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 decedent’s estate, stated that the 2 bulls have already been returned in 1952, and that the remaining one died of gunshot during a Huk raid. As regards the two bulls, is was proven that they were returned and thus, there is no more obligation on the part of the appellant. As to the bull not returned, Felicidad contends that the obligation is extinguished since the contract is that of a commodatum and that the loss through fortuitous event should be borne by the owner. Issue: Whether, depending on the nature of the contract, the respondent is liable for the death of the bull Held: A contract of commodatum is essentially gratuitous. If the breeding fee be considered a compensation, then the contract would be a lease of the bull. Under article 1671 of the Civil Code the lessee would be subject to the responsibilities of a possessor in bad faith, because she had continued possession of the bull after the expiry of the contract. And even if the contract be commodatum, still the appellant is liable, because article 1942 of the Civil Code provides that a bailee in a contract of commodatum . . . 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. ERMITAÑO vs. COURT OF APPEALS G.R. No. 127246, April 21, 1999 The following are the facts of the case: Luis Ermitaño was a BPI Express Card Corporation (BECC) credit cardholder while his wife, Manuelita Ermitaño, was an extension cardholder. On August 29, 1989, Manuelita’s 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 Manuelita’s 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

HEFTI SOLAS (alias HEPTI SOLAS. Hepti Solas se compromete a pagar al Sr. que el Sr. JJ. 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. MORAN.Raul L. (2) that the pledgor be the absolute owner of the thing pledged. Act No. indicates that the true intention of the parties was that no interest should be paid during the period of grace.There are cogent reasons to conclude that the parties intended said deed of assignment to complement the promissory notes. the deed of mortgage fails to express their agreement.: This is an action for foreclosure of mortgage. Defendant-appellee has. the total amount of P700. sus herederos y causahabientes. or up to the date payment is effected? This question is. 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. cannot by the courts be arbitrarily supplied by what their own notions of justice or equity may dictate.) There is nothing in the mortgage deed to show that the terms employed by the parties thereto are at war with their evident intent. la parcela de terreno descrita en el parrafo primero (1. now section 58.On April 6. Jardenil vs Solas Facts: 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. Robles for appellee. GIL JARDENIL.) A writing must be interpreted according to the legal meaning of its language (section 286.000.000.000. Plaintiff is.unauthorized use of his lost or stolen card. IRC and Santos replied that the obligation (loan) of defendant IRC was deemed paid with the irrevocable assignment of the time deposit certificates. Jardenil. without making any mention of any interest which the mortgagor should pay during the additional period (see Exhibit B attached to the complaint). he shall be entitled to legal interest upon the principal and the accrued interest from April 1. 1932 to March 31.00 with interest as well as attorney's fees. Or. Integrated Realty Corporation. However. Santos. and in the absence thereof. orders or decisions of the court or for any other cause whatsoever. Neither has either of the parties shown that. Yulo. Ozaeta and Bocobo. as found by the court a quo and the respondent court. el Sr. Hepti Solas cede y traspasa. moneda filipina.. What reason the parties may have therefor. His omission. C. to which the law attaches a definite warning as an in the instant case. same should be given its full force and effect. Gustilo for appellant. The contract is silent as to whether after the date of maturity. 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. 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. 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: . for if such mistake existed. As the contract is silent as to whether after that date. 190. Jardenil en o antes del dia treintaiuno (31) de marzo de mil novecientos treintaicuarto (1934). The Court cannot give its assent to such a stipulation which could clearly run against public policy. The questioned stipulation in this case. the debtor would continue to pay interest. he cannot be allowed to lay any claim more than what its clear stipulations accord. OBM denied knowledge of the time deposit certificates because the alleged time deposit of Santos 'does not appear' in its books of account. In its answer to the complaint. 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.000 plus interest. or of a third person by common agreement was complied with by the execution of the deed of assignment in favor of PNB.00). Santos made a time deposit with Overseas Bank of the Philippines in the amount of P500. or until March 31. 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. concur. 1935. (3) that the persons constituting the pledge have the free disposal of their property. When a party sues on a written contract and no attempt is made to show any vice therein.00 with PNB. a favor del Sr. did not pay PNB. OBM gave its conformity to the assignment. therefore.00.4000. with costs against appellant. plaintiff would have undoubtedly adduced evidence to establish it and asked that the deed be reformed accordingly. otherwise. Issue: Held: WON the deed of assignment extinguished the obligations of IRC and Santos with PNB No Ratio: . plaintiff-appellant. 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. we need not here seek to explore. clearly agreed to pay interest only up to the date of maturity. that they be legally authorized for the purpose. entitled only to the stipulated interest of 12 per cent on the loan of P2. JEPTI SOLAS). yield said conclusion that it is in fact a pledge. Article 1755 of the Civil Code provides that "interest shall be due only when it has been expressly stipulated. OBM. 400 from November 8. therefore. in the event of non-payment.J. 1The further requirement that the thing pledged be placed in the possession of the creditor. 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. On the contrary the act of the mortgage of granting to the mortgagor on the same date of execution of the deed of mortgage. thru its President ---.. as assignor. in the event of non-payment. 1969. vs. the credit card company may for some reason fail to promptly notify its members through absolutely no fault of the cardholder. (Article 1281. until full payment. Santos executed a Deed of Assignment of the two time deposits in favor of plaintiff. defendant-appellee.000. under the parcel-evidence rule. 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. The facts and circumstances leading to the execution of the deed of assignment. as in this case.00. Jose C. The trial court ordered IRC and Santos to pay the plaintiff jointly and solidarily. we would be imposing upon the debtor an obligation that the parties have not chosen to agree upon. Paragraph 4 of the mortgage deed recites: Que en consideracion a dicha suma aun por pagar de DOS MIL CUATROCIENTOS PESOS (P2. Thus modified judgment is affirmed. by mutual mistake. . To secure the said loan. Eleuterio J. the debtor would continue to pay interest. after the due dates of the time deposit certificates. por via de primera hipoteca. .It must also be emphasized that Santos. an extension of one year from the date of maturity within which to make payment. PNB demanded payment from IRC and Santos and OBM.Raul L." (Emphasis supplied. Issue: IS Solas bound to pay the stipulated interest only up to the date of maturity as fixed in the promissory note. Civil Code. We hold therefore. we cannot in law. por la presente. indulge in any presumption as to such interest. 1934. 1934. in our opinion controlled by the express stipulation of the parties. OBM was also ordered to pay cross IRC and Santos whatever amount the latter will pay to PNB. J. Rule 123). 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. 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). The term "for any cause whatsoever" is broad enough to include the situation involved in the present case.º) de esta escritura. PNB filed a complaint to collect from IRC and Santos the loan of P700. Solas agreed to pay interest only up to the date of maturity. which still requires the cardholder to wait until the credit card company has notified all its member-establishments. . applied for a loan and/or credit line in the amount of P700. Santos also made a time deposit with OBM in the amount of P200. The court must not impose an obligation that the parties have not chosen to agree upon.

