NAKPIL & SONS v.

CA
To be exempt from liability due to an act of God, the engineer/architect/contractor must not
have been negligent in the construction of the building.

FACTS:
Private respondents Philippine Bar Association (PBA) a non-profit organization formed
under the corporation law decided to put up a building in Intramuros, Manila. Hired to plan
the specifications of the building were Juan Nakpil & Sons, while United Construction was
hired to construct it. The proposal was approved by the Board of Directors and signed by the
President, Ramon Ozaeta. The building was completed in 1966.

In 1968, there was an unusually strong earthquake which caused the building heavy
damage, which led the building to tilt forward, leading the tenants to vacate the premises.
United Construction took remedial measures to sustain the building.

PBA filed a suit for damages against United Construction, but United Construction
subsequently filed a suit against Nakpil and Sons, alleging defects in the plans and
specifications.

Technical Issues in the case were referred to Mr. Hizon, as a court appointed Commissioner.
PBA moved for the demolition of the building, but was opposed. PBA eventually paid for the
demolition after the building suffered more damages in 1970 due to previous earthquakes.
The Commissioner found that there were deviations in the specifications and plans, as well
as defects in the construction of the building.

ISSUE:
Whether or not an act of God (fortuitous event) exempts from liability parties who would
otherwise be due to negligence?

HELD:
Art. 1723 dictates that the engineer/architect and contractor are liable for damages should
the building collapse within 15 years from completion.

Art. 1174 of the NCC, however, states that no person shall be responsible for events, which

could not be foreseen. But to be exempt from liability due to an act of God, the ff must
occur:

1)
2)
3)
4)

cause of breach must be independent of the will of the debtor

event must be unforeseeable or unavoidable
event must be such that it would render it impossible for the debtor to fulfill the obligation
debtor must be free from any participation or aggravation of the industry to the creditor.

In the case at bar, although the damage was ultimately caused by the earthquake which was
an act of God, the defects in the construction, as well as the deviations in the specifications
and plans aggravated the damage, and lessened the preventive measures that the building
would otherwise have had.

REPUBLIC VS. LUZON STEVEDORING

CORPORATION
21 SCRA 279
FACTS:
In the early afternoon of August 17, 1960, barge L1892, owned by the Luzon Stevedoring Corporation was
being towed down the Pasig River by two tugboats when
the barge rammed against one of the wooden piles of the
Nagtahan bailey bridge, smashing the posts and causing
the bridge to list. The river, at the time, was swollen and
the current swift, on account of the heavy downpour in
Manila and the surrounding provinces on August 15 and
16, 1960.
The Republic of the Philippines sued Luzon
Stevedoring for actual and consequential damage caused
by its employees, amounting to P200,000. Defendant
Corporation disclaimed liability on the grounds that it had
exercised due diligence in the selection and supervision of
its employees that the damages to the bridge were caused
by force majeure, that plaintiff has no capacity to sue, and
that the Nagtahan bailey bridge is an obstruction to
navigation.
After due trial, the court rendered judgment on
June 11, 1963, holding the defendant liable for the damage
caused by its employees and ordering it to pay plaintiff the
actual cost of the repair of the Nagtahan bailey bridge
which amounted to P192,561.72, with legal interest from
the date of the filing of the complaint.
ISSUE:
Was the collision of appellant's barge with the
supports or piers of the Nagtahan bridge caused by
fortuitous event or force majeure?
RULING:
Yes. Considering that the Nagtahan bridge was an
immovable and stationary object and uncontrovertedly
provided with adequate openings for the passage of water
craft, including barges like of appellant's, it was undeniable
that the unusual event that the barge, exclusively
controlled by appellant, rammed the bridge supports raises
a presumption of negligence on the part of appellant or its
employees manning the barge or the tugs that towed it. For
in the ordinary course of events, such a thing will not
happen if proper care is used. In Anglo American
Jurisprudence, the inference arises by what is known as
the "res ipsa loquitur" rule
The appellant strongly stressed the precautions
taken by it on the day in question: that it assigned two of
its most powerful tugboats to tow down river its barge L1892; that it assigned to the task the more competent and
experienced among its patrons, had the towlines, engines
and equipment double-checked and inspected' that it instructed its patrons to take extra

precautions; and
concludes that it had done all it was called to do, and that
the accident, therefore, should be held due to force
majeure or fortuitous event.
These very precautions, however, completely
destroyed the appellant's defense. For caso fortuito or
force majeure (which in law are identical in so far as they
exempt an obligor from liability) by definition, are
extraordinary events not foreseeable or avoidable, "events
that could not be foreseen, or which, though foreseen, were
inevitable" (Art. 1174, Civ. Code of the Philippines). It was,
therefore, not enough that the event should not have been
foreseen or anticipated, as was commonly believed but it
must be one impossible to foresee or to avoid. The mere
difficulty to foresee the happening was not impossibility to
foresee the same. The very measures adopted by appellant
prove that the possibility of danger was not only
foreseeable, but actually foreseen, and was not caso
fortuito.

