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1.SAURA VS DBP Saura Import and Export Co., Inc.

applied to the Rehabilitation Finance Corporation (RFC), before its conversion into DBP, for an industrial loan of P500,000.00. After several failed negotiations, RFC finally granted the loan with conditions, one of which is that Saura Inc. must secure a certification from the Department of Agriculture and Natural Resources that a native raw material for Sauras business is available locally. Saura was not able to comply with this condition. As a result, the loan applied for was not released. Saura asked for the cancellation of the mortgage executed in connection with the aforementioned loan. 9 years after such cancellation, Saura sued RFC for alleged breach of contract when the latter failed to release the proceeds of the loan applied for. RFC contended that there was no perfected contract of loan, and assuming there was, the plaintiff did not comply with the terms thereof. 2. BONNEVIE VS CA Spouses Jose M. Lozano and Josefa P. Lozano were the owners of the property which they mortgaged on December 6, 1966, to secure the payment of the loan in the principal amount of P75,000.00 they were about to obtain from the Philippine Bank of Commerce. Two days later, the spouses sold the property to herein petitioner. On Dec. 12, 1966, six days after the execution of mortgage the money mortgage was released. Petitioner Bonnevie contended that by the time the property was sold to them, there was yet no perfected contract of mortgage because there was no contract of loan yet since the money was released only 4 days after the sale. The contract of mortgage, an accessory contract is dependent upon the principal contract of loan. 3. BPI INVESTMENT CORP. VS CA Frank Roa obtained a loan from the Ayala Investment and Development Corp. (predecessor of BPIIC). The property which served as collateral was sold to private respondent ALS Management and Development Corp. AIDC granted them a new loan of P500,000 to be applied to Roas debt and secured by the same property payable in ten years with monthly amortization. The mortgage contract was executed on March 1981, with a stipulation that the amortization will start on such date. However, the money loaned was released only on August and September 1982. The petitioner foreclosed the mortgage alleging that respondents were in arrears in the payment of amortization. Respondents on the other hand contended that they were not in arrears because the amortization should start only from the day the money was actually released, or when the contract of loan was actually perfected. 4. PAJUYO VS CA Colito Pajuyo paid P400 to Pedro Perez for the rights over a lot in Payatas QC. He built therein a house made of light materials. He entered into a kasunduan with Guevarra, allowing the latter to live in his house provided that the latter will maintain it, and that he will vacate the house upon demand by the former. Pajuyo finally demanded for the house. Guevarra refused, contending that since they are both squatters thus in pari delecto, Pajuyo has no right to demand for the house. The CA in deciding in favor of Guevarra, stated that the contract entered into was a commodatum. 5. SPS. PALADA VS SOLID BANK : In February or March 1997, petitioners, spouses Wilfredo and Brigida Palada, applied for a P3 million loan. On March 17, 1997 petitioner received from the bank P1million evidenced by a promissory note and a real estate mortgage. Petitioner failed to pay the obligation, thus the respondent bank foreclosed the mortgage. Petitioner assailed the validity of the mortgage alleging that since only P1million was delivered and not the full amount (P3million), the contract of loan was not perfected. They claim that they delivered the titles of the properties to the bank as additional collateral for their additional loans, and not for the P1 million loan.

Was there a perfected contract of loan?

We hold that there was indeed a perfected consensual contract, as recognized in Article 1934 of the Civil Code, which provides: ART. 1954. An accepted promise to deliver something, by way of commodatum or simple loan is binding upon the parties, but the commodatum or simple loan itself shall not be perferted until the delivery of the object of the contract. Saura made an offer and such was accepted by RFC. However, since the former failed to comply with the terms of the contract, such contract was extinguished by mutual desistance. Thought there was a consensual contract of loan, there was no perfected contract of real loan.

Was there a perfected contract of mortgage?

This contention is patently devoid of merit. From the recitals of the mortgage deed itself, it is clearly seen that the mortgage deed was executed for and on condition of the loan granted to the Lozano spouses. The fact that the latter did not collect from the respondent Bank the consideration of the mortgage on the date it was executed is immaterial. A contract of loan being a consensual contract, the herein contract of loan was perfected at the same time the contract of mortgage was executed.

When was the contract of loan perfected?

The respondent is correct. Although the consensual contract of loan was perfected on March 1981, the real contract of loan was perfected only on September 13, 1982. The first is a reciprocal contract. Consequently, petitioner could only demand for the payment of the monthly amortization after September 13, 1982 for it was only then when it complied with its obligation under the loan contract. After the release of the money, the contract became a unilateral one.

Was the kasunduan a contract of commodatum? Does Pajuyo have the right to the possession of the property?

