People v.

Concepcion Case Digest

People v. Concepcion

FACTS:

Defendant authorized an extension of credit in favor of Concepcion, a co-partnership. Defendant’s

wife was a director of this co-partnership. Defendant was found guilty of violating Sec. 35 of Act No.
2747 which says that “The National Bank shall not, directly or indirectly, grant loans to any of the
members of the Board of Directors of the bank nor to agents of the branch banks.” This Section was in
effect in 1919 but was repealed in Act No. 2938 approved on January 30, 1921.

ISSUE:

W/N Defendant can be convicted of violating Sections of Act No. 2747, which were repealed by
Act No. 2938.

HELD:

In the interpretation and construction, the primary rule is to ascertain and give effect to the intention
of the Legislature. Section 49 in relation to Sec. 25 of Act No. 2747 provides a punishment for any person
who shall violate any provisions of the Act. Defendant contends that the repeal of these Sections by Act
No. 2938 has served to take away basis for criminal prosecution. The Court holds that where an act of
the Legislature which penalizes an offense repeals a former act which penalized the same offense,
such repeal does not have the effect of thereafter depriving the Courts of jurisdiction to try, convict
and sentence offenders charged with violations of the old law.

garcia vs thio

FACTS

Respondent Thio received from petitioner Garcia two crossed checks which amount to
US$100,000 and US$500,000, respectively, payable to the order of Marilou Santiago. According to
petitioner, respondent failed to pay the principal amounts of the loans when they fell due and so she
filed a complaint for sum of money and damages with the RTC. Respondent denied that she contracted
the two loans and countered that it was Marilou Satiago to whom petitioner lent the money. She
claimed she was merely asked y petitioner to give the checks to Santiago. She issued the checks for
P76,000 and P20,000 not as payment of interest but to accommodate petitioner’s request that
respondent use her own checks instead of Santiago’s.

RTC ruled in favor of petitioner. CA reversed RTC and ruled that there was no contract of loan
between the parties.
ISSUE

(1) Whether or not there was a contract of loan between petitioner and respondent.

(2) Who borrowed money from petitioner, the respondent or Marilou Santiago?

HELD

(1) The Court held in the affirmative. A loan is a real contract, not consensual, and as such I
perfected only upon the delivery of the object of the contract. Upon delivery of the contract of loan (in
this case the money received by the debtor when the checks were encashed) the debtor acquires
ownership of such money or loan proceeds and is bound to pay the creditor an equal amount. It is
undisputed that the checks were delivered to respondent.

(2) However, the checks were crossed and payable not to the order of the respondent but to the
order of a certain Marilou Santiago. Delivery is the act by which the res or substance is thereof placed
within the actual or constructive possession or control of another. Although respondent did not
physically receive the proceeds of the checks, these instruments were placed in her control and
possession under an arrangement whereby she actually re-lent the amount to Santiago.

Petition granted; judgment and resolution reversed and set aside.

pantaleon vs. american express

FACTS:

After the Amsterdam incident that happened involving the delay of American Express Card to approve
his credit card purchases worth US$13,826.00 at the Coster store, Pantaleon commenced a complaint
for moral and exemplary damages before the RTC against American Express. He said that he and his
family experienced inconvenience and humiliation due to the delays in credit authorization. RTC
rendered a decision in favor of Pantaleon. CA reversed the award of damages in favor of Pantaleon,
holding that AmEx had not breached its obligations to Pantaleon, as the purchase at Coster deviated
from Pantaleon's established charge purchase pattern.

ISSUE:
1. Whether or not AmEx had committed a breach of its obligations to Pantaleon.

2. Whether or not AmEx is liable for damages.

RULING:

1. Yes. The popular notion that credit card purchases are approved “within seconds,” there really is no
strict, legally determinative point of demarcation on how long must it take for a credit card company to
approve or disapprove a customer’s purchase, much less one specifically contracted upon by the parties.
One hour appears to be patently unreasonable length of time to approve or disapprove a credit card
purchase.

The culpable failure of AmEx herein is not the failure to timely approve petitioner’s purchase, but the
more elemental failure to timely act on the same, whether favorably or unfavorably. Even assuming that
AmEx’s credit authorizers did not have sufficient basis on hand to make a judgment, we see no reason
why it could not have promptly informed Pantaleon the reason for the delay, and duly advised him that
resolving the same could take some time.

2. Yes. The reason why Pantaleon is entitled to damages is not simply because AmEx incurred delay, but
because the delay, for which culpability lies under Article 1170, led to the particular injuries under
Article 2217 of the Civil Code for which moral damages are remunerative. The somewhat unusual
attending circumstances to the purchase at Coster – that there was a deadline for the completion of that
purchase by petitioner before any delay would redound to the injury of his several traveling companions
– gave rise to the moral shock, mental anguish, serious anxiety, wounded feelings and social humiliation
sustained by Pantaleon, as concluded by the RTC.

Credit Transactions Case Digest: BPI Investment Corp V. CA

Facts:

Frank Roa obtained a loan with interest rate of 16 1/4%/annum from Ayala Investment and
Development Corporation (AIDC), the predecessor of BPI Investment Corp. (BPIIC), for the construction
of a house on his lot in New Alabang Village, Muntinlupa.

He mortgaged the house and lot to AIDC as security for the loan.
1980: Roa sold the house and lot to ALS Management & Development Corp. and Antonio Litonjua for
P850K who paid P350K in cash and assumed the P500K indebtness of ROA with AIDC.

AIDC proposed to grant ALS and Litonjua a new loan for P500K with interested rate of 20%/annum and
service fee of 1%/annum on the outstanding balance payable within 10 years through equal monthly
amortization of P9,996.58 and penalty interest of 21%/annum/day from the date the amortization
becomes due and payable.

March 1981: ALS and Litonjua executed a mortgage deed containing the new stipulation with the
provision that the monthly amortization will commence on May 1, 1981

August 13, 1982: ALS and Litonjua paid BPIIC P190,601.35 reducing the P500K principal loan to
P457,204.90.

September 13, 1982: BPIIC released to ALS and Litonjua P7,146.87, purporting to be what was left of
their loan after full payment of Roa’s loan

June 1984: BPIIC instituted foreclosure proceedings against ALS and Litonjua on the ground that they
failed to pay the mortgage indebtedness which from May 1, 1981 to June 30, 1984 amounting to
P475,585.31

August 13, 1984: Notice of sheriff's sale was published

February 28, 1985: ALS and Litonjua filed Civil Case No. 52093 against BPIIC alleging that they are not in
arrears and instead they made an overpayment as of June 30, 1984 since the P500K loan was only
released September 13, 1982 which marked the start of the amortization and since only P464,351.77
was released applying legal compensation the balance of P35,648.23 should be applied to the monthly
amortizations

RTC: in favor of ALS and Litonjua and against BPIIC that the loan granted by BPI to ALS and Litonjua was
only in the principal sum of P464,351.77 and awarding moral damages, exemplary damages and
attorneys fees for the publication

CA: Affirmed reasoning that a simple loan is perfected upon delivery of the object of the contract which
is on September 13, 1982

ISSUE: W/N the contract of loan was perfected only on September 13, 1982 or the second release of the
loan?

HELD: YES. AFFIRMED WITH MODIFICATION as to the award of damages. The award of moral and
exemplary damages in favor of private respondents is DELETED, but the award to them of attorney’s
fees in the amount of P50,000 is UPHELD. Additionally, petitioner is ORDERED to pay private
respondents P25,000 as nominal damages. Costs against petitioner.
obligation to pay commenced only on October 13, 1982, a month after the perfection of the contract

contract of 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 in a proper manner with what is
incumbent upon him. Consequently, petitioner could only demand for the payment of the monthly
amortization after September 13, 1982 for it was only then when it complied with its obligation under
the loan contract.

BPIIC was negligent in relying merely on the entries found in the deed of mortgage, without checking
and correspondingly adjusting its records on the amount actually released and the date when it was
released. Such negligence resulted in damage for which an award of nominal damages should be given

SSS where we awarded attorney’s fees because private respondents were compelled to litigate, we
sustain the award of P50,000 in favor of private respondents as attorney’s fees

SAURA IMPORT and EXPERT CO., INC., vs DBP

In July 1952, Saura, Inc., applied to Rehabilitation Finance Corp., now DBP, for an industrial loan of
P500,000 to be used for the construction of a factory building, to pay the balance of the jute mill
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. But then, later on,
was cancelled 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 almost 9 years, Saura Inc, commenced an action against RFC, alleging failure on the latter to
comply with its obligations to release the loan applied for and approved, thereby preventing the plaintiff
from completing or paying contractual commitments it had entered into, in connection with its jute mill
project.