PEDRO D. DIOQUINO VS. LAUREANO

G.R. No. L-25906 May 28, 1970
FACTS:
Attorney Pedro Dioquino is the owner of a car. He
went to the office of the MVO, Masbate, to register the
same where he met the defendant Federico Laureano, a
patrol officer of said MVO office. Dioquino requested
Laureano to introduce him to one of the clerks in the MVO
Office, who could facilitate the registration of his car and
the request was attended to. Laureano rode on the car of
Atty. Dioquino on his way to the P.C. Barracks at Masbate.
While about to reach their destination, the car driven by
plaintiff's driver and with Laureano as the sole passenger
was stoned by some 'mischievous boys,' and its windshield
was broken. Laureano chased the boys and he was able to
catch one of them. The plaintiff and Laureano with the boy
returned to the P.C. barracks and the father of the boy was
called, but no satisfactory arrangements were made about
the damage to the windshield.
It was likewise noted in the decision now on
appeal: "The defendant Federico Laureano refused to file
any charges against the boy and his parents because he
thought that the stone-throwing was merely accidental and
that it was due to force majeure. So he did not want to take any action and after delaying
the settlement, after perhaps
consulting a lawyer, the defendant Federico Laureano
refused to pay the windshield himself and challenged that
the case be brought to court for judicial adjudication.
There is no question that the plaintiff tried to convince the
defendant Federico Laureano just to pay the value of the
windshield and he even came to the extent of asking the
wife to convince her husband to settle the matter amicably
but the defendant Federico Laureano refused to make any
settlement, clinging [to] the belief that he could not be held
liable because a minor child threw a stone accidentally on
the windshield and therefore, the same was due to force
majeure."
ISSUE:
Is Federico Laureano liable for the payment of the
windshield of Atty Dioquino?
RULING:
No. The law being what it is, such a belief on the
part of defendant Federico Laureano was justified. The
express language of Art. 1174 of the present Civil Code
which is a restatement of Art. 1105 of the Old Civil Code,
except for the addition of the nature of an obligation
requiring the assumption of risk, compels such a
conclusion. It reads thus: "Except in cases expressly
specified by the law, or when it is otherwise declared by
stipulation, or when the nature of the obligation requires
the assumption of risk, no person shall be responsible for
those events which could not be, foreseen, or which,
though foreseen were inevitable." Even under the old Civil

Code then, as stressed by us in the first decision dating

back to 1908, in an opinion by Justice Mapa, the rule was
well-settled that in the absence of a legal provision or an
express covenant, "no one should be held to account
for fortuitous cases." Its basis, as Justice Moreland
stressed, is the Roman law principle major casus est,
cui humana infirmitas resistere non potest.
Authorities of repute are in agreement, more specifically
concerning an obligation arising from contract "that some
extraordinary circumstance independent of the will of the
obligor, or of his employees, is an essential element of a
caso fortuito." If it could be shown that such indeed was
the case, liability is ruled out. There is no requirement of
"diligence beyond what human care and foresight can
provide."
The error committed by the lower court in holding
defendant Federico Laureano liable appears to be thus
obvious. Its own findings of fact repel the motion that he
should be made to respond in damages to the plaintiff for
the broken windshield. What happened was clearly
unforeseen. It was a fortuitous event resulting in a loss
which must be borne by the owner of the car. It was
misled, apparently, by the inclusion of the exemption from
the operation of such a provision of a party assuming the
risk, considering the nature of the obligation undertaken.
A more careful analysis would have led the lower court to a
different and correct interpretation. The very wording of
the law dispels any doubt that what is therein
contemplated is the resulting liability even if caused by a
fortuitous event where the party charged may be
considered as having assumed the risk incident in the
nature of the obligation to be performed. It would be an
affront, not only to the logic but to the realities of the
situation, if in the light of what transpired, as found by the
lower court, defendant Federico Laureano could be held as
bound to assume a risk of this nature. There was no such
obligation on his part.
The decision of the lower court of November 2, 1965
insofar as it orders defendant Federico Laureano to pay
plaintiff the amount of P30,000.00 as damages plus the
payment of costs, is hereby reversed. It is affirmed insofar
as it dismissed the case against the other two defendants, Juanita Laureano and Aida de
Laureano, and declared that
no moral damages should be awarded the parties.

