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1 Republic vs Bagtas
FACTS: May 8, 1948: Jose V. Bagtas borrowed from the Republic of the Philippines through
the Bureau of Animal Industry three bulls: a Red Sindhi with a book value of P1,176.46, a
Bhagnari, of P1,320.56 and a Sahiniwal, of P744.46, for a period of 1 year for breeding
purposes subject to a breeding fee of 10% of the book value of the bulls
May 7, 1949: Jose requested for a renewal for another year for the three bulls but only one
bull was approved while the others are to be returned
March 25, 1950: He wrote to the Director of Animal Industry that he would pay the value of
the 3 bulls
October 17, 1950: he reiterated his desire to buy them at a value with a deduction of
yearly depreciation to be approved by the Auditor General.
October 19, 1950: Director of Animal Industry advised him that either the 3 bulls are to be
returned or their book value without deductions should be paid not later than October 31,
1950 which he was not able to do
December 20, 1950: An action at the CFI was commenced against Jose praying that he be
ordered to return the 3 bulls or to pay their book value of P3,241.45 and the unpaid
breeding fee of P199.62, both with interests, and costs
July 5, 1951: Jose V. Bagtas, through counsel Navarro, Rosete and Manalo, answered that
because of the bad peace and order situation in Cagayan Valley, particularly in the barrio
of Baggao, and of the pending appeal he had taken to the Secretary of Agriculture and
Natural Resources and the President of the Philippines, he could not return the animals nor
pay their value and prayed for the dismissal of the complaint.
RTC: granted the action
December 1958: granted an ex-parte motion for the appointment of a special sheriff to
serve the writ outside Manila
December 6, 1958: Felicidad M. Bagtas, the surviving spouse of Jose who died on October
23, 1951 and administratrix of his estate, was notified
January 7, 1959: she file a motion that the 2 bulls where returned by his son on June 26,
1952 evidenced by recipt and the 3rd bull died from gunshot wound inflicted during a Huk
raid and prayed that the writ of execution be quashed and that a writ of preliminary
injunction be issued.
ISSUE: W/N the contract is commodatum and NOT a lease and the estate should be liable
for the loss due to force majeure due to delay.
HELD: YES. writ of execution appealed from is set aside, without pronouncement as to
If contract was commodatum then Bureau of Animal Industry retained ownership or title to
the bull it should suffer its loss due to force majeure. 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 if he keeps it longer than the period stipulated.
The estate of the late defendant is only liable for the sum of P859.63, the value of the bull
which has not been returned because it was killed while in the custody of the
administratrix of his estate

Special proceedings for the administration and settlement of the estate of the deceased
Jose V. Bagtas having been instituted in the CFI, 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.
2 Republic vs CA
3 Pajuyo vs CA
Facts: Pajuyo entrusted a house to Guevara for the latter's use provided he should return
the same upon demand and with the condition that Guevara should be responsible of the
maintenance of the property. Upon demand Guevara refused to return the property to
Pajuyo. The petitioner then filed an ejectment case against Guevara with the MTC who
ruled in favor of the petitioner. On appeal with the CA, the appellate court reversed the
judgment of the lower court on the ground that both parties are illegal settlers on the
property thus have no legal right so that the Court should leave the present situation with
respect to possession of the property as it is, and ruling further that the contractual
relationship of Pajuyo and Guevara was that of a commodatum.
Issue: Is the contractual relationship of Pajuyo and Guevara that of a commodatum?
Held: No. The Court of Appeals theory that the Kasunduan is one of commodatum is
devoid of merit. In a contract of commodatum, one of the parties delivers to another
something not consumable so that the latter may use the same for a certain time and
return it. An essential feature of commodatum is that it is gratuitous. Another feature of
commodatum is that the use of the thing belonging to another is for a certain period. Thus,
the bailor cannot demand the return of the thing loaned until after expiration of the period
stipulated, or after accomplishment of the use for which the commodatum is constituted. If
the bailor should have urgent need of the thing, he may demand its return for temporary
use. If the use of the thing is merely tolerated by the bailor, he can demand the return of
the thing at will, in which case the contractual relation is called a precarium. Under the
Civil Code, precarium is a kind of commodatum. The Kasunduan reveals that the
accommodation accorded by Pajuyo to Guevarra was not essentially gratuitous. While the
Kasunduan did not require Guevarra to pay rent, it obligated him to maintain the property
in good condition. The imposition of this obligation makes the Kasunduan a contract
different from a commodatum. The effects of the Kasunduan are also different from that of
a commodatum. Case law on ejectment has treated relationship based on tolerance as one
that is akin to a landlord-tenant relationship where the withdrawal of permission would
result in the termination of the lease. The tenants withholding of the property would then
be unlawful.
4 Quintos vs Beck
Facts: Quintos and Beck entered into a contract of lease, whereby the latter occupied the
formers house. On Jan 14, 1936, the contract of lease was novated, wherein the QUintos
gratuitously granted to Beck the use of the furniture, subject to the condition that Beck
should return the furnitures to Quintos upon demand. Thereafter, Quintos sold the property
to Maria and Rosario Lopez. Beck was notified of the conveyance and given him 60 days to
vacate the premises. IN addition, Quintos required Beck to return all the furniture. Beck
refused to return 3 gas heaters and 4 electric lamps since he would use them until the
lease was due to expire. Quintos refused to get the furniture since Beck had declined to
return all of them. Beck deposited all the furniture belonging to QUintos to the sheriff.
ISSUE: WON Beck complied with his obligation of returning the furnitures to Quintos when
it deposited the furnitures to the sheriff.

RULING: The contract entered into between the parties is one of commadatum, because
under it the plaintiff gratuitously granted the use of the furniture to the defendant,
reserving for herself the ownership thereof; by this contract the defendant bound himself
to return the furniture to the plaintiff, upon the latters demand (clause 7 of the contract,
Exhibit A; articles 1740, paragraph 1, and 1741 of the Civil Code). The obligation
voluntarily assumed by the defendant to return the furniture upon the plaintiff's demand,
means that he should return all of them to the plaintiff at the latter's residence or house.
The defendant did not comply with this obligation when he merely placed them at the
disposal of the plaintiff, retaining for his benefit the three gas heaters and the four eletric
As the defendant had voluntarily undertaken to return all the furniture to the plaintiff, upon
the latter's demand, the Court could not legally compel her to bear the expenses
occasioned by the deposit of the furniture at the defendant's behest. The latter, as bailee,
was nt entitled to place the furniture on deposit; nor was the plaintiff under a duty to
accept the offer to return the furniture, because the defendant wanted to retain the three
gas heaters and the four electric lamps.
5 Delos Santos vs Jarra
Facts: The Plaintiff Felix delos Santos filed this suit against Agustina Jarra. Jarra was the
administratix of the estate of Jimenea. Plaintiff alleged that he owned 10 1st class
carabaos which he lent to his father-in-law Jimenea to be used in the animal-power mill
without compensation. This was done on the condition of their return after the work at the
latters mill is terminated. When delos Santos demanded the return of the animals Jimenea
refused, hence this suit.
Issue: W/N the contracts is one of a commodatum
Ruling: YES. The carabaos were given on commodatum as these were delivered to be used
by defendant. Upon failure of defendant to return the cattle upon demand, he is under the
obligation to indemnify the plaintiff by paying him their value. Since the 6 carabaos were
not the property of the deceased or of any of his descendants, it is the duty of the
administratrix of the estate to either return them or indemnify the owner thereof of their
6 Manzano vs Perez
Commodatum (The Bailor)
Facts: Petitioner Emilia Manzano alleged that she is the owner of a residential house and
lot situated at General Luna St. Laguna. In 1979, Nieves Manzano, sister of the petitioner
borrowed the aforementioned property as collateral for a projected loan. Pursuant to their
understanding, the petitioner executed two deeds of conveyance for the sale of the
residential lot and the house erected, both for a consideration of P1.00 plus other valuables
allegedly received by her from Nieves Manzano. Nieves Manzano, together with her
husband, respondent Miguel Perez, Sr. obtained a loan fromthe Rural Bank of Infanta, Inc.
in the sum of P30,000.00. To secure payment of their indebtedness, they executed a Real
Estate Mortgage over the subject property in favor of the bank. Nieves Manzano died on 18
December 1979 leaving her husband and children as heirs. These heirs refused to return
the subject property to the petitioner even after the payment of their loan with the Rural
Bank. The petitioner sought the annulment of the deeds of sale and execution of a deed of
transfer or reconveyance of the subject property in her favor, and award of damages. The
Court of Appeals ruled that it was not convinced by petitioner's claim that there was a

supposed oral agreement of commodatum over the disputed house and lot. Hence, this
Contention of petitioner: The petitioner alleged that properties in question after they have
been transferred to Nieves Manzano, were mortgaged in favor of the Rural Bank of Infanta,
Inc to secure payment of the loan. The documents covering said properties which were
given to the bank as collateral of said loan, upon payment and release to the private
respondents, were returned to petitioner by Florencio Perez. These are a clear recognition
by respondents that petitioner is the owner of the properties in question
Contention of respondents: the respondents countered that they are the owners of the
property in question being the legal heirs of Nieves Manzano who purchased the same
from the petitioner for value and in good faith, as shown by the deeds of sale which
contain the true agreements between the parties therein that except for the petitioner's
bare allegations, she failed to show any proof that the transaction she entered into with
her sister was a loan and not a sale.
Resolution: The court ruled that petitioner has presented no convincing proof of her
continued ownership of the subject property. In addition to her own oral testimony, she
submitted proof of payment of real property taxes, but such payment was made only after
her Complaint had already been lodged before the trial court. Neither can the court give
weight to her allegation that respondent's possession of the subject property was merely
by virtue of her tolerance. Oral testimony cannot, as a rule, prevail over a written
agreement of the parties. In order to contradict the facts contained in a notarial document,
as the two Kasulatan ng Bilihang Tuluyan in this case, as well as the presumption of
regularity in the execution thereof, there must be clear and convincing evidence that is
more than merely preponderant. Here petitioner has failed to come up with even a
preponderance of evidence to prove her claim.
Courts are not blessed with the ability to read what goes on in the minds of people. That is
why parties to a case are given all the opportunity to present evidence to help the courts
decide on who are telling the truth and who are lying, who are entitled to their claim and
who are not. The Supreme Court cannot depart from these guidelines and decide on the
basis of compassion alone because, aside from being contrary to the rule of law and our
judicial system, this course of action would ultimately lead to anarchy.
We reiterate, the evidence offered by petitioner to prove her claim is sadly lacking.
Jurisprudence on the subject matter, when applied thereto, points to the existence of a
sale, not a commodatum over the subject house and lot.
WHEREFORE, the Petition is hereby DENIED and the assailed Decision AFFIRMED. Costs
against petitioner.
7 Producers Bank of the Phils vs CA
Doronilla is in the process of incorporating his business and to comply with one of the
requirements of incorporation, he caused Vives to issue a check which was then deposited
in Doronillas savings account. It was agreed that Vives can withdraw his money in a
months time. However, what Doronilla did was to open a current account and instructed
the bank to debit from the savings account and deposit it in his current account. So when
Vives checked the savings account, the money was gone. Is the contract a mutuum or
Supreme Court held that the contract is a commodatum. Although in a commodatum, the
object is a non-consumable thing, there are instances where a consumable thing may be

the object of a commodatum, such as when the purpose is not for consumption of the
object but merely for exhibition (Art. 1936). Thus, if consumable goods are loaned only for
purposes of exhibition, or when the intention of the parties is to lend consumable goods
and to have the very same goods returned at the end of the period agreed upon, the loan
is a commodatum and not a mutuum.
Art. 1933: xxx Commodatum is essentially gratuitous.
Art. 1935: xxx if any compensation is to be paid by him who acquires the use, the contract
ceases to be a commodatum.
- perfects the contract
1 Saura Import vs Development Bank of the Phils
Saura applied to the Rehabilitation Finance Corporation (RFC), before its
conversion into DBP, for an industrial loan to be used for construction of factory building,
for payment of the balance of the purchase price of the jute machinery and equipment and
as additional working capital. In Resolution No.145, the loan application was approved to
be secured first by mortgage on the factory buildings, the land site, and machinery and
equipment to be installed.
The mortgage was registered and documents for the promissory note were executed. The
cancellation of the mortgage was requested to make way for the registration of a
mortgage contract over the same property in favor of Prudential Bank and Trust Co., the
latter having issued Saura letter of credit for the release of the jute machinery. As security,
Saura execute a trust receipt in favor of the Prudential. For failure of Saura to pay said
obligation, Prudential sued Saura.
After 9 years after the mortgage was cancelled, Saura sued RFc alleging failure to comply
with tits obligations to release the loan proceeds, thereby prevented it from paying the
obligation to Prudential Bank.
The trial court ruled in favor of Saura, ruling that there was a perfected contract between
the parties ad that the RFC was guilty of breach thereof.
ISSUE : Whether or not there was a perfected contract between the parties.
HELD : The Court held in the affirmative. Article 1934 provides: An accepted promise to
deliver something by way of commodatum or simple loan is binding upon the parties, but
the commodatum or simple loan itself shall not be perfected until delivery of the object of
the contract.
There was undoubtedly offer and acceptance in the case. When an application for a loan of
money was approved by resolution of the respondent corporation and the responding
mortgage was executed and registered, there arises a perfected consensual contract.
2 BPI Investment vs CA
FACTS: Frank Roa obtained a loan from Ayala Investment and Development Corporation
(AIDC), for the construction of his house. Said house and lot were mortgaged to AIDC to
secure the loan. Roa sold the properties to ALS and Litonjua, the latter paid in cash and
assumed the balance of Roas indebtedness wit AIDC. AIDC was not willing to extend the
old interest to private respondents and proposed a grant of new loan of P500,000 with
higher interest to be applied to Roas debt, secured by the same property. Private
respondents executed a mortgage deed containing the stipulation. The loan contract was