A commodatum is essentially gratuitous. In this case, the kasunduan was not gratuitous since there was an obligation on the part of Guevarra to maintain the house. Thus the law that should govern is that of lease. Guevarra turned his back on the Kasunduan on the sole ground that like him, Pajuyo is also a squatter. Squatters, Guevarra pointed out, cannot enter into a contract involving the land they illegally occupy. Guevarra insists that the contract is void.Guevarra should know that there must be honor even between squatters. Guevarra freely entered into the Kasunduan. Guevarra cannot now impugn the Kasunduan after he had benefited from it. The loan contract was perfected. In this case, although petitioners applied for a P3 million loan, only the amount of P1 million was approved by the bank because petitioners became collaterally deficient when they failed to purchase TCT No. T-227331 which had an appraised value 36 of P1,944,000.00. Hence, on March 17, 1997, only the amount of P1 million was released by the bank 37 to petitioners. As security for the P1 million loan, petitioners on the same day executed in favor of the bank a real estate mortgage over the properties. There is nothing on the face of the real estate mortgage contract to arouse any suspicion of insertion 39 or forgery. Below the list of properties mortgaged are the signatures of petitioners. Except for the

Was there a perfected contract of loan?

bare denials of petitioner, no other evidence was presented to show that the signatures appearing on the dorsal portion of the real estate mortgage contract are forgeries. And the mere fact that the date of execution was left blank does not prove bad faith. Besides, any irregularity in the notarization or even the lack of notarization does not affect the validity of the document. 6. PUA VS BAUTISTA On December 31, 1986, defendants expressly acknowledged their indebtedness to the plaintiff in the amount of P1,020,000.00 with an interest of 20% per year (Exh. A).After some payments in 1986 to 1988, defendants stopped paying their indebtedness. In 1995, the debt was recomputed and reached the amount of P2million. Such computation was attested by the defendants. They promised to pay the amount within 3 years but they never did. The plaintiff filed a case for collection. The defendant contended that the plaintiff did not give any explanation on how they at the amount of P1,020,000 and that they already paid the loan. Is there a need for the plaintiff to explain on how the defendants had an obligation to her in the amount of P1,020,00.00? We do not find any reason to scrutinize further how their loan became P1,020,000.00 since, in the first place, the Bautistas were the ones who executed the said document. It is presumed that they were fully aware of the contents of said document. Besides, they did not even deny the authenticity of the document or their signatures thereon. Next, the Bautistas argue that they already paid the loan. An [9] examination of the receipts, however, disclosed that in 1987, they paid a total of P460,000.00; in [10] [11] 1988, P123,000.00; and in 1989, P8,450.00 only. Even if We add them up, without adding the interest that accrued over the span of three years, the same would not be enough to extinguish their total debt. From that point on, the Bautistas had no more receipt of payment to present. In civil cases, [12] he who alleges a fact has the burden of proving it and a mere allegation is not evidence. Indeed, the Bautistas have not successfully proven the fact of their full payment. In order that a person can be convicted of estafa, it must be proven that he has the obligation to deliver or return the same money, goods or personal property that he received. It can be readily noted from Art 1953 of the Civil Code that in simple loan (mutuum), as contrasted to commodatum, the borrower acquires ownership of the money, goods or personal property borrowed. Being the owner, the borrower can dispose of the thing borrowed (Article 248, Civil Code) and his act will not be considered misappropriation thereof. The loan contract contains two kinds of interest: 17% per annum as monetary or regular interest, and 24% per annum as penalty interest. Although the respondents did not incur delay, they still have to pay the regular interest. The regular or monetary interest continued to accrue under the terms of the relevant promissory note until actual payment is effected. The payment of regular interest constitutes the price or cost of the use of money and thus, until the principal sum due is returned to the creditor, regular interest continues to accrue since the debtor continues to use such principal amount.

7. CHEE KIONG YAM VS MALIK Petitioners were charged by the private respondents with the crime of estafa. However, it appeared in the face of the complaints that the amount were received as loans or mutuum. Petitioners were convicted by the public respondents, thus this petition.

Can they be convicted of estafa?

9. STATE INVESTMENT HOUSE VS CA Spouses Rafael and Refugio Aquino secured a loan from State. After the execution of such loan, they executed a pledge in favor of State in consideration of such loan. Thereafter, they again secured another loan in the amount of P110,000 with the same company. When they tendered the payment for the second loan and asked for the release of the shares of stock pledged, State refused, arguing that they should pay first the first loan in order for the pledged property to be released. However, the trial court decided that only loan executed subsequent to the pledge can be bound by such pledge; and ordered State to release the pledged property upon payment by the spouses of the second loan. The decision, however, was not clear as to whether or not interest is to be included in such payment. 10. TIO KHE CHIO VS CA Petitioner insured his fishmeal cargo with Eastern Assurance and Surety Corp. The fishmeals were damaged during the voyage and were rendered useless. Petitioner claimed the proceeds of the insurance with EASCO, but the latter denied. Thus, petitioner filed sued EASCO. The trial court ordered the company to pay the proceed plus 12% interest. EASCO contended that applicable rate is only 6% per annum.