The trial court ruled in favor of Saura, ruling that there was a perfected contract between the parties
and that the RFC was guilty of breach thereof.

ISSUE: Whether or not there was a perfected contract between the parties. YES. There was indeed a
perfected consensual contract.

HELD:
·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. 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. The defendant failed to fulfill its obligation and the plaintiff is therefore
entitled to recover damages.

· 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.

· However, it should be noted that RFC imposed two conditions (availability of raw materials and
increased production) when it restored the loan to the original amount of P500,000.00.

· Saura, Inc. obviously was in no position to comply with RFC’s conditions. So instead of doing so and
insisting that the loan be released as agreed upon, Saura, Inc. asked that the mortgage be cancelled.The
action thus taken by both parties was in the nature of mutual desistance which is a mode of
extinguishing obligations. It is a concept that derives from the principle that since mutual agreement can
create a contract, mutual disagreement by the parties can cause its extinguishment.

·WHEREFORE, the judgment appealed from is reversed and the complaint dismissed.

Producers Bank of the Philippines vs CA (2003)

Doctrine:

Facts:

• Vives (will be the creditor in this case) was asked by his friend Sanchez to help the latter’s friend,
Doronilla (will be the debtor in this case) in incorporating Doronilla’s business “Strela”. This “help”
basically involved Vives depositing a certain amount of money in Strela’s bank account for purposes of
incorporation (rationale: Doronilla had to show that he had sufficient funds for incorporation). This
amount shall later be returned to Vives.

• Relying on the assurances and representations of Sanchez and Doronilla, Vives issued a check of
P200,00 in favor of Strela and deposited the same into Strela’s newly-opened bank account (the
passbook was given to the wife of Vives and the passbook had an instruction that no
withdrawals/deposits will be allowed unless the passbook is presented).
• Later on, Vives learned that Strela was no longer holding office in the address previously given
to him. He later found out that the funds had already been withdrawn leaving only a balance of P90,000.
The Vives spouses tried to withdraw the amount, but it was unable to since the balance had to answer
for certain postdated checks issued by Doronilla.

• Doronilla made various tenders of check in favor of Vives in order to pay his debt. All of which
were dishonored.

• Hence, Vives filed an action for recovery of sum against Doronilla, Sanchez, Dumagpi and
Producer’s Bank.

• TC & CA: ruled in favor of Vives.

Issue/s:

(1) WON the transaction is a commodatum or a mutuum. COMMODATUM.

(2) WON the fact that there is an additional P 12,000 (allegedly representing interest) in the
amount to be returned to Vives converts the transaction from commodatum to mutuum. NO.

(3) WON Producer’s Bank is solidarily liable to Vives, considering that it was not privy to the
transaction between Vives and Doronilla. YES.

Held/Ratio:

(1) The transaction is a commodatum.

• CC 1933 (the provision distinguishing between the two kinds of loans) seem to imply that if the
subject of the contract is a consummable thing, such as money, the contract would be a mutuum.
However, there are instances when a commodatum may have for its object a consummable thing. Such
can be found in CC 1936 which states that “consummable goods may be the subject of commodatum if
the purpose of the contract is not the consumption of the object, as when it is merely for exhibition”. In
this case, the intention of the parties was merely for exhibition. Vives agreed to deposit his money in
Strela’s account specifically for purpose of making it appear that Streal had sufficient capitalization for
incorporation, with the promise that the amount should be returned withing 30 days.

(2) CC 1935 states that “the bailee in commodatum acquires the use of the thing loaned but not its
fruits”. In this case, the additional P 12,000 corresponds to the fruits of the lending of the P 200,000.

(3) Atienza, the Branch Manager of Producer’s Bank, allowed the withdrawals on the account of
Strela despite the rule written in the passbook that neither a deposit, nor a withdrawal will be permitted
except upon the production of the passbook (recall in this case that the passbook was in the possession
of the wife of Vives all along). Hence, this only proves to show that Atienza allowed the withdrawals
because he was party to Doronilla’s scheme of defrauding Vives. By virtue of CC 2180, PNB, as
employer, is held primarily and solidarily liable for damages caused by their employees acting within the
scope of their assigned tasks. Atienza’s acts, in helpong Doronilla, a customer of the bank, were
obviously done in furtherance of the business of the bank, even though in the process, Atienza violated
some rules.

Catholic Vicar Vs. CA

Facts:

- 1962: Catholic Vicar Apostolic of the Mountain Province (Vicar), petitioner, filed with the court an
application for the registration of title over lots 1, 2, 3 and 4 situated in Poblacion Central, Benguet, said
lots being used as sites of the Catholic Church, building, convents, high school building, school
gymnasium, dormitories, social hall and stonewalls.

- 1963: Heirs of Juan Valdez and Heirs of Egmidio Octaviano claimed that they have ownership over lots
1, 2 and 3. (2 separate civil cases)

- 1965: The land registration court confirmed the registrable title of Vicar to lots 1 , 2, 3 and 4. Upon
appeal by the private respondents (heirs), the decision of the lower court was reversed. Title for lots 2
and 3 were cancelled.

- VICAR filed with the Supreme Court a petition for review on certiorari of the decision of the Court of
Appeals dismissing his application for registration of Lots 2 and 3.

- During trial, the Heirs of Octaviano presented one (1) witness, who testified on the alleged ownership
of the land in question (Lot 3) by their predecessor-in-interest, Egmidio Octaviano; his written demand
to Vicar for the return of the land to them; and the reasonable rentals for the use of the land at P10,000
per month. On the other hand, Vicar presented the Register of Deeds for the Province of Benguet, Atty.
Sison, who testified that the land in question is not covered by any title in the name of Egmidio
Octaviano or any of the heirs. Vicar dispensed with the testimony of Mons. Brasseur when the heirs
admitted that the witness if called to the witness stand, would testify that Vicar has been in possession
of Lot 3, for 75 years continuously and peacefully and has constructed permanent structures thereon.

Issue: WON Vicar had been in possession of lots 2 and 3 merely as bailee borrower in commodatum, a
gratuitous loan for use.

Held: YES.
Private respondents were able to prove that their predecessors' house was borrowed by petitioner Vicar
after the church and the convent were destroyed. They never asked for the return of the house, but
when they allowed its free use, they became bailors in commodatum and the petitioner the bailee.

The bailees' failure to return the subject matter of commodatum to the bailor did not mean adverse
possession on the part of the borrower. The bailee held in trust the property subject matter of
commodatum. The adverse claim of petitioner came only in 1951 when it declared the lots for taxation
purposes. The action of petitioner Vicar by such adverse claim could not ripen into title by way of
ordinary acquisitive prescription because of the absence of just title.

The Court of Appeals found that petitioner Vicar did not meet the requirement of 30 years possession
for acquisitive prescription over Lots 2 and 3. Neither did it satisfy the requirement of 10 years
possession for ordinary acquisitive prescription because of the absence of just title. The appellate court
did not believe the findings of the trial court that Lot 2 was acquired from Juan Valdez by purchase and
Lot 3 was acquired also by purchase from Egmidio Octaviano by petitioner Vicar because there was
absolutely no documentary evidence to support the same and the alleged purchases were never
mentioned in the application for registration.

Pajuyo v. CA

GR No. 146364 June 3, 2004

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 tenant’s withholding of the property would then be unlawful.

Republic v. Bagtas

Facts: Bagtas borrowed three bulls from the Bureau of Animal Industry for one year for breeding
purposes subject to payment of breeding fee of 10% of book value of the bull. Upon expiration, Bagtas
asked for renewal. The renewal was granted only to one bull. Bagtas offered to buy the bulls at its book
value less depreciation but the Bureau refused. The Bureau said that Bagtas should either return or buy
it at book value. Bagtas proved that he already returned two of the bulls, and the other bull died during
a Huk raid, hence, obligation already extinguished. He claims that the contract is a commodatum hence,
loss through fortuitous event should be borne by the owner.

Issue: WON Bagtas is liable for the death of the bull.

Held: Yes. Commodatum is essentially gratuitous. However, in this case, there is a 10% charge. If this is
considered compensation, then the case at bar is a lease. Lessee is liable as possessor in bad faith
because the period already lapsed.

