Republic vs Grijaldo

Issue: Whether PNB properly set off the account of Gullas

with the payment of the indorsed check.

Facts:

Grijaldo obtained five loans from the Bank of Taiwan

in the total sum of P1,281.97 with interest at the
rats of 6% per annum compounded quarterly. These
were evidenced by five promissory notes.
These loans were crop loans and was considered to
be due one year after they were incurred.
As a security for the payment of the loans, a chattel
mortgage was executed on the standing crops of his
land.
The assets in the Bank of Taiwan were vested in the
US Govt which were subsequently transferred to the
Republic of the Philippines
RP is now demanding the payment of the account.
Justice of Peace dismisses the case on the ground of
prescription. CA rendered a decision ordering the
appellant to pay the appellee

Defendants contentions:
1)

2)
3)

The appellee has no cause of action against

appellant since the transaction was with Taiwan
Bank.
That if the appellee has a cause of action at all, it
had prescribed
The lower court erred in ordering the appellant to
pay P2,377.23

Issue: Can RP still collect from Grijaldo?

Held: Yes
Ratio: The obligation of the contract was not to deliver a
determinate thing, it was a generic thing the amount of
money representing the total sum of his loans. The
destruction of anything of the same kind does not extinguish
the obligation. The loss of the crops did not extinguish his
obligation to pay because the account could still be paid from
other sources aside from the mortgaged crops. Also,
prescription does not run against the State.

Paulino Gullas v. PNB, 1935

Facts:
United States Veterans Bureau issued a warrant payable to
the order of Francisco Sabectoria Bacos. Paulino Gullas and
Pedro Lopez signed as indorsers of this check. Thereupon it
was cashed by the Philippine National Bank. Subsequently
the treasury warrant was dishonored. The bank sent notices
by mail to Mr. Gullas which could not be delivered to him at
that time because he was in Manila. The bank then
proceeded to apply the outstanding balances of Mr. Gullas

current accounts with it to the part payment of the subject
check.

Ruling: No. Although PNB had with respect to the deposit of

Gullas a right of set off, its remedy was not enforced
properly. Notice of dishonor is necessary in order to charge
an indorser and that the right of action against him does not
accrue until the notice is given. Prior to the mailing of notice
of dishonor, and without waiting for any action by Gullas, the
bank made use of the money standing in his account to make
good for the treasury warrant. The action of the bank was
prejudicial to Gullas. As such Gullas should be awarded
nominal damages because of the premature action of the
bank.
Eastern Shipping vs CA,GR No. 97412,12 July 1994 234
SCRA78
FACTS:
Two fiber drums were shipped owned by Eastern
Shipping from Japan. The shipment as insured with a marine
policy. Upon arrival in Manila unto the custody of metro Port
Service, which excepted to one drum, said to be in bad order
and which damage was unknown the Mercantile Insurance
Company. Allied Brokerage Corporation received the
shipment from Metro, one drum opened and without seal.
Allied delivered the shipment to the consignees warehouse.
The latter excepted to one drum which contained spillages
while the rest of the contents was adulterated/fake. As
consequence of the loss, the insurance company paid the
consignee, so that it became subrogated to all the rights of
action of consignee against the defendants Eastern Shipping,
Metro Port and Allied Brokerage. The insurance company filed
before the trial court. The trial court ruled in favor of
plaintiff an ordered defendants to pay the former with
present legal interest of 12% per annum from the date of the
filing of the complaint. On appeal by defendants, the
appellate court denied the same and affirmed in toto the
decision of the trial court.
ISSUE:
(1) Whether the applicable rate of legal interest is 12% or
6%.
(2) Whether the payment of legal interest on the award for
loss or damage is to be computed from the time the
complaint is filed from the date the decision appealed from is
rendered.
HELD: (1)The Court held that the legal interest is 6%
computed from the decision of the court a quo. When an
obligation, not constituting a loan or forbearance of money,
is breached, an interest on the amount of damaes awarded
may be imposed at the discretion of the court at the rate of
6% per annum. No interest shall be adjudged on unliquidated
claims or damages except when or until the demand can be
established with reasonable certainty.
When the judgment of the court awarding a sum of money
becomes final and executor, the rate of legal interest shall be
12% per annum from such finality until satisfaction, this

interim period being deemed to be by then an equivalent to a

forbearance of money.
The interest due shall be 12% PA to be computed fro default,
J or EJD
(2) From the date the judgment is made. Where the demand
is established with reasonable certainty, the interest shall
begin to run from the time the claim is made judicially or EJ
but when such certainty cannot be so reasonably established
at the time the demand is made, the interest shll begin to
run only from the date of judgment of the court is made.
(3) The Court held that it should be computed from the
decision rendered by the court a quo.
G.R. No. L-59096 October 11, 1985