Whether or not interest should be included in the payment considering that the respondent spouses were not in delay.

What should is the proper interest rate to be applied?

The provisions of the Insurance Code providing a rate of 12% is not applicable because the same only refers to claims which are unjustifiably refused; the refusal of EASCO in this case does not appear to be unjustified. Neither does Circular No. 416 of the Central Bank which raises the interest rate to 12% applies because it refers only to loans or forbearances of money, goods or credits and court judgments thereon but not to court judgments for damages arising from injury to persons and loss of property which does not involve a loan. The applicable rate is that stated in Art. 2209 of the Civil Code, i.e. 6% per annum. 1. Central Bank Circular No. 416, which prescribes interest at twelve percent (12%) per annum, does 29 not apply in this case. We have held in a number of cases that the said circular applies only to interest for loans or forbearances of any money, goods or credits or judgments in cases involving loans or forbearances of any money, goods or credits. Any other monetary judgment which does not involve or which has nothing to do with loans or forbearances of any money, goods or credit does not fall within its coverage for such imposition is not within the ambit of the authority granted to the Central Bank. The instant case does not involve loans or forbearances of money, goods or credits.

11. GSIS VS CA Queen's Row Subdivision, Inc. (QRSI)entered into a construction project with petitioner GSIS for the development of a residential subdivision which will be sold by the latter to its members; by virtue of said project GSIS agreed to extend a loan with QRSI. The QRSI entered into a construction contract with Valencia. After he had finished the construction he asked for the payment, but QRSI did not pay. Valencia filed a case, and the RTC rendered a decision in his favor, judging the QRSI to be directly liable and the petitioner GSIS hold whatever amounts it has granted to, retained and obtained for defendant Queen's Row, and to deliver the same to plaintiff by way of payment amount ordered. The trial court upon motion of Valencia issued a writ of execution ordering the payment of the principal plus 12%

1. What is the applicable rate of interest?; and 2. Was the GSIS estopped?

interest from the time of demand. The summary of which is follows: Principal Interest Total P448,374.01 P875,073.60 P204,821.32 P336,041.62 (sic) P102,866.37 P163,968.40 (sic) P756,061.70 P1,375,083.62 = P2,131,145.32 Attorney's fees (20%) 426,229.06 Performance Bond 10,000.00 TOTAL P2,567,374.06 GSIS contended that the applicable rate is only 6%. But since it has already partially paid the decision which rendered 12% interest, Valencia concluded and argued that it was already estopped by such partial execution of the 12% judgment. 12. A.C. ENTERPRISES, INC. VS CONSTRUCTION INDUSTRY ARBITRATION COMMISSION Dee Construction Corporation insisted that it is entitled to interest at the rate of 12% per annum on the monetary award given them by the Construction Industry Arbitration Commission (CIAC). It contends that under Executive Order No. 1008 dated February 4, 1985 and the Rules of Procedure Governing Construction Arbitration, arbitral awards are final and "inappealable (sic)" and pursuant to our ruling in Eastern Shipping Lines, Inc. v. Court of Appeals, 234 SCRA 78 (1994), monetary awards in all judgments that became final and executory, regardless of the nature of the obligation, shall bear legal interest of 12% per annum.

2. The private respondent's claim that the petitioner is estopped from questioning the twelve percent (12%) interest because it had made some payments is untenable. The petitioner is an instrumentality of the Government which functions as an administrative body. Its officials are public officials. The general rule is that the Government is not estopped by errors, mistakes or omissions of its officials or 30 agents. This is especially true in the case of the petitioner because of the fiduciary character of its management which is "rendered more strict by the fact that the funds under its administration are partly contributed by the thousands upon thousands of employees and workers in all the branches and instrumentalities of the government."

What is the proper and applicable rate of interest in this case?

