Professional Documents
Culture Documents
Olive Cachapero
Case Doctrines Reviewer
(Loan to Warehouse Receipts)
Article 1980 of the Civil Code: Fixed, savings, and current deposits of money in banks and similar
institutions shall be governed by the provisions concerning loan.
As there is a debtor-creditor relationship between a bank and its depositor, BPI-FB ultimately acquired
ownership of Francos deposits, but such ownership is coupled with a corresponding obligation to pay him
an equal amount on demand. Although BPI-FB owns the deposits in Francos accounts, it cannot prevent
him from demanding payment of BPI-FBs obligation by drawing checks against his current account, or
asking for the release of the funds in his savings account. Thus, when Franco issued checks drawn against
his current account, he had every right as creditor to expect that those checks would be honored by BPIFB as debtor.
Depositors who place their money with the bank are considered creditors of the bank. The bank acquires
ownership of the money deposited by its clients, making the money taken by respondents as belonging to
the bank.
The relationship between banks and depositors has been held to be that of creditor and debtor. Articles
1953 and 1980 of the New Civil Code, as appropriately pointed out by petitioner, provide as follows:
Article 1953. A person who receives a loan of money or any other fungible thing acquires the ownership
thereof, and is bound to pay to the creditor an equal amount of the same kind and quality.
In summary, the Bank acquires ownership of the money deposited by its clients; and the employees of the
Bank, who are entrusted with the possession of money of the Bank due to the confidence reposed in them,
occupy positions of confidence. The Informations, therefore, sufficiently allege all the essential elements
constituting the crime of Qualified Theft.
FACTS: Home Savings Bank and Trust Company granted to the Concepcions a loan. The Concepcions, in
turn, executed in favor of the bank a promissory note and a REM over their property. The loan was
payable in equal quarterly amortizations for a period of fifteen (15) years and carried an interest rate of
sixteen percent (16%) per annum.
Escalation Clause: The promissory note provided that the Concepcions had authorized - "x x x the Bank
to correspondingly increase the interest rate presently stipulated in this transaction without advance
notice to me/us in the event the Central Bank of the Philippines raises its rediscount rate to member
banks, and/or the interest rate on savings and time deposit, and/or the interest rate on such loans and/or
advances."
In accordance with the above provision, the bank unilaterally increased the interest rate from 16% to
38%.
General Rule (GR): The validity of escalation clauses in contracts is upheld by the SC.
Reason for validity: (a) to maintain fiscal stability and (b) to retain the value of money in long term
contracts.
Principle of mutuality of contracts: ART. 1308. The contract must bind both contracting parties; its
validity or compliance cannot be left to the will of one of them.
A contract containing a condition which makes its fulfillment dependent exclusively upon the uncontrolled
will of one of the contracting parties, is void.
An escalation clause that gives a creditor an unbridled right to unilaterally and upwardly adjust the
interest on private respondentthe debtors loan would completely take away from the debtor the right to
assent to an important modification in their agreement, and would negate the element of mutuality in
contracts.
Basis of the increase of interest rates in this case: on account of the revailing business and economic
condition.
PD 1684 Usury Law: SEC. 7-a. Parties to an agreement pertaining to a loan or forbearance of money,
goods or credits may stipulate that the rate of interest agreed upon may be increased in the event that the
applicable maximum rate of interest is increased by law or by the Monetary Board: Provided, That such
stipulation shall be valid only if there is also a stipulation in the agreement that the rate of interest agreed
upon shall be reduced in the event that the applicable maximum rate of interest is reduced by law or by
the Monetary Board: xxx.'
RULING: Even if we were to consider that petitioners were bound by their agreement allowing an
increase in the interest rate despite the lack of advance notice to them, the escalation should still be
subject, as so contractually stipulated, to a corresponding increase by the Central Bank of its rediscount
rate to member banks, or of the interest rate on savings and time deposit, or of the interest rate on such
loans and advances. There are no sufficient valid justifications aptly shown for the unilateral increases by
private respondent bank of the interest rates on the loan.
Parties: Petitioner Frias as the property owner and Respondent Dra. Flora San Diego-Sison, entered
into a Memorandum of Agreementover the subject property.
MOA: Petitioner received P3M from respondent with the following agreement:
That respondent has a period 6 months from the date of the execution of this contract within which to
notify petitioner of her intention to purchase the land at the price of P6.4M. Upon notice to the petitioner
of respondents intention to purchase the same, the latter has a period of another 6 months within which
to pay the remaining balance of P3.4 million.