REFORMINA v TOMOL, JR
FACTS:
A fire occurred burning the boat FB Pacita III and fishing gear
of the Reforminas.
Consequently, they filed an action for recovery of damages
for injury to persons and loss of property.
Judge Tomol, Jr awarded the Reforminas damages with legal
interest from the filing of the complaint until paid. He
further rendered that by legal interest meant 6% as provided
for by Art 2209 CC.
Reforminas contend that it should be 12% by virtue of Central
Bank Circular No. 416.
ISSUE: How much, by way of legal interest, should a
judgment debtor pay the judgment creditor?
WON legal interest meant 6% as provided for under Article
2209 of the Civil Code.
What kind of judgment is covered under USURY Law?
HELD: YES
RATIO: C.B. Circular 416 which took effect July 29, 1974
pursuant to PD 116 which amended Act 2655 (Usury Law)
which raised the legal interest fro 6% to 12% applies only to
forbearances of money, goods or credit and court judgments.
Such court judgment refers only to judgments in litigations
involving loans or forbearance of any money, goods or credit.
Any other kind of monetary judgment does not fall
under the coverage of said law for it is not within the ambit
of authority granted to the central Bank. Only the legislature
can change the laws.
In this case, the the decision of the judge is one
rendered in an action for damages arising from injury to
persons and loss of property and does not involve a loan much
less forbearance of any money, goods or credit. The law
applicable is thus ART 2209 CC which states that:
If the obligation consists in the payment of a sum
of money and the debtor incurs in delay, the indemnity for
damages there being no stipulation to the contrary shall be
the payment of interest agreed upon, and in the absence of
stipulation, the legal interest which is 6% per annum.
Plana Concurring and Dissenting:
Under Sec 1 a of Act 2655 as amended by PD 116,
the authority of CB is to fix a maximum rate of interest on
loans and not to prescribe a fixed interest rate.

Such authority given to CB is absolute and unqualified and

therefore the delegation of power to it is void.
Extent and scope of actual damages
1. contracts and quasi-contracts
Art. 2201. In contracts and quasi-contracts, the damages for
which the obligor who acted in good faith is liable shall be
those that are the natural and probable consequences of the
breach of the obligation, and which the parties have foreseen
or could have reasonably foreseen at the time the obligation
was constituted.
In case of fraud, bad faith, malice or wanton attitude, the
obligor shall be responsible for all damages which may be
reasonably attributed to the non-performance of the
obligation. (1107a)
Art. 2215. In contracts, quasi-contracts, and quasi-delicts,
the court may equitably mitigate the damages under
circumstances other than the case referred to in the
preceding article, as in the following instances:
(1) That the plaintiff himself has contravened the terms of
the contract;
(2) That the plaintiff has derived some benefit as a result of
the contract;
(3) In cases where exemplary damages are to be awarded,
that the defendant acted upon the advice of counsel;
(4) That the loss would have resulted in any event;
(5) That since the filing of the action, the defendant has
done his best to lessen the plaintiff's loss or injury.
First Metro Investment Corporation vs. Este del Sol
Mountain Reserve, Inc. (362 SCRA 101)
FACTS:
Petitioner FMIC granted respondent a loan of Seven Million
Three Hundred Eighty Five Thousand Five Hundred Pesos
(P7,385,500.00) to finance the construction of a sports
complex at Montalban, Rizal. Respondent also executed, as
provided for by the Loan Agreement, an Underwriting
Agreement with underwriting fee, annual supervision fee and
consultancy fee with Consultancy Agreement for four (4)
years, coinciding with the term of the loan. The said fees
were deducted from the first release of loan. Respondent
failed to meet the schedule of repayment. Petitioner
instituted an instant collection suit. The trial court rendered
its decision in favor of petitioner. The Court of Appeals
reversed the decision of the trial court in favor of herein
respondents after its factual findings and conclusion.
ISSUE: Whether or not the Underwriting and Consultancy
Agreements were mere subterfuges to camouflage the
usurious interest charged by the petitioner.
RULING: YES. In the instant case, several facts and
circumstances taken altogether show that the Underwriting
and Consultancy Agreements were simply cloaks or devices to
cover an illegal scheme employed by petitioner FMIC to

conceal and collect excessively usurious interest. Art. 1957.