Even if this is a commodatum, Bagtas is still liable because the fortuitous event happened when he held
the bull and the period stipulated already expired and he is liable because the thing loaned was
delivered with appraisal of value and there was no contrary stipulation regarding his liability in case
there is a fortuitous event.
QUINTOS vs BECK²AC±S:

Quintos and Beck entered into a contract of lease, whereby the la³er occupied the former’s house.OnJan
14, 1936, the contract of lease was novated, wherein the Quintos gratuitously granted to Beck theuse of
the furniture, subject to the condiTon that Beck should return the furniture to Quintos upondemand.
±hereaFer, Quintos sold the property to Maria and Rosario Lopez. Beck was noT´ed of theconveyance
and given him 60 days to vacate the premises. IN addiTon, Quintos required Beck to returnall the
furniture. Beck refused to return 3 gas heaters and 4 electric lamps since he would use them unTlthe
lease was due to expire. Quintos refused to get the furniture since Beck had declined to return all
ofthem. Beck deposited all the furniture belonging to Quintos to the sheriµ.ISSUE:WON Beck complied
with his obligaTon of returning the furniture to Quintos when it deposited thefurniture to the
sheriµ.RULING:

The contract entered into between the par±es is one of commadatum, because under it the plain±F
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 plain±F, upon the
la²er’s demand (clause 7 of the contract, Exhibit A; ar±cles 1740, paragraph 1, and 1741 of the Civil
Code). The obliga±on voluntarily assumed by the defendant to return the furniture upon the plain±F's
demand, means that he should return all of them to the plain±F at the la²er's residence or house. The
defendant did not comply with this obliga±on when he merely placed them at the disposal of the
plain±F, retaining for his bene³t the three gas heaters and the four electric lamps. As the defendant had
voluntarily undertaken to return all the furniture to the plain±F, upon the la²er'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 la²er, as bailee, was not en±tled to place the furniture on deposit; nor was the
plain±F under a duty to accept the oFer to return the furniture, because the defendant wanted to retain
the three gas heaters and the four electric lamps.

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People v Puig & Porras

Facts

A case of Qualified Theft was filed against the respondents. This was filed by the Iloilo provincial
prosecutor, for the private complainant, Rural Bank of Potoan. It was alleged in the complaint that Puig
was the cashier & Porras was the Bookkeeper in the said bank, and that they took away money
amounting to 15k without the consent of the bank owner, to the prejudice of the bank. However, the
RTC dismissed the complaint for insufficiency of the information ruling that the real parties in interest
are the depositors-clients and not the bank because the bank does not acquire ownership of the money
deposited in it. It also denied the MR.

Issue: WON the bank was the owner and thus, the real party in interest?

Held & Rationale

Yes. Under Art 1980 of the CC, "fixed, savings, and current deposits of money in banks shall be governed
by the provisions concerning simple loans." And, Art 1953 provides that "a person who receives a loan of
money acquires the ownership thereof, and is bound to pay to the creditor an equal amount of the
same kind and quality." Thus, it posits that the depositors who place their money with the bank are
considered creditors of the bank. The bank acquires ownership of the money deposited by its clients,
making the money taken by respondents as belonging to the bank. Allegations in the Information that
such employees acted with grave abuse of confidence, to the damage and prejudice of the Bank,
without particularly referring to it as owner of the money deposits, as sufficient to make out a case of
Qualified Theft.

BPI FAMILY BANK VS. FRANCO

G.R. No. 123498 November 23, 2007

J. Nachura

FACTS:

On August 15, 1989, Tevesteco opened a savings and current account with BPI-FB. Soon thereafter,
FMIC also opened a time deposit account with the same branch of BPI-FB

On August 31, 1989, Franco opened three accounts, namely, a current, savings, and time deposit, with
BPI-FB. The total amount of P2,000,000.00 used to open these accounts is traceable to a check issued
by Tevesteco allegedly in consideration of Franco’s introduction of Eladio Teves, to Jaime Sebastian, who
was then BPI-FB SFDM’s Branch Manager. In turn, the funding for the P2,000,000.00 check was part of
the P80,000,000.00 debited by BPI-FB from FMIC’s time deposit account and credited to Tevesteco’s
current account pursuant to an Authority to Debit purportedly signed by FMIC’s officers.
 It appears, however, that the signatures of FMIC’s officers on the Authority to Debit were forged.
BPI-FB, debited Franco’s savings and current accounts for the amounts remaining therein. In the
meantime, two checks drawn by Franco against his BPI-FB current account were dishonored and
stamped with a notation “account under garnishment.” Apparently, Franco’s current account was
garnished by virtue of an Order of

Notably, the dishonored checks were issued by Franco and presented for payment at BPI-FB prior to
Franco’s receipt of notice that his accounts were under garnishment. It was only on May 15, 1990, that
Franco was impleaded in the Makati case. Immediately, upon receipt of such copy, Franco filed a Motion
to Discharge Attachment. On May 17, 1990, Franco pre-terminated his time deposit account.

BPI-FB deducted the amount of P63,189.00 from the remaining balance of the time deposit account
representing advance interest paid to him. Consequently, in light of BPI-FB’s refusal to heed Franco’s
demands to unfreeze his accounts and release his deposits therein, Franco filed on June 4, 1990 with the
Manila RTC the subject suit.

ISSUE: WON Respondent had better right to the deposits in the subject accounts which are part of the
proceeds of a forged Authority to Debit

HELD: NO

There is no doubt that BPI-FB owns the deposited monies in the accounts of Franco, but not as a legal
consequence of its unauthorized transfer of FMIC’s deposits to Tevesteco’s account. BPI-FB conveniently
forgets that the deposit of money in banks is governed by the Civil Code provisions on simple loan or
mutuum. As there is a debtor-creditor relationship between a bank and its depositor, BPI-FB ultimately
acquired ownership of Franco’s 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 Franco’s accounts, it
cannot prevent him from demanding payment of BPI-FB’s 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.

More importantly, BPI-FB does not have a unilateral right to freeze the accounts of Franco based on its
mere suspicion that the funds therein were proceeds of the multi-million peso scam Franco was
allegedly involved in. To grant BPI-FB, or any bank for that matter, the right to take whatever action it
pleases on deposits which it supposes are derived from shady transactions, would open the floodgates
of public distrust in the banking industry.

Ineluctably, BPI-FB, as the trustee in the fiduciary relationship, is duty bound to know the
signatures of its customers. Having failed to detect the forgery in the Authority to Debit and in the
process inadvertently facilitate the FMIC-Tevesteco transfer, BPI-FB cannot now shift liability thereon to
Franco and the other payees of checks issued by Tevesteco, or prevent withdrawals from their
respective accounts without the appropriate court writ or a favorable final judgment.

Frias v. San Diego-Sison

BOBIE ROSE FRIAS v. FLORA SAN DIEGO-SISON

On 7 Dec 1990, Bobie Rose Frias and Dr. Flora San-Diego Sison entered into a MOA over Frias’property

MOA consideration is 3M

Sison has 6 months from the date of contract’s execution to notify Frias of her intention to purchase the
property with the improvements at 6.4M

Prior to this 6 month period, Frias may still offer the property to other persons, provided that 3M shall
be paid to Sison including interest based on prevailing compounded bank interest + amount of sale in
excess of 7M [should the property be sold at a price greater than 7M]

In case Frias has no other buyer within 6 months from the contract’s execution, no interest shall be
charged by Sison on the 3M

In the event that on the 6th month, Sison would decide not to purchase the property, Frias has 6
months to pay 3M (amount shall earn compounded bank interest for the last 6 months only)

3M treated as a loan and the property considered as the security for the mortgage

Upon notice of intention to purchase, Sison has 6 months to pay the balance of 3.4M (6.4M less 3M
MOA consideration)

Frias received from Sison 3M (2M in cash; 1M post-dated check dated February 28, 1990, instead of
1991, which rendered the check stale). Frias gave Sison the TCT and the Deed of Absolute Sale over the
property. Sison decided not to purchase the property, so shenotified Frias through a letter dated March
20, 1991 [Frias received it only on June 11, 1991],and Sison reminded Frias of their agreement that the
2M Sison paid should be considered as a loan payable within 6 months. Frias failed to pay this amount.
Sison filed a complaintfor sum of money with preliminary attachment. Sison averred that Frias tried to
deprive her of the security for the loan by making a false report of the loss of her owner’s copy of TCT,
executing an affidavit of loss and by filing a petition[1] for the issuance of a new owner’s duplicate copy.
RTC issued a writ of preliminary attachment upon the filing of a 2M bond.