therefore . but they are likewise estopped from questioning the validity thereof for the first time in this petition. Not only did IRC and Santos fail to overcome the presumption of regularity of business transactions.When PNB demanded from OBM payment of the amounts due on the two time deposits which matured on January 11. to “jointly and solidarily” pay Ibarrola several amounts. RESOLUTION FRANCISCO. PHILIPPINE NATIONAL BANK. The checks were delivered to the seller’s agents[1] who turned them over to Ibarrola.” 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. this petition for review under Rule 45 where two legal issues are raised: (1) whether in an action for damages.90. 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. 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. 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. Unless a bank can lend money.: As payments for the purchase of medicines. its Treasurer. Ibarrola filed on November 6. is breached. 1993. 416 applies only to: “*L+oan or forbearance of money. is deemed to be equivalent to a forbearance of credit. however. Indeed.[2] against the Province ofIsabela. (Demand made before OBM encountered liquidation problems) Consequently. 1968. 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. respectively. This interest according to Eastern Shipping shall be computed from the time of the filing of the complaint considering that the amount adjudged (P98. not as interest income stipulated in the certificates of time deposit. Ibarrola sought clarification from the same RTC which promulgated the decision.a. be on the amount finally adjudged. Conventional wisdom dictates this inexorable fair and just conclusion. the two agents and PNB. the Province of Isabela issued several checks drawn against its accounts with petitioner Philippine National Bank (PNB) in favor of the seller. 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. There is nothing in the records to show that they raised this issue during the trial by presenting countervailing evidence. in accordance with the pronouncement in Eastern Shipping the rate of 12% p. 1169.[12] The rate of 12% interest referred to in Cir. not a contract of deposit.[8] this Court had provided a rule “of thumb for future guidance. did not specify whether the legal rate of interest referred to in the judgment is 6% or 12%.” docketed as Civil Case 4226-P.”[3] (Italics supplied.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. .Under the foregoing circumstances and considerations. Such interest due or accrued shall further earn legal interest from the time of judicial demand. respondents. should be . CA. which latter mode of demand was made by PNB. The judgment in Civil Case 4226-P became final and executory on November 26. but the obligations consisting as they did in the payment of money. 1968. OBM should be held liable for damages. On August 4. This is true with respect to the stipulated interest. in any case. IBARROLA. this applies only to interest for the use of money. 2209 of the Civil Code. Consequently. for having incurred in delay in the performance of its obligation. unless the contracts are renewed. However. It does not comprehend interest paid as damages. except the treasurer who died in the meantime.”[13] (Italics ours. . For her failure to receive the full payment for the medicines. Said amount being merely the uncollected balance of the purchase price covered by the 23 checks encashed and appropriated by Ibarrola’s agents. a business operated by private respondent Ibarrola. the "interim period from the finality of judgment awarding a monetary claim and until payment thereof. respectively. When Santos invested his money in time deposits with OBM. PNB’s liability is based only on the RTC’s 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.90 with interest thereon at the legal rate from the date of the filing of the complaint until the entire amount is fully paid.691. In the case of Eastern Shipping Lines. is recoverable from the date judicial or extrajudicial demand is made. there being no stipulation to the contrary.”[14] Thus. Hence. 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. vs. Inc.[7] and (2) whether such rate shall be computed from the filing of the complaint until fully paid? The issues are not new. 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: .691. not constituting a loan or forbearance of money. Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made. 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.The applicable rule is that legal interest. among which is: “(1) P98. but not the veracity or validity thereof. 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. PNB’s direct appeal to this court from that order was referred to the CA which affirmed the RTC order. The measure of such damages. ”[10] (Italics ours. hence the proper imposable rate of interest is six (6%) per cent. The actual base for the computation of legal interest shall.."[9] to wit: “When an obligation. the proper rate of interest referred to in the judgment under execution is only 6%. once the judgment becomes final and executory. All the three courts. OBM is being required to pay such interest. there was as yet no obstacle to the faithful compliance by OBM of its liabilities thereunder. 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. 416. Accordingly. shall be the payment of the interest agreed upon in the certificates of deposit which is six and one-half percent (6-1/2%). 1987. the monetary judgment in favor of private respondent does not involve a loan or forbearance of money. acquire foreclosed mortgaged properties or their proceeds and generally engage in other banking and financing activities from which it can derive income. on March 1. petitioner. 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%. In its decision dated September 29. engage in international transactions. they entered into a contract of simple loan or mutuum. No. 1974 before the Regional Trial Court (RTC) an “action for a sum of money and damages.While it is true that under Article 1956 CC no interest shall be due unless it has been expressly stipulated in writing. after the maturity of the certificates of time deposit. Issue: Held: WON the 1-1/2% interest imposed by PNB was illegal No Ratio: . the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 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. but as damages for failure and delay in the payment of its obligations which thereby compelled IRC and Santos to resort to the courts. Any other monetary judgment which does not involve or which has nothing to do with loans or forbearance of any money. What was merely touched upon during the proceedings in the court below was the alleged lack of notice to them of the board resolution. COURT OF APPEALS and DR.) Applying the aforequoted rule.90) can be established with reasonable certainty. where the demand is established with reasonable certainty.) PNB’s appeal to the Court of Appeals (CA)[4] and later to the Supreme Court[5] were denied and dismissed. the Central Bank.”[11] Indeed. under Article 1108 CC he has the right to recover damages resulting from the default of OBM. When an obligation arises “from a contract of purchase and sale and not from a contract of loan or mutuum. 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). in the nature of damages for non-compliance with an obligation to pay a sum of money. ERLINDA G. J. 1994 said court issued an order clarifying that the rate is 12%. In fine. At the execution stage. however. And it can be said that all who deposit money in banks are aware of such a simple economic proposition. 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: . v.It is a matter of common knowledge. 1968 and February 6. 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. except 23 checks amounting to P98. it is inconceivable how it can carry on as a depository obligated to pay stipulated interest. which the agents appropriated after negotiating them with PNB. the trial court ordered all the defendants in said civil case. shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty.691. Lyndon Pharmaceuticals Laboratories.) The case at bench does not involve a loan.

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. the bank had no alternative under the law than to obey the orders of the Central Bank.. the lower court denied the motion and proceeded with the trial on the merits. 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. addressed to the Commercial Bank of Manila (Combank).imposed. private respondent opened a one-year time deposit with petitioner bank in the amount of P80. 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. satisfaction thereof would not be possible in view of the restriction imposed by the Monetary Board. the interest rate shall be 12% p. computed from the time the judgment became final and executory onNovember 26.a. have rendered these issues moot and academic. this Court stated: Parenthetically. 1968 with interest at the rate of 6% per annum. which affirmed the decision of the lower court. the lower court rendered the aforesaid decision. and We also confirm receipt of Seventy Three Thousand Eight Hundred Forty Pesos (P73. from which it can derive income. and costs.691. and to be computed from the time the judgment became final and executory until fully satisfied. The issues raised in this petition are quite novel. however. in the recent case of Overseas Bank of Manila vs. modified in effect by the decision as well as the approval of a formula of rehabilitation by this Court. per Justice Barredo. JJ. Concepcion. Court of Appeals 2 is explicit and categorical.00 to mature on July 20. it is inconceivable how it can carry on as a depository obligated to pay stipulated interest. We quote: It is a matter of common knowledge which we take judicial notice of. Whatever be the juridical significance of the subsequent action of the Supreme Court. due to its distressed financial condition. WHEREFORE.. 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. petitioner appealed to the Court of Appeals. otherwise known as the General Banking Act. It appearing that the amount of the latter's time deposit had been fully paid. The rate of interest shall be 6% p. ESCOLIN. We also confirm receipt of Seventy Three Thousand Eight Hundred Forty Pesos (P73. 1993 until fully satisfied. petitioner was unable to pay Cordero his said time deposit together with the interest. Neither can respondent Cordero recover attorney's fees. 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.: Again. VICENTE CORDERO and COURT OF APPEALS. 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. applicable or followed in respect to all other obligations of petitioner which could not be paid during the period of its actual complete closure. that what enables a bank to pay stipulated interest on money deposited with it is that thru the other aspects of its operation. Unless a bank can lend money. counsel for Combank filed on August 12. it appears that respondent Cordero had received from the Philippine Deposit Insurance Company the amount of P10. However. 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. When asked to comment on this Manifestation. Barredo (Chairman). The pronouncement made by this Court. 1 it effectively barred or abated the action of respondent for even if judgment be ultimately rendered in favor of Cordero.00 representing the latter's time deposit with petitioner. Canada. in its answer. Aquino. 1981. brother and attorney-in-fact of respondent Vicente Cordero. De Castro and Ericta. Act 337. J. It is very clear. the undersigned acting for and in behalf of my brother Vicente R. with the principal claim of respondent having been satisfied. In this letter dated February 13.00) representing the principal and interest as computed by the Commercial Bank of Manila. After pre-trial.. this case is hereby dismissed. successor of petitioner Overseas Bank of Manila. reiterating the same defenses raised in its answer. The second is a Manifestation by the same Julian Cordero dated July 3. SO ORDERED. 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. ACCORDINGLY. engage in international transactions. THE OVERSEAS BANK OF MANILA. Consequently.840.000. However. Abad Santos. petitioner filed on November 29. copy of which was furnished this Court. 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. should be. ordering the Superintendent of Banks to take over the assets of petitioner for purposes of liquidation. 1968 of the same Board. 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. acknowledging receipt of the sum of P73. 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. Julian Cordero submitted the following explanatory Comment. plus interest thereon at 6% per annum until fully paid. 1981 a Comment confirming and ratifying the same. computed from the time of the filing of the complaint until its full payment before finality of judgment. pertinent portions of which We quote: I. to which was attached the special power of attorney executed by respondent Vicente Cordero: 3. petitioner. . a motion to dismiss.840. he is now barred from contesting the same. 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.000. 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. vs. Dissatisfied. And concluding. Finding the same unmeritorious.00. this Court noted the absence of the alleged special power of attorney executed by private respondent in favor of Julian Cordero.. SO ORDERED. We are confronted with another case involving the Overseas Bank of Manila. 1981) applies only to third party claims. Petitioner. forbidding its directors and officers from making any payment out of its funds after the bank had become insolvent. Hence. Overseas Bank of Manila vs. strictly speaking be legally denominated as "force majeure" as maintained by private respondent. Certain supervening events. that portion of the lower court's decision ordering petitioner to pay interest on Cordero's time deposit is set aside. 1968 of the Monetary Board which authorized petitioner's board of directors to suspend all its operations. our Consul General in Vancouver. acquire foreclosed mortgaged properties or their proceeds and generally engage in other banking and financing activities. raised as special defense the finding by the Monetary Board of its state of insolvency. J. Jr. 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. filed by one of its depositors. We hold it is a matter of simple equity that it be treated as such. In due time. Petitioner contended that although the Resolution of August 13. concur. This manifestation (referring to the Manifestation of July 3.00. as a matter of consistency. . xerox copy attached. and the Resolution of August 13..90). 1967. When directed to produce the same. No costs. The first of these supervening events is the letter of Julian Cordero.. Thus. 1968 was then pending review before the Supreme Court. is on leave.000. . Cordero who resides in Canada and by virtue of a Special Power of Attorney issued by Vicente Romero. 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. prohibiting petitioner from issuing manager's and cashier's checks and the provisions of Section 85 of Rep. upon further examination. Cordero Facts: . the Central Bank. If such a situation cannot. 3 Since respondent did not appeal from this decision. 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. It cited the Resolution of August 1. Said Manifestation is in the nature of a quitclaim. On July 20. if the amount adjudged remains unpaid.a.. for before the Court's order.840.00) with our full satisfaction. We find the answer to be in the negative. 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..840. Cordero instituted an action in the Court of First Instance of Manila.. respondents. To enforce payment. holding petitioner bank liable to respondent Vicente Cordero in the amount of P80. 1968. 1981. suit and other damages. it is able to generate funds to cover the payment of such interest. the appealed decision is REVERSED. Thereafter. this petition for review on certiorari.00) with our full satisfaction.

