Republic of the Philippines vs.

Jose Bagtas, Felicidad Bagtas, administratrix of the intestate estate left by Jose Bagtas Facts: On May 8, 1948, Jose Bagtas borrowed from the Bureau of Animal Industry 3 bulls for 1 year for breeding purposes, subject to breeding fee for 10% of the book value of the bulls. Upon the expiration of the contract, Bagtas asked for a renewal for another year. The renewal granted was only for 1 bull. Bagtas offered to buy the bulls at book value less depreciation, but the Bureau told him that he should either return the bulls or pay for their book value. Bagtas failed to pay the book value, and so the Republic commenced an action with the CFI Manila to order the return of the bulls of the payment of book value. Felicidad Bagtas, the surviving spouse and administratrix of the decedents estate, stated that the 2 bulls have already been returned in 1952, and that the remaining one died of gunshot during a Huk raid. As regards the two bulls, is was proven that they were returned and thus, there is no more obligation on the part of the appellant. As to the bull not returned, Felicidad contends that the obligation is extinguished since the contract is that of a commodatum and that the loss through fortuitous event should be borne by the owner. Issue: Whether, depending on the nature of the contract, the respondent is liable for the death of the bull Held: A contract of commodatum is essentially gratuitous. If the breeding fee be considered a compensation, then the contract would be a lease of the bull. Under article 1671 of the Civil Code the lessee would be subject to the responsibilities of a possessor in bad faith, because she had continued possession of the bull after the expiry of the contract. And even if the contract be commodatum, still the appellant is liable, because article 1942 of the Civil Code provides that a bailee in a contract of commodatum . . . is liable for loss of the things, even if it should be through a fortuitous event: (2) If he keeps it longer than the period stipulated . . . (3) If the thing loaned has been delivered with appraisal of its value, unless there is a stipulation exempting the bailee from responsibility in case of a fortuitous event; The loan of one bull was renewed for another period of one year to end on 8 May 1950. But the appellant kept and used the bull until November 1953 when during a Huk raid it was killed by stray bullets. Furthermore, when lent and delivered to the deceased husband of the appellant the bulls had each an appraised book value. It was not stipulated that in case of loss of the bull due to fortuitous event the late husband of the appellant would be exempt from liability. Special proceedings for the administration and settlement of the estate of the deceased Jose V. Bagtas having been instituted in the Court of First Instance of Rizal (Q200), the money judgment rendered in favor of the appellee cannot be enforced by means of a writ of execution but must be presented to the probate court for payment by the appellant, the administratrix appointed by the court. Carmen Liwanag v. CA and People G.R. No. 114398 October 24, 1997 Romero, J.

Facts: Liwanag asked Isidora Rosales to join her and Thelma Tagbilaran in the business of buying and selling cigarettes. Under their agreement, Rosales would give the money needed to buy the cigarettes while Liwanag and Tabligan would act as her agents, with a corresponding 40% commission to her if the goods are sold; otherwise the money would be returned to Rosales. Rosales gave several cash advances amounting to 633,650. Money was misappropriated. Rosales files a complaint of estafa against them. Issue: 1. WON the parties entered into a partnership agreement; 2. if in the negative, WON the transaction is a simple loan Held: 1. No. Even assuming that a contract of partnership was indeed entered into by and between the parties, when money or property have been received by a partner for a specific purpose and he later misappropriated it, such partner is guilty of estafa. 2. No. In a contract of loan once the money is received by the debtor, ownership over the same is transferred. Being the owner, the borrower can dispose of it for whatever purpose he may deem proper. GOPOCO GROCERY (GOPOCO), ET AL. vs. PACIFIC COAST BISCUIT CO., ET AL. G.R. Nos. L-43697 and L-442200 March 31, 1938 Art. 1980. Fixed, savings, and current deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loan. Facts: Mercantile Bank of China was declared in liquidation as it could not continue operating as such without running the risk of suffering losses and prejudice its depositors and customers. Gopoco Grocery, Et Al alleged that they deposited sum of money in the bank under liquidation on current account. To resolve these claims, Fulgencio Borromeo was appointed as commissioner and referee to receive the evidence which the interested parties may desire to present. Borromeo resolved the claims by recommending that the same be considered as an ordinary credit only, and not as a preferred credit as Gopoco Grocery, Et Al wanted, because they were at the same time debtors of the bank. Gopoco Grocery, Et Al contends that they are preferred credits because they are deposits in contemplation of law, and as such should be returned with the corresponding interest thereon. Issue:Whether or not deposits on current account in the bank now under liquidation be considered preferred credits or should they be considered ordinary credits only? Ruling: Deposits on current account in the bank now under liquidation are considered ordinary credits only. Gopoco Grocery, Et Al themselves admit that the bank owes them interest which should have been paid to them before it was declared in a state of liquidation. This fact undoubtedly destroys the character which they nullifies their contention that the same be considered as irregular deposits, because the payment of interest only takes place in the case of loans. The so-called current account and savings deposits have lost their character of deposits and are convertible into simple commercial loans because, in cases of such deposits, the bank has made use thereof in the ordinary course of its transactions as an institution engaged in the banking business, not because it so wishes, but precisely because of the authority deemed to have been granted to it by Gopoco Grocery, Et Al to enable them to collect the interest which they had been and they are now collecting, and by virtue further of the authority granted to it by Corporation Law and Banking Law. Wherefore, deposits on current account of Gopoco Grocery, Et Al in the bank under liquidation, with the right on their part to collect interest, have not created and could not create a juridical relation between them except that of creditors and debtor, they being the creditors and the bank the debtor. SPS. ERMITAO vs. COURT OF APPEALS G.R. No. 127246, April 21, 1999 The following are the facts of the case: Luis Ermitao was a BPI Express Card Corporation (BECC) credit cardholder while his wife, Manuelita Ermitao, was an extension cardholder. On August 29, 1989, Manuelitas bag which contained the credit card was snatched in Makati. Immediately, she reported the loss and thereafter sent written notice to BECC. BECC however, billed Luis for purchases made on August 30, 1989 through Manuelitas lost card totalling P3,197.70. To justify the billing, BECC cited the following stipulation in their contract: ...the cardholder continues to be liable for the purchases made through the use of the lost/stolen BPI Express Card until after such notice has been given to BECC and the latter has communicated such loss/theft to its member establishments. The issue is whether or not the stipulation on notice required by BECC in case of loss or theft of the credit card is valid. The Supreme Court held in the negative. Prompt notice by the cardholder to the credit card company of the loss or theft of his card should be enough to relieve the former of any liability occasioned by the

unauthorized use of his lost or stolen card. The questioned stipulation in this case, which still requires the cardholder to wait until the credit card company has notified all its member-establishments, puts the cardholder at the mercy of the credit card company which may delay indefinitely the notification of its members to minimize if not to eliminate the possibility of incurring any loss from unauthorized purchases. Or, as in this case, the credit card company may for some reason fail to promptly notify its members through absolutely no fault of the cardholder. To require the cardholder to still pay for unauthorized purchases after he has given prompt notice of the loss or theft of his card to the credit card company would simply be unfair and unjust. The Court cannot give its assent to such a stipulation which could clearly run against public policy.

Jardenil vs Solas Facts: An action for foreclosure of mortgage. Solas agreed to pay interest only up to the date of maturity. The contract is silent as to whether after the date of maturity, in the event of non-payment, the debtor would continue to pay interest. Issue: IS Solas bound to pay the stipulated interest only up to the date of maturity as fixed in the promissory note, or up to the date payment is effected? Held: It was only up to the date of maturity Ratio: Interest shall be due only when it has been expressly stipulated. The court must not impose an obligation that the parties have not chosen to agree upon. The act of the mortgagee of granting to the mortgagor on the deed of mortgage an extension of one year from the date of maturity to make the payment without making any mention of any interest which the mortgagor should pay during the additional period indicates the true intention of the parties that not interest should be paid during the period of grace. GIL JARDENIL, plaintiff-appellant, vs. HEFTI SOLAS (alias HEPTI SOLAS, JEPTI SOLAS), defendant-appellee. Eleuterio J. Gustilo for appellant. Jose C. Robles for appellee. MORAN, J.: This is an action for foreclosure of mortgage. The only question raised in this appeal is: Is defendant-appellee bound to pay the stipulated interest only up to the date of maturity as fixed in the promissory note, or up to the date payment is effected? This question is, in our opinion controlled by the express stipulation of the parties. Paragraph 4 of the mortgage deed recites: Que en consideracion a dicha suma aun por pagar de DOS MIL CUATROCIENTOS PESOS (P2,4000.00), moneda filipina, que el Sr. Hepti Solas se compromete a pagar al Sr. Jardenil en o antes del dia treintaiuno (31) de marzo de mil novecientos treintaicuarto (1934), con los intereses de dicha suma al tipo de doce por ciento (12%) anual a partir desde fecha hasta el dia de su vencimiento o sea treintaiuno (31) de marzo de mil novecientos treintaicuatro (1934), por la presente, el Sr. Hepti Solas cede y traspasa, por via de primera hipoteca, a favor del Sr. Jardenil, sus herederos y causahabientes, la parcela de terreno descrita en el parrafo primero (1.) de esta escritura. Defendant-appellee has, therefore, clearly agreed to pay interest only up to the date of maturity, or until March 31, 1934. As the contract is silent as to whether after that date, in the event of non-payment, the debtor would continue to pay interest, we cannot in law, indulge in any presumption as to such interest; otherwise, we would be imposing upon the debtor an obligation that the parties have not chosen to agree upon. Article 1755 of the Civil Code provides that "interest shall be due only when it has been expressly stipulated." (Emphasis supplied.) A writing must be interpreted according to the legal meaning of its language (section 286, Act No. 190, now section 58, Rule 123), and only when the wording of the written instrument appears to be contrary to the evident intention of the parties that such intention must prevail. (Article 1281, Civil Code.) There is nothing in the mortgage deed to show that the terms employed by the parties thereto are at war with their evident intent. On the contrary the act of the mortgage of granting to the mortgagor on the same date of execution of the deed of mortgage, an extension of one year from the date of maturity within which to make payment, without making any mention of any interest which the mortgagor should pay during the additional period (see Exhibit B attached to the complaint), indicates that the true intention of the parties was that no interest should be paid during the period of grace. What reason the parties may have therefor, we need not here seek to explore. Neither has either of the parties shown that, by mutual mistake, the deed of mortgage fails to express their agreement, for if such mistake existed, plaintiff would have undoubtedly adduced evidence to establish it and asked that the deed be reformed accordingly, under the parcel-evidence rule. We hold therefore, that as the contract is clear and unmistakable and the terms employed therein have not been shown to belie or otherwise fail to express the true intention of the parties and that the deed has not been assailed on the ground of mutual mistake which would require its reformation, same should be given its full force and effect. When a party sues on a written contract and no attempt is made to show any vice therein, he cannot be allowed to lay any claim more than what its clear stipulations accord. His omission, to which the law attaches a definite warning as an in the instant case, cannot by the courts be arbitrarily supplied by what their own notions of justice or equity may dictate. Plaintiff is, therefore, entitled only to the stipulated interest of 12 per cent on the loan of P2, 400 from November 8, 1932 to March 31, 1934. And it being a fact that extra judicial demands have been made which we may assume to have been so made on the expiration of the year of grace, he shall be entitled to legal interest upon the principal and the accrued interest from April 1, 1935, until full payment. Thus modified judgment is affirmed, with costs against appellant. Yulo, C.J., Ozaeta and Bocobo, JJ., concur. Integrated Realty Corporation vs PNB Date: June 28, 1989 Petitioners: Integrated Realty Corporation and Raul Santos Respondents: PNB of Manila and the CA Ponente: Regalado Facts: - Raul L. Santos made a time deposit with Overseas Bank of the Philippines in the amount of P500,000.00. Santos also made a time deposit with OBM in the amount of P200,000.00. Integrated Realty Corporation, thru its President ---- Raul L. Santos, applied for a loan and/or credit line in the amount of P700,000.00 with PNB. To secure the said loan, Santos executed a Deed of Assignment of the two time deposits in favor of plaintiff. OBM gave its conformity to the assignment. However, OBM, after the due dates of the time deposit certificates, did not pay PNB. PNB demanded payment from IRC and Santos and OBM. IRC and Santos replied that the obligation (loan) of defendant IRC was deemed paid with the irrevocable assignment of the time deposit certificates. - On April 6, 1969, PNB filed a complaint to collect from IRC and Santos the loan of P700,000.00 with interest as well as attorney's fees. In its answer to the complaint, OBM denied knowledge of the time deposit certificates because the alleged time deposit of Santos 'does not appear' in its books of account. The trial court ordered IRC and Santos to pay the plaintiff jointly and solidarily, the total amount of P700,000 plus interest. OBM was also ordered to pay cross IRC and Santos whatever amount the latter will pay to PNB. The CA affirmed but deleted the portion of the judgment ordering OBM to pay IRC and Santos whatever amounts they will pay to PNB with interest from the date of payment. Issue: Held: WON the deed of assignment extinguished the obligations of IRC and Santos with PNB No

