Spouses Abella vs Spouses Abella #10

G.R. No. 195166

July 8, 2015

Facts:
On July 31, 2002, petitioners Sps. Salvador and Alma Abella filed a complaint for sum of
money and damages with prayer for preliminary attachment against respondents Sps. Romeo
and Annie Abella before the RTC branch 8 of Kalibo, Aklan. Petitioners allegedthat respondents
obtained a loan from them in the amount of 500,000. The loan was evidenced by an
acknowledgement receipt dated March 2, 1999 and was payable within 1 year. Respondents
were able to pay a total of 200,000, leaving a balance of 300,000. Respondents alleged that the
amount involve did not pertain to a loan but was part of the capital for a joint venture involving
money lending. Respondents claim that petitioners proposed that should the former undertake
in such business the latter would get 2.5% service fee which was charged against respondent.
The 1 year period was also allegedly the period for respondent to return the money to
petitioners should the business not be lucrative and not a deadline for payment.

RTC:
The RTC ruled in favor of petitioners. It noted that the terms and acknowledgment
receipt clearly showed that respondents were indebted to the extent of 500,000 and was to be
paid within 1 year which was also subject to an interest and found the transaction to be a
simple loan.
CA:
The CA ruled that while respondents had indeed entered into a simple loan,
respondents were no longer liable to pay the unpaid amount of 300,000. It reasoned that the
loan could not have earned interest and that under Art. 1956 of the NCC, interest must be
stipulated in writing for it to be due. It noted that no particular interest rate was provided in the
acknowledgment receipt. Thus, the time respondents were paying 2.5% per month, these
interests were invalid for not being stipulated. Also, interest in the concept of compensatory
interest accrues only from the time of demand. Thus, all interest paid after perfection but
before demand in 2002 were invalid. Therefore, all payments made by respondent by way of
interest should be deemed as payment for the principal amount. Petitioners also made use of
Art. 1371 of the NCC which calls for the consideration of the contemporaneous and subsequent
acts of the parties to show their true intention. That is which is to subject the loan to a 2.5%
monthly interest.
Issues:
1. Whether or not interest accrued on respondents’ loan from petitioners. If so, at what
rate. YES/12% per annum
2. Whether or not petitioners are liable to reimburse respondents for the latter’s supposed
excess payments and for interest: YES

Ruling:
1. Art. 1956 of the NCC provides that “no interest shall be due unless it has been stipulated
in writing.” The text of the acknowledgment receipt is simple, plain and unequivocal
which shows the intent of the parties to subject the loan to an interest. The rule is that
where interest was stipulated in writing by the parties in a simple loan or mutuum, but
no exact interest was mentioned, the legal rate of interest existing at the time the
agreement was made is to be applied, which is 12% per annum. The contention of
petitioners that the contemporaneous and subsequent acts of the parties reveal their
true intention in setting the 2.5% interest is untenable since that only applies in case of
doubt in the interpretation of the instrument.
2. As respondent made an overpayment, the principle of solutio indebiti as provided by
Art, 2154 applies. As respondents had already fully paid the principal and all
conventional interest that had accrued, they were no longer obliged to make further
payments. Any further payment they made was only because of a mistaken impression
that they were still due. Accordingly, petitioners are now bound by quasi-contractual
obligation too return any and all excess payments by respondents.
Isla vs Estorga #11
G.R. No. 233974
July 2, 2018

Facts:
The case is a petition for review on certiorari assailing the decision dated May 31, 2017
which affirmed the decision of the RTC of Pasay City. Catalina F. Isla (petitioner) obtained a loan
from Genevira Estorga (respondent) in the amount f 10,000 payable at any time from 6 months
to 1 year and subject to an interest of 10% per month. As a security, a real estate mortgage was
constituted over a parcel of land located in Pasay City, registered in the name of Edilberto Isla
who is married to Catalina. Consequently, when petitioners failed to pay, a Kasalutan Pautang
was executed with the assistance of the brgy. The petitioner’s failure to abide by the terms
prompted the respondents to send a demand letter dated Nov. 16, 2006 which was unheeded.
The respondents then filed a petition for judicial foreclosure.
RTC:
Petitioners maintained that the subject mortgage was not a real estate mortgage but
rather a mere loan considering that Catalina was not actually the absolute owners of the
property. They also asserted that the stipulated interest rate of 10% monthly is exorbitant and
unconscionable.
The RTC directed the petitioners to pay respondents the amount of 10,000 with 12%
interest per annum from December 2007 until fully paid and 20,000 as attorney’s fees. The RTC
observed that while the action pertains to a judicial foreclosure, the underlying principle is that
a real estate mortgage is but a security and not a satisfaction of indebtedness.
CA:
The CA affirmed with modification the RTC’s decision. The CA ruled that the RTC erred in
imposing an interest rate of 12% per annum from December 2007 until full payment and
likewise held that stipulated interest rate of 10% was exorbitant. And also stated that
respondent was entitled to attorney’s fees based on equity and discretion.