In the event that on the sixth month the respondent would decide NOT to purchase the property, the
petitioner has a period of another 6 months within which to pay the sum of P3 million pesos provided that
the said amount shall earn compounded bank interest for the last 6 months only. Under this
circumstance, the amount of P3 million given by the respondent shall be treated as a loan.
Respondent decided not to purchase the property and demanded the return of her money with 36%
interest.
Petitioner and respondent stipulated that the loaned amount shall earn compounded bank interests, and
per the certification issued by Prudential Bank, the interest rate for loans in 1991 ranged from 25% to 32%
per annum. The CA reduced the interest rate to 25% instead of the 32% awarded by the trial court which
petitioner no longer assailed.
Monetary Interest: The payment of regular interest constitutes the price or cost of the use of money
and thus, until the principal sum due is returned to the creditor, regular interest continues to accrue since
the debtor continues to use such principal amount. It has been held that for a debtor to continue in
possession of the principal of the loan and to continue to use the same after maturity of the loan without
payment of the monetary interest, would constitute unjust enrichment on the part of the debtor at the
expense of the creditor.
SC: Affirmed the ruling of the CA as to the 25% interest rate. Thus, the interest rate of 25% per annum
awarded by the CA to a P2 million loan is fair and reasonable.
a)
b)
authority to raise interest rates to levels which will either enslave their borrowers or lead to a
hemorrhaging of their assets."
Ecalation clause in this case: I/We hereby authorize the CHINA BANKING CORPORATION to increase or
decrease as the case may be, the interest rate/service charge presently stipulated in this note without any
advance notice to me/us in the event a law or Central Bank regulation is passed or promulgated by the
Central Bank of the Philippines or appropriate government entities, increasing or decreasing such interest
rate or service charge.
RULING: At no time did petitioners protest the new rates imposed on their loan even when their property
was foreclosed by respondent. This notwithstanding, we hold that the escalation clause is still VOID
because it grants respondent the power to impose an increased rate of interest without a written notice to
petitioners and their written consent. Respondents monthly telephone calls to petitioners advising them
of the prevailing interest rates would not suffice. A detailed billing statement based on the new imposed
interest with corresponding computation of the total debt should have been provided by the respondent to
enable petitioners to make an informed decision. An appropriate form must also be signed by the
petitioners to indicate their conformity to the new rates. Compliance with these requisites is essential to
preserve the mutuality of contracts. For indeed, one-sided impositions do not have the force of law
between the parties, because such impositions are not based on the parties essential equality.
Effect: Modifications in the rate of interest for loans pursuant to an escalation clause must be the result of
an agreement between the parties. Unless such important change in the contract terms is mutually agreed
upon, it has no binding effect. In the absence of consent on the part of the petitioners to the modifications
in the interest rates, the adjusted rates cannot bind them.
NOTE: The lender and the borrower should agree on the imposed rate, and such imposed rate should be
in writing. Escalation clauses are not basically wrong or legally objectionable as long as they are not solely
potestative but based on reasonable and valid grounds.
Concurring Opinion:
Points to consider in drafting a valid escalation clause: (DAP)
1) Firstly, as a matter of equity and consistent with P.O. No. 1684, the escalation clause must be paired with
a de-escalation clause.
2) Secondly, so as not to violate the principle of mutuality, the escalation must be pegged to the prevailing
market rates, and not merely make a generalized reference to "any increase or decrease in the interest
rate" in the event a law or a Central Bank regulation is passed.
3) Thirdly, consistent with the nature of contracts, the proposed modification must be the result of an
agreement between the parties.
*NOTE: The legal rate of 12% has been amended to 6%. See Circular No. 799 (amending Circular No. 905) effective July 1, 2013, and the case of NACAR V. GALLERY FRAMES
AND/OR BORDEY (2013). Therefore, there is no need to distinguish now the obligations breached as the legal interest applicable is 6%.
1)
When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts is
breached, the contravenor can be held liable for damages. The provisions under Title XVIII on "Damages"
of the Civil Code govern in determining the measure of recoverable damages.
2)
With regard particularly to an award of interest in the concept of ACTUAL AND COMPENSATORY
DAMAGES, the rate of interest, as well as the accrual thereof, is imposed, as follows:
Obligation breached: consists in the payment of a sum of money, i.e., a loan or forbearance of money
Interest Due:
that which may have been stipulated in writing. Furthermore, the interest due shall itself earn legal
interest from the time it is judicially demanded.