Ratio: - There are cogent reasons to conclude that the parties intended said deed of assignment to complement the promissory notes. The facts and circumstances leading to the execution of the deed of assignment, as found by the court a quo and the respondent court, yield said conclusion that it is in fact a pledge. The deed of assignment has satisfied the requirements of a contract of pledge (1) that it be constituted to secure the fulfillment of a principal obligation; (2) that the pledgor be the absolute owner of the thing pledged; (3) that the persons constituting the pledge have the free disposal of their property, and in the absence thereof, that they be legally authorized for the purpose. 1The further requirement that the thing pledged be placed in the possession of the creditor, or of a third person by common agreement was complied with by the execution of the deed of assignment in favor of PNB. - It must also be emphasized that Santos, as assignor, made an express undertaking that he would remain liable for any outstanding balance of his obligation should PNB be unable to actually receive or collect the assigned sums resulting from any agreements, orders or decisions of the court or for any other cause whatsoever. The term "for any cause whatsoever" is broad enough to include the situation involved in the present case.

- Under the foregoing circumstances and considerations, the unavoidable conclusion is that IRC and Santos should be held liable to PNB for the amount of the loan with the corresponding interest thereon. Issue: Held: WON the 1-1/2% interest imposed by PNB was illegal No

Ratio: - We find nothing illegal in the interest of one and one-half percent (1-1/2%) imposed by PNB pursuant to the resolution of its Board which presumably was done in accordance with ordinary banking procedures. Not only did IRC and Santos fail to overcome the presumption of regularity of business transactions, but they are likewise estopped from questioning the validity thereof for the first time in this petition. There is nothing in the records to show that they raised this issue during the trial by presenting countervailing evidence. What was merely touched upon during the proceedings in the court below was the alleged lack of notice to them of the board resolution, but not the veracity or validity thereof. Issue: Held: WON OBM should be held liable for interests on the time deposits of IRC and Santos from the time it ceased operations until it resumed its business No

Ratio: - It is a matter of common knowledge, that what enables a bank to pay stipulated interest on money deposited with it is that thru the other aspects of its operation it is able to generate funds to cover the payment of such interest. Unless a bank can lend money, engage in international transactions, acquire foreclosed mortgaged properties or their proceeds and generally engage in other banking and financing activities from which it can derive income, it is inconceivable how it can carry on as a depository obligated to pay stipulated interest. Conventional wisdom dictates this inexorable fair and just conclusion. And it can be said that all who deposit money in banks are aware of such a simple economic proposition. Consequently, it should be deemed read into every contract of deposit with a bank that the obligation to pay interest on the deposit ceases the moment the operation of the bank is completely suspended by the duly constituted authority, the Central Bank. Issue: Held: WON OBM should reimburse IRC and Santos for whatever amounts they may be adjudged to pay PNB by way of compensation for damages incurred Yes

Ratio: - When PNB demanded from OBM payment of the amounts due on the two time deposits which matured on January 11, 1968 and February 6, 1968, respectively, there was as yet no obstacle to the faithful compliance by OBM of its liabilities thereunder. (Demand made before OBM encountered liquidation problems) Consequently, for having incurred in delay in the performance of its obligation, OBM should be held liable for damages. When Santos invested his money in time deposits with OBM, they entered into a contract of simple loan or mutuum, not a contract of deposit. - While it is true that under Article 1956 CC no interest shall be due unless it has been expressly stipulated in writing, this applies only to interest for the use of money. It does not comprehend interest paid as damages. 1OBM contends that it had agreed to pay interest only up to the dates of maturity of the certificates of time deposit and that respondent Santos is not entitled to interest after the maturity dates had expired, unless the contracts are renewed. This is true with respect to the stipulated interest, but the obligations consisting as they did in the payment of money, under Article 1108 CC he has the right to recover damages resulting from the default of OBM, and the measure of such damages is interest at the legal rate of 6% per annum on the amounts due and unpaid at the expiration of the periods respectively provided in the contracts. In fine, OBM is being required to pay such interest, not as interest income stipulated in the certificates of time deposit, but as damages for failure and delay in the payment of its obligations which thereby compelled IRC and Santos to resort to the courts. - The applicable rule is that legal interest, in the nature of damages for non-compliance with an obligation to pay a sum of money, is recoverable from the date judicial or extrajudicial demand is made, which latter mode of demand was made by PNB, after the maturity of the certificates of time deposit, on March 1, 1968. The measure of such damages, there being no stipulation to the contrary, shall be the payment of the interest agreed upon in the certificates of deposit which is six and one-half percent (6-1/2%). Such interest due or accrued shall further earn legal interest from the time of judicial demand.

PHILIPPINE NATIONAL BANK, petitioner, vs. COURT OF APPEALS and DR. ERLINDA G. IBARROLA, respondents. RESOLUTION FRANCISCO, J.: As payments for the purchase of medicines, the Province of Isabela issued several checks drawn against its accounts with petitioner Philippine National Bank (PNB) in favor of the seller, Lyndon Pharmaceuticals Laboratories, a business operated by private respondent Ibarrola. The checks were delivered to the sellers agents[1] who turned them over to Ibarrola, except 23 checks amounting to P98,691.90, which the agents appropriated after negotiating them with PNB. For her failure to receive the full payment for the medicines, Ibarrola filed on November 6, 1974 before the Regional Trial Court (RTC) an action for a sum of money and damages, docketed as Civil Case 4226-P,[2] against the Province ofIsabela, its Treasurer, the two agents and PNB. In its decision dated September 29, 1987, the trial court ordered all the defendants in said civil case, except the treasurer who died in the meantime, to jointly and solidarily pay Ibarrola several amounts, among which is: (1) P98,691.90 with interest thereon at the legal rate from the date of the filing of the complaint until the entire amount is fully paid;[3] (Italics supplied.) PNBs appeal to the Court of Appeals (CA)[4] and later to the Supreme Court[5] were denied and dismissed, respectively. All the three courts, however, did not specify whether the legal rate of interest referred to in the judgment is 6% or 12%. The judgment in Civil Case 4226-P became final and executory on November 26, 1993. At the execution stage, the sheriff computed the interest mentioned in the judgment at the rate of 12% which PNB opposed insisting that the rate should only be 6%. Ibarrola sought clarification from the same RTC which promulgated the decision. On August 4, 1994 said court issued an order clarifying that the rate is 12%. PNBs direct appeal to this court from that order was referred to the CA which affirmed the RTC order. Hence, this petition for review under Rule 45 where two legal issues are raised: (1) whether in an action for damages, the legal rate of interest is 6% as provided by Article 2209[6] of the New Civil Code or 12% as provided by CB Circular 416 series of 1974,[7] and (2) whether such rate shall be computed from the filing of the complaint until fully paid? The issues are not new. In the case of Eastern Shipping Lines, Inc. v. CA,[8] this Court had provided a rule of thumb for future guidance,"[9] to wit: When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged. [10] (Italics ours.) The case at bench does not involve a loan. Forbearance of money or judgment involving a loan or forbearance of money as it arose from a contract of sale whereby Ibarrola did not receive full payment for her merchandise. When an obligation arises from a contract of purchase and sale and not from a contract of loan or mutuum, the applicable rate is 6% per annum as provided in Article 2209 of the NCC and not the rate of 12% per annum as provided in (CB) Cir. No. 416.[11] Indeed, PNBs liability is based only on the RTCs judgment where it was held solidarily liable with the other defendants due to its negligence when it failed to assure itself if the Provincial Treasurer was properly authorized by Ibarrola to make endorsements of said checks.[12] The rate of 12% interest referred to in Cir. 416 applies only to: *L+oan or forbearance of money, or to cases where money is transferred from one person to another and the obligation to retu rn the same or a portion thereof is adjudged. Any other monetary judgment which does not involve or which has nothing to do with loans or forbearance 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. When an obligation not constituting a loan or forbearance of money is breached then an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum in accordance with Art. 2209 of the Civil Code. Indeed, the monetary judgment in favor of private respondent does not involve a loan or forbearance of money, hence the proper imposable rate of interest is six (6%) per cent.[13] (Italics ours.) Applying the aforequoted rule, therefore , the proper rate of interest referred to in the judgment under execution is only 6%. This interest according to Eastern Shipping shall be computed from the time of the filing of the complaint considering that the amount adjudged (P98,691.90) can be established with reasonable certainty. Said amount being merely the uncollected balance of the purchase price covered by the 23 checks encashed and appropriated by Ibarrolas agents. However, once the judgment becomes final and executory, the "interim period from the finality of judgment awarding a monetary claim and until payment thereof, is deemed to be equivalent to a forbearance of credit.[14] Thus, in accordance with the pronouncement in Eastern Shipping the rate of 12% p.a. should be

