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G.R. No.

L-24968 April 27, 1972 When RFC turned down the request in its letter of
the negotiations which had been going on for the
Saura vs DBP implementation of the agreement reached an
impasse. Saura, Inc. obviously was in no position
Facts: to comply with RFC's conditions. So instead of
Saura Inc. applied to the Rehabilitation Finance doing so and insisting that the loan be released
Corp (before its conversion to DBP) for a loan of as agreed upon, Saura, Inc. asked that the
500k secured by a first mortgage of the factory mortgage be cancelled, which was done on June
building to finance for the construction of a jute 15, 1955. The action thus taken by both parties
mill factory and purchase of factory implements. was in the nature of mutual desistance — what
RFC accepted and approved the loan application Manresa terms "mutuo disenso"1 — which is a
subject to some conditions which Saura admitted mode of extinguishing obligations. It is a concept
it could not comply with. that derives from the principle that since mutual
agreement can create a contract, mutual
Without having received the amount being disagreement by the parties can cause its
loaned, and sensing that it could not at anyway extinguishment
obtain the full amount of loan, Saura Inc. then
asked for cancellation of the mortgage which The subsequent conduct of Saura, Inc. confirms
RFC also approved. Nine years after the this DESISTANCE. It did not protest against any
cancellation of the mortgage, Saura sued RFC for alleged breach of contract by RFC, or even point
damages for its non-fulfillment of obligations out that the latter's stand was legally unjustified.
arguing that there was indeed a perfected Its request for cancellation of the mortgage
consensual contract between them. carried no reservation of whatever rights it
believed it might have against RFC for the latter's
non-compliance.

ISSUE: WON there was a perfected contract of It was only in 1964, nine years after the loan
loan? agreement had been cancelled at its own
request, that Saura, Inc. brought this action for
Ruling: damages.All these circumstances demonstrate
YES beyond doubt that the said agreement had been
extinguished by mutual desistance — and that on
ART. 1954. An accepted promise to deliver the initiative of the plaintiff-appellee itself.
something, by way of commodatum or simple
loan is binding upon the parties, but the
commodatum or simple loan itself shall not be
perferted until the delivery of the object of the
contract.

There was undoubtedly offer and acceptance in


this case: the application of Saura, Inc. for a loan
of P500,000.00 was approved by resolution of the
defendant, and the corresponding mortgage was
executed and registered. But this fact alone falls
short of resolving the basic claim that the
defendant failed to fulfill its obligation and the
plaintiff is therefore entitled to recover damages.

It should be noted that RFC entertained the loan


application of Saura, Inc. on the assumption that
the factory to be constructed would utilize locally
grown raw materials, principally kenaf.

J. Fernandez
G.R. No. L-17474 October 25, 1962

REPUBLIC V. BAGTAS Ruling:

Facts:
The loan by the appellee to the late defendant
Jose V. Bagtas of the three bulls for breeding
Jose V. Bagtas borrowed from the Republic of the purposes was subject to the payment by the
Philippines through the Bureau of Animal Industry borrower of breeding fee of 10% of the book value
three bulls for breeding purposes subject to a of the bulls. The appellant contends that the
government charge of breeding fee of 10% of the contract was commodatum and that, for that
book value of the bulls. reason, as the appellee retained ownership or
title to the bull it should suffer its loss due to force
Upon the expiration of the contract, the borrower majeure. A contract of commodatum is
asked for a renewal for another period of one essentially gratuitous.1 If the breeding fee be
year. However, the Secretary of Agriculture and considered a compensation, then the contract
Natural Resources approved a renewal thereof of would be a lease of the bull. Under article 1671 of
only one bull for another year from 8 May 1949 to the Civil Code the lessee would be subject to the
7 May 1950 and requested the return of the other responsibilities of a possessor in bad faith,
two because she had continued possession of the
bull after the expiry of the contract. And even if
He reiterated his desire to buy them at a value the contract be commodatum, still the appellant is
with a deduction of yearly depreciation to be liable, because article 1942 of the Civil Code
approved by the Auditor General. Director of provides that a bailee in a contract
Animal Industry advised him that either the 3 bulls of commodatum —
are to be returned or their book value without
deductions should be paid not later than October . . . is liable for loss of the things, even if
31, 1950 which he was not able to do it should be through a fortuitous event:

In the Court of First Instance of Manila the (2) If he keeps it longer than the period
Republic of the Philippines commenced an action stipulated . . .
against him praying that he be ordered to return
the three bulls loaned to him or to pay their book
value in the total sum of P3,241.45 and the (3) If the thing loaned has been
unpaid breeding fee in the sum of P199.62 delivered with appraisal of its value,
unless there is a stipulation exempting
the bailee from responsibility in case of
Because of the bad peace and order situation in a fortuitous event;
Cagayan Valley, he could not return the animals
nor pay their value and prayed for the dismissal
of the complaint.