(2) From the date the judgment is made. another Promissory Note No. 12 July 1994 234 SCRA 78 FACTS Two fiber drums were shipped owned by Eastern Shipping from Japan. Petitioner raised the defenses of insolvency and prejudice to other depositors. 1983. with interest of 6% p. BRANCH 61. the court a quo rendered a judgment in favor of petitioner SBTC. Cordero instituted an action before the CFI Manila.: 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. Upon further examination. 3. is breached. as stipulated in a contract. private respondents Leila Ventura had signed as co-maker. 1993. it was found that the respondent’s brother has no SPA.. On appeal by defendants. 2) PN No. Respondent’s brother submitted the SPA. Respondent agreed to pay this note in six (6) monthly installments plus interest at the rate of 23% per annum. TL74/1491/83 was executed on August 31. the bank was unable to pay.665. judgment is hereby rendered in favor of plaintiff and as against defendant Eusebio who is hereby ordered to: 1. Gorospe of the Regional Trial Court of Makati. vs. 1983. TL/74/1296/83 P83.000. respondent Eusebio again executed Promissory note No TL/74/1296/83 in favor of petitioner SBTC. Petitioner’s 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. the appellate court denied the same and affirmed in toto the decision of the trial court. The shipment as insured with a marine policy. . HELD (1) The Court held that the legal interest is 6% computed from the decision of the court a quo. Pay the sum equivalent to 20% of the total amount due and payable to plaintiff as and by way of attorney’s fees.[4] Upon maturity which fell on the different dates below. which excepted to one drum. Interest was lowered by the court a quo from 23% per annum as agreed upon by the parties to 12% per annum. Issue: Whether respondent is entitled to interest and attorney’s 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.333.[5] On March 30.665.[2] Finally. Pay the sum of P65. The lower court. Where the demand is established with reasonable certainty. 1993.00 as of September 1983. When the judgment of the court awarding a sum of money becomes final and executor. Allied Brokerage Corporation received the shipment from Metro. Neither can respondent Cordero recover attorney’s fees. this interim period being deemed to be by then an equivalent to a forbearance of money. plus interest of 12% per annum starting 27 September 1983. (SBTC) in the total amount of One Hundred Thousand Pesos (P100. respondents. TL/74/748/83 P16. and to 5. 97412. Respondent bound himself to pay the sum of One Hundred Thousand Pesos (P100. goods or credits.00). the instant petition for review on certiorari. 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.00. petitioner. Metro Port and Allied Brokerage.00) payable in six monthly installments with a stipulated interest of 23% per annum up to the fifth installments. Hence. Allied delivered the shipment to the consig nee’s warehouse. and the Court of Appeals. the dispositive portion which reads: “WHEREFORE. 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. DECISION HERMOSISIMA. dated March 30.Private respondent opened a 1-year time deposit with petitioner bank amounting to P80. (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.[3] On all the abovementioned notes. (3) The Court held that it should be computed from the decision rendered by the court a quo. Pay the sum of P16. the insurance company paid the consignee. When an obligation.a. 2. SO ORDERED. ISSUE (1) Whether the applicable rate of legal interest is 12% or 6%. ruled in favor of Cordero.[1] On July 28.333. a collectible case was filed in court by petitioner SBTC. which found private respondent Eusebio liable to petitioner for a sum of money.000. Certain supervening events rendered the issue moot and academic. 1993. and plaintiff’s claim having been duly proven.000. not constituting a loan or forbearance of money. 1983 in the amount of Sixty Five Thousand Pesos (P65. until fully paid. Pay the sum of P83. As consequence of the loss. the rate of legal interest shall be 12% per annum from such finality until satisfaction. SECURITY BANK AND TRUST COMPANY. so that it became subrogated to all the rights of action of consignee against the defendants Eastern Shipping.00 as of August 1983. TL/74/1991/83 P65.840. 4. Branch 61.00) in six (6) monthly installments plus 23% interest per annum. suits and damages. private respondent Magtanggol Eusebio executed Promissory Note No. prevail over Section 2 of Central Bank Circular No.00 as of August 1983 3) PN No. The latter excepted to one drum which contained spillages while the rest of the contents was adulterated/fake. Due to its distressed financial condition.000. the interest shll begin to run only from the date of judgment of the court is made. The undisputed facts are as follows: On April 27. with explanatory comment that the waiver applies only to third party claims. JR. MAGTANGGOL EUSEBIO and LEILA VENTURA. not to interest and attorney’s fees. one drum opened and without seal. 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. J or EJD. No interest shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty.000. and another manifestation for P73. J. Respondent’s brother and attorney-in-fact sent a letter to the Commercial Bank of Manila (petitioner’s successor-in-interest).000. Pay the cost of this suit. The insurance company filed before the trial court. Upon the failure and refusal of respondent Eusebio to pay the aforestated balance payable. far in excess of the ceiling prescribed under or pursuant to the Usury Law. 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. with waiver of damages. until fully paid. plus interest of 12% per annum starting 31 August 1983. The interest due shall be 12% PA to be computed fro default. the principal balance remaining on the notes stood at: 1) PN No. until fully paid.00. acknowledging receipt of P10. TL/74/178/83 in favor of petitioner Security Bank and Trust Co.000. said to be in bad order and which damage was unknown the Mercantile Insurance Company. premises above-considered. an interest on the amount of damaes awarded may be imposed at the discretion of the court at the rate of 6% per annum. REGIONAL TRIAL COURT OF MAKATI.00. 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. plus interest of 12% per annum starting 28 August 1983. Upon arrival in Manila unto the custody of metro Port Service.”[6] On August 6.

JR. GONZALES doing business in the business style of GONZALES CREDIT ENTERPRISES.. this circular did not repeal nor in anyway amend the Usury Law but simply suspended the latter’s effectivity. LETICIA Y. out of the proceeds of the loan.000.000. Servando and Leticia with the latter's husband.00. Where a requirement or condition is made in explicit and unambiguous terms. payable in two months.00.. reading as follows: "Baliwag. On maturity of the two promissory notes. the interest previously stipulated. “In the exercise of the authority herein granted. payable on August 23. Furthermore. J. FIVE HUNDRED THOUSAND . (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. Therefore. vs.000. as found by the Court of Appeals in its decision. respondents. 1986. whether natural or judicial. Article 1306 of the New Civil code provides that contracting parties may establish such stipulations. On July 23. of Baliwag Bulacan. 1986. such as consumer loans or renewals thereof as well as such loans made by pawnshops.00. of legal age. respondent did not question that rate. 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”. 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. As we have held in the case of Quijano v.(2) the interests awarded should be compounded quarterly from due date as provided in three (3) promissory notes. 1986. which are considered binding and conclusive on the parties herein. The rate of interest for the loan or forbearance of any money. 1998.00) Philippine Currency with interest thereonat the rate of 5.00. 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.00.00 as attorney's fees is affirmed. under Rule 45 of the Revised Rules of Court. did not question any of the stipulations therein.B.. The rate of interest. Servando and Leticia obtained from Veronica another loan in the amount of P90. and in the absence thereof..000. who was engaged in the money lending business under the name "Gonzales Credit Enterprises"..000.000.[8] The applicable provision of law is the Central Bank Circular No. goods or credits. the appealed judgment is hereby MODIFIED such that defendants are hereby ordered to pay the plaintiff: the sum of P500.000. seeking to set aside the decision of the Court of Appeals.. 1684 empowering them to prescribe the maximum rates of interest for loans and certain forbearances.00. good customs. No process of interpretation or construction need be resorted to where a provision of law peremptorily calls for application.[13] Hence. goods or credits. payable in two months. They received only P84. 905 which took effect on December 22. public order. SPOUSES VERONICA R. is hereby AFFIRMED with the MODIFICATION that the rate of interest that should be imposed be 23% per annum. goods or credits and the rate allowed in judgments. And so is the imposition of costs against the defendants. Like the previous loans. fees and other charges.000.” CB Circular 905 was issued by the Central Bank’s Monetary Board pursuant to P. Section 1-a of Act No. In fine.00.: The case before the Court is a petition for review on certiorari. Dr. this petition. maturing on January 19.. who issued a special power of attorney in favor of Leticia Medel. it appears that indeed the agreed rate of interest as stipulated on the three (3) promissory notes is 23% per annum. the rate shall be 12% per annum. married to Danilo G. doing lending business under the trade name and style "GONZALES CREDIT ENTERPRISES". It must see to it that its mandate is obeyed.000. interpretation being called for only when such literal application is impossible. Gonzales (hereafter Veronica). However.. as the appeal is limited to questions of law. Servando and Leticia executed a promissory note in favor of Veronica to pay the sum of P300. 1985. Significantly. that may be charged or collected by any person.00. From the examination of the records. an Order was issued by the court a quo denying the motion to grant the rates of interest beyond 12% per annum. clauses. 1684 and C. including deposits and deposit substitutes. in the absence of express contract as to such rate of interest. including commissions. which was filed on May 29.5% per month interest and 2% service charge per annum effective July 23. after a month. Basic is the rule of statutory construction that when the law is clear and unambiguous. as amended.000. the interest due should be that stipulated in writing. Circular No. stipulations therein are binding between them. Servando Franco and Leticia Medel (hereafter Servando and Leticia) obtained a loan from Veronica R. upward or downward. is liable jointly and severally with defendant Eusebio without a need for demand upon her. goods or credits. Servado and Leticia executed a promissory note for P50.000. The promissory notes were signed by both parties voluntarily.000. The Monetary Board is also authorized to prescribed different maximum rate or rates for different types of borrowings. at 6% interest per month.5 PER CENT per month plus 2% service charge per annum from date hereof until fully paid according to the amortization schedule contained herein. premiums. On June 11. shall continue to be twelve per cent (12%) per annum. That changes in such rates or rates may be effected gradually on scheduled dates announced in advance. 