RTC found that Frias was under obligation to pay Sison 2M with compounded interest pursuant to their
MOA. RTC ordered Frias to pay Sison:

2M + 32% annual interest beginning December 7, 1991 until fully paid

70k representing premiums paid by Sison on the attachment bond with legal interest counted from the
date of this decision until fully paid

100k moral, corrective, exemplary damages [liable for moral damages because of Frias’ fraudulent
scheme]

100k attorney’s fees + cost of litigation

CA affirmed RTC with modification—32% reduced to 25%. CA said that there was no basis for Frias to say
that the interest should be charged for 6 months only. It said that a loan always bears interest;
otherwise, it is not a loan. The interest should commence on June 7, 1991 until fully paid, with
compounded bank interest prevailing at the time [June 1991] the 2M was considered as a loan (as
certified by the bank).

ISSUES & HOLDING – Ratio only discusses topic of INTEREST (as per syllabus)

WON compounded bank interest should be limited to 6 months as contained in the MOA. NO

WON Sison is entitled to moral damages. YES

WON the grant of attorney’s fees is proper, even if not mentioned in the body of the decision. NO

CA committed no error in awarding an annual 25% interest on the 2M even beyond the 6-month
stipulated period. In this case, the phrase “for the last six months only” should be taken in the context of
the entire agreement.
SC notes that the agreement speaks of two (2) periods of 6 months each (see FACTS—words in bold &
underline). No interest will be charged for the 1st 6-month period [while Sison was making up her mind],
but only for the 2nd 6-month period after Sison decided not to buy the property. There is nothing in the
MOA that suggests that interest will be charged for 6 months only even if it takes forever for Frias to pay
the loan.

The payment of regular interest constitutes the price or cost of the use of money, and until the principal
sum due is returned to the creditor, regular interest continues to accrue since the debtor continues to
use such principal amount. For a debtor to continue in possession of the principal of the loan and to
continue to use the same after maturity of the loan without payment of the monetary interest
constitutes unjust enrichment on the part of the debtor at the expense of the creditor.

CA DECISION AND RESOLUTION AFFIRMED WITH MODIFICATION—Award of attorney’s fees deleted

[1] At first, Frias’ petition was granted, but it was eventually set aside, since RTC granted Sison’s petition
for relief from judgment (as Sison was in possession of the owner’s duplicate copy).

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Siga-an v. Villanueva (2009)

Chico-Nazario, J.

Facts:

• ¬¬Alicia Villanueva filed a complaint against Sebastian Sigaan bec she wants a return of her
money (the excess interest she paid). Events according to her:

o Sigaan, the comptroller of the Phillipine Navy, offered to loan money to her. She accepted
because she needed capital for her office supply business venture. She currently supplies office mat’l
and equipment to the Phil Navy.

o She agrees to the loan of P540k. Loan was not in writing and there was no stipulation as to
payment of interest.

o She issues a check worth P500; as partial payment. 2 months later, she issues another check
worth P200k.
o Sigaan (who now received P700k from Villanueva) said the excess money Villanueva paid would
be applied as interest. But Sigaan still kept pestering her for additional interest and threatened to block
her transactions with the Phil Navy if she won’t comply. Fearing this, she paid additional amounts
totalling to P1.2m. She asked for a receipt but was told that there was no need bec they had mutual
trust and confidence.

o She then consulted a lawyer who told her that Sigaan could not validly collect interest because
there was no agreement of interest. She demands from Sigaan the return of the P660k.

• According to Sigaan, however:

o He did not offer to loan but was instead propositioned by Villanueva and insists that there was
no overpayment, as that there was a promissory note by Villanueva admitting to having borrowed
P1.24m.

o As payment, Villanueva issued 6 postdated checks. Only 1 was honoured. He filed criminal cases
against Villanueva (BP 22). In this BP 22 case, Sigaan claims that Villanueva, in her testimony, admitted
to having agreed to a 7% interest. This should be an exception (to the rule that interests should be in
writing) because it would be unfair since Villanueva already admits to the interest.

o Also Villanueva was already estopped from complaining because she was given several times to
settle her obligation but failed.

• RTC says: there was overpayment. Villanueva’s obligation only amounted to P540k because
there was no interest agreement. CA affirmed.

Issue: Was there overpayment? What about interest?

Held: [Yes. Sigaan should return the excess amounts.] [No interest to be paid by Villanueva. However,
Sigaan should pay interest on the amounts he should refund Villanueva.]

Ratio:

• SC defines interest: monetary and compensatory:

o Monetary interest: Interest is a COMPENSATION fixed by the PARTIES for the use or forbearance
of money.

o Compensatory: Interest imposed by LAW or by COURTS as PENALTY or INDEMNITY.

• The right to interest arises only:

1. By a contract; or

2. By virtue of damages for delay or failure to pay the principal loan

RE: Interest should be stipulated in writing

• NCC 1956: Refers to monetary interest and mandates that no interest shall be due unless
stipulated in writing. So, it is allowed only when the following concur:

1. If there was express stipulation for interest payment

2. AND if the agreement was in writing

• In this case, the parties did not agree. As explained by Villanueva, the presented promissory
note was in her handwriting because Sigaan told her to copy it and she did because she feared the
threats of Sigaan to block her deals with the Phil Navy. (this was not rebutted by Sigaan so the SC
believed this explanation)

o Clearly, there was NO CONSENT to the payment of interest, she was coerced.

RE: Exceptions

• Sigaan’s claim that Villanueva admitting to the interest should be an exception, SC says: In the
BP22 case, Villanueva did not declare to have made an express stipulation in writing as to the interest.
There instances in which interest may be imposed in the absence of stipulation, verbal or written, are:

1. NCC 2209: If obligation consists in payment of sum of money, no stipulation on interest, and
debtor incurs delay = legal interest 12% per annum

2. NCC 2212: interest due shall earn legal interest from the time it is judicially demanded

• Under those 2 instances, interest MAY be imposed only as PENALTY or damages for breach of
CONTRACTUAL obligations and NOT for compensation for the use or forbearance of money.

o MEANING: those 2 are only applicable to COMPENSATORY interests and not to monetary
interest.

o This case involves a claim for monetary interest. Compensatory is not chargeable because it was
not proven that Villanueva defaulted in paying the loan.

RE: Solutio indebiti (NCC 2154: 1. if something is received where there is no right to demand it and 2. it
was delivered through mistake, the obligation to return it arises)
• Principle: no one shall enrich himself unjustly at expense of another

RE: Interest payment

• Eastern Shipping v. CA:

o when an obligation NOT constituting a loan or forbearance of money is breached, interest on

amount of damages may be imposed at the rate of 6% per annum.

o When judgment awarding a sum of money becomes final and executory, legal interest (whether
loan/forbearance or money or not) shall be 12% per annum from finality

o The INTERIM period is deemed a forbearance of credit

• Sigaan’s obligation arises from a quasi-contract of solutio indebitu and NOT from a loan or
forbearance of money. So:

o 6% per annum should be imposed on the amount to be refunded (as well as to the damages and
atty fees) from time of extra judicial demand (March 3, 1998) up to finality.

o Amount shall become 12% per annum from finality of decision up to its satisfaction

SPS Juico vs CHINA BANK

DOCTRINE : the escalation clause is void if it grants respondent the power to impose an increased rate of
interest without a written notice to petitioners and their written consent.

Concurring doctrine by CJ Sereno

these points must be considered by creditors and debtors in the drafting of valid escalation clauses.
Firstly, as a matter of equity and consistent with P.O. No. 1684, the escalation clause must be paired
with a de-escalation clause.9 Secondly, so as not to violate the principle of mutuality, the escalation
must be pegged to the prevailing market rates, and not merely make a generalized reference to "any
increase or decrease in the interest rate" in the event a law or a Central Bank regulation is passed.
Thirdly, consistent with the nature of contracts, the proposed modification must be the result of an
agreement between the parties. In this way, our credit system would be facilitated by firm loan
provisions that not only aid fiscal stability, but also avoid numerous disputes and litigations between
creditors and debtors.