In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from
default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 of
the Civil Code. (amended to 6%)
Obligation breached: not constituting a loan or forbearance of money,
Interest due: may be imposed at the discretion of the court at the rate of 6% per annum.
No interest, however, shall be adjudged on unliquidated claims or damages except when or until the
demand can be established with reasonable certainty.
Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run
from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code)
When such certainty cannot be so reasonably established at the time the demand is made, the interest shall
begin to run only from the date the judgment of the court is made (at which time the quantification of
damages may be deemed to have been reasonably ascertained). The actual base for the computation of
legal interest shall, in any case, be on the amount finally adjudged.
When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal
interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from
such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a
forbearance of credit. (amended to 6%)
a)
i)
ii)
b)
o
o
c)
principle in the later case of Equitable Banking Corp., where this Court held that the stipulation about
payment of such additional rate partakes of the nature of a penalty clause, which is sanctioned by law.
Article 2210 of the Civil Code expressly provides that [i]nterest may, in the discretion of the court, be allowed
upon damages awarded for breach of contract. In this case, there is no question that petitioner is legally obligated
to return the P3.5 million because of her failure to fulfill the obligation under the Conditional Deed of Sale, despite
demand. Petitioner enjoyed the use of the money from the time it was given to her until now. Thus, she is already
in default of her obligation from the date of demand.
Forbearance is defined as a contractual obligation of lender or creditor to refrain during a given period of time,
from requiring the borrower or debtor to repay a loan or debt then due and payable. This definition describes a
loan where a debtor is given a period within which to pay a loan or debt. In such case, forbearance of money, goods
or credits will have no distinct definition from a loan. We believe however, that the phrase forbearance of money,
goods or credits is meant to have a separate meaning from a loan, otherwise there would have been no need to add
that phrase as a loan is already sufficiently defined in the Civil Code.
Forbearance of money, goods or credits should therefore refer to arrangements other than loan agreements,
where a person acquiesces to the temporary use of his money, goods or credits pending happening of certain events
or fulfillment of certain conditions.
In this case, the respondent-spouses parted with their money even before the conditions were fulfilled. They have
therefore allowed or granted forbearance to the seller (petitioner) to use their money pending fulfillment of the
conditions. They were deprived of the use of their money for the period pending fulfillment of the conditions and
when those conditions were breached, they are entitled not only to the return of the principal amount paid, but also
to compensation for the use of their money. And the compensation for the use of their money, absent any
stipulation, should be the same rate of legal interest applicable to a loan since the use or deprivation of funds is
similar to a loan.
I.
II.
To recapitulate and for future guidance, the guidelines laid down in the case of Eastern Shipping Lines are
accordingly modified to embody BSP-MB Circular No. 799, as follows:
When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts
is breached, the contravenor can be held liable for damages. The provisions under Title XVIII on
"Damages" of the Civil Code govern in determining the measure of recoverable damages.
With regard particularly to an award of interest in the concept of actual and compensatory damages, the
rate of interest, as well as the accrual thereof, is imposed, as follows:
Application in this case: The interest of 12% per annum of the total monetary awards, computed from May
27, 2002 to June 30, 2013 and 6% per annum from July 1, 2013 until their full satisfaction, is awarded.
Rationale: to protect the public from hidden or undisclosed charges on their loan obligations, requiring
a full disclosure thereof by the lender.
1)
2)
3)
4)
5)
6)
7)
Section 4 of the Truth in Lending Act clearly provides that the disclosure statement must be furnished
prior to the consummation of the transaction:
SEC. 4. Any creditor shall furnish to each person to whom credit is extended, prior to the
consummation of the transaction, a clear statement in writing setting forth, to the extent applicable
and in accordance with rules and regulations prescribed by the Board, the following information:
the cash price or delivered price of the property or service to be acquired;
the amounts, if any, to be credited as down payment and/or trade-in;
the difference between the amounts set forth under clauses (1) and (2)
the charges, individually itemized, which are paid or to be paid by such person in connection with the
transaction but which are not incident to the extension of credit;
the total amount to be financed;
the finance charge expressed in terms of pesos and centavos; and
the percentage that the finance bears to the total amount to be financed expressed as a simple annual rate
on the outstanding unpaid balance of the obligation.