The term final and inappealable is different from final and executory. The former becomes executory only as in the case of an award by the CIAC after the lapse of 30 days from receipt of notice thereof and no petition for review to the Supreme Court is made. In this case, however, a petition for review was made and, thus, the decision of the CIAC did not become final and executory until after the service of a copy of the Resolution dated April 8, 1992 of this Court, denying the motion for reconsideration. The rate of interest in cases of monetary award that became final and executory is 12% because the interim period being deemed to be by then an equivalent to a forbearance of credit. In this case the award was fully paid to private respondent on May 6, 1992. We consider the interest that accrued from April 8 to May 6, 1992, a period of less than a month, as de minimis as to warrant its charging against the award. No. P.D. No. 1684 and C.B. Circular No. 905 no more than allow contracting parties to stipulate freely regarding any subsequent adjustment in the interest rate that shall accrue on a loan or forbearance of money, goods or credits. In fine, they can agree to adjust, upward or downward, the interest previously stipulated. However, contrary to the stubborn insistence of petitioner bank, the said law and circular did not authorize either party to unilaterally raise the interest rate without the other's consent. Even assuming that the loan agreement contains such unilateral increases such increases would have been null and void for being violative of the principle of mutuality essential in contracts. No more. There was no ambiguity in the decision of the trial court to warrant its amendment. Such decision does not contain any judgment as to interest, since Ruizs did not ask for any damages in their complaint. Thus, no interest can be recovered.

13. PNB VS CA 227 SCRA REMEDIOS JAYME-FERNANDEZ and AMADO FERNANDEZ as owners of a NACIDA-registered enterprise, obtained a loan under the Cottage Industry Guaranty Loan Fund (CIGLF) from the Philippine National Bank (PNB). The loan contained a unilateral increases in the interest rate of the loan. Private respondents asked the RTC to reduce those interests.

Can the PNB make unilateral increases in the interest rate?

14. RUIZ VS CANEBA Common law spouses Zenaida Sangalang and Adolfo Cruz sold their two-story building to spouses Eulalio M. Ruiz and Iluminada M. Ruiz for the amount of P175,000 to be paid in this manner: P65,000 as downpayment, P31,500 to be paid with the BPI, and the remaining P78,500 to be paid on December 31, 1983; and that before such date for the payment of the balance the Ruizs will continue to pay rent to a room they occupy on said building; and that failure to comply with the requirements will make the property open for sale and the partial payment will be returned to the Ruizs. The Ruizs failed to pay the balance. They filed a case for the collection of the partial payment P124,192.62. The trial court rendered a decision ordering the return of said amount. Such decision became final. Sangalang and Cruz filed a motion to amend the decision due to its alleged ambiguity. The Ruizs moved to cancel the hearing for the motion, contending that there was no ambiguity in the decision and claim that they are entitled to a refund of P124,192.62 plus 24% interest compounded annually, the alleged legal rate under Central Bank Circular, or a total amount of P169,414.95.

Can the Ruizs recover the amount partially paid with 24% interest compounded annually?

15. SANGRADOR VS VALDERAMA Francisco and Teresita Valderrama obtained a loan from Teresita Sangrador in the amount of P1million. The breakdown of such amount is as follows: P625,00.00 to pay Manuel Asencio (first creditor) 50,000.00 to pay Wilson Jesena (for broker's commission) 4,000.00 to pay Atty. Enrique Arguelles (for attorney's fees) 13,398.69 to pay transfer fees and other expenses in Register of Deeds and BIR 307,601.40 to pay respondents as balance of the loan P1,000,000.09 TOTAL When the debt was due, respondents failed to pay despite repeated demands. Petitioner filed a case for collection. It alleged that the principal debt was P1,400,000, as stated in the promissory note and deed of mortgage. It also asked for the amount of P569,718.61. as provided in the escalation clause as contemplated in art. 1250 of the CC, and 20% of the entire amount attorneys fees. 16. INSULAR BANK OF ASIA AND AMERICA VS SPS. SALAZAR On November 22, 1978, defendants-appellees Epifania Salazar and Ricardo Salazar obtained a loan from the plaintiff-appellant in the amount of Forty Two Thousand and Fifty Pesos ( P42,050.00 ) payable on or before December 12, 1980. This loan transaction was evidenced by a promissory note where the defendants-appellees bound themselves jointly and severally to pay the amount with interest at 19% per annum and with the express authority to increase without notice the rate of interest up to the maximum allowed by law and subject further to penalty charges or liquidated damages upon default equivalent to 2% per month on any amount due and unpaid. In the event the account was referred to an attorney for collection, the defendants-appellees were also bound to pay 25% of any amount due as attorney's fees plus expenses of litigation and costs. As of November 25, 1983, after repeated demands, they were able to pay a total of P68,676.75 which payments were applied to partially satisfy the penalty and interest charges. The bank filed a case, the trial court rendered this decision: Sps. Salazar are ordered to pay ( P11,253.25 ), with interest thereon at the rate of 19% per annum from the filing of the complaint on September 12, 1984 until fully paid. The defendants are further ordered to pay the plaintiff-attorney's fees in the amount of one Thousand Pesos ( P1,000.00 ) and to pay the costs. 17. BANCO FILIPINO VS NAVARRO On May 20,1975 Florante del Valle secured a real estate mortgage from Banco Filipino in the amount of P41,000 payable within 15 years with an interest of 12% per annum. It has an escalation clause that authorizes the bank to increase the interest rate us in the event law should be enacted increasing the lawful rates of interest that may be charged on this particular kind of loan. On the strength of CIRCULAR No. 494 BANCO FILIPINO gave notice to the BORROWER on June 30, 1976 of the increase of interest rate on the LOAN from 12% to 17% per annum effective on March 1, 1976.