signed on 31 March 1981 and was perfected on 13 September 1982, when the full loan
was released to private respondents.
BPIIC, AIDCs predecessor, released to private respondents P7,146.87, purporting to be
what was left of their loan after full payment of Roas loan. BPIIC filed for foreclosure
proceedings on the ground that private respondents failed to pay the mortgage
indebtedness. Private respondents maintained that they should not be made to pay
amortization before the actual release of the P500,000 loan. The suit was dismissed and
affirmed by the CA.
ISSUE: Whether or not a contract of loan is a consensual contract.
HELD: The Court held in the negative. A loan contract is not a consensual contract but a
real contract. It is perfected only upon delivery of the object of the contract. A contract o
loan involves a reciprocal obligation, wherein the obligation or promise of each party is the
consideration for that of the other; it is a basic principle in reciprocal obligations that
neither party incurs in delay, if the other does not comply or is not ready to comply is a
proper manner with what is incumbent upon him
3 Naguiat vs CA
Queao applied with Naguiat a loan for P200,000, which the latter granted. Naguiat
indorsed to Queao Associated bank Check No. 090990 for the amount of P95,000 and
issued also her own Filmanbank Check to the order of Queao for the amount of P95,000.
The proceeds of these checks were to constitute the loan granted by Naguiat to Queao. To
secure the loan, Queao executed a Deed of Real Estate Mortgage in favor of Naguiat, and
surrendered the owners duplicates of titles of the mortgaged properties. The deed was
notarized and Queao issued to Naguiat a promissory note for the amount of P200,000.
Queao also issued a post-dated check amounting to P200,000 payable to the order of
Naguait. The check was dishonoured for insufficiency of funds. Demand was sent to
Queao. Shortly, Queao, and one Ruby Reubenfeldt met with Naguiat. Queao told
Naguiat that she did not receive the loan proceeds, adding that the checks were retained
by Reubenfeldt, who purportedly was Naguiats agent.
Naguiat applied for extrajudicial foreclosure of the mortgage. RTC declared the Deed as
null and void and ordered Naguiat to return to Queao the owners duplicates of titles of
the mortgaged lots.
ISSUE: Whether or not the issuance of check resulted in the perfection of the loan contract.
HELD: The Court held in the negative. No evidence was submitted by Naguiat that the
checks she issued or endorsed were actually encashed or deposited. The mere issuance of
the checks did not result in the perfection of the contract of loan. The Civil Code provides
that the delivery of bills of exchange and mercantile documents such as checks shall
produce the effect of payment only when they have been cashed. It is only after the
checks have been produced the effect of payment that the contract of loan may have been
Article 1934 of the Civil Code provides: An accepted promise to deliver something by way
of commodatum or simple loan is binding upon the parties, but the commodatum or simple

loan itsel shall not be perfected until the delivery of the object of the contract. A loan
contract is a real contract, not consensual, and as such, is perfected only upon the delivery
of the objects of the contract.
4 Cebu Intl Finance vs CA
The prevailing jurisprudence is that a mortgagee has a right to rely in good faith on the
certificate of title of the mortgagor to the property given as security and in the absence of
any sign that might arouse suspicion, has no obligation to undertake further investigation.
Facts: Jacinto Dy executed a Special Power of Attorneyin favor of private respondent Ang
Tay, authorizing the latter to sell the cargo vessel owned by Dy and christened LCT
Asiatic. Through a Deed of Absolute Sale, Ang Tay sold the subject vessel to Robert Ong
(Ong). Ong paid the purchase price by issuing three (3) checks However, since the
payment was not made in cash, it was specifically stipulated in the deed of sale that the
LCT Asiatic shall not be registered or transferred to Robert Ong until complete payment.
Thereafter, Ong obtained possession of the subject vessel so he could begin deriving
economic benefits therefrom. He, likewise, obtained copies of the unnotarized deed of sale
allegedly to be shown to the banks to enable him to acquire a loan to replenish his (Ongs)
capital. The aforequoted condition, however, which was handwritten on the original deed
of sale does not appear on Ongs copies.Contrary to the aforementioned agreements and
without the knowledge of Ang Tay, Ong had his copies of the deed of sale (on which the
aforementioned prohibition does not appear) notarized Ong presented the notarized deed
to the Philippine Coast Guard which subsequently issued him a Certificate of Ownership
and a Certificate of Philippine Register over the subject vessel. Ong also succeeded in
having the name of the vessel changed to LCT Orient Hope.
Using the acquired vessel, Ong acquired a loan from Cebu International Finance
Corporation to be paid in installments as evidenced by a promissory note of even date. As
security for the loan, Ong executed a chattel mortgage over the subject vessel, which
mortgage was registered with the Philippine Coast Guard and annotated on the Certificate
of Ownership.
-Ong defaulted in the payment of the monthly installments. Consequently, Cebu
International Finance Corporation sent him a letter] demanding delivery of the mortgaged
vessel for foreclosure or in the alternative to pay the balance pursuant to paragraph 11 of
the deed of chattel mortgage. Meanwhile, the two checks paid by Ong to Ang Tay for the
Purchase of the subject vessel bounced. Ang Tays search for the elusive Ong and all
attempts to confer with him proved to be futile. A subsequent investigation and inquiry
with the Office of the Coast Guard revealed that the subject vessel was already in the
name of Ong, in violation of the express undertaking contained in the original deed of sale.
As a result thereof, Ang Tay and Jacinto Dy filed a civil case for rescission and replevin with
damages against Ong and his wife.
Issue: Whether or not Cebu International Finance Corporation can validly foreclose the
chattel mortgage
Held: The prevailing jurisprudence is that a mortgagee has a right to rely in good faith on
the certificate of title of the mortgagor to the property given as security and in the
absence of any sign that might arouse suspicion, has no obligation to undertake further
investigation. Hence, even if the mortgagor is not the rightful owner of or does not have a

valid title to the mortgaged property, the mortgagee or transferee in good faith is
nonetheless entitled to protection. Although this rule generally pertains to real property,
particularly registered land, it may also be applied by analogy to personal property, in this
case specifically, since ship owners are, likewise, required by law to register their vessels
with the Philippine Coast Guard.
The chattel mortgage constituted on a vessel by the buyer who was able to register the
vessel in his name despite the agreement with the seller that the vessel would not be so
registered until after full payment of the price which do not appear in the buyers copy of
the deed of sale is VALID, for the mortgagee has the right to rely in good faith on the
certificate of registration.
5 BPI Family vs Franco
(Simple Loan)

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 BPIFBs 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 BPI-FB as debtor.
6 Tolentino vs Gonzales Sy Chiam
Tolentino purchased land from Luzon Rice Mills for Php25,000 payable in three
installments. Tolentino defaulted on the balance so the owner sent a letter of demand to
him. To pay, Tolentino applied for loan from Gonzalez on condition that he would execute a
pacto de retro sale on the property in favor of Gonzalez. Upon maturation of loan, Tolentino
defaulted so Gonzalez is demanding recovery of the land. Tolentino contends that the
pacto de retro sale is a mortgage and not an absolute sale.
The Supreme Court held that upon its terms, the deed of pacto de retro sale is an absolute
sale with right of repurchase and not a mortgage. Thus, Gonzalez is the owner of the land
and Tolentino is only holding it as a tenant by virtue of a contract of lease.
1 Jadenil vs Salas

2 Cu Unijen e Hijos vs Mabalacat Sugar

Facts: Cu Unjieng e Hijos loaned Mabalacat 163 k, for security, Mabalacat mortgaged its
Mabalacat failed to pay, but Cu Unjieng extended the payment. Cu Unjieng filed a case
against Mabalacat for foreclosure of property and payment of attorney's fees. It also claims
interest over interest. Mabalacat insisted that the agreement for the extension of the time
of payment had the effect of abrogating the stipulation of the original contract with respect

to the acceleration of the maturity of the debt by non-compliance with the terms of the
mortgage. The issue related on this case is the interest over interest.

ISSUE # 1 WON the CA erred in holding that the amendment of the REM dated July 6, 1962
superseded the mortgage contract dated Apr. 4, 1962, particularly with the compounding
of interest

Issue: WoN Cu-Unjieng is entitled to interest over interest.

Ruling: It is well settled that, under article 1109 of the Civil Code, as well as under section
5 of the Usury Law (Act No. 2655), the parties may stipulate that interest shall be
compounded; and rests for the computation of compound interest can certainly be made
monthly, as well as quarterly, semiannually, or annually. But in the absence of express
stipulation for the accumulation of compound interest, no interest can be collected upon
interest until the debt is judicially claimed, and then the rate at which interest upon
accrued interest must be computed is fixed at 6 per cent per annum. In this case, there
was no compound interest in the agreement.
3 GSIS vs CA
FACTS Sps. Medina applied for a loan with GSIS in the amount of P600,000. But only
P350,000 had been approved (BR 5041) subject to the conditions: a. that 9% per annum
shall be the interest rate, compounded monthly; b. that the loan shall be repayable in 10
years at a monthly mortization of P4,433.65 including principal and interest, and that any
installment or amortization due and unpaid shall bear an interest of 9%/12 per month.
The Office of the Economic Coordinator, in a 2nd Indorsement, further reduced the
approved amount to P295,000. The Medinas accepted the reduced amount, executed a
promissory note and a REM in favor of GSIS.
On June 6, 1962, the approved loan was restored to P350,000 and was denominated as
Account No. 31055. As a consequence, the Medinas subsequently executed an Amendment
of Real Estate Mortgage. Upon application by the Medinas, GSIS adopted Resolution No.
121, as amended by Resolution No. 348, granting an additional loan of P230,000 on the
security of the same mortgaged properties and additional properties. The loan was
denominated as Account No. 31442.
Beginning 1965, the Medinas defaulted in their payments and in 1967, they began
defaulting in the payment of their fire insurance premiums. On May 3, 1974, GSIS informed
the debtors that they had arrearages in the amount of P575,652.42 as of April 18, 1974
and demanded payment within 7 days, otherwise, it would foreclose the mortgage.
On Apr. 21, 1975, GSIS applied for foreclosure of the mortgage. The Medinas filed a
complaint, praying for the issuance of a restraining order or writ of PI, but no such RO or
WPI was issued in view of PD No. 385.
On Apr. 25, 1975, the Medinas made a last partial payment in the amount of P209, 662.80.
The properties of the medinas were sold at public auction with GSIS as the highest bidder.
Hence, the Medinas filed an amended complaint, praying for the declaration of nullity of
their 2 REM contracts with the GSIS, as well as of the EJ foreclosure proceedings, and for
the refund of excess payments, damages and AF. TC: N&V + Medinas to pay GSIS
P1,611.12 in fully payment of their obligation with 9% p.a. interest from Dec. 11, 1975 CA:
Affirmed: GSIS to reimburse P9,580 OP and pay Sp Medina P3,000 AF and P1,000 litigation
exp; SC: PRC ; MR: due course

HELD Said Amendment was never intended to completely supersede the mortgage
contract dated April 4, 1962. In fact, GSIS, as a matter of policy, imposes uniform terms
and conditions for all its real estate loans, particularly with respect to compounding of
interest. GSIS: Did not supersede; amended only wrt the amount secured thereby and
the amount of monthly amortizations; others deemed rewritten Medinas: no express
stipulation on the compounded interest OP o The difference in the computation lies in
the inclusion of the compounded interest as demanded by the GSIS on the one hand and
the exclusion thereof, as insisted by the Medinas on the other.
ISSUE # 2 WON the CA erred in sustaining the Sp. Medinas claim of OP, by crediting the
fire insurance proceeds in the sum of P11,152.02 to the total payment made by said
spouses as of Dec. 11, 1975
HELD YES. The plaintiffs were not entitled to a credit of P19,381.07 as FI proceeds, as they
were only entitled to and were credited with P11,152.02.
ISSUE # 3 WON the CA erred in holding that the interest rates on the loan accounts of the
Medinas are usurious
HELD NO. Usury Law applies only to interest by way of compensation for the use or
forbearance of money. Interest by way of damages is governed by Article 2209 of the Civil
ISSUE # 4: WON the CA erred in affirming the annulment of the subject EJ foreclosure and
sheriffs Certificate of Sale
HELD Since the Medinas failed to settle their accounts with the GSIS, the latter had a
perfect right to foreclose the mortgage. Reversed and set asideVALID.
4 Ligutan vs CA
The essence or rationale for the payment of interest, quite often referred to as cost of
money, is not exactly the same as that of a surcharge or a penalty. A penalty stipulation is
not necessarily preclusive of interest, if there is an agreement to that effect, the two being
distinct concepts which may separately be demanded. What may justify a court in not
allowing the creditor to impose full surcharges and penalties, despite an express
stipulation therefor in a valid agreement, may not equally justify the non-payment or
reduction of interest. Indeed, the interest prescribed in loan financing arrangements is a
fundamental part of the banking business and the core of a bank's existence.

Here, the stipulated interest of 15.189% on the forbearance of money was upheld by
the court as reasonable.
5 Tan vs CA

Executed a promissory note in amount of P3,411,421.32; payable in 5 installments.

TAN failed to pay any installment on the said restructured loan.
In a letter, TAN requested and proposed to respondent CCP a mode of paying the
restructured loan
20% of the principal amount of the loan upon the
respondent giving its conformity to his proposal
Balance on the principal obligation payable 36 monthly
installments until fully paid.
TAN requested for a moratorium on his loan obligation until the following year allegedly
due to a substantial deduction in the volume of his business and on account of the peso
No favorable response was made to said letters.
CCP demanded full payment, within ten (10) days from
receipt of said letter P6,088,735.03.
CCP FILED COMPLAINT collection of a sum of money
TAN interposed the defense that he accommodated a friend who asked for help to obtain a
loan from CCP.
Claimed that cannot find the friend.
TAN filed a Manifestation wherein he proposed to settle his indebtedness to CCP by down
payment of P140,000.00 and to issue1 2 checks every beginning of the year to cover
installment payments for one year, and every year thereafter until the balance is fully paid.
CCP did not agree to the petitioners proposals and so the
trial of the case ensued.
TRIAL COURT ORDERED TAN TO PAY CCP P7,996,314.67, representing defendants
outstanding account as of August 28, 1986, with the corresponding stipulated interest and
charges thereof, until fully paid, plus attorneys fees in an amount equivalent to 25% of
said outstanding account, plus P50,000.00, as exemplary damages, plus costs.
Reason of loan for accommodation of friend was not
Assuming, arguendo, that the TAN did not personally
benefit from loan, he should have filed a 3rd-party complaint against Wilson Lucmen
3 times the petitioner offered to settle his loan obligation
with CCP.
TAN may not avoid his liability to pay his obligation under
the promissory note which he must comply with in good faith.
TAN is estopped from denying his liability or loan
obligation to the private respondent.
TAN APPEALED TO CA, asked for the reduction of the penalties and charges on his loan
Judgment appealed from is hereby AFFIRMED.
1. No alleged partial or irregular performance.
However, the appellate court modified the decision of the trial court by deleting
exemplary damages because not proportionate to actual damage caused by the nonperformance of the contract

ISSUES: WON there are contractual and legal bases for the imposition of the penalty,
interest on the penalty and attorneys fees.
TAN imputes error on CA in not fully eliminating attorney fees and in not reducing the
penalties considering that he made partial payments on the loan.
And if penalty is to be awarded, TAN asking for non-imposition of interest on the
surcharges because compounding of these are not included in promissory note.
No basis in law for the charging of interest on the surcharges for the reason that the New
Civil Code is devoid of any provision allowing the imposition of interest on surcharges.
WON interest may accrue on the penalty or compensatory interest without violating ART
1959: Without prejudice to the provisions of Article 2212, interest due and unpaid shall
not earn interest. However, the contracting parties may by stipulation capitalize the
interest due and unpaid, which as added principal, shall earn new interest.
TAN- No legal basis for the imposition of interest on the penalty charge for the reason that
the law only allows imposition of interest on monetary interest but not the charging of
interest on penalty. Penalties should not earn interest.
WON TAN can file reduction of penalty due to made partial payments.
Petitioner contends that reduction of the penalty is justifiable under ART 1229: The judge
shall equitably reduce the penalty when the principal obligation has been partly or
irregularly complied with by the debtor. Even if there has been no performance, the
penalty may also be reduced by the courts if it is iniquitous or unconscionable.
HELD: CA DECISION AFFIRMED with MODIFICATION in that the penalty charge of two
percent (2%) per month on the total amount due, compounded monthly, is hereby reduced
to a straight twelve percent (12%) per annum starting from August 28, 1986. With costs
against the petitioner.
WON there are contractual and legal bases for the imposition of the penalty, interest on
the penalty and attorneys fees. YES. WITH LEGAL BASES.
ART 1226: In obligations with a penal clause, the penalty shall substitute the indemnity for
damages and the payment of interests in case of non-compliance, if there is no stipulation
to the contrary. Nevertheless, damages shall be paid if the obligor refuses to pay the
penalty or is guilty of fraud in the fulfillment of the obligation.
The penalty may be enforced only when it is demandable
in accordance with the provisions of this Code.
CASE AT BAR: promissory note expressed the imposition of both interest and penalties in
case of default on the part of the petitioner in the payment of the subject restructured
If the parties stipulate penalty apart monetary interest,
two are different and distinct from each other and may be demanded separately.
If stipulation about payment of an additional interest rate
partakes of the nature of a penalty clause which is sanctioned by law:

1. ART 2209: 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 the interest agreed upon, and in the absence of stipulation, the legal
interest, which is six per cent per annum.
CASE AT BAR: Penalty charge of 2% per month began to accrue from the time of default by
the petitioner.
No doubt petitioner is liable for both the stipulated
monetary interest and the stipulated penalty charge.
1. PENALTY CHARGE = penalty or compensatory interest.