Spouses Ignacio F. Juico and Alice P. Juico (petitioners) obtained a loan from China Banking Corporation
(respondent) as evidenced by two Promissory Notes both dated October 6, 1998 and numbered 507-
001051-34and 507-001052-0,5 for the sums of !!6,216,000 and P4, 139,000, respectively. The loan was
secured by a Real Estate Mortgage (REM) over petitioners’ property located at 49 Greensville St., White
Plains, Quezon City

respondent demanded the full payment of the outstanding balance with accrued monthly interests.

As of February 23, 2001, the amount due on the two promissory notes totaled P19,201,776. On the
same day, the mortgaged property was sold at public auction, with respondent China bank as highest
bidder for the amount of P10,300,000.

petitioners received 8a demand letter9 dated May 2, 2001 from respondent for the payment
ofP8,901,776.63, the amount of deficiency after applying the proceeds of the foreclosure sale

respondent prayed that judgment be rendered ordering the petitioners to pay jointly and severally:
(1)P8,901,776.63 representing the amount of deficiency, plus interests at the legal rate, from February
23, 2001 until fully paid; (2) an additional amount equivalent to 1/10 of 1% per day of the total amount,
until fully paid, as penalty; (3) an amount equivalent to 10% of the foregoing amounts as attorney’s fees;
and (4) expenses of litigation and costs of suit.

Ms. Annabelle Cokai Yu, its Senior Loans Assistant stated that as of now the outstanding balance of
petitioners was P15,190,961.48. Yu reiterated that the interest rate changes every month based on the
prevailing market rate. she notified petitioners of the prevailing rate by calling them monthly .It was
increased unilaterally

RTC: ordered Spouses to pay bank 9M plus the interest which amounted to 15M.CA AFFIRMED

PETITIONER: They insist that the increase in interest rates were unilaterally imposed by the bank and
thus violate the principle of mutuality of contracts.

Issue: whether the increase in interest rates is void for violating the mutuality of contracts

HELD:Yes

RATIO:

Article 1308. The contract must bind both contracting parties; its validity or compliance cannot be left to
the will of one of them. Article 1956 of the Civil Code likewise ordains that "no interest shall be due
unless it has been expressly stipulated in writing."

The binding effect of any agreement between parties to a contract is premised on xxx (2) that there
must be mutuality between the parties based on their essential equality. Any contract which appears to
be heavily weighed in favor of one of the parties so as to lead to an unconscionable result is void. Any
stipulation regarding the validity or compliance of the contract which is left solely to the will of one of
the parties, is likewise, invalid

Escalation clauses refer to stipulations allowing an increase in the interest rate agreed upon by the
contracting parties. This Court has long recognized that there is nothing inherently wrong with
escalation clauses

Nevertheless, an escalation clause "which grants the creditor an unbridled right to adjust the interest
independently and upwardly, completely depriving the debtor of the right to assent to an important
modification in the agreement" is void. A stipulation of such nature violates the principle of mutuality of
contracts. In a case,SC said that petitioner’s assent to the modifications in the interest rates cannot be
implied from their lack of response to the memos sent by respondent

It is now settled that an escalation clause is void where the creditor unilaterally determines and imposes
an increase in the stipulated rate of interest without the express conformity of the debtor. Such
unbridled right given to creditors to adjust the interest independently and upwardly would completely
take away from the debtors the right to assent to an important modification in their agreement and
would also negate the element of mutuality in their contracts.

More recently in Solidbank Corporation v. Permanent Homes, Incorporated,39 we upheld as valid an

escalation clause which required a written notice to and conformity by the borrower to the increased
interest rate

In Polotan, Sr. v. CA ,On petitioner’s contention that the interest rate was unilaterally imposed and
based on the standards and rate formulated solely by respondent credit card company, we held:
Cardholder hereby authorizes Security Diners to correspondingly increase the rate of such interest in the
event of changes in prevailing market rates x x x" is an escalation clause. However, it cannot be said to
be dependent solely on the will of private respondent as it is also dependent on the prevailing market
rates. Thus, it was valid because it wasnt solely potestative as it was based on the market
rates(something outside the control of respondent)

Here, the interest rates would vary as determined by prevailing market rates. Evidently, the parties
intended the interest on petitioners’ loan, including any upward or downward adjustment, to be
determined by the prevailing market rates and not dictated by respondent’s policy.

HOWEVER, SC hold that the escalation clause here is still void because it grants respondent the power to
impose an increased rate of interest without a written notice to petitioners and their written consent.
Respondent’s monthly telephone calls to petitioners advising them of the prevailing interest rates would
not suffice. A detailed billing statement based on the new imposed interest with corresponding
computation of the total debt should have been provided by the respondent to enable petitioners to
make an informed decision. An appropriate form must also be signed by the petitioners to indicate their
conformity to the new rates. Compliance with these requisites is essential to preserve the mutuality of
contracts. For indeed, one-sided impositions do not have the force of law between the parties, because
such impositions are not based on the parties’ essential equality.

In the absence of consent on the part of the petitioners to the modifications in the interest rates, the
adjusted rates cannot bind them. Hence, we consider as invalid the interest rates in excess of 15%, the
rate charged for the first year.

Based on the August 29, 2000 demand letter of China Bank, petitioners’ total principal obligation under
the two promissory notes which they failed to settle is P10,355,000. However, due to China Bank’s
unilateral increases in the interest rates from 15% to as high as 24.50% and penalty charge of 1/10 of 1%
per day or 36.5% per annum for the period November 4, 1999 to February 23, 2001, petitioners’ balance
ballooned to P19,201,776.63. Note that the original amount of principal loan almost doubled in only 16
months. The Court also finds the penalty charges imposed excessive and arbitrary, hence the same is
hereby reduced to 1% per month or 12% per annum.

Concurring by CJ Sereno:

not all escalation clauses in loan agreements are void per se .it is to maintain fiscal stability and to retain
the value of money in long term contracts.however, a contract containing a provision that makes its
fulfillment exclusively dependent upon the uncontrolled will of one of the contracting parties is void.

Hence the provision on the promissory note:

I/We hereby authorize the CHINA BANKING CORPORATION to increase or decrease as the case may be,
the interest rate/service charge presently stipulated in this note without any advance notice to me/us in
the event a law or Central Bank regulation is passed or promulgated by the Central Bank of the
Philippines or appropriate government entities, increasing or decreasing such interest rate or service
charge.

Is void.

The floating rate of interest in the trust receipt agreement is also void. It reads:

I, WE jointly and severally agree to any increase or decrease in the interest rate which may occur after
July 1, 1981, when the Central Bank floated the interest rate, and to pay additionally the penalty of I%
per month until the amount/s or installments/s due and unpaid under the trust receipt on the reverse
side hereof is/are fully paid.

It is ok, for banks to stipulate that interest rates on a loan not be fixed and instead be made dependent
upon prevailing market conditions as long as there should always be a reference rate upon which to peg
such variable interest rates. An example of such a valid variable interest rate was found in Polotan, Sr. v.
Court of Appeals.10 In that case, the contractual provision stating that "if there occurs any change in the
prevailing market rates, the new interest rate shall be the guiding rate in computing the interest due on
the outstanding obligation without need of serving notice to the Cardholder other than the required
posting on the monthly statement served to the Cardholder" was considered valid. The aforequoted
provision was upheld notwithstanding that it may partake of the nature of an escalation clause, because
at the same time it provides for the decrease in the interest rate in case the prevailing market rates
dictate its reduction.

Here, the use of the phrase "any increase or decrease in the interest rate" is without reference to the
prevailing market rate actually imposed by the regulations of the Central Bank.8 It is thus not enough to
state, as akin to China Bank's provision, that the bank may increase or decrease the interest rate in the
event a law or a Central Bank regulation is passed. To adopt that stance will necessarily involve a
determination of the interest rate by the creditor since the provision spells a vague condition - it only
requires that any change in the imposable interest must conform to the upward or downward
movement of borrowing rates.

And if that determination is not subjected to the mutual agreement of the contracting parties, then the
resulting interest rates to be imposed by the creditor would be unilaterally determined. Consequently,
the escalation clause violates the principle of mutuality of contracts.