On 7 January 1959 she file a motion alleging that


on 26 June 1952 the two bull Sindhi and Bhagnari
were returned to the Bureau Animal of Industry
and that sometime in November 1958 the third
bull died from gunshot wound inflicted during a
Huk raid praying 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.

J. Fernandez
Pajuyo vs CA gratuitous. Another feature of commodatum is
that the use of the thing belonging to another is
G.R. No. 146364 June 3, 2004 for a certain period. Thus, the bailor cannot
COLITO T. PAJUYO, petitioner, vs. COURT OF demand the return of the thing loaned until after
APPEALS and EDDIE GUEVARRA, expiration of the period stipulated, or after
respondents. 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
FACTS:
merely tolerated by the bailor, he can demand the
Petitioner Pajuyo paid P400 to a certain Pedro return of the thing at will, in which case the
Perez for the rights over a lot, where Pajuyo contractual relation is called a precarium. Under
subsequently built a house. In 1985, Pajuyo and the Civil Code, precarium is a kind of
private respondent Guevarra executed a commodatum.
Kasunduan wherein Pajuyo allowed Guevarra to
The Kasunduan reveals that the accommodation
live in the house for free, on the condition that
accorded by Pajuyo to Guevarra was not
Guevarra would maintain the cleanliness and
essentially gratuitous. While the Kasunduan did
orderliness of the house. Guevarra promised that
not require Guevarra to pay rent, it obligated him
he would vacate the premises upon Pajuyo’s
to maintain the property in good condition. The
demand.
imposition of this obligation makes the
In 1994, Pajuyo informed Guevarra of his need of Kasunduan a contract different from a
the house and demanded that the latter vacate commodatum. The effects of the Kasunduan are
the house. Guevarra refused. Pajuyo filed an also different from that of a commodatum. Case
ejectment case against Guevarra before the law on ejectment has treated relationship based
MTC. on tolerance as one that is akin to a landlord-
tenant relationship where the withdrawal of
Guevarra claimed that Pajuyo had no valid title permission would result in the termination of the
over the lot since it is within the area set aside for lease. The tenant’s withholding of the property
socialized housing. MTC rendered its decision in would then be unlawful.
favor of Pajuyo, which was affirmed by RTC.
(MTC and RTC basically ruled that the Even assuming that the relationship between
Kasunduan created a legal tie akin to that of a Pajuyo and Guevarra is one of commodatum,
landlord and tenant relationship). Guevarra as bailee would still have the duty to
turn over possession of the property to Pajuyo,
CA reversed the RTC decision, stating that the the bailor. The obligation to deliver or to return the
ejectment case is without legal basis since both thing received attaches to contracts for
Pajuyo and Guevarra illegally occupied the said safekeeping, or contracts of commission,
lot. CA further stated that both parties are in pari administration and commodatum.70 These
delicto; thus, the court will leave them where they contracts certainly involve the obligation to deliver
are. CA ruled that the Kasunduan is not a lease or return the thing received.
contract, but a commodatum because the
agreement is not for a price certain. Guevarra turned his back on the Kasunduan on
the sole ground that like him, Pajuyo is also a
ISSUE: W/N the contractual relationship between squatter. Guevarra should know that there must
Pajuyo and Guevarra was that of a commodatum be honor even between squatters. Guevarra
freely entered into the Kasunduan. Guevarra
HELD: NO
cannot now impugn the Kasunduan after he had
In a contract of commodatum, one of the benefited from it. The Kasunduan binds
parties delivers to another something not Guevarra.
consumable so that the latter may use the
The Kasunduan is not void for purposes of
same for a certain time and return it. An
determining who between Pajuyo and Guevarra
essential feature of commodatum is that it is