AUSTRIA VS. COURT OF APPEALS

39 SCRA 527
FACTS:
Maria G. Abad received from Guillermo Austria a
pendant with diamonds to be sold on a commission basis
or to be returned on demand. While walking home, the
purse containing the jewelry and cash was snatched by two
men. A complaint of the incident was filed in the Court of
First Instance against certain persons.
Abad failed to return the jewelry or pay for its
value despite demands made by Austria. Austria brought
an action against the Abad spouses for the recovery of the
pendant or of its value and damages. Abad spouses set up
the defense that the alleged robbery had extinguished their
obligation.
ISSUE:
Should the Abad spouse be held liable for the loss
of the pendant?
RULING:
No. The Court ruled that the exempting provision
of Article 1174 of the Civil Code is applicable in the case. It
is a recognized jurisdiction that to constitute a caso
fortuito that would exempt a person from responsibility, it
is necessary that the event must be independent of the
human will or of the obligors will; the occurrence must
render it impossible for the debtor to fulfill the obligation
in a normal manner; and that the obligor must be free of
participation in, or aggravation of, the injury to the
creditor. To avail of the exemption granted, it is not
necessary that the persons responsible for the event should
be found or punished. It is sufficient that to unforeseeable
event which is the robbery took place without concurrent
fault or negligence on the part of the obligor which can be
proven by preponderant evidence. It was held that the act
of Maria Abad in walking home alone carrying the jewelry
was not negligent for at that time the incidence of crimes
was not high.

YOBIDO vs. CA and TUMBOY

G.R. No. 113003 October 17, 1997
Facts:
Spouses Tito and Leny Tumboy and their minor children boarded at Mangagoy, Surigao del
Sur a Yobido Liner bus bound for Davao City. Along Picop Road in, the left front tire of the bus
exploded. The bus fell into a ravine and struck a tree. The incident resulted in the death of
Tito Tumboy and physical injuries to other passengers.
The winding road was not cemented and was wet due to the rain; it was rough with crushed
rocks. The bus which was full of passengers had cargoes on top. Leny testified that it was
running fast and she cautioned the driver to slow down but he merely stared at her through
the mirror.
However, Salce, the bus conductor, testified that the bus was running speed for only 50-60
kmh. The left front tire that exploded was a brand new Goodyear tire that he mounted on
the bus only 5 days before the incident. She stated that all driver applicants in Yobido Liner
underwent actual driving tests before they were employed.
The defendant is invoking that the tire blowout was a caso fortuito.
Issue:
1. WON the tire blowout was purely caso fotuito? NO
2. WON the defendant bus liner is liable for damages resulting from the death of Tito? YES
Held:
1.
The explosion of the tire is not in itself a fortuitous event. The cause of the blow-out, if due
to a factory defect, improper mounting, excessive tire pressure, is not an unavoidable event.
On the other hand, there may have been adverse conditions on the road that were
unforeseeable and/or inevitable, which could make the blow-out a caso fortuito. The fact that
the cause of the blow-out was not known does not relieve the carrier of liability.

There are human factors involved in the situation. The fact that the tire was new did not
imply that it was entirely free from manufacturing defects or that it was properly mounted
on the vehicle. Neither may the fact that the tire bought and used in the vehicle is of a
brand name noted for quality, resulting in the conclusion that it could not explode within five
days use. Be that as it may, it is settled that an accident caused either by defects in the
automobile or through the negligence of its driver is not a caso fortuito that would exempt
the carrier from liability for damages.
2.
A common carrier may not be absolved from liability in case of force majeure or fortuitous
event alone. The common carrier must still prove that it was not negligent in causing the
death or injury resulting from an accident. Having failed to discharge its duty to overthrow
the presumption of negligence with clear and convincing evidence, petitioners are hereby
held liable for damages.
Moral damages are generally not recoverable in culpa contractual except when bad faith had
been proven. However, the same damages may be recovered when breach of contract of
carriage results in the death of a passenger. Because petitioners failed to exercise the
extraordinary diligence required of a common carrier, which resulted in the death of Tito
Tumboy, it is deemed to have acted recklessly (Article 1756).

Bacolod Murcia Milling Co., Inc (BMMC) vs. CA [GR No.81100-01 7 Feb1990]
Facts: BMMC constructed a railroad track system to transport sugar cane from the
plantation to the milling station for period of 45 years beginning the years 1920-1921.
However by the year 1964-1965, the railroad tracks over at Hacienda Helvetia was closed
due to theexpiration of the milling contract. The residents of the Angela Estates/ Hacienda
Helvetia decided not to renew the contract. However, BMMC continues to have milling and
transportation contracts by railroad with Agro-Industrial Development of Silay-Saravia
(AIDSISA) for 17 years until 1973-74. Due the non-renewal of the right of way contract with
Angela Estates, BMMC was unable to transport sugar canes of Alonso Gatuslao or of AIDSISA
beginning 1968. Gatuslao on various dates requested transportation facilities from BMMC to
no avail. Gatuslao filed for a Breach of Contract against BMMC and asks for rescission of
contract and damages. BMMC argues that the inability to use its railways system is due to
force majeure. In order to comply they hired private trucks as movers of to haul the
sugar canes. Gatuslao/AIDSISA, seriously believing that BMMC is particularly unable to
transport and mill their sugar canes, opted to use trucks provided by Bacolod-Murcia
Agricultural Cooperative Marketing Association, Inc. (BM-ACMA). Further, its inability to do so
in effect rescinds the milling contract.