1. Since the condition has not happened due to the private respondents reneging on its
promise, his liability to pay the interest and surcharge on the loan has not arisen.
Running of the interest and surcharge was not
CCP correctly asserted that it was the primary
responsibility of petitioner to inform the Commission on Audit of his application for
condonation of interest and surcharge.
6 RCBC vs CA

WON interest may accrue on the penalty or compensatory interest without violating ART
Penalty clauses can be in the form of penalty or compensatory interest.
Thus, the compounding of the penalty or compensatory
interest is sanctioned by and allowed pursuant to the above-quoted provision of Article
1959 of the New Civil Code considering that:
There is an express stipulation in the promissory note (Exhibit A) permitting the
compounding of interest.
a. 5th paragraph of the said promissory note provides that: Any interest which may be
due if not paid shall be added to the total amount when due and shall become part thereof,
the whole amount to bear interest at the maximum rate allowed by law..
Therefore, any penalty interest not paid, when due, shall earn the legal interest of
twelve percent (12%) per annum, in the absence of express stipulation on the specific rate
of interest, as in the case at bar.
ART 2212: Interest due shall earn legal interest from the time it is judicially demanded,
although the obligation may be silent upon this point.
CASE AT BAR: interest began to run on the penalty interest upon the filing of the complaint
in court by CCP.
Hence, the courts did not err in ruling that the petitioner
is bound to pay the interest on the total amount of the principal, the monetary interest and
the penalty interest.
WON TAN can file reduction of penalty due to made partial payments. YES. BUT NOT 10%
PARTIAL PAYMENTS showed his good faith despite
difficulty in complying with his loan obligation due to his financial problems.
1. However, we are not unmindful of the respondents long overdue deprivation of the use
of its money collectible.
The petitioner also imputes error on the part of the appellate court for not declaring the
suspension of the running of the interest during period when the CCP allegedly failed to
assist the petitioner in applying for relief from liability
Alleges that his obligation to pay the interest and surcharge should have been suspended
because the obligation to pay such interest and surcharge has become conditional
Dependent on a future and uncertain event which
consists of whether the petitioners request for condonation of interest and surcharge
would be recommended by the Commission on Audit.

FACTS: RCBC Binondo Branch initially granted a credit facility of P30M to Goyu & Sons, Inc.
GOYUs applied again and through Binondo Branch key officer's Uys and Laos
recommendation, RCBCs executive committee increased its credit facility to P50M to P90M
and finally to P117M.
As security, GOYU executed 2 real estate mortgages and 2 chattel mortgages in favor of
GOYU obtained in its name 10 insurance policy on the mortgaged properties from Malayan
Insurance Company, Inc. (MICO). In February 1992, he was issued 8 insurance policies in
favor of RCBC.
April 27, 1992: One of GOYUs factory buildings was burned so he claimed against MICO for
the loss who denied contending that the insurance policies were either attached pursuant
to writs of attachments/garnishments or that creditors are claiming to have a better right
GOYU filed a complaint for specific performance and damages at the RTC
RCBC, one of GOYUs creditors, also filed with MICO its formal claim over the proceeds of
the insurance policies, but said claims were also denied for the same reasons that MICO
denied GOYUs claims
RTC: Confirmed GOYUs other creditors (Urban Bank, Alfredo Sebastian, and Philippine Trust
Company) obtained their writs of attachment covering an aggregate amount of
P14,938,080.23 and ordered that 10 insurance policies be deposited with the court minus
the said amount so MICO deposited P50,505,594.60.
Another Garnishment of P8,696,838.75 was handed down
RTC: favored GOYU against MICO for the claim, RCBC for damages and to pay RCBC its loan
CA: Modified by increasing the damages in favor of GOYU
In G.R. No. 128834, RCBC seeks right to intervene in the action between Alfredo C.
Sebastian (the creditor) and GOYU (the debtor), where the subject insurance policies were
attached in favor of Sebastian
RTC and CA: endorsements do not bear the signature of any officer of GOYU concluded that
the endorsements favoring RCBC as defective.
ISSUE: W/N RCBC as mortgagee, has any right over the insurance policies taken by GOYU,
the mortgagor, in case of the occurrence of loss
mortgagor and a mortgagee have separate and distinct insurable interests in the same
mortgaged property, such that each one of them may insure the same property for his own
sole benefit

although it appears that GOYU obtained the subject insurance policies naming itself as the
sole payee, the intentions of the parties as shown by their contemporaneous acts, must be
given due consideration in order to better serve the interest of justice and equity
8 endorsement documents were prepared by Alchester in favor of RCBC
MICO, a sister company of RCBC
GOYU continued to enjoy the benefits of the credit facilities extended to it by RCBC.
GOYU is at the very least estopped from assailing their operative effects.
The two courts below erred in failing to see that the promissory notes which they ruled
should be excluded for bearing dates which are after that of the fire, are mere renewals of
previous ones
RCBC has the right to claim the insurance proceeds, in substitution of the property lost in
the fire. Having assigned its rights, GOYU lost its standing as the beneficiary of the said
insurance policies
insurance company to be held liable for unreasonably delaying and withholding payment of
insurance proceeds, the delay must be wanton, oppressive, or malevolent - not shown
Sebastians right as attaching creditor must yield to the preferential rights of RCBC over
the Malayan insurance policies as first mortgagee.

The common carrier's duty to observe the requisite diligence in the shipment of goods
lasts from the time the articles are surrendered to or unconditionally placed in the
possession of, and received by, the carrier for transportation until delivered to, or until the
lapse of a reasonable time for their acceptance by, the person entitled to receive them
(Arts. 1736-1738, Civil Code; Ganzon vs. Court of Appeals, 161 SCRA 646; Kui Bai vs. Dollar
Steamship Lines, 52 Phil. 863). When the goods shipped either are lost or arrive in
damaged condition, a presumption arises against the carrier of its failure to observe that
diligence, and there need not be an express finding of negligence to hold it liable.
(b) whether the payment of legal interest on an award for loss or damage is to be
computed from the time the complaint is filed or from the date the decision appealed from
is rendered; and

7 Eastern Shipping Lines vs CA

I. 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.

FACTS: This is an action against defendants shipping company, arrastre operator and
broker-forwarder for damages sustained by a shipment while in defendants' custody, filed
by the insurer-subrogee who paid the consignee the value of such losses/damages.

II. 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

the losses/damages were sustained while in the respective and/or successive custody and
possession of defendants carrier (Eastern), arrastre operator (Metro Port) and broker (Allied

1. 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. 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.

As a consequence of the losses sustained, plaintiff was compelled to pay the consignee
P19,032.95 under the aforestated marine insurance policy, so that it became subrogated
to all the rights of action of said consignee against defendants.
DECISION OF LOWER COURTS: * trial court: ordered payment of damages, jointly and
severally * CA: affirmed trial court.
(a) whether or not a claim for damage sustained on a shipment of goods can be a solidary,
or joint and several, liability of the common carrier, the arrastre operator and the customs
YES, it is solidary. Since it is the duty of the ARRASTRE to take good care of the goods that
are in its custody and to deliver them in good condition to the consignee, such
responsibility also devolves upon the CARRIER. Both the ARRASTRE and the CARRIER are
therefore charged with the obligation to deliver the goods in good condition to the

2. When an obligation, not constituting a loan or forbearance of money, is breached, an

interest on the amount of damages awarded may be imposed at the discretion of the court
at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated
claims or damages except when or until the demand can be established with reasonable
certainty. Accordingly, where the demand is established with reasonable certainty, the
interest shall begin to run from the time the claim is made judicially or extrajudicially (Art.
1169, Civil Code) but when such certainty cannot be so reasonably established at the time
the demand is made, the interest shall begin to run only from the date the judgment of the
court is made (at which time the quantification of damages may be deemed to have been
reasonably ascertained). The actual base for the computation of legal interest shall, in any
case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final and executory,
the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above,
shall be 12% per annum from such finality until its satisfaction, this interim period being
deemed to be by then an equivalent to a forbearance of credit.

(c) whether the applicable rate of interest, referred to above, is twelve percent (12%) or six
percent (6%).
SIX PERCENT (6%) on the amount due computed from the decision, dated 03 February
1988, of the court a quo (Court of Appeals) AND A TWELVE PERCENT (12%) interest, in lieu
of SIX PERCENT (6%), shall be imposed on such amount upon finality of the Supreme Court
decision until the payment thereof.
RATIO: when the judgment awarding a sum of money becomes final and executory, the
monetary award shall earn interest at 12% per annum from the date of such finality until
its satisfaction, regardless of whether the case involves a loan or forbearance of money.
The reason is that this interim period is deemed to be by then equivalent to a forbearance
of credit.
NOTES: the Central Bank Circular imposing the 12% interest per annum applies only to
loans or forbearance of money, goods or credits, as well as to judgments involving such
loan or forbearance of money, goods or credits, and that the 6% interest under the Civil
Code governs when the transaction involves the payment of indemnities in the concept of
damage arising from the breach or a delay in the performance of obligations in general.
Observe, too, that in these cases, a common time frame in the computation of the 6%
interest per annum has been applied, i.e., from the time the complaint is filed until the
adjudged amount is fully paid.

first part is the ruling that the employee was illegally dismissed. This is immediately final
even if the employer appeals but will be reversed if employer wins on appeal. The second
part is the ruling on the award of backwages and/or separation pay. For backwages, it will
be computed from the date of illegal dismissal until the date of the decision of the Labor
Arbiter. But if the employer appeals, then the end date shall be extended until the day
when the appellate courts decision shall become final. Hence, as a consequence, the
liability of the employer, if he loses on appeal, will increase this is just but a risk that the
employer cannot avoid when it continued to seek recourses against the Labor Arbiters
decision. This is also in accordance with Article 279 of the Labor Code.
Anent the issue of award of interest in the form of actual or compensatory damages, the
Supreme Court ruled that the old case of Eastern Shipping Lines vs CA is already modified
by the promulgation of the Bangko Sentral ng Pilipinas Monetary Board Resolution No. 796
which lowered the legal rate of interest from 12% to 6%. Specifically, the rules on interest
are now as follows:
1. Monetary Obligations ex. Loans:
a. If stipulated in writing:
a.1. shall run from date of judicial demand (filing of the case)
a.2. rate of interest shall be that amount stipulated

8 Nacar vs Gallery Frames

b. If not stipulated in writing

Dario Nacar filed a labor case against Gallery Frames and its owner Felipe Bordey, Jr. Nacar
alleged that he was dismissed without cause by Gallery Frames on January 24, 1997. On
October 15, 1998, the Labor Arbiter (LA) found Gallery Frames guilty of illegal dismissal
hence the Arbiter awarded Nacar P158,919.92 in damages consisting of backwages and
separation pay.

b.1. shall run from date of default (either failure to pay upon extra-judicial demand or upon
judicial demand whichever is appropriate and subject to the provisions of Article 1169 of
the Civil Code)

Gallery Frames appealed all the way to the Supreme Court (SC). The Supreme Court
affirmed the decision of the Labor Arbiter and the decision became final on May 27, 2002.


After the finality of the SC decision, Nacar filed a motion before the LA for recomputation
as he alleged that his backwages should be computed from the time of his illegal dismissal
(January 24, 1997) until the finality of the SC decision (May 27, 2002) with interest. The LA
denied the motion as he ruled that the reckoning point of the computation should only be
from the time Nacar was illegally dismissed (January 24, 1997) until the decision of the LA
(October 15, 1998). The LA reasoned that the said date should be the reckoning point
because Nacar did not appeal hence as to him, that decision became final and executory.

b.2. rate of interest shall be 6% per annum

Non-Monetary Obligations (such as the case at bar)

a. If already liquidated, rate of interest shall be 6% per annum, demandable from date of
judicial or extra-judicial
demand (Art. 1169, Civil Code)
b. If unliquidated, no interest
Except: When later on established with certainty. Interest shall still be 6% per annum
demandable from the date of judgment because such on such date, it is already deemed
that the amount of damages is already ascertained.

ISSUE: Whether or not the Labor Arbiter is correct.

