others, set the maximum interest rates which banks may charge for all types of loans and other credit
operations, within limits prescribed by the Usury Law.
In its Resolution No. 2224, the CB-MB issued CB Circular No. 905, Series of 1982. Section 1 of the Circular,
under its General Provisions, removed the ceilings on interest rates on loans or forbearance of any money,
goods or credits.
On June 14, 1993, President Fidel V. Ramos signed into law R.A. No. 7653 establishing the Bangko Sentral
ng Pilipinas (BSP) to replace the CB.
ISSUE/S:
1. Whether the CB-MB exceeded its authority when it issued CB Circular No. 905, which removed all
interest ceilings and thus suspended Act No. 2655 as regards usurious interest rates. NO
2. Whether under R.A. No. 7653, the BSP-MB may continue to enforce CB Circular No. 905. YES
RULING:
1. The CB-MB merely suspended the effectivity of the Usury Law when it issued CB Circular No. 905.
The power of the CB to effectively suspend the Usury Law pursuant to P.D. No. 1684 has long been
recognized and upheld in many cases. As the Court explained in the landmark case of Medel v. CA, citing
several cases, CB Circular No. 905 "did not repeal nor in anyway amend the Usury Law but simply suspended
the latter’s effectivity;" that "a CB Circular cannot repeal a law, [for] only a law can repeal another law;" that
"by virtue of CB Circular No. 905, the Usury Law has been rendered ineffective;" and "Usury has been legally
non-existent in our jurisdiction. Interest can now be charged as lender and borrower may agree upon."
By lifting the interest ceiling, CB Circular No. 905 merely upheld the parties’ freedom of contract to agree
freely on the rate of interest. It cited Article 1306 of the New Civil Code, under which the contracting parties
may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they
are not contrary to law, morals, good customs, public order, or public policy.
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2. The BSP-MB has authority to enforce CB Circular No. 905.

Section 1 of CB Circular No. 905 provides that, "The rate of interest, including commissions, premiums, fees
and other charges, on a loan or forbearance of any money, goods, or credits, regardless of maturity and
whether secured or unsecured, that may be charged or collected by any person, whether natural or
juridical, shall not be subject to any ceiling prescribed under or pursuant to the Usury Law, as amended." It
does not purport to suspend the Usury Law only as it applies to banks, but to all lenders.
Petitioners contend that, granting that the CB had power to "suspend" the Usury Law, the new BSP-MB did
not retain this power of its predecessor, in view of Section 135 of R.A. No. 7653, which expressly repealed
R.A. No. 265. The petitioners point out that R.A. No. 7653 did not reenact a provision similar to Section 109
of R.A. No. 265.
A closer perusal shows that Section 109 of R.A. No. 265 covered only loans extended by banks, whereas
under Section 1-a of the Usury Law, as amended, the BSP-MB may prescribe the maximum rate or rates of
interest for all loans or renewals thereof or the forbearance of any money, goods or credits, including those
for loans of low priority such as consumer loans, as well as such loans made by pawnshops, finance
companies and similar credit institutions. It even authorizes the BSP-MB to prescribe different maximum
rate or rates for different types of borrowings, including deposits and deposit substitutes, or loans of
financial intermediaries. Act No. 2655, an earlier law, is much broader in scope, whereas R.A. No. 265, now
R.A. No. 7653, merely supplemented it as it concerns loans by banks and other financial institutions. Had
R.A. No. 7653 been intended to repeal Section 1-a of Act No. 2655, it would have so stated in unequivocal
terms.
Further, the lifting of the ceilings for interest rates does not authorize stipulations charging excessive,
unconscionable, and iniquitous interest. It is settled that nothing in CB Circular No. 905 grants lenders a
carte blanche authority to raise interest rates to levels which will either enslave their borrowers or lead to a
hemorrhaging of their assets. Stipulations authorizing iniquitous or unconscionable interests have been
invariably struck down for being contrary to morals, if not against the law.
SPS. DAVID B. CARPO AND RECHILDA S. CARPO vs. ELEANOR CHUA