BMMC also filed a complaint against AIDSISA and BM-ACMA seeking specific performance of
milling contract. It alleges that Gatuslao/AIDSISA violated the contract by hiring
the services of BM-ACMA. The 2 complaints were consolidated fro trial the CFI- Negros
Occidental. Lower court rendered judgment rescinding the milling contract and damages of
Php2,625 and Php5,000 attorneys fees. BMMC appealed. CA affirmed the CFI decision.

Issue: Whether or not the inability of BMMC to comply with milling contract due to the
closure of the railroad track right of way over Helvetia is force majeure

Held: No. The closure of the railroad track way at Hacienda Helvetia is due to
the expiration of their contract with the Hacienda. The requisites of force majeure: (a)
breach is independent of the will of obligor. (b) Event is unforeseeable or unavoidable, (c)
and the event renders the fulfillment of obligation impossible. Applying the criteria,the
closure of the railroad track is not force majeure. BMMC should have anticipated it and
provided for the eventuality. BMMC took the risk that the Hacienda Helvetia will not renew
their contract. Thus,the closure of the track in the Hacienda, paralyzed the

wholetransportation system. It was die to the contract termination, which BMMC has
knowledge that caused the Breach of Contract with the other plantations. Since the
closure of the rail road track is a not a case of fortuitous event, the issue is whether or not
BMMC is capable of providing adequate and efficient transportation facilities of the canes of
AIDSIA and other planters. Evidence shows that BMMC is the one who committed breach of
contract. A letter from BMMC was even quoted by the SC. The letter was suggesting planters
to explore other solutions to the problem of milling and transportation. Thus, AIDSIA hiring
BM-ACMA is a matter of self-preservation and is not in anyway a breach of contract.

PHILCOMSAT vs. GLOBE TELECOM

G.R. No. 147324 May 25, 2004
Facts:
On May 7, 1991 Philcomsat & Globe entered into an agreement whereby Philcomsat obliged
itself to establish, operate & provide an IBS standard B earth station for the exclusive use of
US defense communications Agency (USDCA). The term was for 60 months or 5 yrs In turn,
Globe promised to pay Philcomsat monthly rentals.
At the execution of the agreement, both parties knew that military Bases Agreement was to
expire in 1991. Subsequently, Philcomsat installed the earth station & USDCA made use of
the same.
The senate passed a resolution expressing its decision not to concur in the ratification of the
treaty of friendship. So the RP-US Military bases Agreement terminate it on Dec. 31, 1992.
Globe notified Philcomsat its instruction to discontinue effective Nov. 8, 1992, in view of the
withdrawal of US military personnel. Philcomsat sent a reply to pay the stipulated rentals
even after Globe shall have discontinued the use of earth station after Nov. 8 1992.
After the US military force left Subic, Philcomsat sent a letter demanding payment. However,
Globe refused to heed Philcomsat s demand because the termination of the US military
bases agreement constitute force majeure and said event exempted it from paying rentals.
Issue:
1. WON the termination of the RP-US Military Bases Agreement constitutes force majeure
which would exempt Globe from complying with its obligation to pay rentals under its
Agreement with Philcomsat? YES
2. WON Globe is liable to pay rentals under the Agreement for the month of December
1992? YES
3. WON Philcomsat is entitled to attorneys fees and exemplary damages? NO
Held:
1.