Contracts and stipulations, under any cloak or device
whatever, intended to circumvent the laws against usury shall
be void. The stipulated penalties, liquidated damages and
attorneys fees, excessive, iniquitous and unconscionable and
revolting to the conscience as they hardly allow the borrower
any chance of survival in case of default. Hence, the instant
petition was denied and the assailed decision of the appellate
court is affirmed.
G.R. No. 160545 March 9, 2010 PRISMA CONSTRUCTION &
DEVELOPMENT
CORPORATION
and
ROGELIOS.
PANTALEON,Petitioners,vs. MENCHAVEZ, Respondent
FACTS:On December 8,1993 PRISMA obtained a 1 million loan
from respondent with a monthlyinterest of 40,000.00 andis
payable for six months which is secured by a promissory note
issuedbyRogelio S Pantaleon, President and Chairmanof the
Board of PRISMA. Its total obligation is1,240,000.00 to be paid
under the following schedule of payments:
January 8, 1994......40,000.00
February 8, 1994.....40,000.00
March 8, 1994.........40,000.00
April 8, 1994............40,000.00
May 8, 1994.............40,000.00
June 8,1994.............1,040,000.00
The petitioners failed to completely pay the loan within the
stipulated 6 month period. FromSeptember 8, 1994 to
January 4, 1997, thepetitioners paid a total of 1,108,772.00.
However, therespondent found that the petitioners still had
an outstanding balanceof 1,364,151.00 as of January4, 1997
to which it applied a 4% monthly interest.On August 28, 1997,
respondent filed a complaintfor sum of money with the RTC
to enforcethe unpaid balance plus 4% monthly interest.The
RTC ordered the petitionersto jointly and severally pay the
respondent the amount of 3,526,117.00 plus 4% per month
interest from February11,1999 until fully paid.CA affirmed
the RTCDecision by imposing a 12% per annum interest,
computed from the filling of the complaint untilfinality of
judgment and thereafter.ISSUE:Whether or not the parties
agreed to the 4% monthly interest on the loan? If so, does the
rateof interest apply to the 6-month paymentperiod only or
until full payment of the loan?RULING: NO.The parties did not
agree to the 4% monthly interest on the loan. Interest due
should be stipulated in writing; otherwise,12% per annum.
Obligations arising from contracts have the force of law
between the contracting parties and shouldbe complied with
in good faith. When the terms of a contract are clear and
leave no doubt as to the intention of the contracting parties,
the literal meaning of its stipulations governs In such cases,
courts have no authority to alter the contract byconstruction
or to make a new contract for the parties; a court's duty is
confined to the interpretation of the contract theparties
made for themselves without regard to its wisdom or folly, as
the court cannot supply material stipulations or read into the
contract words the contract does not contain. It is only when
the contract is vague and ambiguous that courts are
permitted to resort to the interpretation of its terms to
determine the parties intent. The 1 million loan with
40,000.00per month interest for six months having a total

obligation f 1,240,000.00 for the total six month period is an

agreed sum which can be computed at 4% interest per month,
but no such rate of interest was stipulated in the promissory
note; rather a fixed sum equivalent to this fixed rate was
agreed upon Article 1956 of the Civil Code specifically
mandates that "no interest shall bedue unless it has been
expressly stipulated in writing." Under this provision, the
payment of interest in loans or forbearance of money is
allowed only if: (1) there was an express stipulation for the
payment of interest; and (2) the agreementfor the payment
of interest was reduced in writing. The concurrence of the
two conditions is required for the payment of interest at a
stipulated rate. Applying this provision, we find that the
interest of P40, 000.00 per month correspondsonly to the six
(6)-month period of the loan, or from January 8, 1994 to June
8, 1994, as agreed upon by theparties in the promissory note.
Thereafter, the interest on the loan should be at the legal
interest rate of 12%per annum.It is a familiar doctrine in
obligations and contracts that the parties are bound by the
stipulations, clauses, terms and conditions theyhave agreed
to, which is the law between them, the only limitation being
that these stipulations, clauses, terms and conditions are
notcontrary to law, morals, public order or public policy.The
payment of the specific sum of money of P 40,000.00 per
month was voluntarily agreed upon by the petitioners andthe
respondent. There is nothing from the records and, in fact,
there is no allegation showing that petitioners werevictims of
fraud when they entered into the agreement with the
respondent. Therefore, as agreed by the parties,the loan of
P1,000,000.00 shall earn P 40,000.00 per month for a period
of six (6) months, or from December 8,1993 to June 8, 1994,
for a total principal and interest amount of P1,240,000.00.
Thereafter, interest at the rate of 12% per annum shall apply.
The amounts already paid by the petitioners during the
pendency of the suit,amounting toP1,228,772.00 as of
February12, 1999 should be deducted from the total amount
due, computed as indicated above .
Case Digest: G.R. No. 173227. January 20, 2009
Sebastian Siga-an, petitioner, vs. Alicia Villanueva,
respondent.
Facts:
Respondent filed a complaint for sum of money against
petitioner. Respondent claimed that petitioner approached
her inside the PNO and offered to loan her the amount of
P540,000.00 of which the loan agreement was not reduced in
writing and there was no stipulation as to the payment of
interest for the loan. Respondent issued a check worth
P500,000.00 to petitioner as partial payment of the loan. She
then issued another check in the amount of P200,000.00 to
petitioner as payment of the remaining balance of the loan of
which the excess amount of P160,000.00 would be applied as
interest for the loan. Not satisfied with the amount applied
as interest, petitioner pestered her to pay additional interest
and threatened to block or disapprove her transactions with
the PNO if she would not comply with his demand. Thus, she
paid additional amounts in cash and checks as interests for
the loan. She asked petitioner for receipt for the payments
but was told that it was not necessary as there was mutual