G.R. NOS. 150773 & 153599. SEPTEMBER 30, 2005
FACTS:
On 18 July 1995, they borrowed from Eleanor Chua and Elma Dy Ng (respondents) the amount of One
Hundred Seventy-Five Thousand Pesos (P175,000.00), payable within six (6) months with an interest rate of
six percent (6%) per month.
On 23 July 1999, petitioners filed a complaint for annulment of real estate mortgage and the consequent
foreclosure proceedings, docketed as Civil Case No. 99-4376 of the RTC. Petitioners consigned the amount
of Two Hundred Fifty-Seven Thousand One Hundred Ninety-Seven Pesos and Twenty-Six Centavos
(P257,197.26) with the RTC.
During the pendency of the case before the Court of Appeals, RTC Judge Filemon B. Montenegro dismissed
the complaint in Civil Case No. 99-4376 on the ground that it was filed out of time and barred by laches.
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ISSUES:
that the agreed rate of interest of 6% per month or 72% per annum is so excessive, iniquitous,
unconscionable and exorbitant that it should have been declared null and void.
RULING:
In Medel, the Court found that the interest stipulated at 5.5% per month or 66% per annum was so iniquitous
or unconscionable as to render the stipulation void. There is no need to unsettle the principle affirmed in
Medel and like cases.
In the case at bar, the stipulated interest rate is 6% per month, or 72% per annum. By the standards set in
the above-cited cases, this stipulation is similarly invalid.
We do not agree with such reasoning. Article 1411 of the New Civil Code is not new; it is the same as Article
1305 of the Old Civil Code. Therefore, said provision is no warrant for departing from previous interpretation
that, as provided in the Usury Law (Act No. 2655, as... amended), a loan with usurious interest is not totally
void only as to the interest.
Clearly then, with the absence of undue influence, petitioners have no cause of action. Even assuming undue
influence vitiated their consent to the loan contract, their action would already be barred by prescription
when they filed it. Moreover, petitioners had clearly slept on... their rights as they failed to timely assail the
validity of the mortgage agreement. The denial of the petition in G.R. No. 150773 is warranted.
The issue on the validity of the stipulated interest rates, regrettably for petitioners, was not raised at the
earliest possible opportunity.
WHEREFORE, in view of all the foregoing, the petitions are DENIED.
SECURITY BANK AND TRUST COMPANY, INC., vs. RODOLFO M. CUENCA