2655.D. as amended. It is not for respondent court a quo to change the stipulations in the contract where it is not illegal.00. Rafael Medel.000.00 "FOR VALUE RECEIVED. the sum of PESOS . RAFAEL MEDEL and SERVANDO FRANCO. The executed a promissory note. only in the absence of a stipulation can the court impose the 12% rate of interest. 1982. 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. In fact. plus 1% per month of the total amount due and demandable as penalty charges effective August 23. SO ORDERED. petitioners. regardless of maturity and whether secured or unsecured.00. to evidence the loan. or on July 11. payable on January 7.000.. GONZALES and DANILO G. finance companies and other similar credit institutions although the rates prescribed for these institutions need not necessarily be uniform.[14] IN VIEW OF THE FOREGOING.00. they can agree to adjust. 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. 1985.000. 1986. no discretion is left to the judiciary.[7] Consequently. or public policy.[4] which was filed on April 3. were already covered by CB Circular No. shall not be subject to any ceiling prescribed under or pursuant to the Usury Law.[5] and the petitioners to reply thereto. the Monetary Board may prescribed higher maximum rates for loans of low priority. secured by a real estate mortgage over a property belonging to Leticia Makalintal Yaptinchay. 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.000. 1998. 1986. Filipino. (Underscoring supplied) "Payment will be made in full at the maturity date. therefore. "The award to the plaintiff of P50. 2. We find merit in this petition. In a loan or forbearance of money. COURT OF APPEALS. the court is left with no alternative but to apply the same according to its clear language. consolidated all their previous unpaid loans totaling P440. in the Comment file by respondent Eusebio to this court. No. 905.[2] the dispositive portion of which decision reads as follows: "WHEREFORE. was given to them out of the proceeds of the loan.[6] We now resolve to give due course to the petition and decide the case. the decision of the respondent court a quo. Hence. 1986. are as follows: On November 7. the borrowers failed to pay the indebtedness. 1986 "Maturity Date August 23. is hereby amended to read as follows: “SEC. and sought from Veronica another loan in the amount of P60. 1986. 1986. MEDEL DR. authorizing her to execute the mortgage. Contrary to the claim of respondent court. as advance interest for one month at 6% per month. Veronica gave only the amount of P47.D. morals. in the amount of P50. DECISION PARDO.. only the sum of P275.00. maturing in one month. Gonzales. I/WE jointly and severally promise to pay to the order of VERONICA R. to wit: ‘SECTION 1. (P500. on a loan or forbearance of any money. Jr. They executed a promissory note to evidence the loan. Bulacan July 23.”[10] This court has ruled in the case of Philippine National Bank v."[3] The Court required the respondents to comment on the petition. to the borrowers.” The rate of interest was agreed upon by the parties freely. 1986 "P500. 1. Servando and Medel failed to pay the third loan on maturity. SO ORDERED. and to change such rate or rates whenever warranted by prevailing economic and social conditions: Provided. until the entire amount is fully paid. as she retained P3..[1] and its resolution denying reconsideration. . bringing their indebtedness to a total of P500. The facts of the case. Sec. or loans of financial intermediaries. Respondent Eusebio. and holding defendant Leila Ventura jointly and severally liable with co-defendant Eusebio. plus 5. GONZALES. provided they are not contrary to law. terms and conditions as they may deem convenient. On November 19. 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.” All the promissory notes were signed in 1983 and. Court of Appeals[11] that: “P.00. likewise.. Servando and Leticia secured from Veronica still another loan in the amount of P300.. particularly Sections 1 and 2 which state:[9] “Sec.

After due trial. Rule 39. is the law that governs the parties. "With costs against the defendants. Bulacan.[10] Accordingly. judgment is hereby rendered. premises considered. goods or credit at 12% per annum. adopted on December 22. Ordering the defendants to pay plaintiffs.[20] The stipulation is void. "The award to the plaintiffs of P50. as amended by P. interest at 12% per annum. which consolidated all the unpaid loans of the defendants. if not against the law. we find the interest at 5. "2. that the stipulation for attorney's fees of 25% ofthe amount due is unconscionable. INVESTORS FINANCE CORPORATION. Veronica R. the dispositive portion of which reads as follows: "WHEREFORE."[8] In due time. illegal and excessive. or 66% per annum. plus 5. and PIO BARRETTO REALTY DEVELOPMENT CORPORATION. is the Usury Law still effective. we can not consider the rate "usurious" because this Court has consistently held that Circulr No. Holder may accept partial payments and grant renewals of this note or extension of payments." Indeed. "IN CASE OF JUDICIAL Execution of this obligation.000. 1997. has expressly removed the interest ceilings prescribed by the Usury Law[14] and that the Usury Law is now "legally inexistent". the issue revolves on the validity of the interest rate stipulated upon.[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". Sometime in August 1980 Anthony Que. 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.00 plus 12% interest per annum and 1% per month as penalty from July 11. "Demand and notice of dishonor waived. Ordering the defendants Servando Franco and Leticia Y. Branch 61[16] the Court held that CB Circular No. contrary to morals ("contra bonos mores"). as follows: "1. The Court of Appeals sustained the plaintiffs-appellants' contention. Rather. jointly and severally the amount of P84. 116. They further argued that Circular No. "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. on March 21. and that substantial payments made were applied to interest. or any other cause or reason. "3. "5.000.5% per month with additional service charge of 2% per annum."[7] Accordingly. hence.000. "4. and an additional 1% a month penalty charge as liquidated damages may be more reasonable. Malolos. Branch 16. exclusive of costs and judicial or extra judicial expenses. joined by her husband Danilo G. filed with the Regional Trial Court of Bulacan. or has it been repealed by Central Bank Circular No. thus entitling the latter to reimbursement of excess interest payments amounting to P2. then known also as FNCB Finance (now doing business under the name of Citytrust Finance Corporation). the Court of Appeals promulgated it decision reversing that of the Regional Trial Court. we have held that "a Central Bank Circular can not repeal a law.00. jointly and severally. FNCB informed Anthony Que that it was not engaged in direct lending.00. plus interests and penalties."Should I/WE fail to pay any amortization or portion hereof when due. However."[11] On April 15. Only a law can repeal another law. 1991. that the loan was secured by a real estate mortgage executed in favor of the plaintiffs. applies only in the absence of a stipulation on interest rate. Anthony Que. we render judgment REVIVING and AFFIRMING the decision dated December 9. 1982. in Civil Case No.00 as attorney's fees.035. Ordering the defendants to pay the plaintiffs. 905 "did not repeal nor in anyway amend the Usury Law but simply suspended the latter's effectivity.00 loan is excessive. both plaintiffs and defendants appealed to the Court of Appeals. of the total amount due and demandable. And so is the imposition of costs against the defendants. stipulated upon by the parties in the promissory note iniquitous or unconscionable.[13] We find the petition meritorious. until the whole amount is fully paid. and actually received the amount and benefited therefrom. In their separate answer filed on April 10. 1986. plus 1% per month of the total amount due and demandable as penalty charges effective August 24. 1997. 1985 and 1% per month as penalty.: 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. reserving rights against each and all indorsers and all parties to this note.[1] Petitioner Investors Finance Corporation.000.000. J. Basically. also held the same position at its affiliate corporation. Gonzales. who executed a mortgage in favor of the plaintiffs over a parcel of real estate situated in San Juan. the Court reiterated the ruling that "by virtue of CB Circular 905. 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. 1997. evidenced by the above-quoted promissory note.5% per month on the loan in the sum ofP500. jointly and severally. AUTOWORLD SALES CORPORATION. the Court of Appeals erred in upholding the stipulation of the parties. No. iniquitous. pursuant to its powers under P. and ruled that although the Usury Law had been repealed. president of AUTOWORLD. WHEREFORE.000. defendants-appellants filed a motion for reconsideration of the said decision.D. (Underscoring supplied) "I. the trial court rendered judgment. to pay plaintiffs the amount of P47. the interest charged by the plaintiffs on the loans was unconscionable and "revolting to the conscience". plaintiffs-appellants argued that the promissory note.D. applied for a direct loan with FNCB. defendant Servando alleged that he did not obtain any loan from the plaintiffs.00. Court of Appeals[18]. It ruled that "the Usury Law having become 'legally inexistent' with the promulgation by the Central Bank in 1982 of Circular No.[12] Hence. defendants Leticia and Rafael Medel alleged that the loan was the transaction of Leticia Yaptinchay. the amount of P285. 905 of the Central Bank.000. Gonzales. at Malolos. 1684? We agree with petitioners that the stipulated rate of interest at 5. the appealed judgment is hereby MODIFIED such that defendants are hereby ordered to pay the plaintiffs the sum of P500. respondents. Thus. adopted on December 22. Medel to plaintiffs. 416 of the Central Bank prescribing the rate of interest for loans or forbearance of money. under the circumstances. unconscionable and exorbitant. of the Revised Rules of Court. is a financing companydoing business with private respondent Autoworld Sales Corporation (AUTOWORLD) since 1975. consequently. Branch 16.1985 until the whole amount is fully paid. vs. In their appeal. 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. "SO OREDERED. 1986. on December 9. In his answer to the complaint filed with the trial court on April 5. we agree with the trial court that."[19] Nevertheless. and that he (Servando Franco) signed the promissory note only as a witness. jointly and severally. and the further sum ofTWENTY FIVE PER CENT (25%) thereon in full. the debtors waive all his/their rights under the provisions of Section 12.[21] The courts shall reduce equitably liquidated damages. . 1986.5% per month. Regional Trial Court of Makati. a complaint for collection of the full amount of the loan including interests and other charges.000.586.00 as attorney's fees is affirmed.[15] In Security Bank and Trust Company vs. 1997. No.44. In other words. the question presented is whether or not the stipulated rate of interest at 5.5% per month on the P500. and its resolution dated November 25. Ordering the defendants Servando Franco and Leticia Medel.00 with 12% interest per annum and 1% per cent per month as penalty from November 19. whether intended as an indemnity or a penalty if they are iniquitous or unconscionable.000." On maturity of the loan. without deductions as Attorney's Fee whether actually incurred or not. and penalty charge of 1% per month. Batangas. the lender and borrower could agree on any interest that may be charged on the loan". until the entire amount is paid in full. AUTOWORLD's request for loan was denied. 