How much is the principal obligation; and assuming the it is P1million, can the excess of P400,000 be considered as interest?

The contention of the respondent that the principal obligation is only P1million was supported by the receipts issued by the petitioner. On the other hand, the petitioner has not given any valid explanation as to why they did not ask for receipt to the alleged another P400,000 they have given to the respondent. Thus, the principal obligation is only P1million. Petitioners may conceivably argue that, granting that the disputed amount of P400,000.00 is interest on the loan of P1,000,000.00 and since there is no longer a ceiling rate of interest, such interest would be valid. This may be so in a situation where the parties openly and expressly agree on a specific rate of interest to accrue on the loan but, as the Court of Appeals in its decision under review correctly pointed out, in the case at bar, no interest rate is expressly stipulated in the promissory note and deed of real estate mortgage, thus, the legal interest should be applied from the time of demand. (note: art. 1956 provides that no interest shall be due unless expressly stipulated in writing.) With regard to the escalation clause, there was no extraordinary inflation that would warrant its application. escalation clauses are valid stipulations in commercial contracts to maintain fiscal stability and to retain the value of money in long term contracts. However, the enforceability of such stipulations are subject to certain conditions. One of them is that Said loans were directly granted by them and the remaining maturities thereof were more than 730 days as of January 2, 1976. In the case at bar, the loan was obtained on November 21, 1978 and was payable on or before November 12, 1980. Central Bank Circular No. 705, authorizing the increase from 19% to 21% was issued on December 1, 1979. Obviously, as of this date, December 1, 1979, the remaining maturity of the loan was less than 730 days. Hence, the plaintiff-appellant's second assignment of error is without merit. The amount of penalty interest is iniquitous, thus the Court lowered it to 12% per annum, considering that the respondent had tried in good faith to fulfill their obligation and that the bank has already profited from the payments made by the respondents.

Did the trial court erred in imposing 19% interest instead of 21% in accordance with the escalation clause, and in not imposing the 2% per month liquidated damages?

Can the Banco Filipino increase the interest rate?

No. The escalation clause expressly provided that an increase can be made only if there should be a law which increases the lawful rate. The bank based its increase on Circular No. 494 which is not a law. Although it has the force of a law, it is not a law. Furthermore, the circular did not distinguish as to what kind of loan it applies. It also provides that loans and renewals are continued to be governed by the Usury Law. In the absence of any indication in CIRCULAR No. 494 as to which particular type of loan was meant by the Monetary Board, the more equitable construction is to limit CIRCULAR No. 494 to loans guaranteed by securities other than mortgage upon registered realty. Furthermore, the escalation clause does not contain a de-escalation clause. Although PD 1684 should not be given retroactive effect, the Court nullified the stipulation because of its one-sidedness. Note: Loans secured by a real estate has the ceiling interest rate of 12% per annum. Conditions for Escalation Clause: 1. The increased rate imposed or charged by petitioner does not exceed the ceiling fixed by law or the Monetary Board 2. The increase is made effective not earlier than the effectivity of the law or regulation authorizing such an increase; 3. The remaining maturities of the loans are more than 730 days as of the effectivity of the law or regulation authorizing such an increase.