G.R. NO. 138544. OCTOBER 3, 2000
PANGANIBAN, J.
petitioner bank cannot hold herein respondent liable for loans obtained in excess of the amount or beyond the
period stipulated in the original agreement, absent any clear stipulation showing that the latter waived his
right to be notified thereof, or to give consent thereto.
FACTS:
Defendant-appellant Sta. Ines Melale (‘Sta. Ines’/SIMC) is a corporation engaged in logging operations. It
was a holder of a Timber License Agreement issued by the DENR.
On 10 November 1980, Security Bank and Trust Co. granted appellant Sta. Ines a credit line in the amount
of (P8,000,000.00) effective til November 30, 1981to assist the latter in meeting the additional capitalization
requirements of its logging operations.
To secure payment, it executed a chattel mortgage over some of its machineries and equipment. And as an
additional security, its President and Chairman of the Board of Directors Rodolfo Cuenca, executed an
Indemnity agreement in favor of Security Bank whereby he bound himself jointly and severally with Sta.
Ines.
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Specific stipulations:
 The bank reserves the right to amend any of the aforementioned terms and conditions upon written
notice to the Borrower.
 As additional security for the payment of the loan, Rodolfo M. Cuenca executed an Indemnity
Agreement dated 17 December 1980 solidary binding himself:
 “Rodolfo M. Cuenca x x x hereby binds himself x x x jointly and severally with the client (SIMC) in
favor of the bank for the payment, upon demand and without the benefit of excussion of whatever
amount x x x the client may be indebted to the bank x x x by virtue of aforesaid credit
accommodation(s) including the substitutions, renewals, extensions, increases, amendments,
conversions and revivals of the aforesaid credit accommodation(s) x x x .”
1985: Cuenca resigned as President and Chairman of the Board of Directors of defendant-appellant Sta.
Ines. Subsequently, the shareholdings of Cuenca in Sta. Ines were sold at a public auction to Adolfo Angala.
Before and after this, Sta Ines availed of its credit line.
Sta Ines encountered difficult yin making the amortization payments on its loans and requested SBTC for a
complete restructuring of its indebtedness. SBTC accommodated SIMC’s request and signified its approval
in a letter dated 18 February 1988wherein SBTC and Sta. Ines, without notice to or the prior consent of ]
Cuenca, agreed to restructure the past due obligations of defendant-appellant Sta. Ines. To formalize their
agreement to restructure the loan obligations of Sta. Ines, Security Bank and Sta. Ines executed a Loan
Agreement dated 31 October 1989.
Sta Ines made payments up to (P1,757,000.00) Thedefaulted in the payment of its restructured loan
obligations to SBTC despite demands made upon appellant SIMC and CUENCA.
SBTC filed a complaint for collection of sum of resulting after trial on the merits in a decision by the court
a quo, from which Cuenca appealed.
CA: Released Cuenca from liability because 1989 Loan Agreement novated the 1980 credit accommodation
which extinguished the Indemnity Agreement for which Cuenca was liable solidarily. No notice/consent to
restructure.Since with expiration date, liable only up to that date and up to that amount (8M). Amounted
to extension.of time with no notice to suret therefore released from liability.
ISSUES:
(a) whether the 1989 Loan Agreement novated the original credit accommodation and Cuenca’s liability
under the Indemnity Agreement - YES
(b) whether Cuenca waived his right to be notified of and to give consent to any substitution, renewal,
extension, increase, amendment, conversion or revival of the said credit accommodation. - NO
HELD:
Petition of Bank no merit. CA affirmed.
RATIO:
A. Original Obligation Extinguished by Novation
An obligation may be extinguished by novation, pursuant to Article 1292 of the Civil Code, Novation of a
contract is never presumed.Indeed, the following requisites must be established: (1) there is a previous valid
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obligation; (2) the parties concerned agree to a new contract; (3) the old contract is extinguished; and (4)
there is a valid new contract.
We reject these contentions. Clearly, the requisites of novation are present in this case. The 1989 Loan
Agreement extinguished the obligation18obtained under the 1980 credit accommodation. This is evident
from its explicit provision to "liquidate" the principal and the interest of the earlier indebtedness, as the
following shows:"
1.02. Purpose. The First Loan shall be applied to liquidate the principal portion of the Borrower’s present
total outstanding Indebtedness to the Lender (the "Indebtedness") while the Second Loan shall be applied
to liquidate the past due interest and penalty portion of the Indebtedness.
Since the 1989 Loan Agreement had extinguished the original credit accommodation, the Indemnity
Agreement
1)NOT mere renewal/Extension
1989 Loan Agreement expressly stipulated that its purpose was to "liquidate," not to renew or extend, the
outstanding indebtedness. Moreover, respondent did not sign or consent to the 1989 Loan Agreement,
which had allegedly extended the originalP8 million credit facility. Hence, his obligation as a surety should
be deemed extinguished, "[a]n extension granted to the debtor by the creditor without the consent of the
guarantor extinguishes the guaranty. x x x."
2)Binding Nature of the Credit Approval Memorandum
Bank objects to the appellate court’s reliance on that document, contending that it was not a binding
agreement because it was not signed by the parties. It adds that it was merely for its internal use. Indeed, it
cannot take advantage of that document by agreeing to be bound only by those portions that are favorable
to it, while denying those that are disadvantageous.
B. NO Waiver of Consent
In the Indemnity Agreement while respondent held himself liable for the credit accommodation or any
modification thereof, such clause should be understood in the context of theP8 million limit and the
November 30, 1981 term. It did not give the bank or Sta. Ines any license to modify the nature and scope
of the original credit accommodation, without informing or getting the consent of respondent who was
solidarily liable.
A contract of surety "cannot extend to more than what is stipulated. It is strictly construed against the
creditor, every doubt being resolved against enlarging the liability of the surety.” Likewise, the Court has
ruled that "it is a well-settled legal principle that if there is any doubt on the terms and conditions of the
surety agreement, the doubt should be resolved in favor of the surety x x x. Ambiguous contracts are
construed against the party who caused the ambiguity.32In the absence of an unequivocal provision that
respondent waived his right to be notified of or to give consent to any alteration of the credit
accommodation, we cannot sustain petitioner’s view that there was such a waiver.
It should also be observed that the Credit Approval Memorandum clearly shows that the bank did not have
absolute authority to unilaterally change the terms of the loan accommodation. At most, the alleged basis
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of respondent’s waiver is vague and uncertain. It confers no clear authorization on the bank or Sta. Ines to
modify or extend the original obligation without the consent of the surety or notice thereto.
1)NOT Continuing Surety
That the Indemnity Agreement is a continuing surety does not authorize the bank to extend the scope of
the principal obligation inordinately.
To repeat, in the present case, the Indemnity Agreement was subject to the two limitations of the credit
accommodation:
(1) that the obligation should not exceedP8 million, and
(2) that the accommodation should expire not later than November 30, 1981. Hence, it was a
continuing surety only in regard to loans obtained on or before the aforementioned expiry date and not
exceeding the total ofP8 million.
NO PROVISION: “each suretyship is a continuing one which shall remain in full force and effect until
this bank is notified of its revocation.
2)Special Nature of the JSS
It is a common banking practice to require the JSS ("joint and solidary signature") of a major stockholder or
corporate officer, as an additional security for loans granted to corporations. There are at least two reasons
for this. First, in case of default, the creditor’s recourse, which is normally limited to the corporate properties
under the veil of separate corporate personality, would extend to the personal assets of the surety. Second,
such surety would be compelled to ensure that the loan would be used for the purpose agreed upon, and
that it would be paid by the corporation.
Following this practice, it was therefore logical and reasonable for the bank to have required the JSS of
respondent, who was the chairman and president of Sta. Ines in 1980 when the credit accommodation was
granted. There was no reason or logic, however, for the bank or Sta. Ines to assume that he would still agree
to act as surety in the 1989 Loan Agreement, because at that time, he was no longer an officer or a
stockholder of the debtor-corporation. Verily, he was not in a position then to ensure the payment of the
obligation. Neither did he have any reason to bind himself further to a bigger and more onerous obligation.
PALMARES vs. CA
G.R. NO. 126490. MARCH 31, 1998
288 SCRA 422
FACTS:
Private respondent M.B. Lending Corporation extended a loan to the spouses Osmeña and Merlyn Azarraga,
together with petitioner Estrella Palmares, in the amount of P30,000.00 payable on or before May 12, 1990,
with compounded interest at the rate of 6% per annum to be computed every 30days from the date thereof.
1 On four occasions after the execution of the promissory note and even after the loan matured, petitioner
and the Azarraga spouses were able to pay a total of P16,300.00, thereby leaving a balance of P13,700.00.
No payments were made after the last payment on September 26, 1991. 2Consequently, on the basis of
petitioner's solidary liability under the promissory note, respondent corporation filed a complaint 3 against
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petitioner Palmares as the lone party-defendant, to theexclusion of the principal debtors, allegedly by
reason of the insolvency of the latter.
ISSUE:
WON Palmares is liable
HELD:
If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter3, Title I of
this Book shall be observed. In such case the contract is called a suretyship. It is a cardinal rule in the
interpretation of contracts that if the terms of a contract are clear and leave no doubt upon the intention
of the contracting parties, the literal meaning of its stipulation shall control. 13 In the case at bar, petitioner
expressly bound herself to be jointly and severally or solidarily liable with the principal maker of the note.
The terms of the contract are clear, explicit and unequivocal that petitioner's liability is that of a surety
E. ZOBEL, INC. vs. CA