J. Fernandez
has a right to physical possession of the plaintiff's demand; whether the latter is bound to
contested property. The Kasunduan is the bear the deposit fees thereof, and whether she is
undeniable evidence of Guevarra’s recognition of entitled to the costs of litigation.
Pajuyo’s better right of physical possession.
Guevarra is clearly a possessor in bad faith. The Ruling:
absence of a contract would not yield a different The contract entered into between the parties is
result, as there would still be an implied promise one of commadatum, because under it the
to vacate. plaintiff gratuitously granted the use of the
furniture to the defendant, reserving for herself
G.R. No. L-46240 November 3, 1939 the ownership thereof; by this contract the
defendant bound himself to return the furniture to
QUINTOS vs BECK the plaintiff, upon the latters demand.

The plaintiff brought this action to compel the The obligation voluntarily assumed by the
defendant to return her certain furniture which defendant to return the furniture upon the
she lent him for his use. plaintiff's demand, means that he should return all
of them to the plaintiff at the latter's residence or
The defendant was a tenant of the plaintiff and as house. The defendant did not comply with this
such occupied the latter's house. On January 14, obligation when he merely placed them at the
1936, upon the novation of the contract of lease disposal of the plaintiff, retaining for his benefit
between the plaintiff and the defendant, the the three gas heaters and the four eletric lamps.
former gratuitously granted to the latter the use of
the furniture described in the third paragraph of As the defendant had voluntarily undertaken to
the stipulation of facts, subject to the condition return all the furniture to the plaintiff, upon the
that the defendant would return them to the latter's demand, the Court could not legally
plaintiff upon the latter's demand. compel her to bear the expenses occasioned by
the deposit of the furniture at the defendant's
The plaintiff sold the property to Maria Lopez and behest. The latter, as bailee, was not entitled to
Rosario Lopez and on September 14, 1936, place the furniture on deposit; nor was the plaintiff
these three notified the defendant of the under a duty to accept the offer to return the
conveyance, giving him sixty days to vacate the furniture, because the defendant wanted to retain
premises under one of the clauses of the contract the three gas heaters and the four electric lamps.
of lease.
The costs in both instances should be borne by
The defendant wrote another letter to the plaintiff the defendant because the plaintiff is the
informing her that he could not give up the three prevailing party (section 487 of the Code of
gas heaters and the four electric lamps because Civil Procedure). The defendant was the one
he would use them until the 15th of the same who breached the contract of commodatum,
month when the lease in due to expire. The and without any reason he refused to return
plaintiff refused to get the furniture in view of the and deliver all the furniture upon the plaintiff's
fact that the defendant had declined to make
demand. In these circumstances, it is just and
delivery of all of them. On November 15th,
equitable that he pay the legal expenses and
before vacating the house, the defendant
other judicial costs which the plaintiff would not
deposited with the Sheriff all the furniture
belonging to the plaintiff and they are now on
have otherwise defrayed.
deposit in the warehouse situated at No. 1521,
Rizal Avenue, in the custody of the said sheriff.

Issue/s:

Whether the defendant complied with his


obligation to return the furniture upon the

J. Fernandez
G.R. No. 183360 September 8, 2014 because it is contrary to morals, if not against
the law.
DE LA PAZ vs.L & J DEVELOPMENT
COMPANY Issue: Whether to uphold the judgment of the
CA that the principal loan is deemed paid is
Doctrine: dependent on the validity of the monthly
interest rate imposed.
"No interest shall be due unless it has been a. the form of the agreement of interest
expressly stipulated in writing." under the law
b. unconscionability of the interest rate
Facts:
Ruling:
Rolando lent ₱350,000.00 without any security
to L&J, a property developer. The loan, with no The lack of a written stipulation to pay interest
specified maturity date, carried a 6% monthly on the loaned amount disallows a creditor from
interest. From December 2000 to August 2003, charging monetary interest.
L&J paid Rolando a total of
₱576,000.00 representing interest charges. Article 1956 of the Civil Code, no interest shall
bedue unless it has been expressly stipulated
As L&J failed to pay despite repeated in writing. Jurisprudence on the matter also
demands, Rolando filed a Complaint for holds that for interest to be due and payable,
Collection of Sum of Money with Damages; that two conditions must concur: a) express
the 6% monthly interest was upon Atty. stipulation for the payment of interest; and b)
Salonga’s suggestion; and, that Salonga the agreement to pay interest is reduced in
tricked him into parting with his money without writing.
the loan transaction being reduced into writing.
Here, it is undisputed that the parties did not
In their Answer, L&J and Atty. Salonga denied put down in writing their agreement. Thus, no
Rolando’s allegations. While they interest is due. The collection of interest without
acknowledged the loan as a corporate debt, any stipulation in writing is prohibited by law
they claimed that the failure to pay the same
was due to a fortuitous event, that is, the Stipulated interest rates are illegal if they are
financial difficulties brought about by the unconscionable and the Court is allowed to
economic crisis. temper interest rates when necessary. In
exercising this vested power to determine what
MeTC: Upheld the 6% monthly interest, it is iniquitous and unconscionable, the Court
ratiocinated that since L&J agreed thereto and must consider the circumstances of each case.
voluntarily paid the interest at such rate, it is What may be iniquitous and unconscionable in
already estopped from impugning the same. onecase, may be just in another.
RTC: Affirmed the MeTC Decision in all "[t]he imposition of an unconscionable rate of
respects interest on a money debt, even if knowingly and
voluntarily assumed, is immoral and unjust. It is
CA: the CA reversed and set aside the RTC
tantamount to a repugnant spoliation and an
Decision. The CA stressed that the parties
iniquitous deprivation of property, repulsive to
failed to stipulate in writing the imposition of
the common sense of man."33 Indeed,
interest on the loan. Hence, no interest shall be
"voluntariness does notmake the stipulation on
due thereon pursuant to Article 1956 of the Civil
[an unconscionable] interest valid.
Code. And even if payment of interest has been
stipulated in writing, the 6% monthly interest is
still out rightly illegal and unconscionable

J. Fernandez
G.R. No. 189871 August 13, 2013 Yes
*NOTE: The legal rate of 12% has been amended to 6%. See Circular No.
DARIO NACAR 799 (amending Circular No. 905) effective July 1, 2013, and the case
vs. of NACAR V. GALLERY FRAMES AND/OR BORDEY (2013). Therefore,
GALLERY FRAMES AND/OR FELIPE there is no need to distinguish now the obligations breached as the legal
BORDEY, JR. interest applicable is 6%.

1) When an obligation, regardless of its


Dario Nacar filed a complaint for constructive source, i.e., law, contracts, quasi-contracts,
dismissal case against Gallery Frames and its delicts or quasi-delicts is breached, the
owner Felipe Bordey, Jr. Nacar alleged that he contravenor can be held liable for damages. The
was dismissed without cause by Gallery Frames provisions under Title XVIII on "Damages" of the
on January 24, 1997. On October 15, 1998, the Civil Code govern in determining the measure of
Labor Arbiter (LA) found Gallery Frames guilty of recoverable damages.
illegal dismissal hence the Arbiter awarded Nacar
P158,919.92 in damages consisting of 2) With regard particularly to an award of interest
backwages and separation pay. in the concept of ACTUAL AND
Gallery Frames appealed all the way to the COMPENSATORY DAMAGES, the rate of
Supreme Court (SC). The Supreme Court interest, as well as the accrual thereof, is
affirmed the decision of the Labor Arbiter and the imposed, as follows:
decision became final on May 27, 2002. a) Obligation breached: consists in the payment of
a sum of money, i.e., a loan or forbearance of
After the finality of the SC decision, Nacar filed a money
motion before the LA for recomputation as he Interest Due:
alleged that his backwages should be computedi) that which may have been stipulated in
from the time of his illegal dismissal (January 24, writing. Furthermore, the interest due shall itself
1997) until the finality of the SC decision (May 27, earn legal interest from the time it is judicially
2002) with interest. The LA denied the motion as demanded.
he ruled that the reckoning point of theii) In the absence of stipulation, the rate of
computation should only be from the time Nacar interest shall be 12% per annum to be computed
was illegally dismissed (January 24, 1997) until from default, i.e., from judicial or extrajudicial
the decision of the LA (October 15, 1998). The LA demand under and subject to the provisions of
reasoned that the said date should be the Article 1169 of the Civil Code. (amended to 6%)
reckoning point because Nacar did not appeal b) Obligation breached: not constituting a loan or
hence as to him, that decision became final and forbearance of money,
executory. Interest due: may be imposed at the discretion of
the court at the rate of 6% per annum.
Ø No interest, however, shall be adjudged on
NLRC: Dismissed for lack of merit unliquidated claims or damages except when or
until the demand can be established with
CA: Respondents filed a Petition for Review on reasonable certainty.
Certiorari before the CA, Court denied the petition o Accordingly, where the demand is established
with reasonable certainty, the interest shall begin
SC: Finding no reversible error on the part of the to run from the time the claim is made judicially or
CA, this Court denied the petition extrajudicially (Art. 1169, Civil Code)
o When such certainty cannot be so reasonably
An Entry of Judgment was later issued certifying
established at the time the demand is made, the
that the resolution became final and executory on
interest shall begin to run only from the date the
May 27, 2002.The case was, thereafter, referred judgment of the court is made (at which time the
back to the Labor Arbiter. quantification of damages may be deemed to
have been reasonably ascertained). The actual
Issue: Whether or not a re-computation in the
base for the computation of legal interest shall, in
course of execution of the labor arbiter's original any case, be on the amount finally adjudged.
computation of the awards made is legally proper. c) When the judgment of the court awarding a
Ruling: sum of money becomes final and executory, the
rate of legal interest, whether the case falls under