imposed, and to be computed from the time the judgment became final and executory until fully satisfied. The actual base for the computation of this 12% interest after the judgment in this damage suit became final shall be the amount adjudged (P98,691.90). ACCORDINGLY, the appealed decision is REVERSED. The rate of interest shall be 6% p.a. computed from the time of the filing of the complaint until its full payment before finality of judgment. Thereafter, if the amount adjudged remains unpaid, the interest rate shall be 12% p.a. computed from the time the judgment became final and executory onNovember 26, 1993 until fully satisfied. SO ORDERED. THE OVERSEAS BANK OF MANILA, petitioner, vs. VICENTE CORDERO and COURT OF APPEALS, respondents. ESCOLIN, J.: Again, We are confronted with another case involving the Overseas Bank of Manila, filed by one of its depositors. This is a petition for review on certiorari of the decision of the Court of Appeals which affirmed the judgment of the Court of First Instance of Manila, holding petitioner bank liable to respondent Vicente Cordero in the amount of P80,000.00 representing the latter's time deposit with petitioner, plus interest thereon at 6% per annum until fully paid, and costs. On July 20, 1967, private respondent opened a one-year time deposit with petitioner bank in the amount of P80,000.00 to mature on July 20, 1968 with interest at the rate of 6% per annum. However, due to its distressed financial condition, petitioner was unable to pay Cordero his said time deposit together with the interest. To enforce payment, Cordero instituted an action in the Court of First Instance of Manila. Petitioner, in its answer, raised as special defense the finding by the Monetary Board of its state of insolvency. It cited the Resolution of August 1, 1968 of the Monetary Board which authorized petitioner's board of directors to suspend all its operations, and the Resolution of August 13, 1968 of the same Board, ordering the Superintendent of Banks to take over the assets of petitioner for purposes of liquidation. Petitioner contended that although the Resolution of August 13, 1968 was then pending review before the Supreme Court, 1 it effectively barred or abated the action of respondent for even if judgment be ultimately rendered in favor of Cordero, satisfaction thereof would not be possible in view of the restriction imposed by the Monetary Board, prohibiting petitioner from issuing manager's and cashier's checks and the provisions of Section 85 of Rep. Act 337, otherwise known as the General Banking Act, forbidding its directors and officers from making any payment out of its funds after the bank had become insolvent. It was further claimed that a judgment in favor of respondent would create a preference in favor of a particular creditor to the prejudice of other creditors and/or depositors of petitioner bank. After pre-trial, petitioner filed on November 29, 1968, a motion to dismiss, reiterating the same defenses raised in its answer. Finding the same unmeritorious, the lower court denied the motion and proceeded with the trial on the merits. In due time, the lower court rendered the aforesaid decision. Dissatisfied, petitioner appealed to the Court of Appeals, which affirmed the decision of the lower court. Hence, this petition for review on certiorari. The issues raised in this petition are quite novel. Petitioner stands firm on its contentions that the suit filed by respondent Cordero for recovery of his time deposit is barred or abated by the state of insolvency of petitioner as found by the Monetary Board of the Central Bank of the Philippines; and that the judgment rendered in favor of respondent would in effect create a preference in his favor to the prejudice of other creditors of the bank. Certain supervening events, however, have rendered these issues moot and academic. The first of these supervening events is the letter of Julian Cordero, brother and attorney-in-fact of respondent Vicente Cordero, addressed to the Commercial Bank of Manila (Combank), successor of petitioner Overseas Bank of Manila. In this letter dated February 13, 1981, copy of which was furnished this Court, it appears that respondent Cordero had received from the Philippine Deposit Insurance Company the amount of P10,000.00. The second is a Manifestation by the same Julian Cordero dated July 3, 1981, acknowledging receipt of the sum of P73,840.00. Said Manifestation is in the nature of a quitclaim, pertinent portions of which We quote: I, the undersigned acting for and in behalf of my brother Vicente R. Cordero who resides in Canada and by virtue of a Special Power of Attorney issued by Vicente Romero, our Consul General in Vancouver, Canada, xerox copy attached, do hereby manifest to this honorable court that we have decided to waive all and any damages that may be awarded to the above-mentioned case and we hereby also agree to accept the amount of Seventy Three Thousand Eight Hundred Forty Pesos (P73,840.00) representing the principal and interest as computed by the Commercial Bank of Manila. We also agree to hold free and harmless the Commercial Bank of Manila against any claim by any third party or any suit that may arise against this agreement of payment. ... We also confirm receipt of Seventy Three Thousand Eight Hundred Forty Pesos (P73,840.00) with our full satisfaction. ... When asked to comment on this Manifestation, counsel for Combank filed on August 12, 1981 a Comment confirming and ratifying the same, particularly the portions which state: We also agree to hold free and harmless the Commercial Bank any third party or any suit that may arise against this agreement of payment, and We also confirm receipt of Seventy Three Thousand Eight Hundred Forty Pesos (P73,840.00) with our full satisfaction. However, upon further examination, this Court noted the absence of the alleged special power of attorney executed by private respondent in favor of Julian Cordero. When directed to produce the same, Julian Cordero submitted the following explanatory Comment, to which was attached the special power of attorney executed by respondent Vicente Cordero: 3. This manifestation (referring to the Manifestation of July 3, 1981) applies only to third party claims, suit and other damages. It does not mean waiving the interest it should earn while the bank is closed and also the attorney's fees as decided by the lower court. It is very clear. I did not waive the attorney's fees because it belongs to our attorney and interest because it belongs to us and we are entitled to it. Thus, with the principal claim of respondent having been satisfied, the only remaining issue to be determined is whether respondent is entitled to (1) interest on his time deposit during the period that petitioner was closed and (2) to attorney's fees. We find the answer to be in the negative. The pronouncement made by this Court, per Justice Barredo, in the recent case of Overseas Bank of Manila vs. Court of Appeals 2 is explicit and categorical. We quote: It is a matter of common knowledge which we take judicial notice of, that what enables a bank to pay stipulated interest on money deposited with it is that thru the other aspects of its operation, it is able to generate funds to cover the payment of such interest. Unless a bank can lend money, engage in international transactions, acquire foreclosed mortgaged properties or their proceeds and generally engage in other banking and financing activities, from which it can derive income, it is inconceivable how it can carry on as a depository obligated to pay stipulated interest. ... Consequently, it should be deemed read into every contract of deposit with a bank that the obligation to pay interest on the deposit ceases the moment the operation of the bank is completely suspended by the duly constituted authority, the Central Bank. We consider it of trivial consequence that the stoppage of the bank's operations by the Central Bank has been subsequently declared illegal by the Supreme Court, for before the Court's order, the bank had no alternative under the law than to obey the orders of the Central Bank. Whatever be the juridical significance of the subsequent action of the Supreme Court, the stubborn fact remained that the petitioner was totally crippled from then on from earning the income needed to meet its obligations to its depositors. If such a situation cannot, strictly speaking be legally denominated as "force majeure" as maintained by private respondent, We hold it is a matter of simple equity that it be treated as such. And concluding, this Court stated: Parenthetically, We may add for the guidance of those who might be concerned and so that unnecessary litigations may be avoided from further clogging the dockets of the courts that in the light of the consideration expounded in the above opinion, the same formula that exempts petitioner from the payment of interest to its depositors during the whole period of factual stoppage of its operations by orders of the Central Bank, modified in effect by the decision as well as the approval of a formula of rehabilitation by this Court, should be, as a matter of consistency, applicable or followed in respect to all other obligations of petitioner which could not be paid during the period of its actual complete closure. Neither can respondent Cordero recover attorney's fees. The trial court found that herein petitioner's refusal to pay was not due to a wilful and dishonest refusal to comply with its obligation but to restrictions imposed by the Central Bank. 3 Since respondent did not appeal from this decision, he is now barred from contesting the same. WHEREFORE, that portion of the lower court's decision ordering petitioner to pay interest on Cordero's time deposit is set aside. It appearing that the amount of the latter's time deposit had been fully paid, this case is hereby dismissed. No costs. SO ORDERED. Barredo (Chairman), Aquino, Concepcion, Jr., De Castro and Ericta, JJ., concur. Abad Santos, J., is on leave. Overseas Bank of Manila vs. Cordero Facts:

Private respondent opened a 1-year time deposit with petitioner bank amounting to P80,000, with interest of 6% p.a. Due to its distressed financial condition, the bank was unable to pay. Cordero instituted an action before the CFI Manila. Petitioner raised the defenses of insolvency and prejudice to other depositors. The lower court, and the Court of Appeals, ruled in favor of Cordero. Hence, the instant petition for review on certiorari. Certain supervening events rendered the issue moot and academic. Respondents brother and attorney-in-fact sent a letter to the Commercial Bank of Manila (petitioners successor-in-interest), acknowledging receipt of P10,000, and another manifestation for P73,840, with waiver of damages. Upon further examination, it was found that the respondents brother has no SPA. Respondents brother submitted the SPA, with explanatory comment that the waiver applies only to third party claims, suits and damages, not to interest and attorneys fees. Issue: Whether respondent is entitled to interest and attorneys fees Held: The obligation to pay interest on the deposit ceases the moment the operation of the bank is completely suspended by the Central Bank. Neither can respondent Cordero recover attorneys fees. Petitioners refusal to pay was not due to a willful and dishonest refusal to comply with its obligation but to restrictions imposed by Central Bank Eastern Shipping vs CA Credit Digest Eastern Shipping vs CA GR No. 97412, 12 July 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 consig nees 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 defendants 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. ISSUE (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 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 shll 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. SECURITY BANK AND TRUST COMPANY, petitioner, vs. REGIONAL TRIAL COURT OF MAKATI, BRANCH 61, MAGTANGGOL EUSEBIO and LEILA VENTURA, respondents. DECISION HERMOSISIMA, JR., J.: Questions of law which are the first impression are sought to be resolved in this case: Should the rate of interest on a loan or forbearance of money, goods or credits, as stipulated in a contract, far in excess of the ceiling prescribed under or pursuant to the Usury Law, prevail over Section 2 of Central Bank Circular No. 905 which prescribes that the rate of interest thereof shall continue to be 12% per annum? Do the Courts have the discretion to arbitrarily override stipulated interest rates of promissory notes and stipulated interest rates of promissory notes and thereby impose a 12% interest on the loans, in the absence of evidence justifying the impositions of a higher rate? This is a petition for review on certiorari for the purpose of assailing the decision of Honorable Judge Fernando V. Gorospe of the Regional Trial Court of Makati, Branch 61, dated March 30, 1993, which found private respondent Eusebio liable to petitioner for a sum of money. Interest was lowered by the court a quo from 23% per annum as agreed upon by the parties to 12% per annum. The undisputed facts are as follows: On April 27, 1983, private respondent Magtanggol Eusebio executed Promissory Note No. TL/74/178/83 in favor of petitioner Security Bank and Trust Co. (SBTC) in the total amount of One Hundred Thousand Pesos (P100,000.00) payable in six monthly installments with a stipulated interest of 23% per annum up to the fifth installments.[1] On July 28, 1983, respondent Eusebio again executed Promissory note No TL/74/1296/83 in favor of petitioner SBTC. Respondent bound himself to pay the sum of One Hundred Thousand Pesos (P100.000.00) in six (6) monthly installments plus 23% interest per annum.[2] Finally, another Promissory Note No. TL74/1491/83 was executed on August 31, 1983 in the amount of Sixty Five Thousand Pesos (P65,000.00). Respondent agreed to pay this note in six (6) monthly installments plus interest at the rate of 23% per annum.[3] On all the abovementioned notes, private respondents Leila Ventura had signed as co-maker.[4] Upon maturity which fell on the different dates below, the principal balance remaining on the notes stood at: 1) PN No. TL/74/748/83 P16,665.00 as of September 1983. 2) PN No. TL/74/1296/83 P83,333.00 as of August 1983 3) PN No. TL/74/1991/83 P65,000.00 as of August 1983. Upon the failure and refusal of respondent Eusebio to pay the aforestated balance payable, a collectible case was filed in court by petitioner SBTC.[5] On March 30, 1993, the court a quo rendered a judgment in favor of petitioner SBTC, the dispositive portion which reads: WHEREFORE, premises above-considered, and plaintiffs claim having been duly proven, judgment is hereby rendered in favor of plaintiff and as against defendant Eusebio who is hereby ordered to: 1. Pay the sum of P16,665.00, plus interest of 12% per annum starting 27 September 1983, until fully paid; 2. Pay the sum of P83,333.00, plus interest of 12% per annum starting 28 August 1983, until fully paid; 3. Pay the sum of P65,000.00, plus interest of 12% per annum starting 31 August 1983, until fully paid; 4. Pay the sum equivalent to 20% of the total amount due and payable to plaintiff as and by way of attorneys fees; and to 5. Pay the cost of this suit. SO ORDERED.[6] On August 6, 1993, a motion for partial reconsideration was filed by petitioner SBTC contending that: (1) the interest rate agreed upon by the parties during the signing of the promissory notes was 23% per annum;