trust and confidence between them. According to her

computation, the total amount she paid to petitioner for the
loan and interest accumulated to P1,200,000.00.
The RTC rendered a Decision holding that respondent made
an overpayment of her loan obligation to petitioner and that
the latter should refund the excess amount to the former. It
ratiocinated that respondents obligation was only to pay the
loaned amount of P540,000.00, and that the alleged interests
due should not be included in the computation of
respondents total monetary debt because there was no
agreement between them regarding payment of interest. It
concluded that since respondent made an excess payment to
petitioner in the amount of P660,000.00 through mistake,
petitioner should return the said amount to respondent
pursuant to the principle of solutio indebiti. Also, petitioner
should pay moral damages for the sleepless nights and
wounded feelings experienced by respondent.
Further,
petitioner should pay exemplary damages by way of example
or correction for the public good, plus attorneys fees and
costs of suit.
Issue: (1) Whether or not interest was due to petitioner; and
(2) whether the principle of solutio indebiti applies to the
case at bar.
Ruling: (1) No. Compensatory interest is not chargeable in the
instant case because it was not duly proven that respondent
defaulted in paying the loan and no interest was due on the
loan because there was no written agreement as regards
payment of interest. Article 1956 of the Civil Code, which
refers to monetary interest, specifically mandates that no
interest shall be due unless it has been expressly stipulated in
writing. As can be gleaned from the foregoing provision,
payment of monetary interest is allowed only if: (1) there
was an express stipulation for the payment of interest; and
(2) the agreement for the payment of interest was reduced in
writing. The concurrence of the two conditions is required
for the payment of monetary interest. Thus, we have held
that collection of interest without any stipulation therefor in
writing is prohibited by law.
(2) Petitioner cannot be compelled to return the alleged
excess amount paid by respondent as interest. Under Article
1960 of the Civil Code, if the borrower of loan pays interest
when there has been no stipulation therefor, the provisions of
the Civil Code concerning solutio indebiti shall be applied.
Article 2154 of the Civil Code explains the principle of solutio
indebiti. Said provision provides that if something is received
when there is no right to demand it, and it was unduly
delivered through mistake, the obligation to return it arises.
In such a case, a creditor-debtor relationship is created under
a quasi-contract whereby the payor becomes the creditor
who then has the right to demand the return of payment
made by mistake, and the person who has no right to receive
such payment becomes obligated to return the same. The
quasi-contract of solutio indebiti harks back to the ancient
principle that no one shall enrich himself unjustly at the
expense of another. The principle of solutio indebiti applies
where (1) a payment is made when there exists no binding

relation between the payor, who has no duty to pay, and the
person who received the payment; and (2) the payment is
made through mistake, and not through liberality or some
other cause. We have held that the principle of solutio
indebiti applies in case of erroneous payment of undue
interest.
Article 2232 of the Civil Code states that in a quasi-contract,
such as solutio indebiti, exemplary damages may be imposed
if the defendant acted in an oppressive manner. Petitioner
acted oppressively when he pestered respondent to pay
interest and threatened to block her transactions with the
PNO if she would not pay interest. This forced respondent to
pay interest despite lack of agreement thereto. Thus, the
award of exemplary damages is appropriate so as to deter
petitioner and other lenders from committing similar and
other serious wrongdoings.