J. Fernandez
paragraph 1 or paragraph 2, above, shall be Agreement contained a stipulation on interest
12% per annum from such finality until its which provides as follows:
satisfaction, this interim period being deemed to
be by then an equivalent to a forbearance of 1.03. Interest. (a) The Loan shall be subject to interest at the
credit. (amended to 6%) 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.

G.R. No. 181045 July 2, 2014


(b) The Borrower agrees that the Bank may modify the interest
rate in the Loan depending on whatever policy the Bank may
SPOUSES EDUARDO and LYDIA SILOS, Ps, adopt in the future, including without limitation, the shifting
vs. from the floating interest rate system to the fixed interest rate
system, or vice versa. Where the Bank has imposed on the
PHILIPPINE NATIONAL BANK, R. Loan interest at a rate per annum, which is equal to the Bank’s
spread over the current floating interest rate, the Borrower
DEL CASTILLO, J.: 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
Doctrine: In loan agreements, it cannot be adopt in the future.
denied that the rate of interest is a principal
condition, if not the most important component. The eight Promissory Notes, on the other hand,
Thus, any modification thereof must be mutually contained a stipulation granting PNB the right to
agreed upon; otherwise, it has no binding effect. increase or reduce interest rates "within the limits
Moreover, the Court cannot consider a stipulation allowed by law or by the Monetary Board."
granting a party the option to prepay the loan if
said party is not agreeable to the arbitrary interest The Real Estate Mortgage agreement provided
rates imposed. Premium may not be placed upon the same right to increase or reduce interest rates
a stipulation in a contract which grants one party "at any time depending on whatever policy PNB
the right to choose whether to continue with or may adopt in the future."
withdraw from the agreement if it discovers that
what the other party has been doing all along is
In August 1991, an Amendment to Credit
improper or illegal.
Agreement was executed by the parties, with the
following stipulation regarding interest:
Facts:
1.03. Interest on Line Availments. (a) The
Ps have been in business for about two decades Borrowers agree to pay interest on each
of operating a department store and buying and Availment from date of each Availment up to but
selling of ready-to-wear apparel. not including the date of full payment thereof at
the rate per annum which is determined by the
To secure a one-year revolving credit line Bank to be prime rate plus applicable spread in
of P150,000.00 obtained from PNB, Ps effect as of the date of each Availment.
constituted in August 1987 a Real Estate
Mortgage over a lot in Kalibo, Aklan. In July The 9th up to the 17th promissory notes provide
1988,the credit line was increased to P1.8 million for the payment of interest at the "rate the Bank
and the mortgage was correspondingly increased may at any time without notice, raise within the
to P1.8 million. limits allowed by law x x x.