3. Compounded Interest

HELD: No. There are two parts of a decision when it comes to illegal dismissal cases
(referring to cases where the dismissed employee wins, or loses but wins on appeal). The

This is applicable to both monetary and non-monetary obligations

6% per annum computed against award of damages (interest) granted by the court. To
be computed from the date when the courts decision becomes final and executory until
the award is fully satisfied by the losing party.
4. The 6% per annum rate of legal interest shall be applied prospectively:
Final and executory judgments awarding damages prior to July 1, 2013 shall apply the
12% rate;
Final and executory judgments awarding damages on or after July 1, 2013 shall apply the
12% rate for unpaid obligations until June 30, 2013; unpaid obligations with respect to said
judgments on or after July 1, 2013 shall still incur the 6% rate.
9 First Fil Sin Lending Corp vs Padillo
DOCTRINE: When the terms of the agreement are clear and explicit that they do not justify
an attempt to read into it any alleged intention of the parties, the terms are to be
understood literally just as they appear on the face of the contract. (Note this doctrine was
cited in the 1st case: Gaisano Cagayan, Inc. vs. Insurance Company of North America)
As between two parties to a written agreement, the party who gave rise to the mistake or
error in the provisions of the same is estopped from asserting a contrary intention to that
contained therein.
FACTS: Respondent Gloria D. Padillo obtained a P500,000.00 loan from petitioner First FilSin Lending Corp. Respondent obtained another P500,000.00 loan from petitioner. In both
instances, respondent executed a promissory note and disclosure statement.
For the first loan, respondent made 13 monthly interest payments of P22,500.00 each
before she settled the P500,000.00 outstanding principal obligation. As regards the second
loan, respondent made 11 monthly interest payments of P25,000.00 each before paying
the principal loan of P500,000.00. In sum, respondent paid a total of P792,500.00 for the
first loan and P775,000.00 for the second loan.
Respondent Padillo then filed an action for sum of money against herein petitioner before
the RTC alleging that she only agreed to pay interest at the rates of 4.5% and 5% per
annum, respectively, for the two loans, and not 4.5% and 5% per month . Respondent
sought to recover the amounts she allegedly paid in excess of her actual obligations.
The RTC dismissed respondents complaint and ordered her to pay petitioner P311,125.00
with legal interest. On appeal, the CA reversed and set aside the decision of the RTC and
ruled that, based on the disclosure statements executed by respondent, the interest rates
should be imposed on a monthly basis but only for the 3-month term of the loan .
Thereafter, the legal interest rate will apply. Hence, the instant petition.
Petitioner maintains that the interest rates are to be imposed on a monthly and not on a
per annum basis and the monthly interest shall be imposed until the outstanding

obligations have been fully paid. On the other hand, respondent avers that the interest on
the loans is per annum as expressly stated in the promissory notes and disclosure
statements. The provision as to annual interest rate is clear and requires no room for
interpretation. Respondent asserts that any ambiguity in the promissory notes and
disclosure statements should not favor petitioner since the loan documents were prepared
by the latter.
ISSUE: Whether the interest on the loans is per annum, and not monthly, as expressly
stated in the promissory notes and disclosure statements
YES.RULING: We agree with respondent. Perusal of the promissory notes and the disclosure
statements pertinent to the loan obligations of respondent clearly and unambiguously
provide for interest rates of 4.5% per annum and 5% per annum, respectively. Nowhere
was it stated that the interest rates shall be applied on a monthly basis.
Thus, when the terms of the agreement are clear and explicit that they do not justify an
attempt to read into it any alleged intention of the parties, the terms are to be understood
literally just as they appear on the face of the contract. It is only in instances when the
language of a contract is ambiguous or obscure that courts ought to apply certain
established rules of construction in order to ascertain the supposed intent of the parties.
However, these rules will not be used to make a new contract for the parties or to rewrite
the old one, even if the contract is inequitable or harsh. They are applied by the court
merely to resolve doubts and ambiguities within the framework of the agreement.
The lower court and the CA mistook the Loan Transactions Summary for the Disclosure
Statement. The former was prepared exclusively by petitioner and merely summarizes the
payments made by respondent and the income earned by petitioner. There was no
mention of any interest rates and having been prepared exclusively by petitioner, the
same is self serving. On the contrary, the Disclosure Statements were signed by both
parties and categorically stated that interest rates were to be imposed annually, not
As such, since the terms and conditions contained in the promissory notes and disclosure
statements are clear and unambiguous, the same must be given full force and effect. The
expressed intention of the parties as laid down on the loan documents controls.
Notably, petitioner even admitted that it was solely responsible for the preparation of the
loan documents, and that it failed to correct the pro forma note p.a. to per month. Since
the mistake is exclusively attributed to petitioner, the same should be charged against it.
This unilateral mistake cannot be taken against respondent who merely affixed her
signature on the pro forma loan agreements. As between two parties to a written
agreement, the party who gave rise to the mistake or error in the provisions of the same is
estopped from asserting a contrary intention to that contained therein. The checks issued
by respondent do not clearly and convincingly prove that the real intent of the parties is to
apply the interest rates on a monthly basis. Absent any proof of vice of consent, the
promissory notes and disclosure statements remain the best evidence to ascertain the real
intent of the parties.

The same promissory note provides that x x x any and all remaining amount due on the
principal upon maturity hereof shall earn interest at the rate of _____ from date of maturity
until fully paid. The CA thus properly imposed the legal interest of 12% per annum from the
time the loans matured until the same has been fully paid on February 2, 1999. As decreed
in Eastern Shipping Lines, Inc. v. Court of Appeals, in the absence of stipulation, the rate of
interest shall be 12% per annum to be computed from default.
DISPOSITIVE: WHEREFORE, in view of the foregoing, the October 16, 2003 decision of the
Court of Appeals in CA-G.R. CV No. 75183 is AFFIRMED with the MODIFICATION that the
interest rates on the July 22, 1997 and September 7, 1997 loan obligations of respondent
Gloria D. Padillo from petitioner First Fil-Sin Lending Corporation be imposed and computed
on a per annum basis, and upon their respective maturities, the interest rate of 12% per
annum shall be imposed until full payment. In addition, the penalty at the rate of 12% per
annum shall be imposed on the outstanding obligations from date of default until full
payment. SO ORDERED.
10 Integrated Realty Corp vs PNB
FACTS: Raul Santos made a time deposit with OBM in the amount of P500H and he was
issued a certificate of time deposits. On another date, Santos again made a time deposit
with OBM in the amount of P200H, he was again issued a CTD. IRC, thru its president Raul
Santos, applied for a loan and/or credit line (P700H) with PNB. To secure such, Santos
executed a Deed of Assignment of the 2 time deposits. After due dates of the time deposit
certificates, OBM did not pay PNB. PNB then demanded payment from IRC and Santos, but
they replied that the loan was deemed paid with the irrevocable assignment of the time
deposit certificates.
PB then filed with RTC to collect from IRC and Santos with interest. The trial court
ruled in favor of PNB ordering IRC and Santos to pay PNB the total amount of P700H plus
interest of 9% PA, 2% additional interest and 1& PA penalty interest. On appeal, the CA
ordered OBM to pay IRC and Santos whatever amts they will to PNB with interest.
IRC and Santos now claim that OBM should reimburse them for whatever amts they
may be adjudged to pay PNB by way of compensation for damages incurred.
ISSUE: Whether or not the claim of IRC and Santos will prosper.
HELD: The Court held in the affirmative. The 2 time deposits matured on 11 January 1968
and 6 February 1968, respectively. However, OBM was not allowed and suspended to
operate only on 31 July 1968 and resolved on 2 August 1968. There was a yet no obstacle
to the faithful compliance by OBM of its liabilities. For having incurred in delay in the
performance of its obligation, OBM should be held for damages. OBM contends that it had
agreed to pay interest only up to the dates of maturity of the CTD and that Santos is not
entitled to interest after maturity dates had expired.
While it is true that under Article 1956 of the CC, no interest shall be due unless it
has been expressly stipulated in writing, this applies only to interest for the use of money.
It does not comprehend interest paid as damages. OBM is being required to pay such
interest, not as interest income stipulated in the CTD, but as damages fro failure and delay

in the payment of its obligations which thereby compelled IRC and Santos to resort to the
The applicable rule is that LI, in the nature of damages for non-compliance with an
obligation to puy sum of money, is recoverable from the date judicially or extra-judicially
demand is made.
11 Bataan Seedling Assn vs RP
FACTS: Petitioner entered into a contract with respondent, represented by the DENR for the
reforestation of a forest land within a period of 3 years. Petitioner undertook to report to
DENR any event or condition which delays or may delay the project. With the contract was
the release of mobilization fund but the fund was to be returned upon completion or
deducted from periodic release of mhoneys to petitioner. Believing that petitioners failed to
comply with their obligations, respondent sent a notice of cancellation. Petitioners failed to
respond to the notice, thus, respondent filed a complaint for damages against petitioners.
The RTC held that respondent had sufficient grounds to cancel the contract but saw no
reason why the mobilization fund and the cash advances should be refunded or that
petitioners are liable for liquidated damages. Both parties appealed to the CA, which
affirmed the trial court and that the balnce of the fund should be returned with 12%
ISSUE: Whether the order to refund the balance of the fund with 12% interest pa is
HELD: No. Interest at the rate of 12% pa is impossible if there is no stipulation in the
contract. Herein subject contract does not contain any stipulation as to interest. However,
the amount due to respondent does not represent a loan or forbearance of money. The
word forbearance is defined, within, the context of usury law, as a contractual obligation
of lender or creditor to refrain, during given period of time, from requiring borrower or
debtor to repay loan or debt then due and payable. In the absence of stipulation, the legal
interest is 6% pa on the amount finally adjudged by the Court.
12 Catungal vs Hao
FACTS: The original owner Aniana Galang, leased a 3-storey building in Paraaque to BPI in
1972. During the lease period, BPI subleased the ground floor to Doris Hao. In 1984,
Galang and Hao executed a lease contract on the 2nd and 3rd floors of the building. 2
years later, spouses Catungal bought the property from Galang. Upon expiration of the
lease agreements, Catungal demanded Hao to vacate the building. The demand was
unheeded so petitioners filed for ejectment before the MeTC, which ordered Hao to vacate
the premises and pay P20,000 until she finally vacates. Petitioners moved for clarificatory
or amended judgment on the ground that lthough MeTC ordered defendant to vacate, it
only awarded rent or compensation for the use of said property for the ground floor and
not for the entire subject property. the MeTC amended the judgment but petitioners moved
for reconsideration praing that respondent be ordered to pay P20,000 pm for the use and
occupancy of the ground floor and P10,000 pm for the 2nd and 3rd floors. The case was
referred to RTC which affirmed the decision. On appeal to the CA, the latter reduced the
P20,000 to P8,000 and the P10,000 each to P5,000 each.
ISSUE: Whether or not the RTC decision should be reinstated

HELD: Yes. The plaintiff in an ejectment case is entitled to damages caused by his loss of
the use and possession of the premises.
13 Banco Filipino vs CA
FACTS: Elsa and Calvin Arcilla secured, on 3 occassions, loan from petitioner as evidenced
by promissory note. REM was also executed. Under said deeds, Banco Filipino may increase
rate of interest on said loans, within the limits allowed by law. at that time, under Usury
Law, the maximum rate of interest for loans secured by REM was 12% pa. later, the Central
bank issued Circular No. 494 provinding for the maximum interest of 19%pa. meanwhile,
Skyli Builders, thru President Calvin Arcilla secured loans from BPI with FGU Insurance as
surety. Banco Filipino issued an account statement with 17% pa as interest. The Arcillas
filed for annulment of the loan contracts because the rate of interests charged were
ISSUE: Whether or not respondents are entitled to refund of the alleged interest
HELD: Yes. Private respondents aver that they are entitled to the refund inasmuch as the
escalation clause incorporated in the loan contracts do not have a corresponding deescalation clause and is therefore, illegal.
In Banco Filipino Savings & Mortgage Bank vs Navarro, the Court ruled that Central
Bank Circular 494, although it has the force and effect of law, is not a law and is not the
law contemplated by the parties which authorizes the petitioner to unilaterally raise the
interest rate of loan. The reliance on the circular was without any legal basis.
14 Consolidated Bank & Trust Co vs CA
FACTS: Continental Cement Corp obtained from Consolidated Bank letter of credit used to
purchased 500,000 liters of bunker fuel oil. Respondent Corporation made a marginal
deposit to petitioner. A trust receipt was executed by respondent corporation, with
respondent Gregory Lim as signatory. Claiming that respondents failed to turn over the
goods or proceeds, petitioner filed a complaint for sum of money before the RTC of Manila.
In their answer, respondents aver that the transaction was a simple loan and not a trust
receipt one, and tht the amount claimed by petitioner did not take into account payments
already made by them. The court dismissed the complaint, CA affirmed the same.
ISSUE: Whether or not the marginal deposit should not be deducted outright from the
amount of the letter of credit.
HELD: No. petitioner argues that the marginal deposit should be considered only after
computing the principal plus accrued interest and other charges. It could be onerous to
compute interest and other charges on the face value of the letter of credit which a bank
issued, without first crediting or setting off the marginal deposit which the borrower paid to
it-compensation is proper and should take effect by operation of law because the
requisited in Art. 1279 are present and should extinguish both debts to the concurrent
amount. Unjust enrichment.

and for those which may thereinafter be granted, petitioner mortgaged to respondent PNB
some of his properties. Petitioner later requested for loan restructuring and issued
promissory notes, which he failed to comply. Respondent PNB extra-judicially foreclosed
the real and chattel mortgages, and the mortgaged properties were sold at public auction
to respondent PNB, as highest bidder. Petitioner filed a case in the RTC contending that
foreclosure is illegal invoking promissory estoppel, and secured favorable judgment. The
decision of RTC was reversed by the Court of Appeals.
ISSUE: Whether or not the foreclosure of petitioners real estate and chattel mortgages
were legal and valid as opposed to promissory estoppel.
RULING: YES. First, there was no promissory estoppel as the promise (of respondent bank)
must be plain and unambiguous and sufficiently specific. Second, there was no meeting of
the minds leading to another contract, hence loan was not restructured. Third, promissory
notes petitioner issued were valid. Fourth, stipulation in the mortgage, extending its scope
and effect to after-acquired property is valid and binding after the correct and valid process
of extra-judicial foreclosure. Finally, record showed that petitioner did not even attempt to
tender any redemption price during the one-year redemption period.
16 First Metro Investment Corp vs Este del sol Mountain
FACTS: FMIC granted Este del Sol a loan to finance a sports/resort complex in Montalban,
Rizal. Under the agreement, the interest was 16% pa based on the diminishing balance. In
case of default, an acceleration clause was provided and the amount due is subject to 20%
one-time penalty on the amount due and such amount shall bear interest at the highest
rate permitted by law. respondent executed a REM, individual continuing suretyship and an
underwriting agreement whereby FMIC shall underwrite the public offering of one P120,000
common shares of respondents capital stock for one-time underwriting fee of P200,000.
For failure to pay its obligation, FMIC caused the foreclosure of the REM. At the public
auction, FIC was the highest bidder. Petitioner filed to collect for alleged deficiency balance
against respondents since it failed to collect from the sureties, plus interest at 21% pa. the
trial court ruled in favor of FMIC. Respondents appealed before the CA which held that the
fees provided for in the Underwriting and Consultacy Agreements were mere subterfuges
to camouflage the excessively usurious interest charged. The CA ordered FMIC to
reimburse petitioner representing what is ue to petitioner and what is due to respondent.
ISSUE: Whether or not the interests are lawful
HELD: No. an apparently lawful loan is usurious when it is intended that additional
compensation for the loan be disguised by an ostensibly unrelated contract for the
payment by the borrower for the lenders services which re of little value or which are not
in fact to be rendered. Article 1957 clearly provides: contracts and stipulations, under any
cloak or device whatever, intended to circumvent the law agaistn usury shall be void. The
borrower may recover in accordance with the laws on usury.