However, with respect to loan agreements entered into,on or after March 17, 1980, such agreement, in order to be valid, must also include a de-escalation clause as required by Presidential Decree No. 1684. 18. PNB VS IAC Spouses fermin maglasang and antonia sedigo obtained a loan from petitioner in the amount of P82,682.39 from February 5, 1976 to May 18, 1979 payable upon demand, bore 12% interest per annum plus 1% interest as penalty charge in case of default in the payments, and has an escalation clause. On December 1, 1979, the Monetary Board of the Central Bank, by virtue of Presidential Decree No. 116, issued CB Circular No. 705 increasing the ceiling on the rate of interest on both secured and unsecured loans up to no more than 21% per annum, consequently PNB raised its interest. Respondent failed to pay upon demand. Petitioner foreclose the mortgage but the proceeds were insufficient, thus, it filed a case for the collection of such deficiency. Trial court ordered the payment of such deficiency plus 21% interest. The CA amended, only 12% was ordered. 19. LLORIN VS CA On April 11, 1978, defendant Llorin obtained a loan from plaintiff corporation in the amount of Eighty Four Thousand Four Hundred Ten Pesos (P84,410.00). The loan, secured by a real estate mortgage, is payable in two hundred forty (240) installments at P1,142.08 monthly commencing May 11, 1978, with interest of 12% per annum, service charge of three percent (3%) p.a. and 1 1/2% monthly penalty for unpaid or delayed amortizations. The promissory note provides for an escalation clause which reads: I/We hereby authorized (sic) APEX MORTGAGE AND LOAN CORPORATION to accordingly increase the rate of interest and/or service charges stipulated in this contract without notice to me/us in the event of a law or any applicable Presidential Decree and/or Central Bank regulation (which) should be enacted increasing the lawful rate of interest and/or service charges that may be charged on this particular kind of loan. Pursuant to the said clause and on the basis of Central Bank Circular No. 721 (February 25, 1980) and No. 905 (Series of 1982), plaintiff increased the interest rate: from 12% to 21% to 25% to 36%. However, it also decreased the interest when the monetary board decreased the interest rates, though, there was nothing said about it in the escalation clause: from 36% to 28% to 24% to 21%. On May 11, 1982 plaintiff demanded from defendant the payment of P123,720.32. On July 7, 1987 another written demand was sent to defendant for payment of P208,964.88 covering the period from September 1981 to June 1987. As of July 27, 1987, defendant was able to pay the plaintiff the total sum of P79,462.27 which was applied to satisfy the penalty, interest charges and part of (the) principal loan. 25. CUYCO VS CUYCO Petitioners, spouses Adelina and Feliciano Cuyco, obtained a loan in the amount of P1,500,000.00 from respondents, spouses Renato and Filipina Cuyco, payable within one year at 18% interest per annum, and secured by a Real Estate Mortgage. Subsequently, petitioners obtained additional loans from the respondents in the aggregate amount of P1,250,000.00. Petitioners made payments amounting to 7 P291,700.00, but failed to settle their outstanding loan obligations. Thus, on September 10, 1997, 8 respondents filed a complaint for foreclosure. The trial court decided in favor of the respondent. The CA modified it with the imposition of 12% interest on the interest due, counted from the filing of the complaint until fully paid. Petitioner contended in this instant petition that the CA erred in imposing 12% interest on the 18% interest because there was no stipulation as to the former. 26. EASTERN SHIPPING LINES VS CA Because of the damages on the cargo (riboflavin), the insurance company filed a case for payment of such damages against the petitioner, upon payment to the insured consignee by virtue of subrogation. The trial court rendered a judgment ordering the petitioner to pay the damages plus 12% interest per

Was the escalation clause valid? Granting that it was valid, was the increase in the interest proper?

The escalation clause was proper. However, application of the escalation must be in accordance with the rules settled down by the circular increasing the ceiling rate of interest. Circular No. 705 requires that the maturity date must be more than 730 from the effectivity of the law or regulation authorizing such increase. The bank has complied with all the requirements but the 730 day requirement. Although there was no showing as to when the demand was made, it was clear that when the foreclosure was made, the 730 day requirement had not yet elapsed, counted from the effectivity of the regulation.

was the escalation clause valid?

Yes. Unlike the Banco Filipino case, the evil sought to be avoided was not present here since respondent has already voluntarily decreased the interest rate. Also, the increase were applicable to all kinds of loans, and to both law and administrative regulation increasing the authorized interest rate.

Was the imposition of 12% interest proper?

Yes. While a contract is the law between the parties, it is also settled that an existing law enters into and forms part of a valid contract without the need for the parties expressly making reference to 19 it. Thus, the lower courts correctly applied Article 2212 of the Civil Code as the basis for the imposition of the legal interest on the stipulated interest due. It reads: Art. 2212. Interest due shall earn legal interest from the time it is judicially demanded, although the obligation may be silent upon this point.


What is the proper rate of interest and from when it is to be

The appealed decision is AFFIRMED with the MODIFICATION that the legal interest to be paid is SIX PERCENT (6%) on the amount due computed from the decision of the court a quo. A TWELVE PERCENT (12%) interest, in lieu of SIX PERCENT (6%), shall be imposed on such amount upon finality of this

annum from the date of the filing of the complaint until actual payment. Petitioner contended that the interest should be only 6% and computed from the time of the finality of judgment.


decision until the payment thereof. Loans/forbearances of money, goods or credits: 1. Principal plus agreed regular interest 2. stipulated regular/ordinary/monetary interest + (substituted to the regular interest) penalty/compensatory interest in the amount of stipulated penalty interest/stipulated regular interest/legal interest in 12% per annum - upon demand 3. Interest upon interest due, which is the stipulated regular interest + stipulated penalty interest (if any) upon judicial demand until actual payment. Obligation arising from other sources: 1. damages + legal interest 6% - from the time demand is established with reasonable certainty (usually from the time of filing of the complaint) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court (appealable judgment) is made. 2. the 6% interest is converted to 12% from the time of the finality of judgment until actually paid.