905. 1997. goods or credit is 12% per annum. defendants interposed the present recourse via petition for review on certiorari. in behalf of AUTOWORLD. 134-M-90. the Usury Law has been rendered ineffective". Interest can now be charged as lender and borrower may agree upon. of the Regional Trial Court of Bulacan. petitioner.000. due to extraordinary inflation or deflation. Rafael Medel who borrowed from the plaintiffs the sum of P500. No pronouncement as to costs in this instance SO ORDERED. and.1990. disposing as follows: "WHEREFORE."[17] In the recent case of Florendo vs. the amount of P50. Bulacan. or any part of it.5% per month interest and 2% service charge per annum effective July 23. that plaintiffs extended to the defendants is usurious. On February 20. penalties and other charges.13 However. 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. By resolution dated November 25. the borrowers failed to pay the indebtedness of P500. All counterclaims are hereby dismissed. Hence. private respondent Pio Barretto Realty Corporation (BARRETTO). 1990. and if there be any change in the value thereof. that it was defendants Leticia and Dr. the Court hereby REVERSES and SETS ASIDE the decision of the Court of Appeals promulgated on March 21. 1991. that the interest rate is excessive at 5.[22] Consequently.00. the trial court applied "the provision of the New [Civil] Code" that the "legal rate of interest for loan or forbearance of money.00 plus 12% interest per annum from November 7. but not when the parties agreed thereon. "Usury has been legally non-existent in our jurisdiction. Instead. 905. DECISION BELLOSILLO. the Court of Appeals denied the motion. until the entire amount is fully paid. involving the same parties. since the Usury Law imposed an interest rate ceiling at that time. 1982. 1990. the lower court declared that the due execution and genuineness of the four promissory notes had been duly proved.

then signed a promissory note in favor of FNCB worth P5.980. The mechanics of the proposed “IPP” transaction was (1) First.78 through its UCPB account. inclusive of P2.00 on the second transaction (loan worth P3.Paid to Paramount Finance Corp. the Deed of Assignment and the Real Estate Mortgage all dated 9 February 1981.818.Consequently.00 .[8] Thereafter.000. Curiously however.[15] BARRETTO countered that it could not be held liable for AUTOWORLD's alleged default in its payments since the Deed of Assignment.60 worth of receivables from AUTOWORLD. the law will not permit a usurious loan to hide itself behind a legal form.60 at a discounted price of P6.604. which expressly provided that FNCB as assignee had a right of recourse against BARRETTO as assignor in case AUTOWORLD defaulted in its payments. we agree with the appellate court that it was executed when the ceiling rates of interest had already been removed.999.980.00.980. AUTOWORLD alleged that the aforementioned contracts were only perfected to facilitate a usurious loan and therefore should be annulled. together with the improvements thereon.87 .00 to settle the second transaction.66 on the first transaction (“IPP” worth P6. title and interest to all the money and other receivables due from AUTOWORLD under the Contract to Sell. P111.60 from BARRETTO at a discounted value of P6. 20.980.586. AUTOWORLD was not entitled to any reimbursement since it was unable to prove the existence of a usurious loan.00 loan since at the time it was perfected on 18 January 1982 Central Bank Circular No.”[19] The following circumstances show that such scheme was indeed employed: First. It then requested FNCB to provide a computation of the remaining balances. covered by TCT No. 1981 inclusive of P2.000.000.999.000. 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.600.[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. together with the Contract to Sell and theReal Estate Mortgage. however ingenious. execute a Deed of Assignment (in favor of FNCB) obliging AUTOWORLD to pay the installments of the P12. 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. On 17 November 1980 FNCB informed AUTOWORLD that its Executive Committee approved the proposed “IPP” transaction. . 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.000.082. 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.999. 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.000. Inc.408. Manila.000.[13] According to AUTOWORLD.00) of your real estate transaction per your authorization/letter dated 2.00 as damages and P100. 2.00 as attorney’s fees.00 as excess payment for the second transaction.000. FNCB argued that the contracts dated 9 February 1981 were not executed to hide a usurious loan. petitioner admitted that its lawyers were the ones who drafted all the three (3) contracts involved[21]which were executed on the same day. then why was it interested in appraising the lot six (6) months prior to the sale? And why did petitioner’s own lawyers prepare the Contract to Sell? Obviously. was simulated and perfected only to facilitate a usurious loan.[17] The Court of Appeals modified the decision of the trial court and concluded that the “IPP” transaction.937. We stress at the outset that this petition concerns itself only with the first transaction involving the alleged "IPP" worth P6. this petition of FNCB.586. BARRETTO would acquire P12. 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 P12.00 SC for Manager’s Check. AUTOWORLD advised FNCB that it intended to preterminate the two (2) transactions by paying their outstanding balances in full.480. AUTOWORLD began paying the installments. to FNCB.00 loan.[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. comprising of the three (3) contracts perfected on 9 February 1981.[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. 06156) 4 P3. (3) Real Estate Mortgage whereby BARRETTO.00 payable in sixty (60) consecutive monthly installments of P93. Manila.026.10.[23] If it were true that petitioner was never privy to the Contract to Sell. Hence.000.666. mortgaged the property subject of the Contract to Sell to FNCB as security for payment of its obligation under the Deed of Assignment.736.[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.999.021. it overpaidP2.000.00) and three (3) monthly installments ofP93.108. FNCB also prayed for P2. Second.999.[5] After the three (3) contracts were concluded AUTOWORLD started paying the monthly installments to FNCB. P3.262. the parties entered into a legitimate Installment Paper Purchase ("IPP") transaction.[20] As far as it was concerned.980.81: 1. legal review .20 .Paid to FNCB Finance on Feb. Parol evidence is admissible to show that a written document though legal in form was in fact a device to cover usury. 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.408.60 payable in sixty (60) equal monthly installments of P216.44 as excess interest payments over the 12% ceiling rate. it was ordered to pay FNCB P50.999.000.[12] On 5 January 1983 AUTOWORLD asked FNCB for a refund of its overpayments in the total amount of P3. (3) BARRETTO.00 as exemplary damages and P100. BARRETTO would mortgage the property subject of the sale to FNCB.026. AUTOWORLD also asked forP500.24 was the amount to settle the first transaction while P3.00. as co-makers.00 as attorney's fees in favor of FNCB explaining that the filing of the complaint against FNCB was exercised in good faith.000. which FNCB could legally engage in as a financing company. In December 1982.00 subject to the condition that such amount would be “flowed back” to AUTOWORLD. 16.999.999. on Feb 16. “However.000.60 purchase price directly to FNCB. It ordered the annulment of the contracts and required FNCB to reimburse AUTOWORLD P2.[18] The appellate court deleted the award of P50. the courts should and will permit no scheme.Paid to Agcaoili and Associates of Feb.00 as attorney’s fees. 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. after paying nineteen (19) monthly installments of P216. 1981 for full payment of DB transaction (Account No.44 as excess payment for the first transaction and P418. the courts only need to rely on the face of written contracts to determine the intention of the parties. FNCB sent AUTOWORLD its computation requiring it to pay a total amount ofP10. it merely purchased receivables at a discount from BARRETTO as evidenced by the Deed of Assignment dated 9 February 1981.000. 3.00.[11] Thus.84. However.000.000. FNCB’s Assistant Vice President. to secure the payment of the receivables under the Deed of Assignment.[7] To secure the promissory note.000.000. On 18 January 1985 FNCB filed a Third-Party Complaint against BARRETTO based on the Deed of Assignment.[3] The lawyers of FNCB then drafted the contracts needed and furnished Anthony Que with copies thereof.999.551. petitioner claims that it was never a party to the Contract to Sell between AUTOWORLD and BARRETTO.40 . However. If from a construction of the whole transaction it becomes apparent that there exists a corrupt intention to violate the Usury Law. AUTOWORLD mortgaged a parcel of land located in Sampaloc. With regard to the second transaction. was merely a scheme employed by the parties to disguise a usurious loan.666.035.66.035. 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.00 SC for Manager’s Check for the preparation of documents. FNCB should refund the amounts of P2. Generally. 1981. which involves the P3. It likewise prayed for the nullification of the Promissory Note dated 18 June 1982 and the Real Estate Mortgage dated 24 June 1982. with regard to the second transaction. despite its objections. As to the second transaction.44 to settle the first transaction and P418. registration and transfer of ownership. which was implemented through the three (3) contracts of 9 February 1981.[22] Also. Pio Barretto (BARRETTO) would execute a Contract to Sell a parcel of land in favor of AUTOWORLD for P12.999.[2] and (4) Lastly.000.[6] AUTOWORLD and BARRETTO.[24] And in its subsequent letter of 24 February 1981 petitioner also gave instructions on how BARRETTO should apply the proceeds worth P6.Payment for the appraisal fee conducted by the Asian Appraisal Company.But sometime thereafter. P1.999. (2) Deed of Assignment whereby BARRETTO assigned and sold in favor of FNCB all its rights.00 as moral damages andP500.035.[9] On 20 December 1982 AUTOWORLD wrote FNCB that it disagreed with the latter’s computation of its outstanding balances.165.000.00 with an effective interest rate of 28% per annum.179. 129763 for the price ofP12. hence the parties were free to fix any interest rate. It prayed for P1. 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.242.54 was the amount to settle the second transaction.980. AUTOWORLD reluctantly paid FNCB P10. On the other hand. the existence of a usurious interest rate had no bearing on the P3.000. Instead. situated in San Miguel.586.60 payable in sixty (60) consecutive and equal monthly installments of P216. thus Gentlemen: This serves to inform you of the various application of the proceeds (P6.666.78. to becloud the crime of usury.000.999. 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.884.00 for attorney's fees.00. (2) FNCB would then purchase the receivables worth P12.00 as attorney’s fees. as assignor. On 18 June 1982 AUTOWORLD transacted with FNCB for the second time obtaining a loan of P3.000. or purchase of receivables at a discount.736.784.66.262. Mr. In its complaint.00). would in turn.700. where P6.