15 Mendoza vs CA

17 Solidbank vs permanent homes

FACTS: Respondent was granted by respondent Philippine National Bank (PNB) credit line
and Letter of Credit/Trust Receipt (LC/TR) line. As security for the credit accommodations

FACTS: The records disclose that PERMANENT HOMES is a real estate development
company, and to

finance its housing project known as the Buena Vida Townhome located within Merville
Subdivision,Paraaque City, it applied and was subsequently granted by SOLIDBANK with
an Omnibus Line credit
facility in the total amount of SIXTY MILLION PESOS. Of the entire loan, FIFTY NINE MILLION
as time loanfor a term of up to three hundred sixty (360) days, with interest thereon at
prevailing market rates, andsubject to monthly repricing. The remaining ONE MILLION was
available for domestic bills purchase.To secure the aforesaid loan, PERMANENT HOMES
initially mortgaged three(3) townhouse units withinthe Buena Vida project in Paraaque. At
the time, however, the instant complaint was filed againstSOLIDBANK, a total of thirty six
(36) townhouse units were mortgaged with said bank. Of the 60 millionavailable to
PERMANENT HOMES, it availed of a total of 41.5 million pesos covered by
three(3)promissory notes. There was a standing agreement by the parties that any
increase or decrease ininterest rates shall be subject to the mutual agreement of the
parties.For the three loan availments that PERMANENT HOMES obtained, the herein
respondent argued thatSOLIDBANK unilaterally and arbitrarily accelerated the interest
rates without any declared basis of suchincreases, of which PERMANENT HOMES had not
agreed to, or at the very least, been informed of.On July 5, 2002, the trial court
promulgated its Decision in favor of Solidbank. Permanent then filed anappeal before the
appellate court which was granted, in which reversed and set aside the assaileddecision
dated July 5, 2002. Hence, the present petition.
ISSUES: (1)WON the Honorable Court of Appeals was correct in ruling that the increases in
the interest
rates on Permanents loans are void for having been unilaterally imposed without basis.
(2)WON the Honorable Court of Appeals was correct in ordering the parties to enter into an
express agreement regarding the applicable interest rates on Permanents loan availments
subsequent to the initial thirty-day (30) period.
RULING: (1) Yes. Although interest rates are no longer subject to a ceiling, the lender still
does not havean unbridled license to impose increased interest rates. The lender and the
borrower should agree onthe imposed rate, and such imposed rate should be in writing of
which was not provided by petitioner.
(2)Yes. In order that obligations arising from contracts may have the force of law between
the parties,there must be mutuality between the parties based on their essential quality. A
contract containing acondition which makes its fulfillment dependent exclusively upon the
uncontrolled will of one of thecontracting parties is void. There was no showing that either
Solidbank or Permanent coerced eachother to enter into the loan agreements. The terms of
the Omnibus Line Agreement and the promissorynotes were mutually and freely agreed
upon by the parties.

18 Silos vs PNB
Doctrine: In loan agreements, it cannot be denied that the rate of interest is a principal
condition, if not the most important component. Thus, any modification thereof must be

mutually agreed upon; otherwise, it has no binding effect. Moreover, the Court cannot
consider a stipulation granting a party the option to prepay the loan if said party is not
agreeable to the arbitrary interest rates imposed. Premium may not be placed upon a
stipulation in a contract which grants one party the right to choose whether to continue
with or withdraw from the agreement if it discovers that what the other party has been
doing all along is improper or illegal.
Facts: Ps have been in business for about two decades of operating a department store and
buying and selling of ready-to-wear apparel.
To secure a one-year revolving credit line of P150,000.00 obtained from PNB, Ps constituted
in August 1987 a Real Estate Mortgage over a lot in Kalibo, Aklan. In July 1988,the credit
line was increased to P1.8 million and the mortgage was correspondingly increased to P1.8
And in July 1989, a Supplement to the Existing Real Estate Mortgage was executed to cover
the same credit line, which was increased to P2.5 million, and additional security was given
in the form of a 134-square meter lot. In addition, Ps issued eight Promissory Notes and
signed a Credit Agreement. This July 1989 Credit Agreement contained a stipulation on
interest which provides as follows:
1.03. Interest. (a) The Loan shall be subject to interest at the rate of 19.5% per annum.
Interest shall be payable in advance every one hundred twenty days at the rate prevailing
at the time of the renewal.
(b) The Borrower agrees that the Bank may modify the interest rate in the Loan depending
on whatever policy the Bank may adopt in the future, including without limitation, the
shifting from the floating interest rate system to the fixed interest rate system, or vice
versa. Where the Bank has imposed on the Loan interest at a rate per annum, which is
equal to the Banks spread over the current floating interest rate, the Borrower hereby
agrees that the Bank may, without need of notice to the Borrower, increase or decrease its
spread over the floating interest rate at any time depending on whatever policy it may
adopt in the future.
The eight Promissory Notes, on the other hand, contained a stipulation granting PNB the
right to increase or reduce interest rates "within the limits allowed by law or by the
Monetary Board."
The Real Estate Mortgage agreement provided the same right to increase or reduce
interest rates "at any time depending on whatever policy PNB may adopt in the future."
In August 1991, an Amendment to Credit Agreement was executed by the parties, with the
following stipulation regarding interest:
1.03. Interest on Line Availments. (a) The Borrowers agree to pay interest on each
Availment from date of each Availment up to but not including the date of full payment
thereof at the rate per annum which is determined by the Bank to be prime rate plus
applicable spread in effect as of the date of each Availment.

The 9th up to the 17th promissory notes provide for the payment of interest at the "rate
the Bank may at any time without notice, raise within the limits allowed by law x x x.
On the other hand, the 18th up to the 26th promissory notes including PN 9707237,
which is the 26th promissory note carried the following provision:
x x x For this purpose, I/We agree that the rate of interest herein stipulated may be
increased or decreased for the subsequent Interest Periods, with prior notice to the
Borrower in the event of changes in interest rate prescribed by law or the Monetary Board
of the Central Bank of the Philippines, or in the Banks overall cost of funds. I/We hereby
agree that in the event I/we are not agreeable to the interest rate fixed for any Interest
Period, I/we shall have the option to repay the loan or credit facility without penalty within
ten (10) calendar days from the Interest Setting Date.
R regularly renewed the line from 1990 up to 1997, and Ps made good on the promissory
notes, religiously paying the interests without objection or fail. But in 1997, Ps faltered
when the interest rates soared due to the Asian financial crisis. Ps sole outstanding
promissory note for P2.5 million PN 9707237 executed in July 1997 and due 120 days
later or on October 28, 1997 became past due, and despite repeated demands, Ps failed
to make good on the note.
Incidentally, PN 9707237 provided for the penalty equivalent to 24% per annum in case of
PNB prepared a Statement of Account as of October 12, 1998, detailing the amount due
and demandable from Ps in the total amount of P3,620,541.60.
Despite demand, Ps failed to pay the foregoing amount. Thus, PNB foreclosed on the
mortgage, and on January 14, 1999, the lots were sold at the auction. The sheriffs
certificate of sale was registered on March 11, 1999.
More than a year later, or on March 24, 2000, Ps filed Civil Case No. 5975, seeking
annulment of the foreclosure sale and an accounting of the PNB credit. Ps theorized that
after the first promissory note where they agreed to pay 19.5% interest, the succeeding
stipulations for the payment of interest in their loan agreements with PNB which allegedly
left to the latter the sole will to determine the interest rate became null and void. Ps
added that because the interest rates were fixed by R without their prior consent or
agreement, these rates are void, and as a result, Ps should only be made liable for interest
at the legal rate of 12%. They claimed further that they overpaid interests on the credit,
and concluded that due to this overpayment of steep interest charges, their debt should
now be deemed paid, and the foreclosure and sale of TCTs T-14250 and T-16208 became
unnecessary and wrongful. As for the imposed penalty of P581,666.66, Ps alleged that
since the Real Estate Mortgage and the Supplement thereto did not include penalties as
part of the secured amount, the same should be excluded from the foreclosure amount or
bid price, even if such penalties are provided for in the final Promissory Note.
In addition, Ps sought to be reimbursed an alleged overpayment of P848,285.00 made
during the period August 21, 1991 to March 5, 1998, resulting from Rs imposition of the

alleged illegal and steep interest rates. They also prayed to be awarded P200,000.00 by
way of attorneys fees.
In its Answer, PNB denied that it unilaterally imposed or fixed interest rates; that Ps agreed
that without prior notice, PNB may modify interest rates depending on future policy
adopted by it; and that the imposition of penalties was agreed upon in the Credit
Agreement. It added that the imposition of penalties is supported by the all-inclusive
clause in the Real Estate Mortgage agreement which provides that the mortgage shall
stand as security for any and all other obligations of whatever kind and nature owing to R,
which thus includes penalties imposed upon default or non-payment of the principal and
interest on due date.
RTC: Ruled in favor of R
CA: Ruled in favor of R
WoN the interest rates imposed by R are null and void- YES
WoN P is estopped from questioning the interest rates because of their continuous
payment thereof w/o opposition- NO
Ratio: SC cited and discussed numerous cases but the main point of all the cases is the
doctrine stated above.
Any modification in the contract, such as the interest rates, must be made with the
consent of the contracting parties. The minds of all the parties must meet as to the
proposed modification, especially when it affects an important aspect of the agreement. In
the case of loan agreements, the rate of interest is a principal condition, if not the most
important component. Thus, any modification thereof must be mutually agreed upon;
otherwise, it has no binding effect.
In the present case, the stipulations in question no longer provide that the parties shall
agree upon the interest rate to be fixed; -instead, they are worded in such a way that the
borrower shall agree to whatever interest rate R fixes. In credit agreements covered by the
cited cases, it is provided 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 accommodation 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 in maximum interest rate.
Whereas, in the present credit agreements under scrutiny, it is stated that:
(b) The Borrower agrees that the Bank may modify the interest rate on the Loan depending
on whatever policy the Bank may adopt in the future, including without limitation, the
shifting from the floating interest rate system to the fixed interest rate system, or vice
versa. Where the Bank has imposed on the Loan interest at a rate per annum, which is
equal to the Banks spread over the current floating interest rate, the Borrower hereby
agrees that the Bank may, without need of notice to the Borrower, increase or decrease its

spread over the floating interest rate at any time depending on whatever policy it may
adopt in the future.86 (Emphases supplied)
1.03. Interest on Line Availments. (a) The Borrowers agree to pay interest on each
Availment from date of each Availment up to but not including the date of full payment
thereof at the rate per annum which is determined by the Bank to be prime rate plus
applicable spread in effect as of the date of each Availment.87 (Emphasis supplied)
Plainly, with the present credit agreement, the element of consent or agreement by the
borrower is now completely lacking, which makes Rs unlawful act all the more
Re estoppel:
Accordingly, Ps are correct in arguing that estoppel should not apply to them, for
"[e]stoppel cannot be predicated on an illegal act. As between the parties to a contract,
validity cannot be given to it by estoppel if it is prohibited by law or is against public
It appears that by its acts, R violated the Truth in Lending Act, or Republic Act No. 3765,
which was enacted "to protect x x x citizens from a lack of awareness of the true cost of
credit to the user by using a full disclosure of such cost with a view of preventing the
uninformed use of credit to the detriment of the national economy."89 The law "gives a
detailed enumeration of the specific information required to be disclosed, among which are
the interest and other charges incident to the extension of credit."90 Section 4 thereof
provides that a disclosure statement must be furnished prior to the consummation of the
transaction, thus:
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:
(1) the cash price or delivered price of the property or service to be acquired;
(2) the amounts, if any, to be credited as down payment and/or trade-in;
(3) the difference between the amounts set forth under clauses (1) and (2);
(4) 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;
(5) the total amount to be financed;
(6) the finance charge expressed in terms of pesos and centavos; and
(7) 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.
Under Section 4(6), "finance charge" represents the amount to be paid by the debtor
incident to the extension of credit such as interest or discounts, collection fees, credit
investigation fees, attorneys fees, and other service charges. The total finance charge
represents the difference between (1) the aggregate consideration (down payment plus
installments) on the part of the debtor, and (2) the sum of the cash price and non-finance
By requiring the Ps to sign the credit documents and the promissory notes in blank, and
then unilaterally filling them up later on, R violated the Truth in Lending Act, and was
remiss in its disclosure obligations.

19 Imperial vs Jaucian
FACTS: Petitioner obtained six (6) separate loans amounting to P 320,000.00 from the
respondent. In the written agreement, they agreed upon the 16% interest per month plus
penalty charge of 5% per month and the 25% attorneys fee, failure to pay the said loans
on the stipulated date.
Petitioner executed six (6) separate promissory notes and issued several checks
as guarantee for payment. When the said loans become overdue and unpaid, especially
when the petitioners checks issued were dishonored, respondent made repeated oral and
written demands for payment.
The petitioner was able to pay only P 116,540.00 as found by the RTC. Although
she alleged that she had already paid the amount of P 441,780.00 and the excess of P
121,780.00 is more than the interest that could be legally charged, the Court affirms the
findings of RTC that petitioner is still indebted to the respondent.
Whether or not the stipulated interest of 16% per month, 5% per month for
penalty charge and 25% attorneys fee are usurious.
HELD: YES. The rate must be equitably reduced for being iniquitous, unconscionable and
exorbitant. While the Usury Law ceiling on interest rates was lifted by C.B. Circular No. 905,
nothing in the said circular grants lenders carte blanche authority to raise interests rates to
levels which will either enslave their borrowers or lead to a hemorrhaging of their assets.
When the agreed rate is iniquitous or unconscionable, it considered contrary to
morals, if not against the law. Such stipulation is void. Since the stipulation is void, it is as
if there was no express contract thereon. Hence, courts may reduce the interest rate as
reason and equity demand.
The interest rate of 16% per month was reduced to 1.167% per month or 14% per
annum and the penalty charge of 5% per month was also reduced to 1.167% per month or
14% per annum.
The attorneys fees here are in the nature of liquidated damages and the
stipulation therefor is aptly called a penal clause. So long as the stipulation does not
contravene the law, morals, public order or public policy, it is binding upon the obligor.
Nevertheless, in the case at bar, petitioners failure to comply fully with her obligation was
not motivated by ill will or malice. The partial payments she made were manifestations of
her good faith. Hence the attorneys fees were reduced to 10% of the total due and
20 Advocates for TILA vs BSMB
Facts: "Advocates for Truth in Lending, Inc." (AFTIL) is a non-profit, non-stock corporation
organized to engage in pro bono concerns and activities relating to money lending issues.
It was incorporated on July 9, 2010,and a month later, it filed this petition, joined by its
founder and president, Eduardo B. Olaguer, suing as a taxpayer and a citizen.
R.A. No. 265, which created the Central Bank on June 15, 1948, empowered the CBMB toset the maximum interest rates which banks may charge for all types of loans and
other credit operations.

The Usury Law was amended by P.D.1684, giving the CB-MB authority to prescribe
different maximum rates of interest which may be imposed for a loan or renewal thereof or
the forbearance of any money, goods or credits, provided that the changes are effected
gradually and announced in advance. Section 1-a of Act No. 2655 now reads:
In its Resolution No. 2224 dated December 3, 1982, the CB-MB issued CB Circular
No. 905, Series of 1982, effective on January 1, 1983. It removed the ceilings on interest
rates on loans or forbearance of any money, goods or credits:
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
juridical, shall not be subject to any ceiling prescribed under or pursuant to the Usury Law,
as amended.
R.A. No. 7653 establishing the BSP replaced the CB:
Sec. 135. Repealing Clause. Except as may be provided for in Sections 46 and 132 of
this Act, Republic Act No. 265, as amended, the provisions of any other law, special
charters, rule or regulation issued pursuant to said Republic Act No. 265, as amended, or
parts thereof, which may be inconsistent with the provisions of this Act are hereby
repealed. Presidential Decree No. 1792 is likewise repealed.
Note: R.A. 7653 the law that created BSP to replace CB Note: this law did not retain the
same provision as that of Section 109 in RA 265.