In order that Globe may be exempt from non-compliance with its obligation to pay rentals
under Section 8, the concurrence of the following elements must be established:
a. the event must be independent of the human will;
b. the occurrence must render it impossible for the debtor to fulfill the obligation in a normal
manner; and
c. the obligor must be free of participation in, or aggravation of, the injury to the creditor.
Philcomsat and Globe had no control over the non-renewal of the term of the RP-US Military
Bases Agreement when the same expired in 1991, because the prerogative to ratify the
treaty extending the life thereof belonged to the Senate.
Resolution No. 141 of the Philippine Senate and the Note Verbale of the Philippine
Government to the US Government are acts, direction or request of the Government of the
Philippines and circumstances beyond the control of the defendant. The formal order from
Cdr. Walter Corliss of the USN, the letter notification from ATT and the complete withdrawal
of all the military forces and personnel from Cubi Point in the year-end 1992 are also acts
and circumstances beyond the control of the defendant.
Article 1174, which exempts an obligor from liability on account of fortuitous events or force
majeure, refers not only to events that are unforeseeable, but also to those which are
foreseeable, but inevitable.
2.
The US military forces and personnel completely withdrew from Cubi Point only on 31
December 1992. Thus, until that date, the USDCA had control over the earth station and had
the option of using the same. Furthermore, Philcomsat could not have removed or rendered
ineffective said communication facility until after 31 December 1992 because Cubi Point was
accessible only to US naval personnel up to that time. Hence, Globe is liable for payment of
rentals until December 1992.
3.
Exemplary damages may be awarded in cases involving contracts or quasi-contracts, if the
erring party acted in a wanton, fraudulent, reckless, oppressive or malevolent manner. In the
present case, it was not shown that Globe acted wantonly or oppressively in not heeding
Philcomsats demands for payment of rentals. Hence, there can be no award.

Eastern Shipping vs CA
GR No. 97412, 12 July 1994
234 SCRA 78
FACTS
Two fiber drums were shipped owned by Eastern Shipping from Japan. The shipment
as insured with a marine policy. Upon arrival in Manila unto the custody of metro Port
Service, which excepted to one drum, said to be in bad order and which damage was
unknown the Mercantile Insurance Company. Allied Brokerage Corporation received the
shipment from Metro, one drum opened and without seal. Allied delivered the shipment to
the 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.

Crismina Garments Inc v CA

G.R. No. 128721 March 9, 1999
Lessons Applicable: Interest (Torts and Damages)
Laws Applicable: Article 1589 on the Civil Code, Article 2209 of the Civil Code

FACTS:

February 1979 - April 1979: Crismina Garments, Inc. contracted the services
of D'Wilmar Garments, for the sewing of 20,762 pieces of assorted girls denims
for P76,410

At first, the Crismina was told that the sewing of some of the pants were defective so
it offered to take them back but then she was told it was good already and asked her to
return for her check.

Crismina failed to pay and told her that 6,164 pairs were defective and asked for
actual damages of P49,925.51

RTC: favored D'Wilmar P76,140 at 12% per annum, P5,000 attorney's fees and cost
of suit

CA: affirmed but delete the attorney's fees

ISSUE: W/N they should impose 12% interest for an obligation which is not a loan in the
absence of stipulation

HELD: NO. Appealed Decision is MODIFIED. The rate of interest shall be 6%/annum,
computed from the time of the filing of the Complaint in the trial court until the finality of the
judgment. If the adjudged principal and the interest (or any part thereof) remain unpaid
thereafter, the interest rate shall be 12% per annum computed from the time the judgment
becomes final and executory until it is fully satisfied.

Article 1589 on the Civil Code

[t]he vendee [herein petitioner] shall owe interest for the period between the
delivery of the thing and the payment of the price . . . should he be in default from the
time of judicial or extrajudicial demand for the payment of the price.

Article 2209 of the Civil Code

If the obligation consists in the payment of money and the debtor incurs in
delay, the indemnity for damages, there being no stipulation to the contrary, shall be the
payment of the interest agreed upon, and in the absence of stipulation, the legal
interest, which is 6%/annum

Usury Law

rate of interest for the loan or forbearance of any money, goods or credits and

the rate allowed in judgments, in the absence of express contract as to such rate of
interest, shall be twelve per cent (12%) per annum

award of interest in the concept of actual and compensatory damages, the rate of
interest, as well as the accrual thereof
When the obligation is breached, and it consists in the payment of a sum of

money, i.e., a loan or forbearance of money, the interest due should be that which may
have been stipulated in writing
interest due shall itself earn legal interest from the time it is judicially

demanded

In the absence of stipulation, the rate of interest shall be 12% per

annum to be computed from default, i.e., from judicial or extrajudicial demand under and
subject to the provisions of Article 1169 of the Civil Code
When an obligation, not constituting a loan or forbearance of money, is

breached, an interest on the amount of damages awarded may be imposed at the

discretion of the court at the rate of 6% per annum.
No interest, however, shall be adjudged on unliquidated claims or

damages except when or until the demand can be established with reasonable certainty
where the demand is established with reasonable certainty, the

interest shall begin to run from the time the claim is made judicially or extrajudicially
(Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at
the time the demand is made, the interest shall begin to run only from the date the
judgment of the court is made (at which time the quantification of damages may be
deemed to have been reasonably ascertained).
The actual base for the computation of legal interest shall, in any case,

be . . . the amount finally adjudged.