(2) the interests awarded should be compounded quarterly from due date as provided in three (3) promissory notes; (3) defendant Leila Ventura should likewise be held liable to pay the balance on the promissory notes since she has signed as co-maker and as such, is liable jointly and severally with defendant Eusebio without a need for demand upon her.[7] Consequently, an Order was issued by the court a quo denying the motion to grant the rates of interest beyond 12% per annum; and holding defendant Leila Ventura jointly and severally liable with co-defendant Eusebio. Hence, this petition. The sole issue to be settled in this petition is whether or not the 23% rate of interest per annum agreed upon by petitioner bank and respondents is allowable and not against the Usury Law. We find merit in this petition. From the examination of the records, it appears that indeed the agreed rate of interest as stipulated on the three (3) promissory notes is 23% per annum.[8] The applicable provision of law is the Central Bank Circular No. 905 which took effect on December 22, 1982, particularly Sections 1 and 2 which state:[9] Sec. 1. 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 judicial, shall not be subject to any ceiling prescribed under or pursuant to the Usury Law, as amended. Sec. 2. 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 express contract as to such rate of interest, shall continue to be twelve per cent (12%) per annum. CB Circular 905 was issued by the Central Banks Monetary Board pursuant to P.D. 1684 empowering them to prescribe the maximum rates of interest for loans and certain forbearances, to wit: SECTION 1. Section 1-a of Act No. 2655, as amended, is hereby amended to read as follows: SEC. 1-a The Monetary Board is hereby authorized to prescribed the maximum rate or rates of interest for the loan or renewal thereof or the forbearance of any money, goods or credits, and to change such rate or rates whenever warranted by prevailing economic and social conditions: Provided, That changes in such rates or rates may be effected gradually on scheduled dates announced in advance. In the exercise of the authority herein granted, the Monetary Board may prescribed higher maximum rates for loans of low priority, such as consumer loans or renewals thereof as well as such loans made by pawnshops, finance companies and other similar credit institutions although the rates prescribed for these institutions need not necessarily be uniform. The Monetary Board is also authorized to prescribed different maximum rate or rates for different types of borrowings, including deposits and deposit substitutes, or loans of financial intermediaries.[10] This court has ruled in the case of Philippine National Bank v. Court of Appeals[11] that: 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. All the promissory notes were signed in 1983 and, therefore, were already covered by CB Circular No. 905. Contrary to the claim of respondent court, this circular did not repeal nor in anyway amend the Usury Law but simply suspended the latters effectivity. Basic is the rule of statutory construction that when the law is clear and unambiguous, the court is left with no alternative but to apply the same according to its clear language. As we have held in the case of Quijano v. Development Bank of the Philippines:[12] xxx We cannot see any room for interpretation or construction in the clear and unambiguous language of the above-quoted provision of law. This Court had steadfastly adhered to the doctrine that its first and fundamental duty is the application of the law according to its express terms, interpretation being called for only when such literal application is impossible. No process of interpretation or construction need be resorted to where a provision of law peremptorily calls for application. Where a requirement or condition is made in explicit and unambiguous terms, no discretion is left to the judiciary. It must see to it that its mandate is obeyed. The rate of interest was agreed upon by the parties freely. Significantly, respondent did not question that rate. It is not for respondent court a quo to change the stipulations in the contract where it is not illegal. Furthermore, Article 1306 of the New Civil code provides that 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. We find no valid reason for the respondent court a quo to impose a 12% rate of interest on the principal balance owing to petitioner by respondent in the presence of a valid stipulation. In a loan or forbearance of money, the interest due should be that stipulated in writing, and in the absence thereof, the rate shall be 12% per annum.[13] Hence, only in the absence of a stipulation can the court impose the 12% rate of interest. The promissory notes were signed by both parties voluntarily. Therefore, stipulations therein are binding between them. Respondent Eusebio, likewise, did not question any of the stipulations therein. In fact, in the Comment file by respondent Eusebio to this court, he chose not to question the decision and instead expressed his desire to negotiate with the petitioner bank for terms within which to settle his obligation.[14] IN VIEW OF THE FOREGOING, the decision of the respondent court a quo, is hereby AFFIRMED with the MODIFICATION that the rate of interest that should be imposed be 23% per annum. SO ORDERED. LETICIA Y. MEDEL DR. RAFAEL MEDEL and SERVANDO FRANCO, petitioners, vs. COURT OF APPEALS, SPOUSES VERONICA R. GONZALES and DANILO G. GONZALES, JR., doing lending business under the trade name and style "GONZALES CREDIT ENTERPRISES", respondents. DECISION PARDO, J.: The case before the Court is a petition for review on certiorari, under Rule 45 of the Revised Rules of Court, seeking to set aside the decision of the Court of Appeals,[1] and its resolution denying reconsideration,[2] the dispositive portion of which decision reads as follows: "WHEREFORE, the appealed judgment is hereby MODIFIED such that defendants are hereby ordered to pay the plaintiff: the sum of P500,000.00, plus 5.5% per month interest and 2% service charge per annum effective July 23, 1986, plus 1% per month of the total amount due and demandable as penalty charges effective August 23, 1986, until the entire amount is fully paid. "The award to the plaintiff of P50,000.00 as attorney's fees is affirmed. And so is the imposition of costs against the defendants. SO ORDERED."[3] The Court required the respondents to comment on the petition,[4] which was filed on April 3, 1998,[5] and the petitioners to reply thereto, which was filed on May 29, 1998.[6] We now resolve to give due course to the petition and decide the case. The facts of the case, as found by the Court of Appeals in its decision, which are considered binding and conclusive on the parties herein, as the appeal is limited to questions of law, are as follows: On November 7, 1985, Servando Franco and Leticia Medel (hereafter Servando and Leticia) obtained a loan from Veronica R. Gonzales (hereafter Veronica), who was engaged in the money lending business under the name "Gonzales Credit Enterprises", in the amount of P50,000.00, payable in two months. Veronica gave only the amount of P47,000.00, to the borrowers, as she retained P3,000.00, as advance interest for one month at 6% per month. Servado and Leticia executed a promissory note for P50,000.00, to evidence the loan, payable on January 7, 1986. On November 19, 1985, Servando and Leticia obtained from Veronica another loan in the amount of P90,000.00, payable in two months, at 6% interest per month. They executed a promissory note to evidence the loan, maturing on January 19, 1986. They received only P84,000.00, out of the proceeds of the loan. On maturity of the two promissory notes, the borrowers failed to pay the indebtedness. On June 11, 1986, Servando and Leticia secured from Veronica still another loan in the amount of P300,000.00, maturing in one month, secured by a real estate mortgage over a property belonging to Leticia Makalintal Yaptinchay, who issued a special power of attorney in favor of Leticia Medel, authorizing her to execute the mortgage. Servando and Leticia executed a promissory note in favor of Veronica to pay the sum of P300,000.00, after a month, or on July 11, 1986. However, only the sum of P275,000.00, was given to them out of the proceeds of the loan. Like the previous loans, Servando and Medel failed to pay the third loan on maturity. On July 23, 1986, Servando and Leticia with the latter's husband, Dr. Rafael Medel, consolidated all their previous unpaid loans totaling P440,000.00, and sought from Veronica another loan in the amount of P60,000.00, bringing their indebtedness to a total of P500,000.00, payable on August 23, 1986. The executed a promissory note, reading as follows: "Baliwag, Bulacan July 23, 1986 "Maturity Date August 23, 1986 "P500,000.00 "FOR VALUE RECEIVED, I/WE jointly and severally promise to pay to the order of VERONICA R. GONZALES doing business in the business style of GONZALES CREDIT ENTERPRISES, Filipino, of legal age, married to Danilo G. Gonzales, Jr., of Baliwag Bulacan, the sum of PESOS ........ FIVE HUNDRED THOUSAND ..... (P500,000.00) Philippine Currency with interest thereonat the rate of 5.5 PER CENT per month plus 2% service charge per annum from date hereof until fully paid according to the amortization schedule contained herein. (Underscoring supplied) "Payment will be made in full at the maturity date.