Rationale: to protect users of credit from a lack of awareness of the true cost thereof, proceeding from
the experience that banks are able to conceal such true cost by hidden charges, uncertainty of interest
rates, deduction of interests from the loaned amount, and the like. The law thereby seeks to protect
debtors by permitting them to fully appreciate the true cost of their loan, to enable them to give full
consent to the contract, and to properly evaluate their options in arriving at business decisions.
The promissory notes, the copies of which were presented to the spouses Beluso after execution, are not
sufficient notification from UCPB. As earlier discussed, the interest rate provision therein does not
sufficiently indicate with particularity the interest rate to be applied to the loan covered by said
promissory notes.
1)
Effect of PD 1684 and CB 905 suspending the effectivity of the Usury Law
Lifted interest ceiling.
2)
Upheld the parties freedom of contract to agree freely on the rate of interest.
The BSP-MB has authority to enforce CB Circular No. 905
Under Section 1-a of the Usury Law, as amended, the BSP-MB may prescribe the maximum rate or rates
of interest for all loans or renewals thereof or the forbearance of any money, goods or credits, including
those for loans of low priority such as consumer loans, as well as such loans made by pawnshops, finance
companies and similar credit institutions. It even authorizes the BSP-MB to prescribe different maximum
rate or rates for different types of borrowings, including deposits and deposit substitutes, or loans of
financial intermediaries.
The lifting of the ceilings for interest rates does not authorize stipulations charging
excessive, unconscionable, and iniquitous interest
It is settled that nothing in CB Circular No. 905 grants lenders a carte blanche authority to raise interest
rates to levels which will either enslave their borrowers or lead to a hemorrhaging of their assets.
Stipulations authorizing iniquitous or unconscionable interests have been invariably struck down for
being (void) contrary to morals, if not against the law.
Nonetheless, the nullity of the stipulation of usurious interest does not affect the lenders right to recover
the principal of a loan, nor affect the other terms thereof. Thus, in a usurious loan with mortgage, the
right to foreclose the mortgage subsists, and this right can be exercised by the creditor upon failure by the
debtor to pay the debt due. The debt due is considered as without the stipulated excessive interest, and a
legal interest of 12% (now 6%) per annum will be added in place of the excessive interest formerly
imposed.
By placing the money in the bank and mixing it with his personal funds, respondent did not thereby
assume an obligation different from that under which he would have lain if such deposit had not been
made, nor did he thereby make himself liable to repay the money at all hazards. The fact that he placed
the trust fund in the bank in his personal account does not add to his responsibility. Such deposit did not
make him a debtor who must respond at all hazards. There was no law prohibiting him from depositing it
as he did and there was no law which changed his responsibility by reason of the deposit.
HELD:
We agree with the petitioner's contention that the contract for the rent of the safety deposit box is NOT an
ordinary contract of lease as defined in Article 1643 of the Civil Code. However, We do not fully subscribe
to its view that the same is a contract of deposit that is to be strictly governed by the provisions in the Civil
Code on deposit. The contract in the case at bar is a special kind of deposit.
Not lease: It cannot be characterized as an ordinary contract of lease under Article 1643 because the full
and absolute possession and control of the safety deposit box was not given to the joint renters the
petitioner and the Pugaos. The guard key of the box remained with the respondent Bank; without this key,
neither of the renters could open the box. On the other hand, the respondent Bank could not likewise
open the box without the renter's key. In this case, the said key had a duplicate which was made so that
both renters could have access to the box.
Not deposit under 1975: the first paragraph of such provision cannot apply to a depositary of
certificates, bonds, securities or instruments which earn interest if such documents are kept in a rented
safety deposit box. It is clear that the depositary cannot open the box without the renter being present.
Pugaos agreed that each should have one (1) renter's key, it was obvious that either of them could ask the
Bank for access to the safety deposit box and, with the use of such key and the Bank's own guard key,
could open the said box, without the other renter being present.
and preservation expenses. Petitioner may not now retrieve the sugar stocks without paying the lien due
private respondents as warehouseman.
Rule: While the PNB is entitled to the stocks of sugar as the endorsee of the quedans, delivery to it shall be
effected only upon payment of the storage fees.
Imperative is the right of the warehouseman to demand payment of his lien at this juncture, because, in
accordance with Section 29 of the Warehouse Receipts Law, the warehouseman loses his lien upon goods
by surrendering possession thereof. In other words, the lien may be lost where the warehouseman
surrenders the possession of the goods without requiring payment of his lien, because a warehousemans
lien is possessory in nature.