G.R. NO. 113931. MAY 06, 1998
FACTS:
Respondent spouses Raul and Elea Claveria applied for a loan with respondent SOLIDBANK. The loan was
granted subject to the condition that spouses execute a chattel mortgage over the 3 vessels to be acquired
by them and that a continuing guarantee be executed by petitioner EZ, Inc. in favor of Solid Bank. The
spouses defaulted in payment of the entire obligation upon maturity. SolidBank filed a complaint for the
sum of money against EZ Zobel. Petitioner moved to dismiss the complaint on the ground that its liability
as guarantor of the loan was extinguished pursuant to Article 2080.
ISSUE:
1. WON, Art. 2080 is applicable to petitioner;
2. WON, petitioner’s obligation to SOLIDBANK under the continuing guaranty is that of a surety;
HELD:
A contract of surety is an accessory promise by which a person binds himself for another already bound
and agrees with the creditor to satisfy the obligation if the debtor does not.
A contract of guaranty, on the other hand, is a collateral undertaking to pay the debt of another in case the
latter does not pay the debt. Simply put, a surety is distinguished from a guaranty in that a guarantor is the
insurer of the solvency of the debtor and thus binds himself to pay if the principal is unable to pay while a
surety is the insurer of the debt, and he obligates himself to pay if the principal does not pay.
Based on the aforementioned definitions, it appears that the contract executed by petitioner in favor of
SOLIDBANK, albeit denominated as a "Continuing Guaranty," is a contract of surety. The terms of the
contract categorically obligate petitioner as " surety " to induce SOLIDBANK to extend credit to respondent
spouses. This can be seen in the following stipulations. "For and in consideration of any existing
indebtedness to you of AGRO BROKERS, a single proprietorship owned by MR. RAUL P. CLAVERIA, of legal
age, married and with business address x x x (hereinafter called the Borrower), for the payment of which the
undersigned is now obligated to you as surety and in order to induce you, in your discretion, at any time or
from time to time hereafter, to make loans or advances or to extend credit in any other
manner to, or at the request or for the account of the Borrower…”
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Having thus established that petitioner is a surety, Article 2080 of the Civil Code, relied upon by petitioner,
finds no application to the case at bar. In Bicol Savings and Loan Association vs. Guinhawa, we have ruled
that Article 2080 of the New Civil Code does not apply where the liability is as a surety, not as a guarantor.
PHILIPPINE BLOOMING MILLS vs. CA