"Should I/WE fail to pay any amortization or portion hereof when due, all the other installments together with all interest accrued shall immediately be due and payable and I/WE hereby agree to pay an additional amount equivalent to one per cent (1%) per month of the amount due and demandable as penalty charges in the form of liquidated damages until fully paid; and the further sum ofTWENTY FIVE PER CENT (25%) thereon in full, without deductions as Attorney's Fee whether actually incurred or not, of the total amount due and demandable, exclusive of costs and judicial or extra judicial expenses. (Underscoring supplied) "I, WE further agree that in the event the present rate of interest on loan is increased by law or the Central Bank of the Philippines, the holder shall have the option to apply and collect the increased interest charges without notice although the original interest have already been collected wholly or partially unless the contrary is required by law. "It is also a special condition of this contract that the parties herein agree that the amount of peso-obligation under this agreement is based on the present value of peso, and if there be any change in the value thereof, due to extraordinary inflation or deflation, or any other cause or reason, then the peso-obligation herein contracted shall be adjusted in accordance with the value of the peso then prevailing at the time of the complete fulfillment of obligation. "Demand and notice of dishonor waived. Holder may accept partial payments and grant renewals of this note or extension of payments, reserving rights against each and all indorsers and all parties to this note. "IN CASE OF JUDICIAL Execution of this obligation, or any part of it, the debtors waive all his/their rights under the provisions of Section 12, Rule 39, of the Revised Rules of Court." On maturity of the loan, the borrowers failed to pay the indebtedness of P500,000.00, plus interests and penalties, evidenced by the above-quoted promissory note. On February 20, 1990, Veronica R. Gonzales, joined by her husband Danilo G. Gonzales, filed with the Regional Trial Court of Bulacan, Branch 16, at Malolos, Bulacan, a complaint for collection of the full amount of the loan including interests and other charges. In his answer to the complaint filed with the trial court on April 5, 1990, defendant Servando alleged that he did not obtain any loan from the plaintiffs; that it was defendants Leticia and Dr. Rafael Medel who borrowed from the plaintiffs the sum of P500,000.00, and actually received the amount and benefited therefrom; that the loan was secured by a real estate mortgage executed in favor of the plaintiffs, and that he (Servando Franco) signed the promissory note only as a witness. In their separate answer filed on April 10,1990, defendants Leticia and Rafael Medel alleged that the loan was the transaction of Leticia Yaptinchay, who executed a mortgage in favor of the plaintiffs over a parcel of real estate situated in San Juan, Batangas; that the interest rate is excessive at 5.5% per month with additional service charge of 2% per annum, and penalty charge of 1% per month; that the stipulation for attorney's fees of 25% ofthe amount due is unconscionable, illegal and excessive, and that substantial payments made were applied to interest, penalties and other charges. After due trial, the lower court declared that the due execution and genuineness of the four promissory notes had been duly proved, and ruled that although the Usury Law had been repealed, the interest charged by the plaintiffs on the loans was unconscionable and "revolting to the conscience". Hence, the trial court applied "the provision of the New [Civil] Code" that the "legal rate of interest for loan or forbearance of money, goods or credit is 12% per annum."[7] Accordingly, on December 9, 1991, the trial court rendered judgment, the dispositive portion of which reads as follows: "WHEREFORE, premises considered, judgment is hereby rendered, as follows: "1. Ordering the defendants Servando Franco and Leticia Medel, jointly and severally, to pay plaintiffs the amount of P47,000.00 plus 12% interest per annum from November 7, 1985 and 1% per month as penalty, until the entire amount is paid in full. "2. Ordering the defendants Servando Franco and Leticia Y. Medel to plaintiffs, jointly and severally the amount of P84,000.00 with 12% interest per annum and 1% per cent per month as penalty from November 19,1985 until the whole amount is fully paid; "3. Ordering the defendants to pay the plaintiffs, jointly and severally, the amount of P285,000.00 plus 12% interest per annum and 1% per month as penalty from July 11, 1986, until the whole amount is fully paid; "4. Ordering the defendants to pay plaintiffs, jointly and severally, the amount of P50,000.00 as attorney's fees; "5. All counterclaims are hereby dismissed. "With costs against the defendants."[8] In due time, both plaintiffs and defendants appealed to the Court of Appeals. In their appeal, plaintiffs-appellants argued that the promissory note, which consolidated all the unpaid loans of the defendants, is the law that governs the parties. They further argued that Circular No. 416 of the Central Bank prescribing the rate of interest for loans or forbearance of money, goods or credit at 12% per annum, applies only in the absence of a stipulation on interest rate, but not when the parties agreed thereon. The Court of Appeals sustained the plaintiffs-appellants' contention. It ruled that "the Usury Law having become 'legally inexistent' with the promulgation by the Central Bank in 1982 of Circular No. 905, the lender and borrower could agree on any interest that may be charged on the loan".[9] The Court of Appeals further held that "the imposition of 'an additional amount equivalent to 1% per month of the amount due and demandable as penalty charges in the form of liquidated damages until fully paid' was allowed by law".[10] Accordingly, on March 21, 1997, the Court of Appeals promulgated it decision reversing that of the Regional Trial Court, disposing as follows: "WHEREFORE, the appealed judgment is hereby MODIFIED such that defendants are hereby ordered to pay the plaintiffs the sum of P500,000.00, plus 5.5% per month interest and 2% service charge per annum effective July 23, 1986, plus 1% per month of the total amount due and demandable as penalty charges effective August 24, 1986, until the entire amount is fully paid. "The award to the plaintiffs of P50,000.00 as attorney's fees is affirmed. And so is the imposition of costs against the defendants. "SO OREDERED."[11] On April 15, 1997, defendants-appellants filed a motion for reconsideration of the said decision. By resolution dated November 25, 1997, the Court of Appeals denied the motion.[12] Hence, defendants interposed the present recourse via petition for review on certiorari.[13] We find the petition meritorious. Basically, the issue revolves on the validity of the interest rate stipulated upon. Thus, the question presented is whether or not the stipulated rate of interest at 5.5% per month on the loan in the sum ofP500,000.00, that plaintiffs extended to the defendants is usurious. In other words, is the Usury Law still effective, or has it been repealed by Central Bank Circular No. 905, adopted on December 22, 1982, pursuant to its powers under P.D. No. 116, as amended by P.D. No. 1684? We agree with petitioners that the stipulated rate of interest at 5.5% per month on the P500,000.00 loan is excessive, iniquitous, unconscionable and exorbitant.13 However, we can not consider the rate "usurious" because this Court has consistently held that Circulr No. 905 of the Central Bank, adopted on December 22, 1982, has expressly removed the interest ceilings prescribed by the Usury Law[14] and that the Usury Law is now "legally inexistent".[15] In Security Bank and Trust Company vs. Regional Trial Court of Makati, Branch 61[16] the Court held that CB Circular No. 905 "did not repeal nor in anyway amend the Usury Law but simply suspended the latter's effectivity." Indeed, we have held that "a Central Bank Circular can not repeal a law. Only a law can repeal another law."[17] In the recent case of Florendo vs. Court of Appeals[18], the Court reiterated the ruling that "by virtue of CB Circular 905, the Usury Law has been rendered ineffective". "Usury has been legally non-existent in our jurisdiction. Interest can now be charged as lender and borrower may agree upon."[19] Nevertheless, we find the interest at 5.5% per month, or 66% per annum, stipulated upon by the parties in the promissory note iniquitous or unconscionable, and, hence, contrary to morals ("contra bonos mores"), if not against the law.[20] The stipulation is void.[21] The courts shall reduce equitably liquidated damages, whether intended as an indemnity or a penalty if they are iniquitous or unconscionable.[22] Consequently, the Court of Appeals erred in upholding the stipulation of the parties. Rather, we agree with the trial court that, under the circumstances, interest at 12% per annum, and an additional 1% a month penalty charge as liquidated damages may be more reasonable. WHEREFORE, the Court hereby REVERSES and SETS ASIDE the decision of the Court of Appeals promulgated on March 21, 1997, and its resolution dated November 25, 1997. Instead, we render judgment REVIVING and AFFIRMING the decision dated December 9, 1991, of the Regional Trial Court of Bulacan, Branch 16, Malolos, Bulacan, in Civil Case No. 134-M-90, involving the same parties. No pronouncement as to costs in this instance SO ORDERED. INVESTORS FINANCE CORPORATION, petitioner, vs. AUTOWORLD SALES CORPORATION, and PIO BARRETTO REALTY DEVELOPMENT CORPORATION, respondents. DECISION BELLOSILLO, J.: INVESTORS FINANCE CORPORATION seeks a review of the Decision of the Court of Appeals which ruled that the financing firm had entered into a usurious loan transaction with Autoworld Sales Corporation, thus entitling the latter to reimbursement of excess interest payments amounting to P2,586,035.44.[1] Petitioner Investors Finance Corporation, then known also as FNCB Finance (now doing business under the name of Citytrust Finance Corporation), is a financing companydoing business with private respondent Autoworld Sales Corporation (AUTOWORLD) since 1975. Anthony Que, president of AUTOWORLD, also held the same position at its affiliate corporation, private respondent Pio Barretto Realty Corporation (BARRETTO). Sometime in August 1980 Anthony Que, in behalf of AUTOWORLD, applied for a direct loan with FNCB. However, since the Usury Law imposed an interest rate ceiling at that time, FNCB informed Anthony Que that it was not engaged in direct lending; consequently, AUTOWORLD's request for loan was denied.

But sometime thereafter, FNCBs Assistant Vice President, Mr. Leoncio Araullo, informed Anthony Que that although it could no t grant direct loans it could extend funds to AUTOWORLD by purchasing any of its outstanding receivables at a discount. After a series of negotiations the parties agreed to execute an Installment Paper Purchase ("IPP") transaction to enable AUTOWORLD to acquire the additional capital it needed. The mechanics of the proposed IPP transaction was (1) First, Pio Barretto (BARRETTO) would execute a Contract to Sell a parcel of land in favor of AUTOWORLD for P12,999,999.60 payable in sixty (60) equal monthly installments of P216,666.66.Consequently, BARRETTO would acquire P12,999,999.60 worth of receivables from AUTOWORLD; (2) FNCB would then purchase the receivables worth P12,999,999.60 from BARRETTO at a discounted value of P6,980,000.00 subject to the condition that such amount would be flowed back to AUTOWORLD; (3) BARRETTO, would in turn, execute a Deed of Assignment (in favor of FNCB) obliging AUTOWORLD to pay the installments of the P12,999,999.60 purchase price directly to FNCB;[2] and (4) Lastly, to secure the payment of the receivables under the Deed of Assignment, BARRETTO would mortgage the property subject of the sale to FNCB. On 17 November 1980 FNCB informed AUTOWORLD that its Executive Committee approved the proposed IPP transaction.[3] The lawyers of FNCB then drafted the contracts needed and furnished Anthony Que with copies thereof.[4] On 9 February 1981 the parties signed three (3) contracts to implement the IPP transaction: (1) Contract to Sell whereby BARRETTO sold a parcel of land to AUTOWORLD, situated in San Miguel, Manila, together with the improvements thereon, covered by TCT No. 129763 for the price ofP12,999,999.60 payable in sixty (60) consecutive and equal monthly installments of P216,666.66. (2) Deed of Assignment whereby BARRETTO assigned and sold in favor of FNCB all its rights, title and interest to all the money and other receivables due from AUTOWORLD under the Contract to Sell, subject to the condition that the assignee (FNCB) has the right of recourse against the assignor (BARRETTO) in the event that the payor (AUTOWORLD) defaulted in the payment of its obligations. (3) Real Estate Mortgage whereby BARRETTO, as assignor, mortgaged the property subject of the Contract to Sell to FNCB as security for payment of its obligation under the Deed of Assignment.[5] After the three (3) contracts were concluded AUTOWORLD started paying the monthly installments to FNCB. On 18 June 1982 AUTOWORLD transacted with FNCB for the second time obtaining a loan of P3,000,000.00 with an effective interest rate of 28% per annum.[6] AUTOWORLD and BARRETTO, as co-makers, then signed a promissory note in favor of FNCB worth P5,604,480.00 payable in sixty (60) consecutive monthly installments of P93,408.00.[7] To secure the promissory note, AUTOWORLD mortgaged a parcel of land located in Sampaloc, Manila, to FNCB.[8] Thereafter, AUTOWORLD began paying the installments. In December 1982, after paying nineteen (19) monthly installments of P216,666.66 on the first transaction (IPP worth P6,980,000.00) and three (3) monthly installments ofP93,408.00 on the second transaction (loan worth P3,000,000.00), AUTOWORLD advised FNCB that it intended to preterminate the two (2) transactions by paying their outstanding balances in full. It then requested FNCB to provide a computation of the remaining balances. FNCB sent AUTOWORLD its computation requiring it to pay a total amount ofP10,026,736.78, where P6,784,551.24 was the amount to settle the first transaction while P3,242,165.54 was the amount to settle the second transaction.[9] On 20 December 1982 AUTOWORLD wrote FNCB that it disagreed with the latters computation of its outstanding balances.[10] On 27 December 1982 FNCB replied that it would only be willing to reconcile its accounting records with AUTOWORLD upon payment of the amounts demanded.[11] Thus, despite its objections, AUTOWORLD reluctantly paid FNCB P10,026,736.78 through its UCPB account.[12] On 5 January 1983 AUTOWORLD asked FNCB for a refund of its overpayments in the total amount of P3,082,021.84.[13] According to AUTOWORLD, it overpaidP2,586,035.44 to settle the first transaction and P418,262.00 to settle the second transaction.[14] The parties attempted to reconcile their accounting figures but the subsequent negotiations broke down prompting AUTOWORLD to file an action before the Regional Trial Court of Makati to annul the Contract to Sell, the Deed of Assignment and the Real Estate Mortgage all dated 9 February 1981. It likewise prayed for the nullification of the Promissory Note dated 18 June 1982 and the Real Estate Mortgage dated 24 June 1982. In its complaint, AUTOWORLD alleged that the aforementioned contracts were only perfected to facilitate a usurious loan and therefore should be annulled. FNCB should refund the amounts of P2,586,035.44 as excess payment for the first transaction and P418,262.00 as excess payment for the second transaction. AUTOWORLD also asked forP500,000.00 as exemplary damages and P100,000.00 as attorneys fees. FNCB argued that the contracts dated 9 February 1981 were not executed to hide a usurious loan. Instead, the parties entered into a legitimate Installment Paper Purchase ("IPP") transaction, or purchase of receivables at a discount, which FNCB could legally engage in as a financing company. With regard to the second transaction, the existence of a usurious interest rate had no bearing on the P3,000,000.00 loan since at the time it was perfected on 18 January 1982 Central Bank Circular No. 871 dated 21 July 1981 had effectively lifted the ceiling rates for loans having a period of more than three hundred sixty-five (365) days. FNCB also prayed for P2,000,000.00 as moral damages andP500,000.00 as attorneys fees. On 18 January 1985 FNCB filed a Third-Party Complaint against BARRETTO based on the Deed of Assignment, which expressly provided that FNCB as assignee had a right of recourse against BARRETTO as assignor in case AUTOWORLD defaulted in its payments.[15] BARRETTO countered that it could not be held liable for AUTOWORLD's alleged default in its payments since the Deed of Assignment, together with the Contract to Sell and theReal Estate Mortgage, was simulated and perfected only to facilitate a usurious loan. It prayed for P1,600,000.00 as damages and P100,000.00 as attorneys fees.[16] On 11 July 1988 the Regional Trial Court of Makati ruled in favor of FNCB declaring that the parties voluntarily and knowingly executed a legitimate "IPP" transaction or the discounting of receivables. AUTOWORLD was not entitled to any reimbursement since it was unable to prove the existence of a usurious loan. On the other hand, it was ordered to pay FNCB P50,000.00 for attorney's fees.[17] The Court of Appeals modified the decision of the trial court and concluded that the IPP transaction, comprising of the three (3) contracts perfected on 9 February 1981, was merely a scheme employed by the parties to disguise a usurious loan. It ordered the annulment of the contracts and required FNCB to reimburse AUTOWORLD P2,586,035.44 as excess interest payments over the 12% ceiling rate. However, with regard to the second transaction, the appellate court ruled that at the time it was executed the ceiling rates imposed by the Usury Law had already been lifted thus allowing the parties to stipulate any rate of interest.[18] The appellate court deleted the award of P50,000.00 as attorney's fees in favor of FNCB explaining that the filing of the complaint against FNCB was exercised in good faith. Hence, this petition of FNCB. We stress at the outset that this petition concerns itself only with the first transaction involving the alleged "IPP" worth P6,980,000.00, which was implemented through the three (3) contracts of 9 February 1981. As to the second transaction, which involves the P3,000,000.00 loan, we agree with the appellate court that it was executed when the ceiling rates of interest had already been removed, hence the parties were free to fix any interest rate. The pivotal issue therefore is whether the three (3) contracts all dated 9 February 1981 were executed to implement a legitimate Installment Paper Purchase (IPP) transaction or merely to conceal a usurious loan. Generally, the courts only need to rely on the face of written contracts to determine the intention of the parties. However, the law will not permit a usurious loan to hide itself behind a legal form. Parol evidence is admissible to show that a written document though legal in form was in fact a device to cover usury. If from a construction of the whole transaction it becomes apparent that there exists a corrupt intention to violate the Usury Law, the courts should and will permit no scheme, however ingenious, to becloud the crime of usury.[19] The following circumstances show that such scheme was indeed employed: First, petitioner claims that it was never a party to the Contract to Sell between AUTOWORLD and BARRETTO.[20] As far as it was concerned, it merely purchased receivables at a discount from BARRETTO as evidenced by the Deed of Assignment dated 9 February 1981. Whether the Contract to Sell was fictitious or not would have no effect on its right to claim the receivables of BARRETTO from AUTOWORLD since the two contracts were entirely separate and distinct from each other. Curiously however, petitioner admitted that its lawyers were the ones who drafted all the three (3) contracts involved[21]which were executed on the same day.[22] Also, petitioner was the one who procured the services of the Asian Appraisal Company to determine the fair market value of the land to be sold way back in September of 1980 or six (6) months prior to the sale.[23] If it were true that petitioner was never privy to the Contract to Sell, then why was it interested in appraising the lot six (6) months prior to the sale? And why did petitioners own lawyers prepare the Contract to Sell? Obviously, petitioner actively participated in the sale to ensure that the appraised lot would serve as adequate collateral for the usurious loan it gave to AUTOWORLD. Second, petitioner insists that the 9 February 1981 transaction was a legitimate IPP transaction where it only bought the receivables of BARRETTO from AUTOWORLD amounting to P12,999,999.60 at a discounted price of P6,980,000.00. However, per instruction of petitioner in its letter to BARRETTO dated 17 November 1980 the whole purchase price of the receivables was to be "flowed back" to AUTOWORLD.[24] And in its subsequent letter of 24 February 1981 petitioner also gave instructions on how BARRETTO should apply the proceeds worth P6,980,000.00, thus Gentlemen: This serves to inform you of the various application of the proceeds (P6,980,000.00) of your real estate transaction per your authorization/letter dated 2.10.81: 1. P1,937,884.20 - Paid to Paramount Finance Corp. on Feb 16, 1981, inclusive of P2.00 SC for Managers Check. 2. P111,818.87 - Paid to Agcaoili and Associates of Feb. 16, 1981 inclusive of P2.00 SC for Managers Check for the preparation of documents, legal review , registration and transfer of ownership. 3. P3,179,700.00 - Paid to FNCB Finance on Feb. 20, 1981 for full payment of DB transaction (Account No. 06156) 4 P3,108.40 - Payment for the appraisal fee conducted by the Asian Appraisal Company. Inc.