8. Francisco v. Gregorio Petitioner Francisco, through her daughter, agreed to lease a piece of land where a building should be constructed by the former. The contract provided, among others: the deposit to the account of the lessor-petitioner the amount of 150k representing 30K goodwill money and 120K advanced rental and a stipulation that in case the parties will not agree as to the terms and conditions of the final contract of lease, the pre-lease contract shall be declared null and void and the petitioner shall return the deposit plus legal interest. Before final occupancy, the petitioner declared the pre-lease contract null and void, leased the premises to another lessee and offered to return the 150K deposit. Private respondents refused to accept so that petitioner was prompted to make a consignation of the money with the Court. Private respondents then filed a complaint, hence respondent judge ruled in their favor with an order to pay the amount of deposit plus compensatory interests.

Is the petitioner liable for payment of interest despite tender of payment before demand?

No. The award for interests in an action for the recovery of a sum of money partakes of a nature of an award for damages. Thus, Article 2209 of the Civil Code provides: Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon, and in the absence of stipulation, the legal interest, which is six percent per annum. Clearly, the indemnity for interest on a monetary obligation attaches only when the obligor incurs delay, that is, when he is in default, it being a fundamental principle of law that: Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation. (Art. 1169, Civil Code.) In the case at bar, it is not disputed that no demands, judicial or extrajudicial, were made by private respondents on defendant Boiser (Francisco) for the return of the amount of P150,000.00. There could not have been any because of the nature of the action filed by private respondents, which is for specific performance. Hence, there is no delay of the latter's obligation, assuming that she be eventually required in the decision of the Court to return the same. Thus, no interest is due where there was tender of payment prior to any demand to pay or perform the agreed act. No. First, the escalation clause of the credit agreement requires that the same be made "within the limits allowed by law," obviously referring specifically to legislative enactments not administrative circulars. As held in Banco Filipino vs Navarro, CB circular 905, although it has the force of a law is not a law. Second, granting that there was indeed a stipulation in the contract which granted the bank to unilaterally increase the interest rate, such stipulation is invalid, because it violates the principle of mutuality of contracts. Art. 308 provides that a contract must bind both contracting parties, and its validity or compliance cannot be left to the will of one of them. Escalation clauses are valid, provided that the bank in increasing the interest has something to base on, and not merely his own will. CB circular 905 does not allow unilateral increases of interest in loan contracts; it merely allows the parties to freely stipulate as to the amount of interest without limitation as to the maximum amount of interest. The PNB contended that PD 1168, which requires a de-escalation clause, could not be given a retroactive effect, thus it could not be applied to the increase made in 1979. The Court held that the stipulation was invalid not because PD 1168 was given a retroactive effect, but because the stipulation

20. ALMEDA VS CA On various dates in 1981 the PNB granted loans to spouses Ponciano and Eufemia Almeda in the total amount of P18M with 21% interest. The contained an escalation clause which provided: The Bank reserves the right to increase the interest rate within the limits allowed by law at any time depending on whatever policy it may adopt in the future; provided, that the interest rate on this/these accommodations shall be correspondingly decreased in the event that the applicable maximum interest rate is reduced by law or by the Monetary Board. In either case, the adjustment in the interest rate agreed upon shall take effect on the effectivity date of the increase or decrease of the maximum interest rate. From March 1984 to March 1986, the bank unilaterally raised the interest from 21% to 28% and to 68%. The spouses protested to this increases. To prevent the foreclosure, they tendered the payment of the loan in the amount of P40,142,518.00, consisting the principal plus the 21% interest. When the bank refused to accept, they consigned it. 21. PNB VS CA On June 4, 1979, spouses Maria Amor and Marciano Bascos obtained a loan from the PNB in the amount of P15,000 with 12% interest thereon. It has an escalation clause but has no de-escalation clause. In 1979, it increased the interest to 14%. Then from 1983 to 1985 it increased the interest from

Whether or not the increases in the interest rate were valid.

Was the escalation clause valid? And, Were the spouses

14% to 22%, 22.5%, 23%,25% and 28%. The spouses did not object to these increases, but by the time the mortgage was about to be foreclosed, they tendered the payment of the principal plus 12% interest. The bank refused to accept the payment because according to them, the increases were valid, and granting that they were invalid, the spouses are estopped from questioning them because they failed to object when such increases were implemented.