Based on jurisprudence, therefore, these points must be considered by creditors and debtors in the
drafting of valid escalation clauses. Firstly, as a matter of equity and consistent with P.O. No. 1684, the
escalation clause must be paired with a de-escalation clause.9 Secondly, so as not to violate the principle
of mutuality, the escalation must be pegged to the prevailing market rates, and not merely make a
generalized reference to "any increase or decrease in the interest rate" in the event a law or a Central
Bank regulation is passed. Thirdly, consistent with the nature of contracts, the proposed modification
must be the result of an agreement between the parties. In this way, our credit system would be
facilitated by firm loan provisions that not only aid fiscal stability, but also avoid numerous disputes

SPOUSES EDUARDO & LYDIA SILOS v. PHILIPPINE NATIONAL BANK G.R. No. 181045, 2 July 2014,
SECOND DIVISION, (Del Castillo, J.) 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. Spouses Eduardo and Lydia Silos secureda
revolving credit line with Philippine National Bank (PNB)through a real estate mortgage as a security.
After two years, their credit line increased. Spouses Silos then signed a Credit Agreement, which was
also amended two years later, and several Promissory Notes (PN) as regards their Credit Agreements
with PNB.The said loan was initially subjected to a 19.5% interest rate per annum. In the Credit
Agreements, Spouses Silos bound themselves to the power of PNB to modify the interest rate
depending on whatever policy that PNB may adopt in the future, without the need of notice upon them.
Thus, the said interest rates played from 16% to as high as 32% per annum.Spouses Silos acceded to the
policy by pre-signing a total of twenty-six (26) PNs leaving the individual applicable interest rates at hand
blank since it would be subject to modification by PNB. Spouses Silos regularly renewed and made good
on their PNs, religiously paid the interests without objection or fail. However, during the 1997 Asian
Financial Crisis, Spouses Silos faltered when the interest rates soared. Spouses Silos’ 26thPN became
past due, and despite repeated demands by PNB, they failed to make good on the note. Thus, PNB
foreclosed and auctioned the involved security for the mortgage. Spouses Silos instituted an action to
annul the foreclosure sale on the ground that the succeeding interest rates used in their loan
agreements was left to the sole will of PNB, the same fixed by the latter without their prior consent and
thus, void. The Regional Trial Court (RTC) ruled that such stipulation authorizing both the increase and
decrease of interest rates as may be applicable is valid. The Court of Appeals (CA) affirmed the RTC
decision. ISSUE: May the bank, on its own, modify the interest rate in a loan agreement without violating
the mutuality of contracts? RULING: No.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.
UST Law Review, Vol. LIX, No. 1, May 2015 Loan and credit arrangements may be made enticing by, or
"sweetened" with, offers of low initial interest rates, but actually accompanied by provisions written in
fine print that allow lenders to later on increase or decrease interest rates unilaterally, without the
consent of the borrower, and depending on complex and subjective factors. Because they have been
lured into these contracts by initially low interest rates, borrowers get caught and stuck in the web of
subsequent steep rates and penalties, surcharges and the like. Being ordinary individuals or entities,
they naturally dread legal complications and cannot afford court litigation; they succumb to whatever
charges the lenders impose. At the very least, borrowers should be charged rightly; but then again this is
not possible in a one-sided credit system where the temptation to abuse is strong and the willingness to
rectify is made weak by the eternal desire for profit.

Ligutan vs. CA G.R#138677

Facts: Petitioners Tolomeo Ligutan and Leonidas dela Llana obtained a loan in the amount of
P120,000.00 from respondent Security Bank and Trust Company. Petitioners executed a promissory
note binding themselves, jointly and severally, with an interest of 15.189% per annum upon maturity
and to pay a penalty of 5% every month on the outstanding principal and interest in case of default and
also a 10% attorney’s fees if the matter were indorsed to a lawyer for collection.

The obligation matured, the petitioners were not able to settle the obligation; The bank gave an
extension, still the same happened. Since the petitioners still defaulted, the former filed a complaint for
recovery of the due amount.

Issue: Whether the interest and penalty charge imposed by private respondent bank on petitioners’ loan
are manifestly exorbitant, iniquitous and unconscionable?

Ruling: The obligor would then be bound to pay the stipulated indemnity without the necessity of proof
on the existence and on the measure of damages caused by the breach. Although a court may not at
liberty ignore the freedom of the parties to agree on such terms and conditions as they see fit that
contravene neither law nor morals, good customs, public order or public policy, a stipulated penalty,
nevertheless, may be equitably reduced by the courts if it is iniquitous or unconscionable or if the
principal obligation has been partly or irregularly complied with.
The question of whether a penalty is reasonable or iniquitous can be partly subjective and partly
objective. Its resolution would depend on such factors as, but not necessarily confined to, the type,
extent and purpose of the penalty, the nature of the obligation, the mode of breach and its
consequences, the supervening realities, the standing and relationship of the parties, and the like, the
application of which, by and large, is addressed to the sound discretion of the court.

The CA exercised good judgment in reducing the stipulated penalty interest from 5% to 3% a month. It
was also been held that the 15.189% per annum stipulated interest and the 10% attorney’s is reasonable
and not excessive. The interest prescribed in loan financing arrangements is a fundamental part of the
banking business and the core of a bank's existence.

Eastern Shipping Lines, Inc. v CA (Credit Transactions)

G.R. No. 97412 July 12, 1994

EASTERN SHIPPING LINES, INC., petitioner, vs. HON. COURT OF APPEALS AND MERCANTILE
INSURANCE COMPANY, INC., respondents.

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.

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 Brokerage).

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.
ISSUES AND RULING:

(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 broker;

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 consignee.

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

FOLLOW THESE VERY IMPORTANT RULES (GUIDANCE BY THE SUPREME COURT)

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.

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 follows:
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.

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.

Hermojina Estores vs. Spouses Arturo and Laura Supangan

G.R. No. 175139 April 18, 2012

DEL CASTILLO, J.:

Facts:

1. In Oct. 1993, Hermojina Estores and Spouses Supangan entered into a Conditional Deed of Sale
where Estores offered to sell, and Spouses offered to buy a parcel of land in Cavite for P4.7M.

2. After almost 7 years and despite the payment of P3.5M by the Spouses, Estores still failed to
comply with her obligation to handle the peaceful transfer of ownership as stated in 5 provisions in the
contract.

3. In a letter in 2000, Spouses demanded the return of the amount within 15 days from receipt

4. In reply, Estores promised to return the same within 120 days

5. Spouses agreed but imposed an interest of 12% annually

6. Estores still failed despite demands

7. Spouses filed a complaint with the RTC against Estores and Roberto Arias (allegedly acted as
Estores’ agent)

8. In Answer, Estores said they were willing to pay the principal amount but without the interest as
it was not agreed upon

a. That since the Conditional Deed of Sale provided only for the return of the downpayment in
case of breach, they cant be liable for legal interest as well

9. RTC ruled saying that the Spouses are entitled to the interest but only at 6% per annum and also
entitled to atty’s fees

10. On appeal, CA said that the issue to resolve is

a. whether it is proper to impose interest for an obligation that does not involve a loan or
forbearance of money in the absence of stipulation of the parties

11. CA affirmed RTC

a. That interest should start on date of formal demand by Spouses to return the money not when
contract was executed as stated by the RTC

b. That Arias not be solidarily liable as he acted as agent only and did not expressly bind himself or
exceeded his authority

12. Estores contends:

a. Not bound to pay interest because the deed only provided for the return of the downpayment
in case of failure to comply with her obligations

b. That atty fees not proper because both RTC and CA sustained her contention that 12% interest
was uncalled for so it showed that Spouses did not win

13. Spouses contend:

a. It is only fair that interest be imposed because Estores failed to return the amount upon
demand and used the money for her benefit

b. Estores failed to relocate the house outside the perimeter of the subject lot and complete the
necessary documents

c. As to the fees, they claim that they were forced to litigate when Estores unjustly held the
amount

Issue:

Is the imposition of interest and attorney’s fees is proper? YES

Interest based on Art 2209 of CC (6%) or under Central Bank Circular 416 (12%)? 12%

Held:

Interest may be imposed even in the absence of stipulation in the contract.

• Article 2210 of the Civil Code expressly provides that “[i]nterest may, in the discretion of the
court, be allowed upon damages awarded for breach of contract.”

• Estores failed on her obligations despite demand.

o She admitted that the conditions were not fulfilled and was willing to return the full amount of
P3.5M but hasn’t done so

o She is now in default

The interest at the rate of 12% is applicable in the instant case.