5. P100.00 - Payment for the title search fee conducted by Agcaoili and Associates. 6. P2,500.00 - Payment for legal and professional fee (Agcaoili and Associates) 7. P638,601.60 - Payment to FNCB Finance for the partial payment of DB transaction (Account No. 40150 - sold units) 8. P122,640.00 - Payment to FNCB Finance for the partial payment of DB transaction (Account No. 406149 - sold units) 9. P983,646.93 - Balance after application, Payable to Pio Barreto Dev. Inc. P6,980,000.00 - Total Should you need any clarification on the matter, please do not hesitate to call on the undersigned. Very truly yours, L.V. Araullo, Asst Vice-President[25] It can be seen that out of the nine (9) items of appropriation stated above, Item Nos. 2 - 8 had to be returned to petitioner. Thus, in compliance with the aforesaid letter, BARRETTO had to yield P4,058,468.47 of the P6,980,000.00 to petitioner to settle some of AUTOWORLD's previous debts to it.[26] Any remaining amount after the application of the proceeds would then be surrendered to AUTOWORLD in compliance with the letter of 17 November 1980; none went to BARRETTO. The foregoing circumstances confirm that the P6,980,000.00 was really an indirect loan extended to AUTOWORLD so that it could settle its previous debts to petitioner. Had petitioner entered into a legitimate purchase of receivables, then BARRETTO, as seller, would have received the whole purchase price, and free to dispose of such proceeds in any manner it wanted. It would not have been obliged to follow the "Application of Proceeds" stated in petitioners letter. Third, in its 17 November 1980 letter to BARRETTO, petitioner itself designated the proceeds of the "IPP" transaction as a loan. [27] In that letter, petitioner stated that the loan proceeds amounting to P6,980,000.00 would be released to BARRETTO only upon submission of the documents it required. And as previously mentioned, one of the required documents was a letter agreement between BARRETTO and AUTOWORLD stipulating that the P6,980,000.00 should be flowed back to AUTOWORLD. If it were a genuine IPP transaction then petitioner would not have designated the money to be released as loan proceeds and BARRETTO would have been the end recipient of such proceeds with no obligation to turn them over to AUTOWORLD. Fourth, after the interest rate ceilings were lifted on 21 July 1981 petitioner extended on 18 June 1982 a direct loan of P3,000,000.00 to AUTOWORLD. This time however, with no more ceiling rates to hinder it, petitioner imposed a 28% effective interest rate on the loan.[28] And no longer having a need to cloak the exorbitant interest rate, the promissory note evidencing the second transaction glaringly bore the 28% interest rate on its face. [29] We are therefore of the impression that had there been no interest rate ceilings in 1981, petitioner would not have resorted to the fictitious IPP transaction; instead, it would have directly loaned the money to AUTOWORLD with an interest rate higher than 12%. Gregorio Anonas, Senior Vice President of petitioner, effectively admitted that it only employed discounting of receivables due to the ceiling rates imposed by the Usury Law. Thus he testified Q: And is it not a fact further that FNCB Finance at the time could not or would not want to extend direct loan because of a ceiling fixed by the Usury Law on interest? A: We havent at that time giving direct loan, it is a discounting business. Q: You mean never have you extended direct loan? A: We did at a certain period of time and then we stopped, we go to discounting business because we transferred to direct loan. Q: After the ceiling was removed, ceiling on interest was removed, you again, FNCB, extended direct loan, correct? A: Yes, sir. Q: Shall we say that the reason why you did not extend direct loan was because you did not want to be confined on the ceiling on interest under Usury Law? A: Probably yes, because as you know the cost, in the operating cost of finance company is extremely different from a bank and we cannot survive, and this normally has been the case. Q: And so, therefore, the only way you could generate more income for your company would be to encourage discounting of receivables? A: That was our business. It is not to generate more income, that is our business. x x x x [30] Thus, although the three (3) contracts seemingly show at face value that petitioner only entered into a legitimate discounting of receivables, the circumstances cited prove that theP6,980,000.00 was really a usurious loan extended to AUTOWORLD. Petitioner anchors its defense on Sec. 7 of the Usury Law which states Provided, finally, That nothing herein contained shall be construed to prevent the purchase by an innocent purchaser of a negotiable mercantile paper, usurious or otherwise, for valuable consideration before maturity, when there has been no intention on the part of said purchaser to evade the provisions of the Act and said purchase was not a part of the original usurious transaction. In any case however, the maker of said note shall have the right to recover from said original holder the whole interest paid by him thereon and, in any case of litigation, also the costs and such attorneys fees as may be allowed by the court. Indeed, the Usury Law recognizes the legitimate purchase of negotiable mercantile paper by innocent purchasers. But even the law has anticipated the potential abuse of such transactions to conceal usurious loans. Thus, the law itself made a qualification. It would recognize legitimate purchase of negotiable mercantile paper, whether usurious or otherwise, only if the purchaser had no intention of evading the provisions of the Usury Law and that the purchase was not a part of the original usurious transaction. Otherwise, the law would not hesitate to annul such contracts. Thus, Art. 1957 of the Civil Code provides Contracts and stipulations, under any cloak or device whatever, intended to circumvent the laws on usury shall be void. The borrower may recover in accordance with the laws on usury. In the case at bar, the attending factors surrounding the execution of the three (3) contracts on 9 February 1981 clearly establish that the parties intended to transact a usuriousloan. These contracts should therefore be declared void. Having declared the transaction between the parties as void, we are now tasked to determine how much reimbursement AUTOWORLD is entitled to. The Court of Appeals, adopting the computation of AUTOWORLD in its plaintiffappellants brief, ruled According to plaintiff-appellant, defendant-appellee was able to collect P3,921,217.78[31] in interests from appellant. This is not denied by the appellee. Computed at 12% the effective interest should have been P1,545,400.00.[32] Hence, appellant may recover P2,586,035.44,[33] representing overpayment arising from usurious interest rate charged by appellee.[34] While we do not dispute the appellate courts finding that the first transaction was a usurious loan, we do not agree with the amount of reimbursement awarded to AUTOWORLD.Indeed, it erred in awarding only the interest paid in excess of the 12% ceiling. In usurious loans, the creditor can always recover the principal debt.[35] However, the stipulation on the interest is considered void thus allowing the debtor to claim the whole interest paid. In a loan of P1,000.00 with interest at 20% per annum or P200.00 per year, if the borrower paysP200.00, the whole P200.00 would be considered usurious interest, not just the portion thereof in excess of the interest allowed by law. [36] In the instant case, AUTOWORLD obtained a loan of P6,980,000.00. Thereafter, it paid nineteen (19) consecutive installments of P216,666.66 amounting to a total ofP4,116,666.54, and further paid a balance of P6,784,551.24 to settle it. All in all, it paid the aggregate amount of P10,901,217.78 for a debt of P6,980,000.00. For the 23-month period of the existence of the loan covering the period February 1981 to January 1982, AUTOWORLD paid a total of P3,921,217.78 in interests.[37] Applying the 12% interest ceiling rate mandated by the Usury Law, AUTOWORLD should have only paid a total of P1,605,400.00 in interests.[38] Hence, AUTOWORLD is entitled to recover the whole usurious interest amounting to P3, 921,217.78. We are not unaware of Sanchez v. Buenviaje[39] where the Court allowed the usurer to recover legal interest on the principal amount loaned. But such interest arose from the debtors delay in paying the principal from the time of the creditors demand. That is the reason why legal interest was counted only from the time the creditor filed his complaint for the recovery of a debt. In this case however, the debtor was never in delay. As a matter of fact, AUTOWORLD paid the principal of P6,980,000.00 and the whole usurious interest ofP3,921,217.88 upon petitioners insistent demand. Thus, the case of Sanchez v. Buenviaje herein cited will not apply to petitioner and it will not be entitled to legal interest on the amount of the principal loan. Under Sec. 6 of the Usury Law, AUTOWORLD is also entitled to reasonable attorneys fees and costs SEC. 6. Any person or corporation who, for any such loan or renewal thereof or forbearance, shall have paid or delivered a higher rate or greater sum or value than is hereinbefore allowed, to be taken or received, may recover the whole interest, commission, premiums, penalties and surcharges paid or delivered with costs and attorneys fees in such sum as may be allowed by the court in an action against a person or corporation who took or received them if such action is brought within two years after such payment or delivery (emphasis ours). Although the Court has discretion to fix the amount of attorney's fees, it has no discretion to deny it altogether. Thus, in Delgado v. Valgona,[40] we held When the right of action to recover interest paid upon a usurious contract is established, a reasonable attorneys fee should be allowed as a matter of course, the same as costs are awarded. The purpose of the law is to encourage persons who have suffered from contracts of this character to come into court and vindicate their rights, and the imposition upon the usurer of the obligation to pay attorneys fee will serve at once as an encouragement to the oppressed and as a wholesome deterrent to the taking of usurious interests. Quite obviously, Anthony Que, the President of AUTOWORLD, actively and knowingly participated in the execution of the usurious loan transaction. As a seasoned businessman he must have been aware of the consequences of his business dealings. But, although we find his actions extremely reprehensible, we must abide by the principle laid down in Go Chioco v. Martinez[41] where we held that the pari delicto rule does not apply to usury cases which entitle the borrower to recover the whole interest paid; otherwise, the avowed policy of discouraging usurious transactions would not be served, for the mere invocation of the pari delicto rule would allow the usurer to reap the benefits of his unlawful act.