To justify their skipping the hierarchy of courts petitioners contend the

transcendental importance of their Petition:
CB-MB statutory or constitutional authority to prescribe the maximum rates of
interest for all kinds of credit transactions and forbearance of money, goods or credit
beyond the limits prescribed in the Usury Law;
If so, whether the CB-MB exceeded its authority when it issued CB Circular No. 905,
which removed all interest ceilings and thus suspended Act No. 2655 as regards usurious
interest rates;
Whether under R.A. No. 7653, the new BSP-MB may continue to enforce CB Circular
No. 905.

Petitioners contend that under Section 1-a of Act No. 2655, as amended by P.D. No.
1684, the CB-MB was authorized only to prescribe or set the maximum rates of interest for
a loan or renewal thereof or for the forbearance of any money, goods or credits, and to
change such rates whenever warranted by prevailing economic and social conditions, the
changes to be effected gradually and on scheduled dates; that nothing in P.D. No. 1684
authorized the CB-MB to lift or suspend the limits of interest on all credit transactions,
when it issued CB Circular No. 905. They further insist that under Section 109 of R.A. No.
265, the authority of the CB-MB was clearly only to fix the banks maximum rates of
interest, but always within the limits prescribed by the Usury Law.

CB Circular No. 905, which was promulgated without the benefit of any prior public
hearing, is void because it violated NCC 5 which provides that "Acts executed against the
provisions of mandatory or prohibitory laws shall be void, except when the law itself
authorizes their validity."

weeks after the issuance of CB Circular No. 905, the benchmark 91-day Treasury
bills shot up to 40% PA, as a result. The banks followed suit and re-priced their loans to
rates which were even higher than those of the "Jobo" bills.

CB Circular No. 905 is also unconstitutional in light of the Bill of Rights, which
commands that "no person shall be deprived of life, liberty or property without due process
of law, nor shall any person be denied the equal protection of the laws."

R.A. No. 7653 did not re-enact a provision similar to Section 109 of RA 265, and
therefore, in view of the repealing clause in Section 135 of R.A. No. 7653, the BSP-MB has
been stripped of the power either to prescribe the maximum rates of interest which banks
may charge for different kinds of loans and credit transactions, or to suspend Act No. 2655
and continue enforcing CB Circular No. 905.
CB-MB merely suspended the effectivity of the Usury Law when it issued CB Circular No.
In Medel v. CA, it was said that the circular did not repeal nor amend the Usury Law but
simply suspended its effectivity; that a Circular cannot repeal a low; that by virtue of CB
the Usury Law has been rendered ineffective; that the Usury has been legally non-existent
in our jurisdiction and interest can now be charged as lender and borrow may agree upon.
Circular upheld the parties freedom of contract to agree freely on the rate of interest citing
Art. 1306 under which the contracting parties may establish such stipulations, clauses
terms and conditions as they may deem convenient provided they are not contrary to law,
morals, good customs, public order or public policy.
BSP-MB has authority to enforce CB Circular No. 905.
RA 265 covered only banks while Section 1-a of the Usury Law, empowers the Monetary
Board, BSP for that matter, to prescribe the maximum rate or rates of interest for all loans
or renewals thereof or the forbearance of any money, good or credits
The Usury Law is broader in scope than RA 265, now RA 7653, the later merely
supplemented the former as it provided regulation for loans by banks and other financial
institutions. RA 7653 was not unequivocally repealed by RA 765.
CB Circular 905 is essentially based on Section 1-a of the Usury Law and the Usury Law
being broader in scope than the law that created the Central Bank was not deemed
repealed when the law replacing CB with the Bangko Sentral was enacted despite the nonreenactment in the BSP Law of a provision in the CB Law which the petitioners purports to
be the basis of Circular 905. Magulo ba? Hahaha. Basta the present set up is: The power of
the BSP Monetary Board to determine interest rates emanates from the Usury Law [which
was further specified by Circular 905].
Granting that the CB had power to "suspend" the Usury Law, the new BSP-MB did not
retain this power of its predecessor, in view of Section 135 of R.A. No. 7653, which
expressly repealed R.A. No. 265. The petitioners point out that R.A. No. 7653 did not
reenact a provision similar to Section 109 of R.A. No. 265.
A closer perusal shows that Section 109 of R.A. No. 265 covered only loans extended by
banks, whereas 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.
Act No. 2655, an earlier law, is much broader in scope, whereas R.A. No. 265, now R.A. No.
7653, merely supplemented it as it concerns loans by banks and other financial

institutions. Had R.A. No. 7653 been intended to repeal Section 1-a of Act No. 2655, it
would have so stated in unequivocal terms.
Moreover, the rule is settled that repeals by implication are not favored, because laws are
presumed to be passed with deliberation and full knowledge of all laws existing pertaining
to the subject.An implied repeal is predicated upon the condition that a substantial conflict
or repugnancy is found between the new and prior laws. Thus, in the absence of an
express repeal, a subsequent law cannot be construed as repealing a prior law unless an
irreconcilable inconsistency and repugnancy exists in the terms of the new and old laws.
We find no such conflict between the provisions of Act 2655 and R.A. No. 7653.
#generalia specialibus non derogant
The lifting of the ceilings for interest rates does not authorize stipulations charging
excessive, unconscionable, and iniquitous interest.
In Castro v. Tan, the Court held that the imposition of unconscionable interest is immoral
and unjust. It is tantamount to a repugnant spoliation and an iniquitous deprivation of
property repulsive to the common sense of man.
They are struck down for being contrary to morals, if not against the law, therefore
deemed inexistent and void ab initio. However this nullity does not affect the lenders right
to recover the principal of the loan nor affect the other terms thereof.
The Petition is procedurally infirm.
The CB-MB was created to perform executive functions with respect to the establishment,
operation or liquidation of banking and credit institutions. It does not perform judicial or
quasi-judicial functions. Certainly, the issuance of CB Circular No. 905 was done in the
exercise of an executive function. Certiorari will not lie in the instant case.
Petitioners have no locus standi to file the Petition
Locus standi is defined as "a right of appearance in a court of justice on a given question."
In private suits, Section 2, Rule 3 of the 1997 Rules of Civil Procedure provides that "every
action must be prosecuted or defended in the name of the real party in interest," who is
"the party who stands to be benefited or injured by the judgment in the suit or the party
entitled to the avails of the suit." Succinctly put, a partys standing is based on his own
right to the relief sought.
Even in public interest cases such as this petition, the Court has generally adopted the
"direct injury" test that the person who impugns the validity of a statute must have "a
personal and substantial interest in the case such that he has sustained, or will sustain
direct injury as a result." while petitioners assert a public right it is nonetheless required of
them to make out a sufficient interest in the vindication of the public order and the
securing of relief.
Petitioners also do not claim that public funds were being misused in the enforcement of
CB Circular No. 905 which would have made the action a public one, "and justify relaxation
of the requirement that an action must be prosecuted in the name of the real party-ininterest."
The Petition raises no issues of transcendental importance.
In Prof. David v. Pres. Macapagal-Arroyo,the Court summarized the requirements before
taxpayers, voters, concerned citizens, and legislators can be accorded a standing to sue,
(1) the cases involve constitutional issues;

(2) for taxpayers, there must be a claim of illegal disbursement of public funds or that the
tax measure is unconstitutional;
(3) for voters, there must be a showing of obvious interest in the validity of the election law
in question;
(4) for concerned citizens, there must be a showing that the issues raised are of
transcendental importance which must be settled early; and
(5) for legislators, there must be a claim that the official action complained of infringes
upon their prerogatives as legislators.
In CREBA v. ERC, guidelines as determinants on whether a matter is of transcendental
importance, namely:
the character of the funds or other assets involved in the case;
the presence of a clear case of disregard of a constitutional or statutory prohibition
by the public respondent agency or instrumentality of the government; and
the lack of any other party with a more direct and specific interest in the questions
being raised.


1 Ong vs PCIB -S
FACTS: Spouses petitioners, President and Treasurer of Baliwag Mahogany Corp BMC
obtained a loan from respondent, they signed as sureties. Thereafter, BMC was under
receivership, MOA with all creditors not to collect for a period of time. Petitioners contend
benefits them as sureties/guarantors. TC, CA, SC for respondent, petitioners are not
guarantors but sureties, bank may after them or BMC.
There is a sea of difference in the rights and liabilities of a guarantor and a
surety. A guarantor insures the solvency of the debtor while a surety is an insurer of the
debt itself. A contract of guaranty gives rise to a subsidiary obligation on the part of the
guarantor. It is only after the creditor has proceeded against the properties of the principal
debtor and the debt remains unsatisfied that a guarantor can be held liable to answer for
any unpaid amount.

2 International Finance Corp vs Imperial Textile Mills -S

Facts: entered

On December 17, 1974, IFC and Philippine Polyamide Industrial Corporation

into a loan agreement wherein IFC extended to PPIC a loan of US$7,000,000
in sixteen (16) semi-annual installments of US$437,500.00 each, with 10%
The interest shall be paid in US dollars semi-annually.

A Guarantee Agreement was executed with Imperial Textile Maills-ITM, Grand Textile
Manufacturing Corporation and IFC as parties. ITM and Grandtex agreed to guarantee
PPICs obligations under the loan agreement.

PPIC defaulted payments. By virtue of PPICs failure to pay, IFC, together with DBP, applied
for the extrajudicial foreclosure of mortgages on the real estate, buildings, machinery,
equipment plant and all improvements owned by PPIC. During the public sale, IFCs bid
was for P99,269,100 which was equivalent to US$5,250,000. The outstanding loan,
however, amounted to US$8,083,967, thus leaving a balance of US$2,833,967 PPIC failed
to pay the remaining balance.
Consequently, IFC demanded ITM and Grandtex, as guarantors of PPIC, to pay the
outstanding balance. However, the two failed to pay. - IFC filed a complaint against PPIC
and ITM for the payment of the outstanding balance plus interests and attorneys fees. The
trial court dismissed the complaint against ITM. The CA reversed and held that ITM bound
itself under the Guarantee Agreement. The CA, however, held that ITMs liability as a
guarantor would arise only if and when PPIC could not pay. Since PPICs inability to comply
with its obligation was not sufficiently established, ITM could not immediately be made to
assume the liability.
Issue: WON ITM and Grandtex are sureties and therefore, jointly and severally liable with
PPIC, for the payment of the loan.
Ratio: - IFC claims that, under the Guarantee Agreement, ITM bound itself as a surety to
PPICs obligations proceeding from the Loan Agreement.
For its part, ITM asserts that, by the terms of the Guarantee Agreement, it was merely a
guarantor and not a surety. Moreover, any ambiguity in the Agreement should be
construed against IFC -- the party that drafted it. - The Agreement uses guarantee and
guarantors, prompting ITM to base its argument on those words.
This Court is not convinced that the use of the two words limits the Contract to a mere
guaranty. The specific stipulations in the Contract show otherwise. While referring to ITM as
a guarantor, the Agreement specifically stated that the corporation was jointly and
severally liable. To put emphasis on the nature of that liability, the Contract further stated
that ITM was a primary obligor, not a mere surety. Those stipulations meant only one thing:
that at bottom, and to all legal intents and purposes, it was a surety. - Indubitably
therefore, ITM bound itself to be solidarily liable with PPIC for the latters obligations under
the Loan Agreement with IFC. ITM thereby brought itself to the level of PPIC and could not
be deemed merely secondarily liable.
Initially, ITM was a stranger to the Loan Agreement between PPIC and IFC. ITMs liability
commenced only when it guaranteed PPICs obligation. It became a surety when it bound
itself solidarily with the principal obligor. Thus, the applicable law is Art 2047 CC. Pursuant
to this provision, petitioner (as creditor) was justified in taking action directly against
The Court does not find any ambiguity in the provisions of the Guarantee Agreement.
When qualified by the term jointly and severally, the use of the word guarantor to refer
to a surety does not violate the law. As Art 2047 provides, a suretyship is created when a
guarantor binds itself solidarily with the principal obligor. Likewise, the phrase in the
Agreement -- as primary obligor and not merely as surety -- stresses that ITM is being

placed on the same level as PPIC. Those words emphasize the nature of their liability,
which the law characterizes as a suretyship.
The use of the word guarantee does not ipso facto make the contract one of guaranty.
This Court has recognized that the word is frequently employed in business transactions to
describe the intention to be bound by a primary or an independent obligation. The very
terms of a contract govern the obligations of the parties or the extent of the obligors
liability. Thus, this Court has ruled in favor of suretyship, even though contracts were
denominated as a Guarantors Undertaking or a Continuing Guaranty.
Indeed, the finding of solidary liability is in line with the premise provided in the
Whereas clause of the Guarantee Agreement. The execution of the Agreement was a
condition precedent for the approval of PPICs loan from IFC. Consistent with the position
of IFC as creditor was its requirement of a higher degree of liability from ITM in case PPIC
committed a breach. ITM agreed with the stipulation in Section 2.01 and is now estopped
from feigning ignorance of its solidary liability. The literal meaning of the stipulations
control when the terms of the contract are clear and there is no doubt as to the intention of
the parties.
We note that the CA denied solidary liability, on the theory that the parties would not have
executed a Guarantee Agreement if they had intended to name ITM as a primary obligor.
The appellate court opined that ITMs undertaking was collateral to and distinct from the
Loan Agreement. On this point, the Court stresses that a suretyship is merely an accessory
or a collateral to a principal obligation. Although a surety contract is secondary to the
principal obligation, the liability of the surety is direct, primary and absolute; or equivalent
to that of a regular party to the undertaking. A surety becomes liable to the debt and duty
of the principal obligor even without possessing a direct or personal interest in the
obligations constituted by the latter. - With the present finding that ITM is a surety, it is
clear that the CA erred in declaring the former secondarily liable. A surety is considered in
law to be on the same footing as the principal debtor in relation to whatever is adjudged
against the latter. Evidently, the dispositive portion of the assailed Decision should be
modified to require ITM to pay the amount adjudged in favor of IFC.
3 E Zobel Inc vs CA
Surety distinguished from Guaranty, Art. 2047
A contract of surety is an accessory promise by which a person binds himself for another
already bound, and agrees with the creditor to satisfy the obligation if the debtor does not.
A contract of guaranty, on the other hand, is a collateral undertaking to pay the debt of
another in case the latter does not pay the debt.

usually bound with his principal by the same instrument,
executed at the same time, and on the same

guarantor's own separate undertaking, in which
principal does not join. It is usually entered into b

He is an original promissor and debtor from the
beginning, and is held, ordinarily, to know every default
of his principal
Usually, he will not be discharged, either by the mere
indulgence of the creditor to the principal, or by want of
notice of the default of the principal, no matter how
much he may be injured thereby
the insurer of the debt, and he obligates himself to
pay if the principal does not pay.

products from the West Bend Company and organized the administrative staff
or after that of the principal, and is often supportedcookware
on a
separate consideration from that supporting the contract
and the sales force, the cookware business took off successfully. They operated under the
of the principal.
name of Geminesse Enterprise, a sole proprietorship registered in Marjorie Tocao's name.
The original contract of his principal is not his contract,
and he is not bound to take notice of its The
non-parties agreed further that Anay would be entitled to:
(1) ten percent (10%) of the annual net profits of the business;
He is often discharged by the mere indulgence of
overriding commission of six percent (6%) of the overall weekly production;
creditor to the principal, and is usually not liable unless
(3) thirty percent (30%) of the sales she would make; and
notified of the default of the principal.
(4) two percent (2%) for her demonstration services. The agreement was not reduced to
writing on the strength of Belo's assurances that he was sincere, dependable and honest
the insurer of the solvency of the debtor and thus binds
himself to pay if the principal is unable to pay when it came to financial commitments.