it erred in awarding only the interest paid in excess of the 12% ceiling. the whole P200. premiums.921. petitioner itself designated the proceeds of the "IPP" transaction as a “loan. All in all. Having declared the transaction between the parties as void.78. Very truly yours. in compliance with the aforesaid letter.980.217. x x x x [30] Thus. we go to discounting business because we transferred to direct loan. the stipulation on the interest is considered void thus allowing the debtor to claim the whole interest paid. AUTOWORLD should have only paid a total of P1. adopting the computation of AUTOWORLD in its plaintiffappellant’s brief. the case of Sanchez v. In this case however.586. petitioner stated that the “loan proceeds” amounting to P6. 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. and the imposition upon the usurer of the obligation to pay attorney’s fee will serve at once as an encouragement to the oppressed and as a wholesome deterrent to the taking of usurious interests. AUTOWORLD is also entitled to reasonable attorney’s fees and costs SEC.035. the Usury Law recognizes the legitimate purchase of negotiable mercantile paper by innocent purchasers. may recover the whole interest.784.44.Payment for the title search fee conducted by Agcaoili and Associates. Buenviaje[39] where the Court allowed the usurer to recover legal interest on the principal amount loaned. This time however. as seller. the same as costs are awarded. penalties and surcharges paid or delivered with costs and attorney’s 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).000.000. Buenviaje herein cited will not apply to petitioner and it will not be entitled to legal interest on the amount of the principal loan.000. AUTOWORLD paid the principal of P6.00 . 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.00 with interest at 20% per annum or P200.00.000. Otherwise. instead. BARRETTO had to yield P4. the law itself made a qualification.24 to settle it.[32] Hence. Q: After the ceiling was removed.Payment to FNCB Finance for the partial payment of DB transaction (Account No.54.[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. it is a discounting business.00 . ruled According to plaintiff-appellant.88 upon petitioner’s insistent demand. in Delgado v. the only way you could generate more income for your company would be to encourage discounting of receivables? A: That was our business.00. the creditor can always recover the principal debt.00 would be released to BARRETTO only upon submission of the documents it required.00. [29] We are therefore of the impression that had there been no interest rate ceilings in 1981. it has no discretion to deny it altogether. then BARRETTO. Inc. a reasonable attorney’s fee should be allowed as a matter of course. we are now tasked to determine how much reimbursement AUTOWORLD is entitled to.8 had to be returned to petitioner. in any case of litigation. sir. you again. P983.000.400.[34] While we do not dispute the appellate court’s finding that the first transaction was a usurious loan. These contracts should therefore be declared void. In the case at bar. Araullo.47 of the P6. that is our business.[35] However.78 for a debt of P6. AUTOWORLD obtained a loan of P6. 406149 .[28] And no longer having a need to cloak the exorbitant interest rate.666.000. Although the Court has discretion to fix the amount of attorney's fees. Computed at 12% the effective interest should have been P1. commission.116. would have received the whole purchase price. not just the portion thereof in excess of the interest allowed by law. the President of AUTOWORLD.Payment to FNCB Finance for the partial payment of DB transaction (Account No. although we find his actions extremely reprehensible. But.78[31] in interests from appellant.980. appellant may recover P2. none went to BARRETTO. actively and knowingly participated in the execution of the usurious loan transaction. shall have paid or delivered a higher rate or greater sum or value than is hereinbefore allowed.605. 6 of the Usury Law. Thus. defendant-appellee was able to collect P3. therefore.000.921. we must abide by the principle laid down in Go Chioco v. 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.00 should be “flowed back” to AUTOWORLD.217. But even the law has anticipated the potential abuse of such transactions to conceal usurious loans. As a matter of fact.Balance after application. Payable to Pio Barreto Dev. . Art.666. Q: You mean never have you extended direct loan? A: We did at a certain period of time and then we stopped. Third. in the operating cost of finance company is extremely different from a bank and we cannot survive. That nothing herein contained shall be construed to prevent the purchase by an innocent purchaser of a negotiable mercantile paper.00 was really an indirect loan extended to AUTOWORLD so that it could settle its previous debts to petitioner.60 . it paid the aggregate amount of P10.980.646.” [27] In that letter. P122. Q: And so.217. and further paid a balance of P6. This is not denied by the appellee. Had petitioner entered into a legitimate purchase of receivables. 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. although the three (3) contracts seemingly show at face value that petitioner only entered into a legitimate discounting of receivables.000. Thereafter.[37] Applying the 12% interest ceiling rate mandated by the Usury Law.551. otherwise.468. Thus. 6. Thus. The borrower may recover in accordance with the laws on usury. Any person or corporation who.00 in interests. the circumstances cited prove that theP6.400. It would recognize legitimate purchase of negotiable mercantile paper.980.00 would be considered usurious interest. 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. As a seasoned businessman he must have been aware of the consequences of his business dealings. with no more ceiling rates to hinder it. 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. 2 . 7 of the Usury Law which states Provided. whether usurious or otherwise.66 amounting to a total ofP4.00 was really a usurious loan extended to AUTOWORLD.980. 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. if the borrower paysP200.sold units) 9. Thus.000. and free to dispose of such proceeds in any manner it wanted. [36] In the instant case. 40150 . it would have directly loaned the money to AUTOWORLD with an interest rate higher than 12%.058. for valuable consideration before maturity.V.[40] we held When the right of action to recover interest paid upon a usurious contract is established. Petitioner anchors its defense on Sec. the promissory note evidencing the second transaction glaringly bore the 28% interest rate on its face. Indeed.000. In a loan of P1. petitioner imposed a 28% effective interest rate on the loan. P638. we do not agree with the amount of reimbursement awarded to AUTOWORLD.00 to AUTOWORLD. 921.901. Item Nos. in its 17 November 1980 letter to BARRETTO. The Court of Appeals. finally. 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 haven’t at that time giving direct loan.640. But such interest arose from the debtor’s delay in paying the principal from the time of the creditor’s demand. L. Quite obviously. For the 23-month period of the existence of the loan covering the period February 1981 to January 1982. the maker of said note shall have the right to recover from said original holder the whole interest paid by him thereon and. Senior Vice President of petitioner. Thus. 1957 of the Civil Code provides Contracts and stipulations. Valgona.93 .00 to petitioner to settle some of AUTOWORLD's previous debts to it. AUTOWORLD is entitled to recover the whole usurious interest amounting to P3.000. extended direct loan. P2.980. 6. P100. the avowed policy of discouraging usurious transactions would not be served.78 in interests.00 per year.980. It would not have been obliged to follow the "Application of Proceeds" stated in petitioner’s letter.217. We are not unaware of Sanchez v. to be taken or received. the law would not hesitate to annul such contracts. effectively admitted that it only employed discounting of receivables due to the ceiling rates imposed by the Usury Law. please do not hesitate to call on the undersigned. Anthony Que. after the interest rate ceilings were lifted on 21 July 1981 petitioner extended on 18 June 1982 a direct loan of P3.Total Should you need any clarification on the matter. Gregorio Anonas. the debtor was never in delay. petitioner would not have resorted to the fictitious “IPP” transaction.601.5.980.00. Asst Vice-President[25] It can be seen that out of the nine (9) items of appropriation stated above. In usurious loans. AUTOWORLD paid a total of P3.00 and the whole usurious interest ofP3. for any such loan or renewal thereof or forbearance. one of the required documents was a letter agreement between BARRETTO and AUTOWORLD stipulating that the P6. And as previously mentioned. P6.545. correct? A: Yes. ceiling on interest was removed. intended to circumvent the laws on usury shall be void. The foregoing circumstances confirm that the P6.00 . under any cloak or device whatever.sold units) 8. That is the reason why legal interest was counted only from the time the creditor filed his complaint for the recovery of a debt.000. it paid nineteen (19) consecutive installments of P216. for the mere invocation of the pari delicto rule would allow the usurer to reap the benefits of his unlawful act. In any case however.00 . usurious or otherwise. also the costs and such attorney’s fees as may be allowed by the court. and this normally has been the case. Under Sec.500.Indeed.980.Payment for legal and professional fee (Agcaoili and Associates) 7.217.[33] representing overpayment arising from usurious interest rate charged by appellee. Fourth.[38] Hence.921. It is not to generate more income. FNCB.