WHEREFORE, the assailed Decision of the Court of Appeals dated 24 May 1996 declaring the 9 February 1981 transaction as a usurious loan is AFFIRMED, subject to the MODIFICATION that petitioner Investors Finance Corporation is ordered to pay private respondent Autoworld Sales Corporation the amount of P3,921,217.78 representing the entire usurious interest it paid on the 9 February 1981 loan, as well as P50,000.00 as attorney's fees and the costs. SO ORDERED. CORAZON G. RUIZ, petitioner, vs. COURT OF APPEALS and CONSUELO TORRES, respondents. DECISION PUNO, J.: On appeal is the decision[1] of the Court of Appeals in CA-G.R. CV No. 56621 dated 25 August 2000, setting aside the decision [2] of the trial court dated 19 May 1997 and lifting the permanent injunction on the foreclosure sale of the subject lot covered by TCT No. RT-96686, as well as its subsequent Resolution[3] dated 26 January 2001, denying petitioners Motion for Reconsideration. The facts of the case are as follows: Petitioner Corazon G. Ruiz is engaged in the business of buying and selling jewelry. [4] She obtained loans from private respondent Consuelo Torres on different occasions, in the following amounts: P100,000.00; P200,000.00; P300,000.00; and P150,000.00.[5] Prior to their maturity, the loans were consolidated under one (1) promissory note dated March 22, 1995, which reads as follows: [6] P750,000.00 Quezon City, March 22, 1995 PROMISSORY NOTE For value received, I, CORAZON RUIZ, as principal and ROGELIO RUIZ as surety in solidum, jointly and severally promise to pay to the order of CONSUELO P. TORRES the sum of SEVEN HUNDRED FIFTY THOUSAND PESOS (P750,000.00) Philippine Currency, to earn an interest at the rate of three per cent (3%) a month, for thirteen months, payable every _____ of the month, and to start on April 1995 and to mature on April 1996, subject to renewal. If the amount due is not paid on date due, a SURCHARGE of ONE PERCENT of the principal loan, for every month default, shall be collected. Remaining balance as of the maturity date shall earn an interest at the rate of ten percent a month, compounded monthly. It is finally agreed that the principal and surety in solidum, shall pay attorneys fees at the rate of twenty -five percent (25%) of the entire amount to be collected, in case this note is not paid according to the terms and conditions set forth, and same is referred to a lawyer for collection. In computing the interest and surcharge, a fraction of the month shall be considered one full month. In the event of an amicable settlement, the principal and surety in solidum shall reimburse the expenses of the plaintiff. (Sgd.) Corazon Ruiz Principal __________________ Surety

The consolidated loan of P750,000.00 was secured by a real estate mortgage on a 240-square meter lot in New Haven Village, Novaliches, Quezon City, covered by Transfer Certificate of Title (TCT) No. RT-96686, and registered in the name of petitioner.[7] The mortgage was signed by Corazon Ruiz for herself and as attorney-in-fact of her husband Rogelio. It was executed on 20 March 1995, or two (2) days before the execution of the subject promissory note.[8] Thereafter, petitioner obtained three (3) more loans from private respondent, under the following promissory notes: (1) promissory note dated 21 April 1995, in the amount ofP100,000.00;[9] (2) promissory note dated May 23, 1995, in the amount of P100,000.00;[10] and (3) promissory note dated December 21, 1995, in the amount of P100,000.00.[11]These combined loans of P300,000.00 were secured by P571,000.00 worth of jewelry pledged by petitioner to private respondent.[12] From April 1995 to March 1996, petitioner paid the stipulated 3% monthly interest on the P750,000.00 loan,[13] amounting to P270,000.00.[14] After March 1996, petitioner was unable to make interest payments as she had difficulties collecting from her clients in her jewelry business.[15] Due to petitioners failure to pay the principal loan of P750,000.00, as well as the interest payment for April 1996, private respondent demanded payment not only of theP750,000.00 loan, but also of the P300,000.00 loan.[16] When petitioner failed to pay, private respondent sought the extra-judicial foreclosure of the aforementioned real estate mortgage. [17] On September 5, 1996, Acting Clerk of Court and Ex-Officio Sheriff Perlita V. Ele, Deputy Sheriff In-Charge Rolando G. Acal and Supervising Sheriff Silverio P. Bernas issued a Notice of Sheriffs Sale of subject lot. The public auction was scheduled on October 8, 1996. [18] On October 7, 1996, one (1) day before the scheduled auction sale, petitioner filed a complaint with the RTC of Quezon City docketed as Civil Case No. Q-96-29024, with a prayer for the issuance of a Temporary Restraining Order to enjoin the sheriff from proceeding with the foreclosure sale and to fix her indebtedness to private respondent toP706,000.00. The computed amount of P706,000.00 was based on the aggregate loan of P750,000.00, covered by the March 22, 1995 promissory note, plus the other loans ofP300,000.00, covered by separate promissory notes, plus interest, minus P571,000.00 representing the amount of jewelry pledged in favor of private respondent.[19] The trial court granted the prayer for the issuance of a Temporary Restraining Order,[20] and on 29 October 1996, issued a writ of preliminary injunction.[21] In its Decision dated May 19, 1997, it ordered the Clerk of Court and Ex-Officio Sheriff to desist with the foreclosure sale of the subject property, and it made permanent the writ of preliminary injunction. It held that the real estate mortgage is unenforceable because of the lack of the participation and signature of petitioners husband. It noted that although the subject real estate mortgage stated that petitioner was attorney-in-fact for herself and her husband, the Special Power of Attorney was never presented in court during the trial. [22] The trial court further held that the promissory note in question is a unilateral contract of adhesion drafted by private respondent. It struck down the contract as repugnant to public policy because it was imposed by a dominant bargaining party (private respondent) on a weaker party (petitioner).[23] Nevertheless, it held that petitioner still has an obligation to pay the private respondent. Private respondent was further barred from imposing on petitioner the obligation to pay the surcharge of one percent (1%) per month from March 1996 onwards, and interest of ten percent (10%) a month, compounded monthly from September 1996 to January 1997. Petitioner was thus ordered to pay the amount of P750,000.00 plus three percent (3%) interest per month, or a total of P885,000.00, plus legal interest from date of [receipt of] the decision until the total amount of P885,000.00 is paid.[24] Aside from the foregoing, the trial court took into account petitioners proposal to pay her other obligations to private res pondent in the amount of P392,000.00.[25]

The trial court also recognized the expenses borne by private respondent with regard the foreclosure sale and attorneys fees . As the notice of the foreclosure sale has already been published, it ordered the petitioner to reimburse private respondent the amount of P15,000.00 plus attorneys fees of the same amount.[26] Thus, the trial court computed petitioners obligation to private respondent, as follows: Principal Loan . P 750,000.00 Interest.. 135,000.00 Other Loans..392,000.00 Publication Fees.15,000.00 Attorneys Fees 15,000.00

TOTAL P1,307,000.00 with legal interest from date of receipt of decision until payment of total amount of P1,307,000.00 has been made.[27] Private respondents motion for reconsideration was denied in an Order dated July 21, 1997. Private respondent appealed to the Court of Appeals. The appellate court set aside the decision of the trial court. It ruled that the real estate mortgage is valid despite the non-participation of petitioners husband in its execution because the land on which it was constituted is paraphernal property of petitioner-wife. Consequently, she may encumber the lot without the consent of her husband. [28] It allowed its foreclosure since the loan it secured was not paid. Nonetheless, the appellate court declared as invalid the 10% compounded monthly interest [29] and the 10% surcharge per month stipulated in the promissory notes dated May 23, 1995 and December 1, 1995, [30] and so too the 1% compounded monthly interest stipulated in the promissory note dated 21 April 1995,[31] for being excessive, iniquitous, unconscionable, and contrary to morals. It held that the legal rate of interest of 12% per annum shall apply after the maturity dates of the notes until full payment of the entire amount due, and that the only permissible rate of surcharge is 1% per month, without compounding.[32] The appellate court also granted attorneys fees in the amount of P50,000.00, and not the stipulated 25% of the amount due, following the ruling in the case of Medel v. Court of Appeals.[33] Now, before this Court, petitioner assigns the following errors: (1) PUBLIC RESPONDENT COURT OF APPEALS GRAVELY ERRED IN RULING THAT THE PROMISSORY NOTE OF P750,000.00 IS NOT A CONTRACT OF ADHESION DESPITE THE CLEAR SHOWING THAT THE SAME IS A READY-MADE CONTRACT PREPARED BY (THE) RESPONDENT CONSUELO TORRES AND DID NOT REFLECT THEIR TRUE INTENTIONS AS IT WEIGHED HEAVILY IN FAVOR OF RESPONDENT AND AGAINST PETITIONER. (2) PUBLIC RESPONDENT COURT OF APPEALS GRAVELY ERRED IN DECLARING THAT THE PROPERTY COVERED BY THE SUBJECT DEED OF MORTGAGE OF MARCH 20, 1995 IS A PARAPHERNAL PROPERTY OF THE PETITIONER AND NOT CONJUGAL EVEN THOUGH THE ISSUE OF WHETHER OR NOT THE MORTGAGED PROPERTY IS PARAPHERNAL WAS NEVER RAISED, NOR DISCUSSED AND ARGUED BEFORE THE TRIAL COURT. (3) PUBLIC RESPONDENT COURT OF APPEALS GRAVELY ERRED IN DISREGARDING THE TRIAL COURTS COMPUTATION OF THE ACTUAL OBLIGATIONS OF THE PETITIONER WITH (THE) RESPONDENT TORRES EVEN THOUGH THE SAME IS BASED ON EVIDENCE SUBMITTED BEFORE IT. The pertinent issues to be resolved are: (1) Whether the promissory note of P750,000.00 is a contract of adhesion; (2) Whether the real property covered by the subject deed of mortgage dated March 20, 1995 is paraphernal property of petitioner; and (3) Whether the rates of interests and surcharges on the obligation of petitioner to private respondent are valid. III We now resolve the issue of whether the rates of interests and surcharges on the obligation of petitioner to private respondent are legal. The four (4) unpaid promissory notes executed by petitioner in favor of private respondent are in the following amounts and maturity dates: (1) P750,000.00, dated March 22, 1995 matured on April 21, 1996; (2) P100,000.00, dated April 21, 1995 matured on August 21, 1995; (3) P100,000.00, dated May 23, 1995 matured on November 23, 1995; and (4) P100,000.00, dated December 21, 1995 matured on March 1, 1996. The P750,000.00 promissory note dated March 22, 1995 has the following provisions: (1) 3% monthly interest, from the signing of the note until its maturity date; (2) 10% compounded monthly interest on the remaining balance at maturity date; (3) 1% surcharge on the principal loan for every month of default; and (4) 25% attorneys fees. The P100,000.00 promissory note dated April 21, 1995 has the following provisions: (1) 3% monthly interest, from the signing of the note until its maturity date; (2) 10% monthly interest on the remaining balance at maturity date; (3) 1% compounded monthly surcharge on the principal loan for every month of default; and (4) 10% attorneys fees. The two (2) other P100,000.00 promissory notes dated May 23, 1995 and December 1, 1995 have the following provisions: (1) 3% monthly interest, from the signing of the note until its maturity date;