And in July 1989, a Supplement to the Existing On the other hand, the 18th up to the 26th
Real Estate Mortgage was executed to cover the promissory notes – including PN 9707237, which
same credit line, which was increased to P2.5 is the 26th promissory note – carried the following
million, and additional security was given in the provision:
form of a 134-square meter lot. In addition, Ps
issued eight Promissory Notes and signed a
x x x For this purpose, I/We agree that the rate of
Credit Agreement. This July 1989 Credit
interest herein stipulated may be increased or

J. Fernandez
decreased for the subsequent Interest Periods, they overpaid interests on the credit, and
with prior notice to the Borrower in the event of concluded that due to this overpayment of steep
changes in interest rate prescribed by law or the interest charges, their debt should now be
Monetary Board of the Central Bank of the deemed paid, and the foreclosure and sale of
Philippines, or in the Bank’s overall cost of funds. TCTs T-14250 and T-16208 became
I/We hereby agree that in the event I/we are not unnecessary and wrongful. As for the imposed
agreeable to the interest rate fixed for any Interest penalty of P581,666.66, Ps alleged that since the
Period, I/we shall have the option top repay the Real Estate Mortgage and the Supplement
loan or credit facility without penalty within ten thereto did not include penalties as part of the
(10) calendar days from the Interest Setting Date. secured amount, the same should be excluded
from the foreclosure amount or bid price, even if
R regularly renewed the line from 1990 up to such penalties are provided for in the final
1997, and Ps made good on the promissory Promissory Note.
notes, religiously paying the interests without
objection or fail. But in 1997, Ps faltered when In addition, Ps sought to be reimbursed an
the interest rates soared due to the Asian alleged overpayment of P848,285.00 made
financial crisis. Ps’ sole outstanding during the period August 21, 1991 to March 5,
promissory note for P2.5 million – PN 9707237 1998, resulting from R’s imposition of the alleged
executed in July 1997 and due 120 days later illegal and steep interest rates. They also prayed
or on October 28, 1997 – became past due, to be awarded P200,000.00 by way of attorney’s
and despite repeated demands, Ps failed to fees.
make good on the note.
In its Answer, PNB denied that it unilaterally
Incidentally, PN 9707237 provided for the penalty imposed or fixed interest rates; that Ps agreed
equivalent to 24% per annum in case of default. that without prior notice, PNB may modify interest
rates depending on future policy adopted by it;
PNB prepared a Statement of Account as of and that the imposition of penalties was agreed
October 12, 1998, detailing the amount due and upon in the Credit Agreement. It added that the
demandable from Ps in the total amount imposition of penalties is supported by the all-
of P3,620,541.60. inclusive clause in the Real Estate Mortgage
agreement which provides that the mortgage
Despite demand, Ps failed to pay the foregoing shall stand as security for any and all other
amount. Thus, PNB foreclosed on the mortgage, obligations of whatever kind and nature owing to
and on January 14, 1999, the lots were sold at the R, which thus includes penalties imposed upon
auction. The sheriff’s certificate of sale was default or non-payment of the principal and
registered on March 11, 1999. interest on due date.

More than a year later, or on March 24, 2000, Ps RTC: Ruled in favor of R
filed Civil Case No. 5975, seeking annulment of
the foreclosure sale and an accounting of the CA: Ruled in favor of R
PNB credit. Ps theorized that after the first
promissory note where they agreed to pay 19.5% Issue/Held:
interest, the succeeding stipulations for the
payment of interest in their loan agreements with WoN the interest rates imposed by R are null and
PNB – which allegedly left to the latter the sole void- YES
will to determine the interest rate – became
null and void. Ps added that because the interest WoN P is estopped from questioning the interest
rates were fixed by R without their prior consent rates because of their continuous payment
or agreement, these rates are void, and as a thereof w/o opposition- NO
result, Ps should only be made liable for interest
at the legal rate of 12%. They claimed further that Ratio:

J. Fernandez
SC cited and discussed numerous cases but the to the Borrower, increase or decrease its spread
main point of all the cases is the doctrine stated over the floating interest rate at any time
above. depending on whatever policy it may adopt in the
future.86 (Emphases supplied)
Any modification in the contract, such as the
interest rates, must be made with the consent IN THE AUGUST 1991 AMENDMENT TO
of the contracting parties. The minds of all the CREDIT AGREEMENT
parties must meet as to the proposed
modification, especially when it affects an 1.03. Interest on Line Availments. (a) The
important aspect of the agreement. In the Borrowers agree to pay interest on each
case of loan agreements, the rate of interest Availment from date of each Availment up to but
is a principal condition, if not the most not including the date of full payment thereof at
important component. Thus, any modification the rate per annum which is determined by the
thereof must be mutually agreed upon; Bank to be prime rate plus applicable spread in
otherwise, it has no binding effect. effect as of the date of each
Availment.87 (Emphasis supplied)
In the present case, the stipulations in question
no longer provide that the parties shall agree Plainly, with the present credit agreement, the
upon the interest rate to be fixed; -instead, they element of consent or agreement by the
are worded in such a way that the borrower borrower is now completely lacking, which
shall agree to whatever interest rate R fixes. In makes R’s unlawful act all the more
credit agreements covered by the cited cases, it reprehensible.
is provided that:
Re estoppel:
The Bank reserves the right to increase the
interest rate within the limits allowed by law at any Accordingly, Ps are correct in arguing that
time depending on whatever policy it may adopt estoppel should not apply to them, for "[e]stoppel
in the future: Provided, that, the interest rate on cannot be predicated on an illegal act. As
this accommodation shall be correspondingly between the parties to a contract, validity cannot
decreased in the event that the applicable be given to it by estoppel if it is prohibited by law
maximum interest rate is reduced by law or by the or is against public policy."
Monetary Board. In either case, the adjustment in
the interest rate agreed upon shall take effect on It appears that by its acts, R violated the Truth
the effectivity date of the increase or decrease in in Lending Act, or Republic Act No. 3765,
maximum interest rate. which was enacted "to protect x x x citizens
from a lack of awareness of the true cost of
Whereas, in the present credit agreements under credit to the user by using a full disclosure of
scrutiny, it is stated that: such cost with a view of preventing the
uninformed use of credit to the detriment of
IN THE JULY 1989 CREDIT AGREEMENT the national economy."89 The law "gives a
detailed enumeration of the specific information
(b) The Borrower agrees that the Bank may required to be disclosed, among which are the
modify the interest rate on the Loan depending on interest and other charges incident to the
whatever policy the Bank may adopt in the future, extension of credit."90 Section 4 thereof provides
including without limitation, the shifting from the that a disclosure statement must be furnished
floating interest rate system to the fixed interest prior to the consummation of the transaction,
rate system, or vice versa. Where the Bank has thus:
imposed on the Loan interest at a rate per annum,
which is equal to the Bank’s spread over the SEC. 4. Any creditor shall furnish to each person
current floating interest rate, the Borrower hereby to whom credit is extended, prior to the
agrees that the Bank may, without need of notice consummation of the transaction, a clear

J. Fernandez
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, attorney’s 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 charges.

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.