• Gen Rule: the applicable interest rate shall be computed in accordance with the stipulation of
the parties

• Exc: if no stipulation, applicable rate of interest shall be 12% per annum

o When obligation arises out of a loan or forbearance of money, goods or credits

• In other cases, it shall be 6%

• In this case, no stipulation was made

• Contract involved in this case is not a loan but a Conditional Deed of Sale.

o No question that the obligations were not met and the return of money not made

• Even if transaction was a Conditional Deed of Sale, the stipulation governing the return of the
money can be considered as a forbearance of money which requires 12% interest

• In Crismina Garments, Inc. v. Court of Appeals, Forbearance-- “contractual obligation of lender

or creditor to refrain during a given period of time, from requiring the borrower or debtor to repay a
loan or debt then due and payable.”

o In such case, “forbearance of money, goods or credits” will have no distinct definition from a
loan.

o however, the phrase “forbearance of money, goods or credits” is meant to have a separate
meaning from a loan, otherwise there would have been no need to add that phrase as a loan is already
sufficiently defined in the Civil Code

o Forbearance of money, goods or credits should therefore refer to arrangements other than loan
agreements, where a person acquiesces to the temporary use of his money, goods or credits pending
happening of certain events or fulfillment of certain conditions.

• Estores’ unwarranted withholding of the money amounts to forbearance of money which can be
considered as an involuntary loan so rate is 12% starting in Sept. 2000

The award of attorney’s fees is warranted.

• no doubt that the Spouses were forced to litigate to protect their interest, i.e., to recover their
money. The amount of P50,000.00 more appropriate
UCPB vs Spouses Beluso

GR No. 159912, August 17, 2007

Ponente: Chico-Nazario, J.

Facts:

1. Petition for Review on Certiorari declaring void the interest rate provided in the promissory
notes executed by the respondents Spouses Samuel and Odette Beluso (spouses Beluso) in favor of
petitioner United Coconut Planters Bank (UCPB)

2. UCPB granted the spouses Beluso a Promissory Notes Line under a Credit Agreement whereby
the latter could avail from the former credit of up to a maximum amount of P1.2 Million pesos for a
term ending on 30 April 1997. The spouses Beluso constituted, other than their promissory notes, a real
estate mortgage over parcels of land in Roxas City, covered by Transfer Certificates of Title No. T-31539
and T-27828, as additional security for the obligation. The Credit Agreement was subsequently
amended to increase the amount of the Promissory Notes Line to a maximum of P2.35 Million pesos and
to extend the term thereof to 28 February 1998.

3. On 30 April 1997, the payment of the principal and interest of the latter two promissory notes
were debited from the spouses Beluso’s account with UCPB; yet, a consolidated loan for P1.3 Million
was again released to the spouses Beluso under one promissory note with a due date of 28 February
1998. To completely avail themselves of the P2.35 Million credit line extended to them by UCPB, the
spouses Beluso executed two more promissory notes for a total of P350,000.00. However, the spouses
Beluso alleged that the amounts covered by these last two promissory notes were never released or
credited to their account and, thus, claimed that the principal indebtedness was only P2 Million.

4. The spouses Beluso, however, failed to make any payment of the foregoing amounts.

5. On 2 September 1998, UCPB demanded that the spouses Beluso pay their total obligation of
P2,932,543.00 plus 25% attorney’s fees, but the spouses Beluso failed to comply therewith. On 28
December 1998, UCPB foreclosed the properties mortgaged by the spouses Beluso to secure their credit
line, which, by that time, already ballooned to P3,784,603.00.

6. On 9 February 1999, the spouses Beluso filed a Petition for Annulment, Accounting and
Damages against UCPB with the RTC of Makati City.

7. Trial court declared in its judgment that:

a. the interest rate used by [UCPB] void

b. the foreclosure and Sheriff’s Certificate of Sale void

c. UCPB is ordered to return to [the spouses Beluso] the properties subject of the foreclosure

d. UCPB to pay [the spouses Beluso] the amount of P50,000.00 by way of attorney’s fees
e. UCPB to pay the costs of suit.

f. Spouses Beluso] are hereby ordered to pay [UCPB] the sum of P1,560,308.00.

8. Court of Appeals affirmed Trial court's decision subject to the modification that defendant-appellant
UCPB is not liable for attorney’s fees or the costs of suit.

ISSUES:

1. Whether or not interest rate stipulated was void

Yes, stipulated interest rate is void because it contravenes on the principle of mutuality of contracts and
it violates the Truth in lending Act.

The provision stating that the interest shall be at the “rate indicative of DBD retail rate or as determined
by the Branch Head” is indeed dependent solely on the will of petitioner UCPB. Under such provision,
petitioner UCPB has two choices on what the interest rate shall be: (1) a rate indicative of the DBD retail
rate; or (2) a rate as determined by the Branch Head. As UCPB is given this choice, the rate should be
categorically determinable in both choices. If either of these two choices presents an opportunity for
UCPB to fix the rate at will, the bank can easily choose such an option, thus making the entire interest
rate provision violative of the principle of mutuality of contracts.

In addition, the promissory notes, the copies of which were presented to the spouses Beluso after
execution, are not sufficient notification from UCPB. As earlier discussed, the interest rate provision
therein does not sufficiently indicate with particularity the interest rate to be applied to the loan
covered by said promissory notes which is required in TRuth in Lending Act

2. Whether or not Spouses Beluso are subject to 12% interest and compounding interest stipulations
even if declared amount by UCPB was excessive.

Yes. Default commences upon judicial or extrajudicial demand.[26] The excess amount in such a
demand does not nullify the demand itself, which is valid with respect to the proper amount. There
being a valid demand on the part of UCPB, albeit excessive, the spouses Beluso are considered in default
with respect to the proper amount and, therefore, the interests and the penalties began to run at that
point. As regards the award of 12% legal interest in favor of petitioner, the RTC actually recognized that
said legal interest should be imposed, thus: “There being no valid stipulation as to interest, the legal rate
of interest shall be charged.”[27] It seems that the RTC inadvertently overlooked its non-inclusion in its
computation. It must likewise uphold the contract stipulation providing the compounding of interest.
The provisions in the Credit Agreement and in the promissory notes providing for the compounding of
interest were neither nullified by the RTC or the Court of Appeals, nor assailed by the spouses Beluso in
their petition with the RTC. The compounding of interests has furthermore been declared by this Court
to be legal.

3. Whether or not foreclosure was void

No. The foreclosure proceedings are valid since there was a valid demand made by UCPB upon the
spouses Beluso. Despite being excessive, the spouses Beluso are considered in default with respect to
the proper amount of their obligation to UCPB and, thus, the property they mortgaged to secure such
amounts may be foreclosed. Consequently, proceeds of the foreclosure sale should be applied to the
extent of the amounts to which UCPB is rightfully entitled.

Advocates for Truth in Lending, Inc. vs. BSP, et. al.

G.R. No. 192986 / January 15, 2013

REYES, J.

FACTS:

Advocates for Truth in Lending, Inc. and its President, Eduardo Olaguer claim that they are raising issues
of transcendental importance to the public and so they filed Petition for Certiorari under Rule 65 ROC
seeking to declare that the Bangko Sentral ng Pilipinas Monetary Board (BSP-MB), replacing the Central
Bank Monetary Board (CB-MB) by virtue of R.A. No. 7653, has no authority to continue enforcing Central
Bank Circular No. 905, issued by the CB-MB in 1982, which "suspended" the Usury Law of 1916 (Act No.
2655).

R.A. No. 265, which created the Central Bank (CB) of the Philippines, empowered the CB-MB to, among
others, set the maximum interest rates which banks may charge for all types of loans and other credit
operations, within limits prescribed by the Usury Law.

In its Resolution No. 2224, the CB-MB issued CB Circular No. 905, Series of 1982. Section 1 of the
Circular, under its General Provisions, removed the ceilings on interest rates on loans or forbearance of
any money, goods or credits.
On June 14, 1993, President Fidel V. Ramos signed into law R.A. No. 7653 establishing the Bangko
Sentral ng Pilipinas (BSP) to replace the CB.

ISSUE/S:

1. 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. NO

2. Whether under R.A. No. 7653, the BSP-MB may continue to enforce CB Circular No. 905. YES

RULING:

1. The CB-MB merely suspended the effectivity of the Usury Law when it issued CB Circular No. 905.

The power of the CB to effectively suspend the Usury Law pursuant to P.D. No. 1684 has long been
recognized and upheld in many cases. As the Court explained in the landmark case of Medel v. CA, citing
several cases, CB Circular No. 905 "did not repeal nor in anyway amend the Usury Law but simply
suspended the latter’s effectivity;" that "a CB Circular cannot repeal a law, [for] only a law can repeal
another law;" that "by virtue of CB Circular No. 905, the Usury Law has been rendered ineffective;" and
"Usury has been legally non-existent in our jurisdiction. Interest can now be charged as lender and
borrower may agree upon."