(2) 10% compounded monthly interest on the remaining balance at maturity date; (3) 10% surcharge on the principal loan for every month of default; and (4) 10% attorneys fees. We affirm the ruling of the appellate court, striking down as invalid the 10% compounded monthly interest, the 10% surcharge per month stipulated in the promissory notes dated May 23, 1995 and December 1, 1995, and the 1% compounded monthly interest stipulated in the promissory note dated April 21, 1995. The legal rate of interest of 12% per annum shall apply after the maturity dates of the notes until full payment of the entire amount due. Also, the only permissible rate of surcharge is 1% per month, without compounding. We also uphold the award of the appellate court of attorneys fees, the amount of which having been reasonably reduced from the stipulated 25% (in the March 22, 1995 promissory note) and 10% (in the other three promissory notes) of the entire amount due, to a fixed amount of P50,000.00. However, we equitably reduce the 3% per month or 36% per annum interest present in all four (4) promissory notes to 1% per month or 12% per annum interest. The foregoing rates of interests and surcharges are in accord with Medel vs. Court of Appeals,[47] Garcia vs. Court of Appeals,[48] Bautista vs. Pilar Development Corporation,[49] and the recent case of Spouses Solangon vs. Salazar.[50] This Court invalidated a stipulated 5.5% per month or 66% per annum interest on a P500,000.00 loan in Medel[51] and a 6% per month or 72% per annum interest on a P60,000.00 loan in Solangon[52] for being excessive, iniquitous, unconscionable and exorbitant. In both cases, we reduced the interest rate to 12% per annum. We held that while the Usury Law has been suspended by Central Bank Circular No. 905, s. 1982, effective on January 1, 1983, and parties to a loan agreement have been given wide latitude to agree on any interest rate, still stipulated interest rates are illegal if they are unconscionable. Nothing in the said circular grants lenders carte blanche authority to raise interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging of their assets. [53] On the other hand, inBautista vs. Pilar Development Corp.,[54] this Court upheld the validity of a 21% per annum interest on a P142,326.43 loan, and in Garcia vs. Court of Appeals, sustained the agreement of the parties to a 24% per annum interest on an P8,649,250.00 loan. It is on the basis of these cases that we reduce the 36% per annum interest to 12%. An interest of 12% per annum is deemed fair and reasonable. While it is true that this Court invalidated a much higher interest rate of 66% per annum in Medel[55] and 72% in Solangon[56] it has sustained the validity of a much lower interest rate of 21% in Bautista[57] and 24% in Garcia.[58] We still find the 36% per annum interest rate in the case at bar to be substantially greater than those upheld by this Court in the two (2) aforecited cases. The 1% surcharge on the principal loan for every month of default is valid. This surcharge or penalty stipulated in a loan agreement in case of default partakes of the nature of liquidated damages under Art. 2227 of the New Civil Code, and is separate and distinct from interest payment.[59] Also referred to as a penalty clause, it is expressly recognized by law. It is an accessory undertaking to assume greater liability on the part of an obligor in case of breach of an obligation.[60] The obligor would then be bound to pay the stipulated amount of indemnity without the necessity of proof on the existence and on the measure of damages caused by the breach. [61] Although the courts may not at liberty ignore the freedom of the parties to agree on such terms and conditions as they see fit that contravene neither law nor morals, good customs, public order or public policy, a stipulated penalty, nevertheless, may be equitably reduced if it is iniquitous or unconscionable.[62] In the instant case, the 10% surcharge per month stipulated in the promissory notes dated May 23, 1995 and December 1, 1995 was properly reduced by the appellate court. In sum, petitioner shall pay private respondent the following: 1. Principal of loan under promissory note dated March 22, 1995 ... P750,000.00 a. 1% interest per month on principal from March 22, 1995 until fully paid, less P270,000.00 paid by petitioner as interest from April 1995 to March 1996 1% surcharge per month on principal from May 1996 until fully paid

b.

2. Principal of loan under promissory note dated April 21, 1995 .. P100,000.00 a. b. 1% interest per month on principal from April 21, 1995 until fully paid 1% surcharge per month on principal from September 1995 until fully paid

3. Principal of loan under promissory note dated May 23, 1995 .... P100,000.00 a. b. 1% interest per month on principal from May 23, 1995 until fully paid 1% surcharge per month on principal from December 1995 until fully paid

4. Principal of loan under promissory note dated December 1, 1995 ... P100,000.00 a. b. 1% interest per month on principal from December 1, 1995 until fully paid 1% surcharge per month on principal from April 1996 until fully paid

5. Attorneys fees...P 50,000.00 Hence, since the mortgage is valid and the loan it secures remains unpaid, the foreclosure proceedings may now proceed. IN VIEW WHEREOF, the appealed Decision of the Court of Appeals is AFFIRMED, subject to the MODIFICATION that the interest rate of 36% per annum is ordered reduced to 12 % per annum. SO ORDERED. Panganiban, Sandoval-Gutierrez, Corona, and Carpio-Morales, JJ., concur.

Macalalag vs. People of the Philippines December 20, 2006 Facts: Petitioner Theresa Macalalag obtained loans from Grace Estrella on 2 separate occasions, each in amount of P100,000.00 , bearing an interest of 10% per month. She consistetntly paid the interest , however finding the interest rates so burdensome, Macalalag requested Estrella for reduction of the same to which the latter agreed. Subsequently, Macalalag executed an affirmation receipt promising to pay Estrella the value of the loans in the amount of P200,000.00 within 2 months from date of its execution plus 6% interest per month for each loan. As security for the payment of the aforesaid loans, Macalalag issued 2 PNB checks, each amounting to P100,000.00 in favor of Estrella. But said check were dishonored , for reason that the account to which it is drawn was already closed. Estrella sent notice of dishonor and demand to make good said checks to Macalalag, but the latter failed to do so. Hence Estrella filed 2 criminal complaint against Macalalag for violation of BP 22. Macalalag pleaded not guilty and stated that she already made payments over and above the value of the said checks amounting to P355,837.98. Estrella admitted such payment but claimed that the same amount was applied to the payment of the interest. Trial Court found her guilty as well as the Court of Appeals with modification that she is liable only for 1 count of BP 22. Issue: WON Macalalag had already paid her obligations to Estrella Held: In the Instant case, it has been established that Macalalg made a total payment of P355,837.00( P156,000 paid in 1996 and P199, 837.98 paid in 1997). Hence, the amount of 156,000 already paid by Macalalag to Estrella could very well be applied to the face value of the first loan, thus Macalalag can no longer be held liable for violation of BP 22 in so far as the first check is concerned. With respect to the second check, there is no doubt that Macalalag is liable under BP 22, since the check he represented for payment bounced for reason account closed. Hence her obligation to Estrella was not fully paid.

Spouses Adelina and Feliciano Cuyco vs. Spouses Renato and Filipina Cuyco G.R. No. 168736; April 19, 2006 Justice Ynares-Santiago Facts: 1. 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 2. Subsequently, petitioners obtained additional loans from the respondents in the aggregate amount of P1,250,000.00. 3. Petitioners made payments amounting to P291,700.00, but failed to settle their outstanding loan obligations. 4. On September 10, 1997, respondents filed a complaint for foreclosure of mortgage with the RTC of Quezon City. They alleged that petitioners loans were secured by the real estate mortgage; that as of August 31, 1997, their indebtedness amounted to P6,967,241.14, inclusive of the 18% interest compounded monthly; and that petitioners refusal to settle the same entitles the respondents to foreclose the real estate mortgage. 5. Petitioners filed a motion to dismiss on the ground that the complaint states no cause of action which was denied by the RTC for lack of merit. 6. In their answer, petitioners admitted their loan obligations but argued that only the original loan of P1,500,000.00 was secured by the real estate mortgage at 18% per annum and that there was no agreement that the same will be compounded monthly. 7. The RTC rendered judgment in favor of the respondents. 8. Petitioners appealed to the CA reiterating their previous claim that only the amount of P1,500,000.00 was secured by the real estate mortgage. They also contended that the RTC erred in ordering the foreclosure of the real estate mortgage to satisfy the total indebtedness of P6,532,019.84, as of January 10, 1999, plus interest until fully paid, and in imposing legal interest of 12% per annum on the stipulated interest of 18% from the filing of the case until fully paid. 9. CA partially granted the petition and modified the RTC decision insofar as the amount of the loan obligations secured by the real estate mortgage. It held that by express intention of the parties, the real estate mortgage secured the original P1,500,000.00 loan and the subsequent loans of P150,000.00 and P500,000.00 obtained on July 1, 1992 and September 5, 1992, respectively. As regards the loans obtained on May 31, 1992, October 29, 1992 and January 13, 1993 in the amounts of P150,000.00, P200,000.00 and P250,000.00, respectively, the appellate tribunal held that the parties never intended the same to be secured by the real estate mortgage. The Court of Appeals also found that the trial court properly imposed 12% legal interest on the stipulated interest from the date of filing of the complaint. Issue: Whether or not petitioners must pay respondents legal interest of 12% per annum on the stipulated interest of 18% per annum, computed from the filing of the complaint until fully paid. Ruling:

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 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. The foregoing provision has been incorporated in the comprehensive summary of existing rules on the computation of legal interest enunciated by the Court in Eastern Shipping Lines, Inc. v. Court of Appeals, to wit: 1. When an obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of the Civil Code. 2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged. 3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit. (Emphasis supplied) In the case at bar, the evidence shows that petitioners obtained several loans from the respondent, some of which as held by the CA were secured by real estate mortgage and earned an interest of 18% per annum. Upon default thereof, respondents demanded payment from the petitioners by filing an action for foreclosure of the real estate mortgage. Clearly, the case falls under the rule stated in paragraph 1. Applying the rules in the computation of interest, the principal amount of loans subject of the real estate mortgage must earn the stipulated interest of 18% per annum, which interest, as long as unpaid, also earns legal interest of 12% per annum, computed from the date of the filing of the complaint on September 10, 1997 until finality of the Courts Decision. Such interest is not due to stipulation but due to the mandate of the law as embodied in Article 2212 of the Civil Code. From such date of finality, the total amount due shall earn interest of 12% per annum until satisfied. Certainly, the computed interest from the filing of the complaint on September 10, 1997 would no longer be true upon the finality of this Courts decision. In accordance with the rules laid down in Eastern Shipping Lines, Inc. v. Court of Appeals , we derive the following formula for the RTCs guidance: TOTAL AMOUNT DUE = [principal + interest + interest on interest] - partial payments made Interest = principal x 18 % per annum x no. of years from due date until finality of judgment Interest on interest = Interest computed as of the filing of the complaint (September 10, 1997) x 12% x no. of years until finality of judgment Total amount due as of the date of finality of judgment will earn an interest of 12% per annum until fully paid.