Issue:
1. Whether or not the CA erred in awarding the 12% interest on the principal obligation until
full payment: NO
2. Whether or not the award for attorney’s fees is proper: NO
Ruling:
1. The right to recover interest arises either by virtue of a contract (monetary interest) or
as damages for delay or failure to pay the principal loan (compensatory interest). Courts
are allowed to equitably temper interest rates which are exorbitant or unconscionable.
It is as if the parties failed to specify the interest rate to be imposed on the principal
amount, in which case the prevailing legal rate existing at the time the agreement was
entered into is to be applied. Thus, the court struck down the 10% monthly interest for
being unconscionable and pegged a new interest of 12% per annum which was the
prevailing legal rate of interests at the time the loan was contracted.
2. The general rule is that attorney’s fees cannot be recovered as part of damages because
of the policy of the policy that no premium should be placed on the right to
litigate. Recovery must be based on factual, legal and equitable justification and not
merely on general statements.
Security Bank vs Spouses Mercado #12
G.R. Nos. 192934 & 197010
July 27, 2018

Facts:
Security Bank Corp. (SBC) granted spouses Mercado (petitioners) a revolving credit line
of 10,000,000 wherein the terms and conditions involved stipulations stating that: (1) the per
annum interest rate shall be determined from time to time by Security Bank in which the basis
for determination would be the Bank’s prevailing lending rate at the time; and (2) that should
the spouses be delinquent on their accounts, they agree to pay a penalty of 2% per month
computed on the amount due. The spouses executed a real estate mortgage over their
properties in Lipa, San Jose, Batangas City in Batangas. The spouses defaulted in their payment
which prompted SBC to file a petition for extra-judicial foreclosure. Notices for the foreclosure
sales of each property were published in the newspaper for 3 consecutive weeks. However,
publication of the San Jose and Batangas City properties contained an error, to which SBC made
an erratum in the newspaper for only one week and did not correct the lack of location. Later,
SBC was adjudged as being the highest bidder over the properties thus acquiring the same.

RTC:
The spouses filed a complaint for annulment of foreclosure sale averring that the
foreclosure sale did not comply with the requirements of publication, and that the three
separate properties should not have been lumped together in one foreclosure sale, and finally,
the interest and penalties imposed were iniquitous and unconscionable.
The RTC declared the sales for the San Jose and Batangas City property void for making
only one corrective publication instead of three and held that the properties should not have
been lumped in one and the same foreclosure sale. It also found the interest rate to be a one-
sided or potestative condition which is null and void.

CA:
The CA affirmed the decision with modifications. It modified the interest rate as well as
the total outstanding obligation of the spouses.
Issues:
1. Whether the foreclosure sales of the lands in Batangas City and San Jose are valid: NO
2. Whether the provisions on interest rate in the revolving credit line agreement and its
addendum are void for being violative of the principle of mutuality of contracts (being
potestative): YES
3. Whether the interest rates are due and demandable from date of auction sale until
finality of the judgement declaring the foreclosure void under the doctrine of operative
facts: NO

Ruling:
1. Anent the publication requirement, there must be a publication of the foreclosure sale
in a newspaper of general circulation for at least three-consecutive weeks as provided
by Act No. 3135 which must be strictly complied with. The erratum served as new and
separate notice from the initial publication and thus must also undergo the three-week
publication requirement. Further, it failed to indicate the location of the subject
properties which was a fatal defect.
2. The principle of mutuality of contracts is found in Art. 1308 of the NCC which states that
contracts must bind both parties, and its validity and compliance cannot be left to the
will of one of them. This is because such is the law between the parties. Consequently,
the same is with the case of stipulations as to interest. Other than it should be reduced
it writing, it must be agreed upon by both parties. Otherwise, it has no binding effect.
The same treatment is given as regard to stipulations that give unbridled discretion to
only one party.
3. For purposes of computing when legal interest shall run, it is enough that the debtor be
in default on the principal obligation. To be considered in default in under the revolving
credit line agreement, the borrower need not be in default for the whole amount, but
for any amount due. The spouses never challenged SBC’s claim that the former was in
default. Thus, the SC finds that they have defaulted at the time SBC made an extra-
judicial demand on March 31, 1999. The penalty rate is reduced from 24% per annum to
6% per annum for being unconscionable.