GR NO. 142381. OCTOBER 15, 2003
FACTS:
This is a petition for review on certiorari to annul the Decision dated 16 July 1999 of the Court of Appeals
in CA-G.R. CV No. 39690, as well as its Resolution dated 17 February 2000 denying the motion for
reconsideration. The Court of Appeals affirmed with modification the Decision dated 31 August 1992
rendered by Branch 113 of the Regional Trial Court of Pasay City ("trial court"). The trial court’s Decision
declared petitioner Alfredo Ching ("Ching") liable to respondent Traders Royal Bank ("TRB") for the payment
of the credit accommodations extended to Philippine Blooming Mills, Inc. ("PBM"). The petition is a thinly
veiled attempt to make the Supreme Court reconsider its decision in the prior case of Traders Royal Bank v.
Court of Appeals.
ISSUE:
Is Ching liable for obligations PBM contracted after execution of the Deed of Suretyship?
RULING:
Ching is liable for credit obligations contracted by PBM against TRB before and after the execution of the
21 July 1977 Deed of Suretyship. This is evident from the tenor of the deed itself, referring to amounts PBM
"may now be indebted or may hereafter become indebted" to TRB. The law expressly allows a suretyship
for "future debts (Article 2053).
Ching would like the Court to rule that his liability is limited, at most, to the amount stated in PBM’s
rehabilitation plan. In claiming this reduced liability, Ching invokes Article 1222. In granting the loan to PBM,
TRB required Ching’s surety precisely to insure full recovery of the loan in case PBM becomes insolvent or
fails to pay in full. This was the very purpose of the surety. Thus, Ching cannot use PBM’s failure to pay in
full as justification for his own reduced liability to TRB. As surety, Ching agreed to pay in full PBM’s loan in
case PBM fails to pay in full for any reason, including its insolvency.
TRB, as creditor, has the right under the surety to proceed against Ching for the entire amount of PBM’s
loan. This is clear from Article 1216 of the Civil Code whereby the creditor may proceed against any one of
the solidary debtors.
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JOSE C. TUPAZ IV AND PETRONILA C. TUPAZ vs. THE COURT OF APPEALS AND BANK OF THE
PHILIPPINE ISLANDS
G.R. NO. 145578. NOVEMBER 18, 2005
FACTS:
Jose C. Tupaz IV and Petronila C. Tupaz were Vice-President for Operations and Vice-
President/Treasurer, respectively, of El Oro Engraver Corporation (“El Oro Corporation”). El Oro Corporation
had a contract with the Philippine Army to supply the latter with “survival bolos.”
To finance the purchase of the raw materials for the survival bolos, petitioners, on behalf of El Oro
Corporation, applied with respondent Bank of the Philippine Islands (“respondent bank”) for two
commercial letters of credit. The letters of credit were in favor of El Oro Corporation’s suppliers, Tanchaoco
Manufacturing Incorporated Simultaneous with the issuance of the letters of credit, petitioners signed trust
receipts in favor of respondent bank. On 30 September 1981, petitioner Jose C. Tupaz IV (“petitioner Jose
Tupaz”) signed, in his personal capacity, a trust receipt corresponding to Letter of Credit No. 2-00896-3 (for
P564,871.05). Petitioners did not comply with their undertaking under the trust receipts. Respondent bank
made several demands for payments, but El Oro Corporation made partial payments only. On 27 June 1983
and 28 June 1983, respondent bank’s counsel and its representative respectively sent final demand letters
to El Oro Corporation. El Oro Corporation replied that it could not fully pay its debt because the Armed
Forces of the Philippines had delayed paying for the survival bolos.
ISSUE:
Whether or not petitioners are solidarily liable with El Oro Corporation.
HELD:
A corporation, being a juridical entity, may act only through its directors, officers, and employees. Debts
incurred by these individuals, acting as such corporate agents, are not theirs but the direct liability of the
corporation they represent. As an exception, directors or officers are personally liable for the corporation’s
debts only if they so contractually agree or stipulate In the trust receipt dated 9 October 1981, petitioners
signed as officers of El Oro Corporation. By so signing that trust receipt, petitioners did not bind themselves
personally liable for El Oro Corporation’s obligation. Hence, for the trust receipt dated 9 October 1981,
petitioners are not personally liable for El Oro Corporation’s obligation. For the trust receipt dated 30
September 1981, petitioner Jose Tupaz signed alone in his personal capacity, he did not indicate that he
was signing as El Oro Corporation’s Vice-President for Operations. Hence, petitioner Jose Tupaz bound
himself personally liable for El Oro Corporation’s debts. Not being a party to the trust receipt dated 30
September 1981, petitioner Petronila Tupaz is not liable under such trust receipt.
BPI vs. IAC

G.R. NO. L-66826. AUGUST 19, 1988
FACTS:
• The original parties to this case were Rizaldy Zshornack (Zshornack) and Commercial Bank and
Trust Company of the Philippines (COMTRUST). Bank of the Philippine Islands (BPI) was
substituted as a party to this case when they absorbed the latter bank.
• Zshornack and his wife opened two accounts with COMTRUST: peso current account and dollar
savings account.
• Zshornack deposited USD 3,000 to COMTRUST for safekeeping.
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• COMTRUST sold the USD 3,000 and deposited its equivalent peso value in Zshornack’s peso
current account.
• Central Bank (CB) issued Circular No. 20, and later modified by Circular No. 281, which stated
that any foreign exchange received by bank from Filipino residents must be sold to the Central
Bank or any of agents within one (1) day from receipt of such moneys.
ISSUE:
• Could Zshornack validly demand the return of USD 3,000 from BPI/ COMTRUST pursuant to the
contract of depositum they entered into?
RULING:
• NO. The contract between Zshornack and BPI, as to the USD 3,000, was a contract of depositum;
however, the contract they entered into was classified as one of the prohibited transactions by
CB Circular No. 20 and 281, and made their contract a void contract for it was one prohibited
by law. Therefore, Zshornack cannot validly demand for the return of USD 3,000 he deposited
with COMTRUST.
TRIPLE-V FOOD SERVICES vs. FILIPINO MERCHANT INSURANCE

G.R. NO. 160544. FEBRUARY 21, 2005
FACTS:
• Mary Jo-Anne De Asis (De Asis) using the car assigned to by her employer, Crispa Textile, Inc.
(CRISPA) dined at Kamayan Restaurant of Triple-V Food Services (Triple-V).
• She left her keys at the valet counter of the restaurant, and was issued by a parking ticket.
• The car was stolen from the parking lot of the restaurant.
• CRISPA filed a claim against the insurer, Filipino Merchant Insurance Company, Inc. (FMICI),
for the loss of the subject vehicle. FMICI then indemnified CRISPA in the amount of PHP
669,500.
• FMICI, as a subrogee, filed an action against Triple-V.
• Triple-V asserted that De Asis was issued by a parking ticket which provided that Triple-V
would not be liable for any loss or damages.
ISSUES:
• Could FMICI validly claim from Triple-V?
• Was there a contract of depositum present in this case?
RULING:
• YES. FMICI could validly claim from Triple-V PHP 669,500 value of the car stolen under their
custody.
• YES. There was a contract of depositum between De Asis and Triple-V. When De Asis left her
car keys at the valet counter, she entrusted the restaurant to park her car on her behalf and
return the same to her after her meal. Thus, when Triple-V accepted the car, they entered into
a contract of depositum wherein Triple-V was the despositary and De Asis was the depositor.
Since it was lost under the custody of the depositary, FMICI, in behalf of CRISPA, could validly
claim damages.
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CA AGRO-INDUSTRIAL DEVELOPMENT CORP. vs. CA