J. Fernandez
Sps Delos Santos vs Metropolitan Bank & which should then be applied to their accrued
Trust Company obligation; that they had requested the reduction
G.R. No. 153852 October 24, 2012 of the escalated interest rates on several
occasions because of its damaging effect on their
Facts: From December 9, 1996 until March 20, hotel business, but Metrobank had denied their
1998, the petitioners took out several loans request; and that they were not yet in default
totaling P12,000,000.00 from Metrobank, Davao because the long-term loans would become due
City Branch, the proceeds of which they would and demandable on December 9, 2006 yet and
use in constructing a hotel on their 305-square- they had been paying interest on the short-term
meter parcel of land located in Davao City and loan in advance.
covered by Transfer Certificate of Title No. I-
218079 of the Registry of Deeds of Davao City. Issue: Whether or not injunction may issue
They executed various promissory notes pending extrajudicial foreclosure.
covering the loans, and constituted a mortgage
over their parcel of land to secure the Held: Yes. No writ of preliminary injunction to
performance of their obligation. The stipulated enjoin an impending extrajudicial foreclosure sale
interest rates were 15.75% per annum for the should issue except upon a clear showing of a
long term loans (maturing on December 9, 2006) violation of the mortgagors’ unmistakable right to
and 22.204% per annum for a short term loan of the injunction.
P4,400,000.00 (maturing on March 12, 1999).
The interest rates were fixed for the first year,
Injunction will not protect contingent, abstract or
subject to escalation or de-escalation in certain
future rights whose existence is doubtful or
events without advance notice to them. The loan
disputed. Indeed, there must exist an actual right,
agreements further stipulated that the entire
because injunction will not be issued to protect a
amount of the loans would become due and right not in esse and which may never arise, or to
demandable upon default in the payment of any
restrain an act which does not give rise to a cause
installment, interest or other charges. On
of action. At any rate, an application for injunctive
December 27, 1999, Metrobank sought the
relief is strictly construed against the pleader.
extrajudicial foreclosure of the real estate
mortgage after the petitioners defaulted in their
installment payments. The petitioners were Nor do we discern any substantial controversy
notified of the foreclosure and of the forced sale that had any real bearing on Metrobank’s right to
being scheduled on March 7, 2000. The notice of foreclose the mortgage. The mere possibility that
the sale stated that the total amount of the the RTC would rule in the end in the petitioners’
obligation was P16,414,801.36 as of October 26, favor by lowering the interest rates and directing
1999. On April 4, 2000, prior to the scheduled the application of the excess payments to the
foreclosure sale (i.e., the original date of March 7, accrued principal and interest did not diminish the
2000 having been meanwhile reset to April 6, fact that when Metrobank filed its application for
2000), the petitioners filed in the RTC a complaint extrajudicial foreclosure they were already in
(later amended) for damages, fixing of interest default as to their obligations and that their short-
rate, and application of excess payments (with term loan of P4,400,000.00 had already matured.
prayer for a writ of preliminary injunction). They Under such circumstances, their application for
alleged therein that Metrobank had no right to the writ of preliminary injunction could not but be
foreclose the mortgage because they were not in viewed as a futile attempt to deter or delay the
default of their obligations; that Metrobank had forced sale of their property.
imposed interest rates (i.e., 15.75% per annum
for two long-term loans and 22.204% per annum Issue #2
for the short term loan) on three of their loans that
were different from the rate of 14.75% per annum Escalation clauses are valid and do not
agreed upon; that Metrobank had increased the contravene public policy. These clauses are
interest rates on some of their loans without any common in credit agreements as means of
basis by invoking the escalation clause written in maintaining fiscal stability and retaining the value
the loan agreement; that they had paid of money on long-term contracts. To avoid any
P2,561,557.87 instead of only P1,802,867.00 resulting one sided situation that escalation
based on the stipulated interest rates, resulting in clauses may bring, we required in Banco Filipino
their excess payment of P758,690.87 as interest, the inclusion in the parties’ agreement of a de-

J. Fernandez
escalation clause that would authorize a
reduction in the interest rates corresponding to
downward changes made by law or by the
Monetary Board.

The validity of escalation clauses


notwithstanding, we cautioned that these clauses
do not give creditors the unbridled right to adjust
interest rates unilaterally. As we said in the same
Banco Filipino case, any increase in the rate of
interest made pursuant to an escalation clause
must be the result of an agreement between the
parties. The minds of all the parties must meet on
the proposed modification as this modification
affects an important aspect of the agreement.
There can be no contract in the true sense in the
absence of the element of an agreement, i.e., the
parties’ mutual consent. Thus, any change must
be mutually agreed upon, otherwise, the change
carries no binding effect. A stipulation on the
validity or compliance with the contract that is left
solely to the will of one of the parties is void; the
stipulation goes against the principle of mutuality
of contract under Article 1308 of the Civil Code.

As with all equitable remedies, injunction must be


issued only at the instance of a party who
possesses sufficient interest in or title to the right
or the property sought to be protected. It is proper
only when the applicant appears to be entitled to
the relief demanded in the complaint, which must
aver the existence of the right and the violation of
the right, or whose averments must in the
minimum constitute a prima facie showing of a
right to the final relief sought. Accordingly, the
conditions for the issuance of the injunctive writ
are: (a) that the right to be protected exists prima
facie; (b) that the act sought to be enjoined is
violative of that right; and (c) that there is an
urgent and paramount necessity for the writ to
prevent serious damage. An injunction will not
issue to protect a right not in esse, or a right which
is merely contingent and may never arise; or to
restrain an act which does not give rise to a cause
of action; or to prevent the perpetration of an act
prohibited by statute. Indeed, a right, to be
protected by injunction, means a right clearly
founded on or granted by law or is enforceable as
a matter of law.

J. Fernandez