When the judgment of the court awarding a sum of money becomes final and

executory, the rate of legal interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this
interim period being deemed to be by then an equivalent to forbearance of credit

amount due in this case arose from a contract for a piece of work, not from a loan or
forbearance of money, the legal interest of six percent (6%) per annum should be
applied.

Furthermore, since the amount of the demand could be established with

certainty when the Complaint was filed, the six percent (6%) interest should be
computed from the filing of the said Complaint.

But after the judgment becomes final and exuecutory until the obligation is
satisfied, the interest should be reckoned at twelve percent (%12) per year

Security Bank v RTC-MAKATI

Central Bank Circular No. 905 Interest Rate 12% Annum Interest Rate Legal
Rate
FACTS: In 1983, Eusebio acquired 3 separate loans from Security Bank
amounting to P265k. The agreed interest rate was 23% per annum. The
promissory note was freely and voluntarily signed by both parties. Leia Ventura
was the co-maker. Eusebio defaulted from paying. Security Bank sued for
collection. Judge Gorospe of the Makati RTC ordered Eusebio to pay but he
lowered the interest rate to 12% per annum.
ISSUE: Whether or not the courts have liberality to reduce stipulated interest
rates to the legal rate of 12% per annum.
HELD: No. From the examination of the records, it appears that indeed the
agreed rate of interest as stipulated on the three (3) promissory notes is
23% per annum. The applicable provision of law is the Central Bank Circular No.
905 which took effect on December 22, 1982:
Sec. 1. The rate of interest, including commissions, premiums, fees and other
charges, on a loan or forbearance of any money, goods or credits, regardless of
maturity and whether secured or unsecured, that may be charged or collected
by any person, whether natural or judicial, shall not be subject to any ceiling
prescribed under or pursuant to the Usury Law, as amended.
Only in the absence of stipulations will the 12% rate be applied or if the
stipulated rate is grossly excessive.
Further, Eusebio never questioned the rate. He merely expressed to negotiate
the terms and conditions. The promissory notes were signed by both parties
voluntarily. Therefore, stipulations therein are binding between them.

JOSE ALMEDA VS. COURT OF

APPEALS, digested
GR # 121013 July 16 1998
(Remedial Law, Appeal)
FACTS: Petitioner Jose Almeda filed a notice of appeal which was disapproved by the trial court due to it being filed
five (5) days late beyond the reglementary period and subsequently denied of motion for reconsideration. Respondent
court dismissed the petition contending that the requirement regarding perfection of an appeal was not only
mandatory but jurisdictional such that the petitioners failure to comply therewith had the effect of rendering the
judgment final. Subsequently, petitioner motions for reconsideration and is denied. Also, it was found that there was
lack of merit in the petitioners reason for the late filing of the notice of appeal.
ISSUE: Whether or not failure to comply with the requirement regarding perfection of an appeal within reglementary
period would render a judgment final and executory.
HELD: Yes, the period to appeal is prescribed not only by the Rules of Court but also by statute, particularly Sec 39 of
BP 129, which provides:
Sec.39. Appeals. The period for appeal from final orders, resolutions, awards, judgments, or decisions of any court in
all cases shall be fifteen (15) days counted from the notice of the final order, resolution, award, judgment, or decision
appealed from
The right to appeal is a statutory right and one who seeks to avail of it must strictly comply with the statutes or rules
as they are considered indispensable interdictions against needless delays and for an orderly discharge of judicial
business. Due to petitioners negligence of failing to perfect his appeal, there is no recourse but to deny the petition
thus making the judgment of the trial court final and executory.