G.R. NO. 90027. MARCH 03, 1993
FACTS:
• CA Agro-Industrial (AGRO) through its president Mr. Sergio and spouses Ramon and Paula
Pugao (Pugao) entered into a contract to sell over two (2) parcels of land for PHP 350,625.
• Both parties agreed that they would make use of a safety deposit box of Security Bank (SB) to
deposit the land titles for safekeeping until full payment of the purchase price.
• Ms. Margarita Ramos (Ramos) offered to purchase the two (2) lots from AGRO.
• They went to SB to open their safety deposit box and retrieve the land certificates; however,
the certificates were missing.
• Ramos withdrew her offer because of the delay in the reconstitution of the land titles under
her name.
ISSUES:
• Was the contract between AGRO, Pugao and SB a contract of depositum?
• Was SB liable for the loss the land titles?
RULING:
• YES. According to the Supreme Court (SC), the contract they entered into was one of a special
kind of deposit, because the full and absolute possession and control of the safety deposit
box was not given to AGRO and Pugao. Both parties were given one (1) keys each, and any
one of them could access the safety deposit box together with the key from SB.
• NO, for the reason that AGRO failed to present that SB was aware of the agreement between
AGRO and Pugao, and to present evidence that the land titles were lost due to fraud or
negligence of SB.
ROMAN CATHOLIC BISHOP OF JARO vs. DE LA PEÑA

G.R. NO. L-6913. NOVEMBER 21, 1913
FACTS:
• Roman Catholic Bishop of Jaro (RCB) was the trustee of a charitable bequest made for the
construction of a leper hospital. Father Agustin de la Peña (Father de la Peña) was the duly
authorized representative of RCB to receive the legacy. Gregorio de la Peña (de la Peña) was
the administrator of the estate of Father de la Peña.
• Father de la Peña received a sum of PHP 6,641 for charitable purposes. Together with the said
sum of money, he deposited a total of PHP 19,000 in his personal account with Hongkong
and Shanghai Bank (HSBC).
• During the war, Father de la Peña was arrested and his accounts were confiscated by the
military authorities, on the ground that those funds were for revolutionary purposes.
ISSUES:
• Was the estate of Father de la Peña liable for the loss of the PHP 6,641?
• Was Father de la Peña’s action of depositing the moneys receive by him for charitable
purposes together with his personal money violated the obligations of a depositary?
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RULING:
• NO. Father de la Peña’s estate was not liable for the PHP 6,641 because his arrest and
confiscation of his accounts were that of unforeseen events. Accordingly, he cannot be made
liable for its loss.
• NO. There was no law prohibiting Father de la Peña from depositing the said funds along with
his personal moneys. He may do so deposit those funds in his account for safekeeping, and
this action would not add to his responsibility. In a contract of depositum, the primary
obligation of the depository is to safely keep the property of another and return it to him
upon demand.
DURBAN APARTMENTS V. PIONEER INSURANCE

G.R. NO. 179419. JANUARY 12, 2011
FACTS:
• Jeffrey See (See) checked-in at City Garden Hotel (Durban). He gave the keys of his car to
Vicente Justimbaste (Justimbaste) for valet parking.
• The car was catnapped on the premises of Durban.
• See recovered damages from Pioneer Insurance and Surety Corporation (PIS) for the amount
of PHP 1,175,000.
• PIS, as as subrogee of See, filed an action against Durban for recovery of PHP 1,175,000 for
the value of the lost car due to the negligence of the latter.
•
ISSUE:
• Did a contract of necessary deposit existed between See and Durban?
RULING:
• YES. The contract of necessary deposit was perfected from See’s delivery, when See handed
over the keys of his car to Justimbaste, being a hotel employee of Durban, which the latter
received the obligation of safely keeping and returning it.
CHAN vs. MACEDA