Held: Based on the aforementioned definitions, it appears that the contract executed by
petitioner in favor of SOLIDBANK, albeit denominated as a "Continuing Guaranty," is a
contract of surety. The terms of the contract categorically obligates petitioner as "surety"
to induce SOLIDBANK to extend credit to respondent spouses. The contract clearly disclose
that petitioner assumed liability to SOLIDBANK, as a regular party to the undertaking and
obligated itself as an original promissor. It bound itself jointly and severally to the
obligation with the respondent spouses. In fact, SOLIDBANK need not resort to all other
legal remedies or exhaust respondent spouses' properties before it can hold petitioner
liable for the obligation.
agrees t guarantee, and hereby guarantee, the payment
The use of the term "guarantee" does not ipso facto mean that the contract is one of
guaranty. Authorities recognize that the word "guarantee" is frequently employed in
business transactions to describe not the security of the debt but an intention to be bound
by a primary or independent obligation. As aptly observed by the trial court, the
interpretation of a contract is not limited to the title alone but to the contents and intention
of the parties.
4 Tacao vs CA
FACTS: Private respondent Nenita A. Anay met petitioner William T. Belo, then the vicepresident for operations of Ultra Clean Water Purifier, through her former employer in
Bangkok. Belo introduced Anay to petitioner Marjorie Tocao, who conveyed her desire to
enter into a joint venture with her for the importation and local distribution of kitchen
Under the joint venture, Belo acted as capitalist, Tocao as president and general manager,
and Anay as head of the marketing department and later, vice-president for sales
The parties agreed that Belo's name should not appear in any documents relating to their
transactions with West Bend Company. Anay having secured the distributorship of

On October 9, 1987, Anay learned that Marjorie Tocao had signed a letter addressed to the
Cubao sales office to the effect that she was no longer the vice-president of Geminesse
Anay attempted to contact Belo. She wrote him twice to demand her overriding
commission for the period of January 8, 1988 to February 5, 1988 and the audit of the
company to determine her share in the net profits.
Anay still received her five percent (5%) overriding commission up to December 1987. The
following year, 1988, she did not receive the same commission although the company
netted a gross sales of P 13,300,360.00.
On April 5, 1988, Nenita A. Anay filed Civil Case No. 88-509, a complaint for sum of money
with damages against Marjorie D. Tocao and William Belo before the Regional Trial Court of
Makati, Branch 140
The trial court held that there was indeed an "oral partnership agreement between the
plaintiff and the defendants. The Court of Appeals affirmed the lower courts decision.
ISSUE: Whether the parties formed a partnership
HELD: Yes, the parties involved in this case formed a partnership
The Supreme Court held that to be considered a juridical personality, a partnership must
fulfill these requisites:
(1) two or more persons bind themselves to contribute money, property or industry to a
common fund; and
(2) intention on the part of the partners to divide the profits among themselves. It may be
constituted in any form; a public instrument is necessary only where immovable property
or real rights are contributed thereto.
This implies that since a contract of partnership is consensual, an oral contract of
partnership is as good as a written one.

In the case at hand, Belo acted as capitalist while Tocao as president and general manager,
and Anay as head of the marketing department and later, vice-president for sales.
Furthermore, Anay was entitled to a percentage of the net profits of the business.
Therefore, the parties formed a partnership.
5 Astro Electronics vs Phil Export and Foreign Loan Guarantee Corpn
Doctrine: Persons who write their names on the face of promissory notes are makers. Thus,
even without the phrase personal capacity, a person who signs on the instrument twice
will still be primarily liable as a joint and several debtor.
Facts: Astro was granted several loans by the Philippine Trust Company (Philtrust)
amounting to P3,000,000.00 with interest and secured by three promissory notes. In each
of these promissory notes, it appears that petitioner Roxas signed twice, as President of
Astro and in his personal capacity. Roxas also signed a Continuing Surety ship Agreement
in favor of Philtrust Bank, as President of Astro and as surety.
Thereafter, Philguarantee, with the consent of Astro, guaranteed in favor of Philtrust the
payment of 70% of Astros loan, subject to the condition that upon payment by
Philguanrantee of said amount, it shall be proportionally subrogated to the rights of
Philtrust against Astro. As a result of Astros failure to pay its loan obligations, despite
demands, Philguarantee paid 70% of the guaranteed loan to Philtrust. Subsequently,
Philguarantee filed against Astro and Roxas a complaint for sum of money with the RTC of
Roxas disclaims any liability on the instruments, alleging, inter alia, that he merely signed
the same in blank and the phrases in his personal capacity and in his official capacity
were fraudulently inserted without his knowledge.
The trial court ruled in favor of Philguarantee, stating that if Roxas really intended to sign
the instruments merely in his capacity as President of Astro, then he should have signed
only once in the promissory note. On appeal, the Court of Appeals affirmed the RTC

Moreover, an instrument which begins with I, We, or Either of us promise to pay,

when signed by two or more persons, makes them solidary liable (Republic Planters Bank
vs. Court of Appeals, G.R. No. 93073, December 21, 1992). Having signed under such
terms, Roxas assumed the solidary liability of a debtor and Philtrust Bank may choose to
enforce the notes against him alone or jointly with Astro.
It devolves upon one to overcome the presumptions that private transactions are
presumed to be fair and regular and that a person takes ordinary care of his concerns
(Mendoza vs. Court of Appeals, G.R. No. 116710). Bare allegations, when unsubstantiated
by evidence, documentary or otherwise, are not equivalent to proof under our Rules of
Court (Coronel vs. Constantino, G.R. No. 121069, February 7, 2003). Since Roxas failed to
prove the truth of his allegations that the phrases in his personal capacity and in his
official capacity were inserted on the notes without his knowledge, said presumptions
shall prevail over his claims.
6 Spouses Toh vs Solidbank

7 Filipinas Textile Mills vs CA

8 Severino vs Severino
FACTS: Melecio Severino upon his death, left considerable properties. To end litigation
among heirs, a compromise was effected where defendant Guillermo (son of MS) took over
the property of deceased and agreed to pay installment of 100K to plaintiff (wife of MS)
payable first in 40K cash upon execution of document in 3 equal installments. Enrique
Echauz became guarantor.
Upon failure to pay the balance, plaintiff filed and action against the defendant and
Echauz. Enchauz contends that he received nothing from affixing his signature in the
document and the contract lacked the consideration as to him.
ISSUE: WON there is a consideration for the guaranty?

Issue: Whether or not Roxas should be solidarily liable with Astro for the sum awarded by
the RTC
Held: Yes. In signing his name aside from being the President of Astro, Roxas became a comaker of the promissory notes and cannot escape any liability arising from it. Under the
Negotiable Instruments Law, persons who write their names on the face of promissory
notes are makers. Thus, even without the phrase personal capacity, Roxas will still be
primarily liable as a joint and several debtor under the notes considering that his intention
to be liable as such is manifested by the fact that he affixed his signature on each of the
promissory notes twice which necessarily would imply that he is undertaking the obligation
in two different capacities, official and personal.

HELD: The proof shows that the money claimed in this action has never been paid and is
still owing to the plaintiff; and the only defense worth noting in this decision is the
assertion on the part of Enrique Echaus that he received nothing for affixing his signature
as guarantor to the contract which is the subject of suit and that in effect the contract was
lacking in consideration as to him.
The guarantor or surety is bound by the same consideration that makes the contract
effective between the principal parties thereto.
The compromise and dismissal of a lawsuit is recognized in law as a valuable
consideration; and the dismissal of the action which Felicitas Villanueva and Fabiola
Severino had instituted against Guillermo Severino was an adequate consideration to

support the promise on the part of Guillermo Severino to pay the sum of money stipulated
in the contract which is the subject of this action. The promise of the appellant Echaus as
guarantor therefore binding.
It is neither necessary that guarantor or surety should receive any part of the benefit, if
such there be accruing to his principal.
Thus, judgment affirmed.
9 Willex Plastic Industries vs CA
10 Dino vs CA
11 Atok Finance Corpn vs CA
12 Tanedo vs Allied Banking Corp
WON the extension of payment granted to debtor without the consent of the guarantor
would extinguish the contract of guaranty
Although the general rule states the extension of payment granted to debtor without the
consent of the guarantor would extinguish the guaranty, in this case the court ruled

14 Baylon vs CA
Facts: Pacionara Baylon introduced Rosita Luanzon to Leonila Tomacruz which is the comanager of her husband in PLDT.Baylon invited Leonila to lend Rosita money for her
business as contractor and in return pay the amount and a monthly interest rate of
5%.Persuaded by Baylons assurances that the business was stable and the high interest
rate Leonila lent Rosita P 150,000.Rosita on the other hand issued and signed a promissory
note acknowledging the receipt of P 150,000 payable on August22, 1987. Baylon signed
the promissory note as guarantor.Later on, Rosita failed to pay the said amount forcing
Leonila to file a case for collection of sum of money against Rosita and Baylon. However
summons were never served to Rosita.Baylon denied having guaranteed the payment of
the promissory note and claims that the money given to Rosita was not a loan but an
investment and that assuming that the loan was guaranteed Leonila has not exhausted the
property of Rosita nor resorted to all legal remedies against Rosita as required by law. Trial
court ruled in favor of Leonila making Baylon liable for the said amount. This decision was
affirmed by the C.A.
Issue: WON Baylon should be held liable for the amount of the promissory note.

13 Southern Motors Inc vs Barbosa

FACTS: Plaintiff Southern Motors brought an action against defendant Barbosa to foreclose
a real estate mortgage constituted by the latter in favor of the former, as security for the
payment of a sum extended by plaintiff to one Alfredo Brillantes, because the latter failed
to settle his obligation in accordance with the terms and conditions corresponding with the
deed of mortgage.
Defendant filed an answer admitting the allegations of the complaint and alleging
by way of special and affirmative defense that he executed the deed of mortgage for the
sole purpose of guaranteeing the above mentioned debt of Brillantes and that therefore
plaintiff cannot foreclose the mortgage property without a prior exhaustion of the
principals properties.
After the case transferred from one judge to another, the trial court rendered
judgment on the pleadings in favor of plaintiff that prompted respondent to appeal before
the CA who certified the case to the SC in view of the fact that the appeal raises purely
questions of law.
ISSUE: WON plaintiff is required to exhaust debtor-principals property before he can
proceed to foreclose the mortgage.
HELD: No. Defendants invocation of article 2058 of the Civil Code is misplaced because
the right of the guarantors to demand exhaustion of the property of the principal debtor
under said provision exists only when a pledge or mortgage has not been given as special
security for the payment of the principal obligation.
Under the given facts of the case, a mortgage was executed as security for
brillantes debt, hence, defendants reliance upon the aforementioned provision cannot be
sustained, for what governs in this case are the provisions under title XVI of the Civil Code
concerning pledge and mortgages.

Ruling: No.
Rationale: Petitioner is invoking the benefit of excussion pursuant to article 2058 of the
Civil Code, which provides that
The guarantor cannot be compelled to pay the creditor unless the latter has exhausted all
the property of the debtor, and has resorted to all the legal remedies against the debtor.
It is axiomatic that the liability of the guarantor is only subsidiary. All the properties of the
principal debtor must first be exhausted before his own is levied upon. Thus, the creditor
may hold the guarantor liable only after judgment has been obtained against the principal
debtor and the latter is unable to pay, "for obviously the 'exhaustion of the principal's
property' the benefit of which the guarantor claims cannot even begin to take place
before judgment has been obtained."
This rule is embodied in article 2062 of the Civil Code which provides that the action
brought by the creditor must be filed against the principal debtor alone, except in some
instances when the action may be brought against both the debtor and the principal
debtor. Under the circumstances availing in the present case, the court held that it is
premature to even determine whether or not petitioner is liable as a guarantor and
whether she is entitled to the concomitant rights as such, like the benefit of excussion,
since the most basic prerequisite is wanting that is, no judgment was first obtained
against the principal debtor Rosita B. Luanzon. It is useless to speak of a guarantor when
no debtor has been held liable for the obligation which is allegedly secured by such
guarantee. Although the principal debtor Luanzon was impleaded as defendant, there is
nothing in the records to show that summons was served upon her. Thus, the trial court
never even acquired jurisdiction over the principal debtor. The court held that private
respondent must first obtain a judgment against the principal debtor before assuming to
run after the alleged guarantor.
15 Wise & Co Inc vs Tanglao

Facts: Atty. Dionisio Tanglao (Cornelio Davids atty) by power of attorney mortgaged two
real properties belonging to him to secure the payment of a judgment credit of P640
obtained by Wise & Co. against Cornelio David (agent of W&C). As Cornelio David paid only
a part of the indebtedness, Wise & Co. filed an action against Atty. Tanglao to recover the
unpaid balance.
Issue: WON atty. Dionisio Tanglao is liable for the balance?
Held: No, Nothing is stated in the compromise agreement to the effect that Atty. Tanglao
become Davids surety for the payment of the judgment debt.
(1) Tanglao did not contract any personal responsibility for the payment of the sum of
P640. The only obligation which he contracted was that resulting from the
mortgage. However, a foreclosure suit was not instituted against Atty. Tanglao but
a purely personal action for the recovery of the amount still owned by Atty.
(2) Even granting that Atty. Tanglao may be considered a surety (or guarantor), the action
does not lie against him on the ground that all the legal remedies against him have not
previously been asked for and David has property sufficient to pay the balance of the debt
the payment of which is sought of Tanglao in his alleged capacity as surety. A guaranty or
surety must be expressed and cannot be presumed. Art 2058 the guarantor cannot be
compelled to pay the creditor unless the latter has exhausted all the property of the
debtor, and has resorted to all legal remedies against the debtor.