Bascos estopped from questioning the validity of the increases?

was so one-sided that it placed the parties in unequal footing. Furhter, We cannot countenance petitioner bank's posturing that the escalation clause at bench gives it unbridled right to unilaterallyupwardly adjust the interest on private respondents' loan. That would completely take away from private respondents the right to assent to an important modification in their agreement, and would negate the element of mutuality in contracts. As to the second issue, Private respondents' assent to the increases can not be implied from their lack of response to the letters sent by PNB, informing them of the increases. For as stated in one case, no one receiving a proposal to change a contract is obliged to answer the proposal. No. The foregoing provision envisages a complaint filed against an entity which has committed usury, for the recovery of the usurious interest paid. In that case, if the entity sued shall not file its answer under oath denying the allegation of usury, the defendant shall be deemed to have admitted the usury. The provision does not apply to a case, as in the present, where it is the defendant, not the plaintiff, who is alleging usury. Moreover, for sometime now, usury has been legally non-existent. 4 Interest can now be charged as lender and borrower may agree upon. The Rules of Court in regards to allegations of usury, procedural in nature, should be considered repealed with retroactive effect.

22. LIAM LAW VS OLYMPIC SAWMILL On or about September 7, 1957, plaintiff loaned P10,000.00, without interest, to defendant partnership (Olympic Sawmill). On due date, January 31, 1960, the defendant was not able to pay. On March 17, 1960, the parties executed another loan document. Payment of the P10,000.00 was extended to April 30, 1960, but the obligation was increased by P6,000.00. Defendants once again failed to pay, thus the plaintiff filed a case for collection. The defendant contended that the P6,000 interest was usurious, and that since they alleged that the interest was usurious and the plaintiff failed to answer it under oath thus it admitted that such interest was indeed usurious (Section 9 of the Usury Law). 23. SOLIDBANK VS CA Continental Cement Corporation and Gregory T. Lim obtained a loan from petitioner bank in the amount of P 1,068,150.00 with the following stipulation: 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 1% per month until the amount/s or instalments/s due and unpaid under the trust receipt on the reverse side hereof is/are fully paid. 24. COLINARES VS CA Melvin Colinares and Lordino Veloso contracted with the Carmilite Sisters for the renovation of the latters convent. They obtain materials for the construction from CM Builders. The following day petitioners applied for a commercial letter of credit with the Philippine Banking Corporation, which application was subsequently granted. Petitioners signed the loan document without reading the fine print, so that it was only later when they found out its trust receipt implication. They brought this to the attention of the PBC but they were assured that the trust receipt was a mere formality. When the petitioners were not able to pay on due date, they asked for the extension of the credit. Pending approval, they partially paid the amount, but the PBC by then filed a case for violation PD 115 (Trust Receipt Law).

Was there a usury?

Was the stipulation valid?

No. the foregoing stipulation is invalid, there being no reference rate set either by it or by the Central Bank, leaving the determination thereof at the sole will and control of petitioner. While it may be acceptable, for practical reasons given the fluctuating economic conditions, for banks to stipulate that interest rates on a loan not be fixed and instead be made dependent upon prevailing market conditions, there should always be a reference rate upon which to peg such variable interest rates. No. Section 4, P.D. No. 115, the Trust Receipts Law, defines a trust receipt transaction as any transaction by and between a person referred to as the entruster, and another person referred to as the entrustee, whereby the entruster who owns or holds absolute title or security interest over certain specified goods, documents or instruments, releases the same to the possession of the entrustee upon the latters execution and delivery to the entruster of a signed document called a trust receipt wherein the entrustee binds himself to hold the designated goods, documents or instruments with the obligation to turn over to the entruster the proceeds thereof to the extent of the amount owing to the entruster or as appears in the trust receipt or the goods, documents or instruments themselves if they are unsold or not otherwise disposed of, in accordance with the terms and conditions specified in the trust receipt. It was only a day later that they went to the bank to apply for a loan to pay for the merchandise. This situation belies what normally obtains in a pure trust receipt transaction where goods are owned by the bank and only released to the importer in trust subsequent to the grant of the loan. Nowhere in the testimony of PBCs witness does it appear that PBC represented to Petitioners that the transaction they were entering into was not a pure loan but had trust receipt implications. The Information charged Petitioners with intent to defraud and misappropriating the money for their personal use. But Petitioners employed no artifice in dealing with PBC and never did they evade payment of their obligation.

Whether or not the petitioners can be held liable for violation of Trust Receipt Law.