Almeda v. CA
April 17, 1996; Kapunan, J.
FACTS:
PNB granted to the spouses Almeda several loan/credit accommodations totaling P18 M in a period of six
years at an interest rate of 21% per annum.
To secure the loan, the spouses Almeda executed a Real Estate Mortgage Contract covering a 3,500
square meter parcel of land, together with the building erected thereon (the Marvin Plaza).
On the contract, it was stipulated that the Bank reserves the right to increase the interest rate within the
limits allowed by law at any time depending on whatever policy it may adopt in the future; provided, that
the interest rate on this/these accommodations shall be correspondingly decreased in the event that the
applicable maximum interest rate is reduced by law or by the Monetary Board. In either case, the
adjustment in the interest rate agreed upon shall take effect on the effectivity date of the increase or
decrease of the maximum interest rate.
Petitioners made partial payments on the loan totaling. P7,735,004.66. On March 31, 1984, PNB raised
the interest rate to 28%. It was thereupon increased from an initial 21% to a high of 68% between March
of 1984 to September, 1986.
Petitioner protested the increase in interest rates. Before the loan was to mature in March, 1988, the
spouses filed a petition for injunction and TRO with the RTC. The RTC issued a writ of preliminary
injunction and supplemental preliminary writ of injunction
Upon the posting of a counterbond by the PNB, the trial court dissolved the supplemental writ of
preliminary injunction. PNB set a new date for the foreclosure sale of Marvin Plaza which was March 12,
1990. Prior to the scheduled date, however, petitioners tendered to respondent bank the amount of
P40,142,518.00, consisting of the principal (P18,000,000.00) and accrued interest calculated at the
originally stipulated rate of 21%. The PNB refused to accept the payment.
Petitioners formally consigned the amount of P40,142,518.00 with the Regional Trial Court
Case History:
RTC issued a writ of preliminary injunction enjoining the foreclosure sale of Marvin Plaza
CA - set aside the assailed orders and upheld PNBs right to foreclose the mortgaged property
ISSUE:
WON PNB was authorized to raise its interest rates to as high as 68%, pursuant to the credit agreement's
escalation clause, and in relation to Central Bank Circular No. 905
RATIO:
The binding effect of any agreement between parties to a contract is premised on two settled
principles: (1) that any obligation arising from contract has the force of law between the parties;
and (2) that there must be mutuality between the parties based on their essential equality. Any

contract which appears to be heavily weighed in favor of one of the parties so as to lead to an
unconscionable result is void. Any stipulation regarding the validity or compliance of the contract
which is left solely to the will of one of the parties, is likewise, invalid.

PNB unilaterally altered the terms of its contract with petitioners by increasing the interest rates
on the loan without the prior assent of the latter. In fact, the manner of agreement is itself
explicitly stipulated by the Civil Code when it provides, in Article 1956 that "No interest shall be
due unless it has been expressly stipulated in writing." What has been "stipulated in writing" from
a perusal of interest rate provision of the credit agreement signed between the parties is that
petitioners were bound merely to pay 21% interest, subject to a possible escalation or deescalation, when 1) the circumstances warrant such escalation or de-escalation; 2) within the
limits allowed by law; and 3) upon agreement.

C.B. Circular No. 905 did not authorize the bank, or any lending institution for that matter, to
progressively increase interest rates. Nothing in the said circular could possibly be read as
granting respondent bank carte blanche authority to raise interest rates to levels which would
either enslave its borrowers or lead to a hemorrhaging of their assets.

The credit agreement specifically requires that the increase be "within the limits allowed by law".
The escalation clause of the credit agreement requires that the same be made "within the limits
allowed by law," obviously referring specifically to legislative enactments not administrative
circulars.

Note that the phrase "limits imposed by law," refers only to the escalation clause. However, the
same agreement allows reduction on the basis of law or the Monetary Board. Had the parties
intended the word "law" to refer to both legislative enactments and administrative circulars and
issuances, the agreement would not have gone as far as making a distinction between "law or the
Monetary Board Circulars" in referring to mutually agreed upon reductions in interest rates.

ISSUE:
WON PNB is granted the authority to foreclose the Marvin Plaza under the mandatory foreclosure
provisions of P.D. 385
PNBs argument: Invoking the Law on Mandatory Foreclosure (Act 3135), the PNB countered by
ordering the extrajudicial foreclosure of petitioner's mortgaged properties and scheduled an auction sale
for March 14, 1989.
RATIO:
Because of the dispute regarding the interest rate increases, an issue which was never settled on
merit in the courts below, the exact amount of petitioner's obligations could not be determined.
Thus, the foreclosure provisions of P.D. 385 could be validly invoked by respondent only after
settlement of the question involving the interest rate on the loan, and only after the spouses refused
to meet their obligations following such determination.

Furthermore, petitioners made a valid consignation of what they, in good faith and in compliance
with the letter of the Credit Agreement, honestly believed to be the real amount of their remaining

obligations with the respondent bank. The latter could not therefore claim that there was no
honest-to-goodness attempt on the part of the spouse to settle their obligations.
Disposition: Reversed. Case remanded for further proceedings.

First Metro Investment Corporation vs. Este del

Sol Mountain Reserve, Inc. (362 SCRA 101)
10DEC
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.