16 Syquia vs Jacinto


-bondsmen appealed: they should be afforded the benefit of excusion, thus, should be
credited P4,400 (value of certain property of the absconding guardian, which is however in
the exclusive possession of 3P under claim of ownership
WON bondsmen should be credited w/ P4400 and thus benefit from the principle of
excusion? NO.
-Surety has benefit of levy (excusion), even when the judgment is rendered against both
the surety and the principal. [A1834, NCC]
-BUT [A1832, NCC]: the surety must point out property of the principal creditor which can
be sold and which is sufficient to cover the amount of the debt.
-MANRESA EXPLANATION: property should be


Situated w/n territory of the court/state - the attachment of property situated a great
distance away would be a lengthy and extremely difficult proceeding and one that, if
actually not opposed to, yet does not very well accord w/ the purpose of the bond (to
insure the fulfillment of the obligation + furnish the creditor with the means of obtaining its
fulfillment w/o hindrance or delays)
-HILL & CO v. BOURCIER and POND: plea of excusion does not stay the proceedigns but
judgment will be modified so as to require the creditor to proceed by execution against the
property of the principal and to exhaust it before resorting to the property of the surety.
-HERE: The property pointed out by the sureties is not sufficient to pay the indebtedness; it
is not salable; it is so encumbered that third parties have, as we have indicated, full
possession under claim of ownership without leaving to the absconding guardian a
fractional or reversionary interest without determining first whether the claim of one or
more of the occupants is well founded.
18 Luzon Steel vs Sia
19 Towers Assurance Corp vs Ororama

17 Arroyo vs Jungsay

Summary: the sureties of the absconding former guardian, who is being sued for the bond
he executed upon appointment, are invoking the principle of excussion to escape liability.
Court held that they must first point out available properties first to be able to enjoy said
*The sureties of a guardian against whom judgment has been entered, may demand the
benefit of a levy (exclusion) of the principals property, even when judgment is rendered
against both surety and principal. But to do so, they must point out property subject to
seizure in an amount sufficient to satisfy the debt. (Right of Surety. R94.3)
-FLORENTINO HILARIO JUNGSAY was appointed as guardian of the imbecile TITO JOCSING.
He executed a bond, secured by as surety executed by the bondsmen of JUNGSAY.
-HILARIO absconded with the funds of the ward.
-so new guardian of TITO, JOSE M. A. ARROYO, sued JUNGSAY and his bondsmen for the P6k
absconded, plus interests and costs


the liability oF a surety in a counterbond For the lifing oF a writ oF preliminary aachment.
See Hong, the proprietor oF Ororama Supermart in Cagayan de Oro City, sued the spouses
Ernesto Ong and Conching Ong For the collecon oF the sum oF P 58,400 plus ligaon
expenses and aorney's Fees. See Hong asked For a writ oF preliminary aachment. On
March 5, 1976, the lower court issued an order oF aachment. The deputy sheri aached
the properes oF the Ong spouses in Valencia, Bukidnon and in Cagayan de Oro City. To lif
the aachment, the Ong spouses led on March 11, 1976 a counterbond in 'the amount oF
P 58,400 with Towers Assurance Corporaon as surety. In that undertaking, the Ong
spouses and Towers Assurance Corporaon bound themselves to pay solidarity to See
Hong the sum oF P 58,400. or non-appearance at the pre- trial, the Ong spouses were
declared in deFault. On October 25, 1976, the lower court rendered a decision, ordering not
only the Ong spouses but also their surety, Towers Assurance Corporaon, to pay solidarily
to See Hong the sum oF P 58,400
Ernesto Ong manifested that he did not want to appeal. On March 8, 1977, Ororama
Supermart Fled a moTon for execuTon. he lower court granted that moTon. he writ of
execuTon was issued on March 14 against the judgment debtors and their surety.

ISSUE: Whether or not the lower court court acted with grave abuse of discreTon in issuing
a writ of execuTon against the surety without Frst giving it an opportunity to be heard
RULING: We hold that the lower court acted with grave abuse of discreTon in issuing a writ
of execuTon against the surety without Frst giving it an opportunity to be heard as required
in Rule 57 of the Rules of Court which provides: SEC. 17. When execuTon returned
unsaTsFed, recovery had upon bound. If the execuTon be returned unsaTsFed in whole or
in part, the surety or sureTes on any counterbound given pursuant to the provisions of this
rule to secure the
20 Cochingyan Jr vs R&B Surety and Insurance Co
21 Mercantile Insurance Co vs Ysmael Jr
Facts: Felipe Ysmael, Jr. & Co., Inc. and Magdalena Estate, lnc. represented by Felipe
Ysmael, Jr. as president and in his personal capacity executed with the plaintiff Mercantile
Insurance Co., Inc. anindemnity agreement. The defendants Felipe Ysmael, Jr. & Co., Inc.
and Felipe Ysmael, Jr. bound jointly and severally to indemnify the plaintiff, from and
against any and all payments, damages, costs, losses, penalties, charges and expenses
which said company as surety (MERICO Bond No. 0007) shall incur or become liable to pay.
Paragraph 3 of the indemnity agreement expressly provides: 3) ACCRUAL OF ACTION:
Notwithstanding the provisions of the next preceding paragraph, where the obligation
involves a liquidated amount for the payment of which the company has become legally
liable under the terms of the obligation and its suretyship undertaking or by the demand of
the obligee or otherwise and the latter has merely allowed the COMPANY a term or
extension for payment of the latter's demand the full amount necessary to discharge the
COMPANY's aforesaid liability irrespective of whether or not payment has actually been
made by the COMPANY, the COMPANY for the protection of its interest may forthwith
proceed against the undersigned or either of them by court action or otherwise to enforce
payment even prior to making payment to the obligee which may hereafter be done by the
Tordesillas and Torres in their official capacities and the defendantsexecuted another
indemnity agreement with the plaintiff in consideration of the surety bond (MERICO Bond
No. G (16) 0030. In the indemnity agreement the same provisions of paragraph 3 is found.
Later on, the amount of the Bond was reduced by P40,000.00 so that the total liability of
the plaintiff to the Philippine National Bank in view of the aforesaid reduction is
P100,000.00, P60,000.00 onSurety Bond No. 0007 plus P40,000.00 on Surety Bond No.
0030. The defendants failed to pay the overdraft and credit line with the Philippine
National Bank demanded from Mercantil, settlement of itsobligation under surety bonds
No. (G-16)-0007 for P 60,000.00 which expired on March 6, 1970 and No. G (-16)- 0030 for
P 40,000.00 which expired since September 4, 1968 (Exh. P) Attached to the demand letter
is a statement of account. By letter of December 17, 1970, plaintiff company wrote a letter
of demand to the defendants regarding the the letter of demand of the Philippine National
Bank sent to the plaintiff and demanding from the defendants the settlement of said
account. The defendants failed to settle their obligation with the Philippine National Bank,
on February 10, 1971, plaintiff brought the present action. Lower court dismissed case for
lack of cause of action, the plaintiffhas paid nothing in the surety bonds, therefore, they

have not suffered any actual damage and held that paragraph 3 of contract is void.
Defendants argued that to allow surety to receive indemnity or compensation for
something it has not paid in its capacity as surety would constitute unjust enrichment at
the expense of another. Issue: Whether or not surety can be allowed indemnification
fromthe defendants-appellants, upon the latter's default even before the former has paid
to the creditor.
Held: The overdraft line of Php1M and the credit line of Php1M applied for by the defendant
was granted by the Philippine National Bank on the strength of the two surety bonds
denominated as Bond No. G(16) 0007 and Bond No. G(16) 0030. As security and in
consideration of the execution of the surety bonds,the defendants executed with the
plaintiff identical indemnityagreements which provide that payment of indemnity or
compensation may be claimed whether or not plaintiff company has actually paid the same
as provided in paragraph 3 of contract. The cause of action was derived from the terms of
the Indemnity Agreement, paragraph 3 thereof. By virtue of the provisions of theIndemnity
Agreement, defendants-appellants have undertaken to hold plaintiff-appellee free and
harmless from any suit, damage or liability which may be incurred by reason of nonperformance by the defendantsappellants of their obligation with the Philippine National
Bank. The Indemnity Agreement is principally entered into as security of plaintiff-appellee
in case of default of defendants-appellants; and the liability of the parties under the surety
bonds is joint and several, so that the obligee PNB may proceed against either of them for
the satisfaction of the obligation. There is no dispute as to meaning of the terms of the
Indemnity Agreement. Having voluntarily entered into such contract, the appellants cannot
now be heard to complain. Their indemnity agreement have the force and effect of law.
The principal debtors, defendants-appellants herein, are the same persons who executed
the Indemnity Agreement. Thus, the positionoccupied by them is that of a principal debtor
and indemnitor at the same time, and their liability being joint and several with the
plaintiff-appellee's, the Philippine National Bank may proceed against either for fulfillment
of the obligation as covered by the surety bonds. There is no principle of guaranty involved
and, therefore, the provision of Article 2071 of the Civil Code does not apply. There is no
more need for the plaintiff-appellee to exhaust all the properties of the principal debtor
before it may proceed against defendants-appellants.
22 PNB vs CA
FACTS: The spouses Chua were the owners of a parcel of land covered by a TCT and
registered in their names. Upon the husbands death, the probate court appointed his son,
private respondent Allan as special administrator of the deceaseds intestate estate. The
court also authorized Allan to obtain a loan accommodation from PNB to be secured by a
real estate mortgage over the above-mentioned parcel of land, which Allan did for
P450,000.00 with interest.
For failure to pay the loan in full, the bank extrajudicially foreclosed the real estate
mortgage. During the auction, PNB was the highest bidder. However, the loan having a
payable balance, to claim this deficiency, PNB instituted an action with the RTC, Balayan,
Batangas, against both Mrs. Chua and Allan.

The RTC rendered its decision, ordering the dismissal of PNBs complaint. On appeal, the
CA affirmed the RTC decision by dismissing PNBs appeal for lack of merit.
Hence, the present petition for review on certiorari under Rule 45 of the Rules of Court.

24 PNB vs Manila Surety & Fidelity Co

ISSUE: The WON it was error for the CA to rule that petitioner may no longer pursue by civil
action the recovery of the balance of indebtedness after having foreclosed the property
securing the same.

25 Prudencio vs CA

HELD: petition is DENIED. The assailed decision of the CA is AFFIRMED.

Petitioner relies on Prudential Bank v. Martinez, 189 SCRA 612, 615 (1990), holding that in
extrajudicial foreclosure of mortgage, when the proceeds of the sale are insufficient to pay
the debt, the mortgagee has the right to recover the deficiency from the mortgagor.
However, it must be pointed out that petitioners cited cases involve ordinary debts
secured by a mortgage. The case at bar, we must stress, involves a foreclosure of
mortgage arising out of a settlement of estate, wherein the administrator mortgaged a
property belonging to the estate of the decedent, pursuant to an authority given by the
probate court. As the CA correctly stated, the Rules of Court on Special Proceedings comes
into play decisively. The applicable rule is Section 7 of Rule 86 of the Revised Rules of Court
( which PNB contends is not.)
In the present case it is undisputed that the conditions under the aforecited rule have been
complied with [see notes]. It follows that we must consider Sec. 7 of Rule 86, appropriately
applicable to the controversy at hand, which in summary [and case law as well] grants to
the mortgagee three distinct, independent and mutually exclusive remedies that can be
alternatively pursued by the mortgage creditor for the satisfaction of his credit in case the
mortgagor dies, among them:
(1) to waive the mortgage and claim the entire debt from the estate of the mortgagor
as an ordinary claim;
(2) to foreclose the mortgage judicially and prove any deficiency as an ordinary claim;
(2) to rely on the mortgage exclusively, foreclosing the same at any time before it is
barred by prescription without right to file a claim for any deficiency.
(3) Clearly petitioner herein has chosen the mortgage-creditors option of
extrajudicially foreclosing the mortgaged property of the Chuas. This choice now
bars any subsequent deficiency claim against the estate of the deceased.
Petitioner may no longer avail of the complaint for the recovery of the balance of
indebtedness against said estate, after petitioner foreclosed the property securing
the mortgage in its favor. It follows that in this case no further liability remains on
the part of respondents and the deceaseds estate.
23 Peoples Bank and Trust Co vs Tambunting

In 1955, Concepcion and Tamayo Construction Enterprise had a contract with the Bureau of
Public Works. The firm needed fund to push through with the contract so it convinced
spouses Eulalio and Elisa Prudencio to mortgage their parcel of land with the Philippine
National Bank for P10,000.00. Prudencio, without consideration, agreed and so he
mortgaged the land and executed a promissory note for P10k in favor of PNB. Prudencio
also authorized PNB to issue the P10k check to the construction firm.
In December 1955, the firm executed a Deed of Assignment in favor of PNB which provides
that any payment from the Bureau of Public Works in consideration of work done (by the
firm) so far shall be paid directly to PNB this will also ensure that the loan gets to be paid
off before maturity.
Notwithstanding the provision in the Deed of Assignment, the Bureau of Public Works
asked PNB if it can make the payments instead to the firm because the firm needs the
money to buy construction materials to complete the project. Notwithstanding the
provision of the Deed of Assignment, PNB agreed. And so the loan matured without PNB
actually receiving any payment from the Bureau of Public Works. Prudencio, upon learning
that no payment was made on the loan, petitioned to have the mortgage canceled (to save
his property from foreclosure). The trial court ruled against Prudencio; the Court of Appeals
affirmed the trial court.
ISSUE: Whether or not Prudencio should pay the promissory note to PNB.
HELD: No. PNB is not a holder in due course.
Prudencio is an accommodation party for he signed the promissory note as maker but he
did not receive value or consideration therefor. He expected the firm (accommodated
party) to pay the loan this obligation was shifted to the Bureau of Public Works by way of
the Deed of Assignment). As a general rule, an accommodation party is liable on the
instrument to a holder for value/in due course, notwithstanding such holder at the time of
taking the instrument knew him to be only an accommodation party. The exception is that
if the holder, in this case PNB, is not a holder in due course. The court finds that PNB is not
a holder in due course because it has not acted in good faith (pursuant to Section 52 of the
Negotiable Instruments Law) when it waived the supposed payments from the Bureau of
Public Works contrary to the Deed of Assignment. Had the Deed been followed, the loan
would have been paid off at maturity.
26 Security Bank vs Cuenca

An extension granted to the debtor by the creditor without the consent of
the guarantor extinguishes the guaranty. The 1989 Loan Agreement expressly stipulated
that its purpose was to liquidate, not to renew or extend, the outstanding indebtedness.
Moreover, respondent did not sign or consent to the 1989 Loan Agreeement, which had
alledgedly extended the original P8 million credit facility. Hence, his obligation as a surety
should be deemed extinguished, pursuant to Article 2079 of the Civil Code, which
specifically states that [a]n extension granted to the debtor by the creditor without the
consent of the guarantor extinguishes the guaranty.
An essential alteration in the terms of a Loan Agreement without the consent of
the surety extinguishes the latters obligation. The submission that only the borrower, not

the surety, is entitled to be notified of any modification in the original loan accommodation
is untenable-such theory is contrary to the to the principle that a surety cannot assume an
obligation more onerous than that of the principal. That the Indemnity Agreement is a
continuing surety does not authorize the lender to extend the scope of the principal
obligation inordinately; A continuing guaranty is one which covers all transaction, including
those arising in the future, which are within the description or contemplation of the
contract of guaranty, until the expiration or termination thereof.