G.R. NO. 142591. APRIL 30, 2003
FACTS:
 Bonifacio Maceda Jr. obtained a 7.3M loan from DBP for the construction of his New Gran
HotelProject.
 Maceda then had a construction contract with Moreman Builders. Maceda bought construction
materials and equipment which Moreman deposited in the warehouse of Wilson and Liliy Chanfree
of charge.
 Due to Moreman’s failure to complete the project, Maceda filed a case for rescission and damages
against them. RTC ruled in favor of Maceda. While pending appeal in CA, Maceda demanded from
the Chan’S the deposited materials but Chan said that these materials had already been withdrawn
by Moreman in 1977.
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 Thus, Maceda now filed a an action for damages and preliminary attachment against the Chan’s.
After four years, the RTC dismissed the case for failure to prosecute. Five years after, a motion for
reconsideration was filed but was denied by RTC. On appeal, the RTC granted the MFR.
 Chan filed a motion to dismiss, while Maceda filed a motion to declare Chan in default.
 RTC declared Chan in default. CA affirmed the decision. Thus on the RTC, Maceda presented his
witnesses to show that indeed bags of cement were deposited in the warehouse of Chan. RTC then
ruled in favor of Maceda. RTC stated that since the bags were stored by Moreman builder swithout
any lien or encumbrance, Chan was duty bound to release it. CA affirmed in toto the decision of
the RTC.
ISSUE:
1. WON procedural infirmities should have been a ground to dismiss the case
2. WON there was a contract of deposit
HELD/RATIO:
1. Yes. The original MFR was filed 5 years after the decision, thus far beyond the 15 day reglementary
period. This is a gross error on the part of the trial court.
2. No. In a contract of deposit, the burden of proof on proving the contract is on the plaintiff. In the
case at hand, the record is bereft of any contract of deposit between the parties. The delivery
receipts presented also lack probative value so as to prove the existence of the contract for they
are unsigned and not duly authenticated by Moreman or by Maceda. Moreover, Maceda Also failed
to prove that there were construction materials and equipment in petitioners 'warehouse at the
time he made a demand for their return
In relation to the claim of damages, actual damages must be proven with a reasonable degree of
certainty, which in this case, Maceda failed to present.
YHT REALTY CORPORATION, LAINEZ & PAYAM vs. CA

G.R. NO. 126780. FEBRUARY 17, 2005
FACTS:
 Maurice Peaches McLoughlin is an Australian businessman-philanthropist who used to stay at the
Sheraton Hotel during his trips to the Philippines prior to 1984. He met Brunhilda Mata-Tan who
befriended him and showed him around. Tan convinced Mcloughlin to transfer to the Tropicana
from the Sheraton where afterwards he stayed during his trips from Dec 1984 to Sept 1987.
 On 30 Oct 1987, McLoughlin arrived from Australia and registered with Tropicana. He rented a
safety deposit box as his usual practice. The box required two keys, the guest had one and one
from the management. He placed US $10,000 in one envelope and US$5,000 in another ,
AU$10,000 in another envelope and other envelopes with his passport and credit cards. On 12 Dec
1987, he took from the box the envelope with US$5,000 and the one with AU$10,000 to go to Hong
Kong for a short visit, because he was not checking out. When he arrived in HK, the envelope with
US$5,000 only contained US$3,000, but because he had no idea if the safety deposit box has been
tampered, he thought it was just bad accounting.
 After returning to Manila, he checked out of the Tropicana on 18 Dec 1987 and left for Australia.
When he arrived he discovered that the envelope with US$10,000 was short of US$5,000. He also
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noticed that the jewelry he bought in Hong Kong which he stored in the safety deposit box upon
his return to Tropicana was likewise missing, except for a diamond bracelet.
 He went back to the PH on 4 Apr 1988 and asked Lainez (who had custody of the management
key) if some money was missing or returned to her, to which the latter answered there was not. He
again registered at the Tropicana and rented a safety deposit box. He placed an envelope
containing US$15,000, another of AU$10,000. On 16 Apr, he opened his safety deposit box and
noticed that US$2,000 and AU$4,500 was missing from the envelopes.
 He immediately confronted Lainez and Payam who admitted that Tan opened the safety deposit
box with the key assigned to McLoughlin. McLoughlin went up to his room where Tan was staying
and confronted her. Tan admitted that she had stolen McLoughlin’s key and was able to open the
safety deposit box with the assistance of Lopez, Payam and Lainez. Lopez also told McLoughlin that
Tan stole the key assigned to McLoughlin while the latter was asleep.
 McLoughlin requested the management for an investigation of the incident. Lopez got in touch
with Tan and arranged for a meeting with the police and McLoughlin. When the police did not
arrive, Lopez and Tan went to the room of McLoughlin at Tropicana and thereat, Lopez wrote on a
piece of paper a promissory note.
 He made Lopez and Tan sign a promissory note for him for the loss. However, Lopez refused liability
on behalf of the hotel, reasoning that McLoughlin signed an "Undertaking for the Use of Safety
Deposit Box" which disclaims any liability of the hotel for things put inside the box.
 On 17 May 1988 McLoughlin went back to AU and consulted his lawyers. They wrote a letter
addressed to Pres. Cory Aquino which was pushed back to the DOJ and the Western Police District.
He went back from the PH to AU several times more to attend business and follow up but the
matter was only filed on 3 Dec 1990 since he was not there to personally follow up.
 McLoughlin filed an action against YHT Realty Corporation, Lopez, Lainez, Payam and Tan.
 The RTC rendered judgment in favor of McLoughlin. The CA modified only the amount of damages
awarded.
 Tan and Lopez, however, were not served with summons, and trial proceeded with only Lainez,
Payam and YHT Realty Corporation as defendants.
ISSUES:
(a) whether the loss of money and jewelry is supported by the evidence. YES.
Where the credibility of a witness is an issue, the established rule is that great respect is accorded
to the evaluation of the credibility of witnesses by the trial court. The trial court is in the best position
to assess the credibility of witnesses and their testimonies because of its unique opportunity to observe
the witnesses firsthand and note their demeanor, conduct and attitude under grilling examination.
(b) whether there was gross negligence on the part of the innkeepers
Payam and Lainez, who were employees of Tropicana, had custody of the master key of the
management when the loss took place. They even admitted that they assisted Tan on three separate
occasions in opening McLoughlin’s safety deposit box.
The management contends that McLoughlin made its employees believe that Tan was his spouse
for she was always with him most of the time. The evidence on record is bereft of any showing that
McLoughlin introduced Tan to the management as his wife. Mere close companionship and intimacy
are not enough to warrant such conclusion. They should have confronted him as to his relationship with
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Tan considering that the latter had been observed opening McLoughlin’s safety deposit box a number
of times at the early hours of the morning.
Art 2180, par (4) of the same Code provides that the owners and managers of an establishment or
enterprise are likewise responsible for damages caused by their employees in the service of the
branches in which the latter are employed or on the occasion of their functions. Given the fact that the
loss of McLoughlin’s money was consummated through the negligence of Tropicana’s employees both
the employees and YHT, as owner of Tropicana, should be held solidarily liable pursuant to Art 2193.
(c) WON the "Undertaking for the Use of the Safety Deposit Box" is null and void.
Yes, it is null and void. Art. 2003[1] is controlling. This is an expression of public policy that the hotel
business like common carriers are imbued with public interest. This responsibility cannot be waived
away by any contrary stipulation in so-called "undertakings" that ordinarily appear in prepared forms
imposed by hotel keepers on guests for their signature.
The CA (former case) even ruled before that hotelkeepers are liable even though the effects are not
delivered to them or their employees, but it is enough that the effects are within the hotel or inn.
Pars. 2 and 4 of the undertaking manifestly contravene Art. 2003 of the NCC. Meanwhile, the defense
that Art. 2002 exempts the hotel-keeper from liability if the loss is due to the acts of the guest, family
or visitors falls because the hotel is guilty of negligence as well. This provision presupposes that the
hotel-keeper is not guilty of concurrent negligence or has not contributed in any degree to the
occurrence of the loss.
dispositive
 Damages awarded by the lower court sustained
 US$2,000.00 and AUS$4,500.00 or their peso equivalent at the time of payment;
 Air fares for a total of 11 trips + transpo expense
 Hotel payments
 Moral 50K
 ED 10K
 AF 200K
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Credit Transaction - Case Digest