000. and registered in the name of petitioner. or a total of P885. Q-96-29024. denying petitioner’s Motion for Reconsideration.[7] The mortgage was signed by Corazon Ruiz for herself and as attorney-in-fact of her husband Rogelio. It noted that although the subject real estate mortgage stated that petitioner was “attorney-in-fact for herself and her husband.921.000. CORAZON RUIZ. and P150. compounded monthly. P200. plus interest.[23] Nevertheless.[16] When petitioner failed to pay.00.00 was secured by a real estate mortgage on a 240-square meter lot in New Haven Village. 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. COURT OF APPEALS and CONSUELO TORRES. CORAZON G.000. it ordered the Clerk of Court and Ex-Officio Sheriff to desist with the foreclosure sale of the subject property. Novaliches. shall pay attorney’s fees at the rate of twenty -five percent (25%) of the entire amount to be collected.00 were secured by P571. Bernas issued a Notice of Sheriff’s Sale of subject lot. which reads as follows: [6] “P750. 1996.[25] . as principal and ROGELIO RUIZ as surety in solidum. covered by separate promissory notes. The computed amount of P706. a fraction of the month shall be considered one full month.000.WHEREFORE. 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. the loans were consolidated under one (1) promissory note dated March 22.[13] amounting to P270.[5] Prior to their maturity. 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 toP706.00. and it made permanent the writ of preliminary injunction. March 22.000.00. it held that petitioner still has an obligation to pay the private respondent.[10] and (3) promissory note dated December 21. [4] She obtained loans from private respondent Consuelo Torres on different occasions.000.000. (Sgd. It was executed on 20 March 1995. in the amount of P100.[8] Thereafter. 1997. the trial court took into account petitioner’s proposal to pay her other obligations to private res pondent in the amount of P392.[21] In its Decision dated May 19. Ruiz is engaged in the business of buying and selling jewelry. as well as P50.000.217.00 representing the amount of jewelry pledged in favor of private respondent. The facts of the case are as follows: Petitioner Corazon G.00. jointly and severally promise to pay to the order of CONSUELO P.00 loan.00. It held that the real estate mortgage is unenforceable because of the lack of the participation and signature of petitioner’s husband.00) Philippine Currency.[20] and on 29 October 1996.000. P300. covered by Transfer Certificate of Title (TCT) No.000.000.000.” the Special Power of Attorney was never presented in court during the trial. 56621 dated 25 August 2000. private respondent sought the extra-judicial foreclosure of the aforementioned real estate mortgage. compounded monthly from September 1996 to January 1997.00. petitioner filed a complaint with the RTC of Quezon City docketed as Civil Case No. in the amount ofP100. [17] On September 5. Remaining balance as of the maturity date shall earn an interest at the rate of ten percent a month. 1995 PROMISSORY NOTE For value received. for thirteen months.000. [18] On October 7.000. petitioner.R. shall be collected. one (1) day before the scheduled auction sale. and interest of ten percent (10%) a month.00 loan.00 is paid. respondents. SO ORDERED. DECISION PUNO. petitioner paid the stipulated 3% monthly interest on the P750. private respondent demanded payment not only of theP750. CV No.[12] From April 1995 to March 1996.00.[9] (2) promissory note dated May 23.000.000.00. TORRES the sum of SEVEN HUNDRED FIFTY THOUSAND PESOS (P750. plus the other loans ofP300. RUIZ. issued a writ of preliminary injunction. subject to the MODIFICATION that petitioner Investors Finance Corporation is ordered to pay private respondent Autoworld Sales Corporation the amount of P3. 1995.00 worth of jewelry pledged by petitioner to private respondent. payable every _____ of the month.000.000. plus legal interest from date of [receipt of] the decision until the total amount of P885.000. petitioner obtained three (3) more loans from private respondent. or two (2) days before the execution of the subject promissory note. Quezon City. the principal and surety in solidum shall reimburse the expenses of the plaintiff. RT-96686.00. 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).000. In computing the interest and surcharge.00 was based on the aggregate loan of P750.[15] Due to petitioner’s failure to pay the principal loan of P750.[19] The trial court granted the prayer for the issuance of a Temporary Restraining Order. and to start on April 1995 and to mature on April 1996. and same is referred to a lawyer for collection. minus P571.000. the assailed Decision of the Court of Appeals dated 24 May 1996 declaring the 9 February 1981 transaction as a usurious loan is AFFIRMED. 1996.00 Quezon City. as well as the interest payment for April 1996. Ele.00 as attorney's fees and the costs. 1995.00. Acting Clerk of Court and Ex-Officio Sheriff Perlita V. vs.000. If the amount due is not paid on date due.000.[14] After March 1996. Acal and Supervising Sheriff Silverio P. J. as well as its subsequent Resolution[3] dated 26 January 2001.000. Petitioner was thus ordered to pay the amount of P750.00 plus three percent (3%) interest per month.00.78 representing the entire usurious interest it paid on the 9 February 1981 loan. 1995 promissory note. for every month default. petitioner was unable to make interest payments as she had difficulties collecting from her clients in her jewelry business.: On appeal is the decision[1] of the Court of Appeals in CA-G. covered by the March 22.000.00 loan. It is finally agreed that the principal and surety in solidum. [22] The trial court further held that the promissory note in question is a unilateral contract of adhesion drafted by private respondent. Deputy Sheriff In-Charge Rolando G. I. a SURCHARGE of ONE PERCENT of the principal loan. 1996. under the following promissory notes: (1) promissory note dated 21 April 1995.) Corazon Ruiz Principal __________________ Surety” The consolidated loan of P750. The public auction was scheduled on October 8. RT-96686.00. in case this note is not paid according to the terms and conditions set forth. 1995.00. to earn an interest at the rate of three per cent (3%) a month.000. in the amount of P100.[24] Aside from the foregoing.000.00. In the event of an amicable settlement.[11]These combined loans of P300. subject to renewal. but also of the P300. in the following amounts: P100.

1995.00 is a contract of adhesion.000.000.307. from the signing of the note until its maturity date. (3) PUBLIC RESPONDENT COURT OF APPEALS GRAVELY ERRED IN DISREGARDING THE TRIAL COURT’S COMPUTATION OF THE ACTUAL OBLIGATIONS OF THE PETITIONER WITH (THE) RESPONDENT TORRES EVEN THOUGH THE SAME IS BASED ON EVIDENCE SUBMITTED BEFORE IT. III We now resolve the issue of whether the rates of interests and surcharges on the obligation of petitioner to private respondent are legal. from the signing of the note until its maturity date. (3) 1% surcharge on the principal loan for every month of default. As the notice of the foreclosure sale has already been published.[32] The appellate court also granted attorney’s fees in the amount of P50. (3) 1% compounded monthly surcharge on the principal loan for every month of default. 1995 and December 1. 1995 has the following provisions: (1) 3% monthly interest. (2) PUBLIC RESPONDENT COURT OF APPEALS GRAVELY ERRED IN DECLARING THAT THE PROPERTY COVERED BY THE SUBJECT DEED OF MORTGAGE OF MARCH 20. dated December 21.00 with legal interest from date of receipt of decision until payment of total amount of P1. 1996.. [28] It allowed its foreclosure since the loan it secured was not paid.000. without compounding.307.00. 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. the trial court computed petitioner’s obligation to private respondent.00 promissory note dated April 21. (2) Whether the real property covered by the subject deed of mortgage dated March 20.00. It ruled that the real estate mortgage is valid despite the non-participation of petitioner’s husband in its execution because the land on which it was constituted is paraphernal property of petitioner-wife. and not the stipulated 25% of the amount due. 1997. 1995 matured on November 23.15.000. (2) P100.000. dated May 23.000. 1996. The two (2) other P100. The P100. 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 matured on August 21.[27] Private respondent’s motion for reconsideration was denied in an Order dated July 21. (2) 10% monthly interest on the remaining balance at maturity date. 1995 matured on April 21.000. and (4) P100. 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. 1995 is paraphernal property of petitioner. (2) 10% compounded monthly interest on the remaining balance at maturity date. dated March 22. she may encumber the lot without the consent of her husband. and (4) 10% attorney’s fees. iniquitous. from the signing of the note until its maturity date. 1995 have the following provisions: (1) 3% monthly interest.00 plus attorney’s fees of the same amount.392.00 TOTAL…………………… P1. 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.[26] Thus. and contrary to morals.00 Other Loans…………………. The P750. P 750.000.000. it ordered the petitioner to reimburse private respondent the amount of P15.00 has been made. petitioner assigns the following errors: (1) PUBLIC RESPONDENT COURT OF APPEALS GRAVELY ERRED IN RULING THAT THE PROMISSORY NOTE OF P750.00 promissory notes dated May 23.000.00. . 1995 matured on March 1. The appellate court set aside the decision of the trial court. 1995.. Nonetheless.00.The trial court also recognized the expenses borne by private respondent with regard the foreclosure sale and attorney’s fees . (3) P100. Consequently.[33] Now. Private respondent appealed to the Court of Appeals. as follows: Principal Loan ……………. and that the only permissible rate of surcharge is 1% per month.000. 1995 and December 1. 1995 has the following provisions: (1) 3% monthly interest. and (4) 25% attorney’s fees.00 promissory note dated March 22. and (3) Whether the rates of interests and surcharges on the obligation of petitioner to private respondent are valid.[31] for being excessive.00 Publication Fees………………. dated April 21.000. The pertinent issues to be resolved are: (1) Whether the promissory note of P750.000.000. 135.00 Attorney’s Fees …………… 15.00 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.000. 1995.00 Interest………………………. before this Court. following the ruling in the case of Medel v. NOR DISCUSSED AND ARGUED BEFORE THE TRIAL COURT.000. unconscionable.000. [30] and so too the 1% compounded monthly interest stipulated in the promissory note dated 21 April 1995.00. Court of Appeals.