Keng Hua Products vs CA 286 SCRA 257 (1998)

FACTS:
Respondent Sea-Land Service Inc., a shipping company, received at its Hong Kong terminal a sealed
container containing 76 bales of unsorted waste paper for shipment to petitioner Keng Hua Paper
Products, Co. in Manila.
A bill of lading to cover the shipment was issued by the plaintiff. On July 9, 1982, the shipment was
discharged at the Manila International Container Port.
Notices of arrival were transmitted to the petitioner but the latter failed to discharge the shipment from the
container during the grace period.
The said shipment remained inside the respondents container from the moment the grace period expired
until the time the shipment was unloaded from the container on November 22, 1983 or a total of 481 days.
During this period, demurrage charges accrued. Letters demanding payment were sent to the petitioner
who refused to settle its obligation which eventually amounted to P67,340.00.
Petitioner alleges that it had purchased 50 tons of waste paper from the shipper in Hong Kong, Ho Kee
Waste Paper, as manifested in the Letter of Credit; that, under the letter of credit, the remaining balance of
the shipment was only 10 metric tons; that the shipment respondent was asking petitioner to accept was 20
metric tons; that if petitioner were to accept the shipment, it would be violating Central Bank rules and
regulations and custom and tariff laws; that respondent had no cause of action against petitioner because
the latter did not hire the former to carry the merchandise. Petitioner contends that it should not be bound
by the bill of lading because it never gave its consent thereto. Although petitioner admits physical
acceptance of the bill of lading, it argues that its subsequent actions belie the finding that it accepted the
terms therein.
Petitioner cites as support the Notice of Refused or On Hand Freight it received on November 2, 1982
from respondent, which acknowledged that petitioner declined to accept the shipment. Petitioner points to
its January 24, 1983 letter to respondent stressing that its acceptance of the bill of lading would be
tantamount to an act of smuggling as the amount it had imported was only for 10,000 kilograms. The
discrepancy in the amount of waste paper it actually purchased vis--vis the excess amount in the bill of
lading allegedly justified its refusal to accept the shipment.
ISSUES
1. WON petitioner is bound by the bill of lading
2. WON the amount of demurrage charges is correct
3. WON petitioner was correct in not accepting the overshipment
4. WON the award of interest is correct
5. WON the award of attorneys fees is correct
HELD
1. Yes. A bill of lading serves 2 functions. 1 st, it is a receipt for the goods shipped. 2nd, it is a contract by
which three parties, namely, the shipper, the carrier, and the consignee undertake specific responsibilities
and assume stipulated obligations. The acceptance of a bill of lading by the shipper and the consignee,

with full knowledge of its contents, gives rise to the presumption that the same was a perfected and binding
contract. In the case at bar, both lower courts held that the bill of lading was a valid and perfected contract
between the shipper (Ho Kee), the consignee (petitioner Keng Hua), and the carrier (respondent Sea
-Land). Section 17 of the bill of lading provided that the shipper and the consignee were liable for the
payment of demurrage charges for the failure to discharge the shipment beyond the grace period allowed
by tariff rules. Petitioner admits that its received the bill of lading immediately after the arrival of the
shipment on July 8, 1982. It was only 6 months later that petitioner sent a letter to respondent saying that it
could not accept the shipment. Petitioners inaction for such a long time conveys the clear inference that it
accepted the terms and conditions of the bill of lading. Mere apprehension of violating customs, tariff and
central bank laws without a clear demonstration that taking delivery of the shipment has become legally
impossible cannot defeat the petitioners contractual obligation and liability under the bill of lading. In any
event, the issue of whether or not petitioner accepted the bill of lading was raised for the first time on
appeal to this Court and cannot be entertained. Questions not raised in the trial court cannot be raised for
the first time on appeal.
2. Yes. Petitioners argument that it is not obligated to pay any demurrage charges because respondent
made no demand for the sum of P67,340 prior to the filing of the complaint is puerile. The amount of
demurrage charges is a factual conclusion of the trial court that was affirmed by the Court of Appeals and,
thus, binding on this Court.
3. No. The contract of carriage, as stipulated in the bill of lading, must be treated independently of the
contract of sale between the seller and the buyer, and the contract for the issuance of a letter of credit
between the buyer and the issuing bank. Any discrepancy between the amount of the goods described in
the commercial invoice in the contract of sale and the amount allowed in the letter of credit will not affect
the validity and enforceability of the contract of carriage as embodied in the bill of lading. Petitioners
remedy in the case of overshipment lies against the seller/shipper, not against the carrier.
4. No. The case involves an obligation not arising from a loan or forbearance of money, thus pursuant to
Art. 2209 of the Civil Code the applicable interest rate is 6% per annum to be computed from the date of
the trial courts decision. The rate of 12% per annum shall be charged on the total then outstanding from
the time the judgment becomes final and executory until its satisfaction.
5. No. The Court notes that the matter of attorneys fees was taken up only in the Disposition portion of the
trial courts decision. The settled requirement is that the text of the decision should state the reason for the
award of attorneys fees.
Disposition Decision is AFFIRMED with the MODIFICATION that legal interest be computed at 6% per
annum from September 28, 1990, then at 12% per annum from finality of judgment until full satisfaction.
The award of attorneys fees is DELETED.