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Credit Transaction - Case Digest

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CASE DIGEST - CREDIT TRANSACTIONS

CHEE KIONG YAM vs. MALIK

PEOPLE vs. TERESITA PUIG

The portion of the Information relevant to this discussion reads:

BPI FAMILY BANK vs. FRANCO

BOBIE ROSE V. FRIAS vs. FLORA SAN DIEGO-SISON

t... the RTC issued a decision

(B) WHETHER OR NOT THE RESPONDENT IS ENTITLED TO MORAL DAMAGES.

We agree with and adopt the CA's interpretation

SEBASTIAN SIGA-AN vs. ALICIA VILLANUEVA

SPOUSES JUICO vs. CHINA BANKING CORP.

Concurring doctrine by CJ Sereno

Hence the provision on the promissory note:

SPOUSES EDUARDO & LYDIA SILOS vs. PHILIPPINE NATIONAL BANK

SPOUSES SALVADOR ABELLA vs. SPOUSES ROMEO ABELLA

TOLOMEO LIGUTAN vs. CA

EASTERN SHIPPING vs. CA

The interest due shall be 12% PA to be computed fro default, J or EJD.

DARIO NACAR vs. GALLERY FRAMES AND/OR FELIPE BORDEY, JR.

2. Whether or not the re-computation made by the Labor Arbiter is correct.

3. Whether or not appropriate interests may be claimed by the petitioner.

HERMOJINA ESTORES vs. SPOUSES ARTURO AND LAURA SUPANGAN

 In this case, no stipulation was made

UCPB VS. BELUSO

2. The BSP-MB has authority to enforce CB Circular No. 905.

SPS. DAVID B. CARPO AND RECHILDA S. CARPO vs. ELEANOR CHUA

WHEREFORE, in view of all the foregoing, the petitions are DENIED.

SECURITY BANK AND TRUST COMPANY, INC., vs. RODOLFO M. CUENCA

1)NOT mere renewal/Extension

2)Binding Nature of the Credit Approval Memorandum

1)NOT Continuing Surety

2)Special Nature of the JSS

E. ZOBEL, INC. vs. CA

PHILIPPINE BLOOMING MILLS vs. CA

BPI vs. IAC

TRIPLE-V FOOD SERVICES vs. FILIPINO MERCHANT INSURANCE

CA AGRO-INDUSTRIAL DEVELOPMENT CORP. vs. CA

ROMAN CATHOLIC BISHOP OF JARO vs. DE LA PEÑA

DURBAN APARTMENTS V. PIONEER INSURANCE

CHAN vs. MACEDA

YHT REALTY CORPORATION, LAINEZ & PAYAM vs. CA

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