[48] Bautista vs. and is separate and distinct from interest payment.. [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.250. and parties to a loan agreement have been given wide latitude to agree on any interest rate. 1% interest per month on principal from March 22. 1% interest per month on principal from December 1. 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. subject to the MODIFICATION that the interest rate of 36% per annum is ordered reduced to 12 % per annum. b. JJ. We affirm the ruling of the appellate court.00 a.000. Court of Appeals. b.[62] In the instant case. Pilar Development Corporation. 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.43 loan. 2. 1995 was properly reduced by the appellate court.000. Principal of loan under promissory note dated March 22. b. good customs. Sandoval-Gutierrez.(2) 10% compounded monthly interest on the remaining balance at maturity date. unconscionable and exorbitant. and the 1% compounded monthly interest stipulated in the promissory note dated April 21. (3) 10% surcharge on the principal loan for every month of default.00 loan.[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. P750.[59] Also referred to as a penalty clause.. still stipulated interest rates are illegal if they are unconscionable. concur. It is an accessory undertaking to assume greater liability on the part of an obligor in case of breach of an obligation. P100. Corona. SO ORDERED. it is expressly recognized by law. 1995. 1995 and December 1. to a fixed amount of P50.. Salazar.[54] this Court upheld the validity of a 21% per annum interest on a P142. In sum.. 2227 of the New Civil Code. a stipulated penalty. 1% interest per month on principal from May 23. The foregoing rates of interests and surcharges are in accord with Medel vs.5% per month or 66% per annum interest on a P500. 1995 promissory note) and 10% (in the other three promissory notes) of the entire amount due.00 a. In both cases. 1% interest per month on principal from April 21.000. We held that while the Usury Law has been suspended by Central Bank Circular No.00 loan in Solangon[52] for being excessive. 1995 until fully paid 1% surcharge per month on principal from April 1996 until fully paid 5..…………………………………. effective on January 1. Principal of loan under promissory note dated December 1. This surcharge or penalty stipulated in a loan agreement in case of default partakes of the nature of liquidated damages under Art. .. iniquitous.000. sustained the agreement of the parties to a 24% per annum interest on an P8.[50] This Court invalidated a stipulated 5.……….00. IN VIEW WHEREOF. and Carpio-Morales. since the mortgage is valid and the loan it secures remains unpaid. 1995 …………………………………………. 1983. 905. It is on the basis of these cases that we reduce the 36% per annum interest to 12%.[49] and the recent case of Spouses Solangon vs. the appealed Decision of the Court of Appeals is AFFIRMED. petitioner shall pay private respondent the following: 1. 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 foreclosure proceedings may now proceed. 1995 and December 1. 1995 ………………………………………. public order or public policy. less P270.[47] Garcia vs.000.00 a.000. the 10% surcharge per month stipulated in the promissory notes dated May 23.326. 1995 until fully paid 1% surcharge per month on principal from September 1995 until fully paid 3. Court of Appeals.00 a.P 50. Court of Appeals.00 Hence. Pilar Development Corp.…………………………………. without compounding. Also. inBautista vs.00 loan in Medel[51] and a 6% per month or 72% per annum interest on a P60. Principal of loan under promissory note dated May 23. and in Garcia vs.000.000. 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. may be equitably reduced if it is iniquitous or unconscionable. [53] On the other hand..[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. 1995 . Panganiban. 1995 until fully paid.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. we reduced the interest rate to 12% per annum. and (4) 10% attorney’s fees. s. 1982. P100.. 1995 until fully paid 1% surcharge per month on principal from December 1995 until fully paid 4. Principal of loan under promissory note dated April 21. An interest of 12% per annum is deemed fair and reasonable.649. P100. 1995. nevertheless.000.. the only permissible rate of surcharge is 1% per month. Attorney’s fees…………………………………………. the amount of which having been reasonably reduced from the stipulated 25% (in the March 22. the 10% surcharge per month stipulated in the promissory notes dated May 23. We also uphold the award of the appellate court of attorney’s fees. However. striking down as invalid the 10% compounded monthly interest. 1995 ….

P200. thus Macalalag can no longer be held liable for violation of BP 22 in so far as the first check is concerned.000 already paid by Macalalag to Estrella could very well be applied to the face value of the first loan. each in amount of P100.00 in favor of Estrella. respondents filed a complaint for foreclosure of mortgage with the RTC of Quezon City.500. In their answer. 5.98 paid in 1997). that as of August 31. Macalalag pleaded not guilty and stated that she already made payments over and above the value of the said checks amounting to P355. however finding the interest rates so burdensome.00. Macalalag issued 2 PNB checks.000.000. 1997. Petitioners made payments amounting to P291. Hence.Macalalag vs. 7. petitioners obtained additional loans from the respondents in the aggregate amount of P1. Trial Court found her guilty as well as the Court of Appeals with modification that she is liable only for 1 count of BP 22.00 and P250.250.000. 1997. there is no doubt that Macalalag is liable under BP 22. and in imposing legal interest of 12% per annum on the stipulated interest of 18% from the filing of the case until fully paid. 3.00 . People of the Philippines December 20. Petitioners.000. 1992 and September 5. each amounting to P100.84.98. bearing an interest of 10% per month. Macalalag requested Estrella for reduction of the same to which the latter agreed. Ruling: .000. obtained a loan in the amount of P1. Issue: Whether or not petitioners must pay respondents legal interest of 12% per annum on the stipulated interest of 18% per annum. and secured by a Real Estate Mortgage 2.000. 168736. They also contended that the RTC erred in ordering the foreclosure of the real estate mortgage to satisfy the total indebtedness of P6. respectively. Petitioners appealed to the CA reiterating their previous claim that only the amount of P1. 4.00 was secured by the real estate mortgage at 18% per annum and that there was no agreement that the same will be compounded monthly.00 loan and the subsequent loans of P150.00 from respondents. Subsequently.500. Hence Estrella filed 2 criminal complaint against Macalalag for violation of BP 22.500. 6.00.000 paid in 1996 and P199. She consistetntly paid the interest . it has been established that Macalalg made a total payment of P355.00 and P500. Macalalag executed an affirmation receipt promising to pay Estrella the value of the loans in the amount of P200. their indebtedness amounted to P6. 837. Estrella admitted such payment but claimed that the same amount was applied to the payment of the interest. Estrella sent notice of dishonor and demand to make good said checks to Macalalag. as of January 10. CA partially granted the petition and modified the RTC decision insofar as the amount of the loan obligations secured by the real estate mortgage. 2006 Justice Ynares-Santiago Facts: 1.14.00( P156. 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. 1993 in the amounts of P150. Issue: WON Macalalag had already paid her obligations to Estrella Held: In the Instant case. 1992 and January 13. As security for the payment of the aforesaid loans.00 within 2 months from date of its execution plus 6% interest per month for each loan. Hence her obligation to Estrella was not fully paid.000. but failed to settle their outstanding loan obligations. October 29. respectively. 2006 Facts: Petitioner Theresa Macalalag obtained loans from Grace Estrella on 2 separate occasions.837.000.700.000. The RTC rendered judgment in favor of the respondents.837. payable within one year at 18% interest per annum. inclusive of the 18% interest compounded monthly.500. Subsequently. It held that by express intention of the parties.R. 9. computed from the filing of the complaint until fully paid. On September 10.00. Spouses Adelina and Feliciano Cuyco vs.00 obtained on July 1.967. but the latter failed to do so. the real estate mortgage secured the original P1.532. April 19.000.241.000. since the check he represented for payment bounced for reason “ account closed”. and that petitioners’ refusal to settle the same entitles the respondents to foreclose the real estate mortgage. 1992. With respect to the second check. the appellate tribunal held that the parties never intended the same to be secured by the real estate mortgage. No.00. They alleged that petitioners’ loans were secured by the real estate mortgage.019. But said check were dishonored . 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.000. petitioners admitted their loan obligations but argued that only the original loan of P1. spouses Renato and Filipina Cuyco. the amount of 156. spouses Adelina and Feliciano Cuyco. 8. Spouses Renato and Filipina Cuyco G. plus interest until fully paid. 1999. As regards the loans obtained on May 31. for reason that the account to which it is drawn was already closed.000. 1992.00 was secured by the real estate mortgage.

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