By lifting the interest ceiling, CB Circular No. 905 merely upheld the parties’ freedom of contract to
agree freely on the rate of interest. It cited Article 1306 of the New Civil Code, 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.

2. The BSP-MB has authority to enforce CB Circular No. 905.

Section 1 of CB Circular No. 905 provides that, "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."
It does not purport to suspend the Usury Law only as it applies to banks, but to all lenders.

Petitioners contend that, 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.

Further, the lifting of the ceilings for interest rates does not authorize stipulations charging excessive,
unconscionable, and iniquitous interest. It is settled that nothing in CB Circular No. 905 grants lenders a
carte blanche authority to raise interest rates to levels which will either enslave their borrowers or lead
to a hemorrhaging of their assets. Stipulations authorizing iniquitous or unconscionable interests have
been invariably struck down for being contrary to morals, if not against the law.

COMMONWEALTH INSURANCE CORPORATION vs. CA

In 1984, plaintiff-appellant Rizal Commercial Banking Corporation (RCBC) granted two export loan lines,
one, for P2,500,000.00 to Jigs Manufacturing Corporation (JIGS) and, the other, for P1,000,000.00 to
Elba Industries, Inc. (ELBA). JIGS and ELBA which are sister corporations both drew from their respective
credit lines, the former in the amount of P2,499,992.00 and the latter for P998,033.37 plus P478,985.05
from the case-to-case basis and trust receipts. These loans were secured by surety bonds executed by
defendant-appellee Commonwealth Insurance Company (CIC).
Specifically, the surety bonds issued by appellee CIC in favor of appellant RCBC to secure the obligations
of JIGS totaled P2,894,128.00 while that securing ELBA’s obligation was P1,570,000.00. Hence, the total
face value of the surety bonds issued by appellee CIC was P4,464,128.00.

JIGS and ELBA defaulted in the payment of their respective loans. RCBC made a written demand on
appellee CIC to pay JIG’S and ELBA’s account to the full extend (sic) of the suretyship. CIC made several
payments in the total amount of P2,000,000.00. There having been a substantial balance unpaid,
appellant RCBC made a final demand for but CIC ignored it. Thus, appellant RCBC filed the Complaint for
a Sum of Money against CIC.

The Trial Court finds the defendants Commonwealth Insurance Co. and defaulted third party defendants
Jigs Manufacturing Corporation, Elba Industries and Iluminada de Guzman solidarily liable to pay RCBC.

Not satisfied with the trial court’s decision, RCBC filed a motion for reconsideration praying that in
addition to the principal sum of P2,464,128.00, defendant CIC be held liable to pay interests thereon
from date of demand at the rate of 12% per annum until the same is fully paid. However, the trial court
denied the motion.

RCBC then appealed to the Court of Appeals.

CA: CIC was ordered to pay the amount of surety bonds plus legal interest of 12% per annum.

CIC filed a motion for reconsideration but the CA denied the same.

Hence, herein petition. CIC argued it should not be made to pay interest because its issuance of the
surety bonds was made on the condition that its liability shall in no case exceed the amount of the said
bonds.

ISSUE: WON petitioner should be held liable to pay legal interest over and above its principal obligation
under the surety bonds issued by it.

RULING:

In Republic vs. Court of Appeals and R & B Surety and Insurance Company, Inc. we have sustained the
principle that if a surety upon demand fails to pay, he can be held liable for interest, even if in thus
paying, its liability becomes more than the principal obligation. The increased liability is not because of
the contract but because of the default and the necessity of judicial collection.12

Petitioner’s liability under the suretyship contract is different from its liability under the law. There is no
question that as a surety, petitioner should not be made to pay more than its assumed obligation under
the surety bonds.13 However, it is clear from the above-cited jurisprudence that petitioner’s liability for
the payment of interest is not by reason of the suretyship agreement itself but because of the delay in
the payment of its obligation under the said agreement. xxx Petitioner admits having incurred in delay.

In the present case, there is no dispute that petitioner’s obligation consists of a loan or forbearance of
money. No interest has been agreed upon in writing between petitioner and respondent. Applying the
above-quoted rule to the present case, the Court of Appeals correctly imposed the rate of interest at
12% per annum to be computed from the time the extra-judicial demand was made.

This is in accordance with the provisions of Article 116920 of the Civil Code and of the settled rule that
where there has been an extra-judicial demand before action for performance was filed, interest on the
amount due begins to run not from the date of the filing of the complaint but from the date of such
extra-judicial demand.21 RCBC’s extra-judicial demand for the payment of JIGS’ obligation was made on
October 30, 1984; while the extra-judicial demand for the payment of ELBA’s obligation was made on
December 17, 1984. On the other hand, the complaint for a sum of money was filed by RCBC with the
trial court only on September 19, 1988.

CALDERON vs. PEOPLE

Facts:

Elizabeth Eusebio-Calderon was charged by her aunt Teresita Eusebio, Amelia Casanova and cousin
Manolito Eusebio with three count Estafa.

According to private complainants, petitioner assured them that the checks will be honored upon
maturity. They gave her the money because she showed them her pieces of jewelry which convinced
them that she has the ability to pay the loans.

In her defense, petitioner admits that she issued the checks but alleges that it was not done to defraud
her creditors.

After trial, the lower court rendered a joint decision finding petitioner guilty beyond reasonable doubt,
but ruled that her liability for the “interest checks” was only civil, thereby acquitting the accused but
indemnify to pay.

The Decision of the Court of Appeals which reversed and set aside the Decision of the Regional Trial
Court acquitting the accused but ordering her to pay civil liability.

Issues: (1) Did the Court of Appeals err in finding the appellant civilly liable to complainants with respect
to the interest in the principal loan despite the dismissal of the interest checks by the Regional Trial
Court?

(2) Is the interest agreed upon by the parties usurious?

(3) Should the private respondents file a separate civil complaint for the claim of Sum of Money?

Ruling:

The court finds the petition meritorious.

When petitioner appealed her conviction, the dismissal of the interest checks by the lower court did not
preclude the Court of Appeals from reviewing such decision and modifying her civil liability. The appeal
conferred upon the appellate court full jurisdiction and rendered it competent to examine the records,
revise the judgment appealed from, increase the penalty and cite the proper provision of the penal law.

Under Article 29 of the Civil Code, when the accused in a criminal prosecution is acquitted on the ground
that his guilt has not been proven beyond reasonable doubt, a civil action for damages for the same act
or omission may be instituted. The judgment of acquittal extinguishes the liability of the accused for
damages only when it includes a declaration that the fact from which the civil liability might arise did not
exist. Thus, Section 1, paragraph (a) of Rule 111 of the Rules of Court provides:

SECTION 1. Institution of criminal and civil actions. – (a) When a criminal action is instituted, the civil
action for the recovery of civil liability arising from the offense charged shall be deemed instituted with
the criminal action unless the offended party waives the civil action, reserves the right to institute it
separately or institutes the civil action prior to the criminal action.

An accused who is acquitted of Estafa may nevertheless be held civilly liable where the facts established
by the evidence so warrant. Petitioner Elizabeth Calderon is clearly liable to the private respondents for
the amount borrowed. The Court of Appeals found that the former did not employ trickery or deceit in
obtaining money from the private complainants, instead, it concluded that the money obtained was
undoubtedly loans for which petitioner paid interest. The checks issued by petitioner as payment for
the principal loan constitute evidence of her civil liability which was deemed instituted with the criminal
action.

The civil liability of petitioner includes only the principal amount of the loan. With respect to the
interest checks she issued, the same are void. There was no written proof of the payable interest except
for the verbal agreement that the loan shall earn 5% interest per month. Under Article 1956 of the Civil
Code, an agreement as to payment of interest must be in writing, otherwise it cannot be valid.
Consequently, no interest is due and the interest checks she issued should be eliminated from the
computation of her civil liability.

However, while there can be no stipulated interest, there can be legal interest pursuant to Article 2209
of the Civil Code. It is elementary that in the absence of a stipulation as to interest, the loan due will
now earn interest at the legal rate of 12% per annum.

In view of our ruling that there can be no stipulated interest in this case, there is no need to pass upon
the second issue of whether or not the interests were usurious.

The Decision of the Court of Appeals is AFFIRMED with the MODIFICATION that petitioner is ordered to
pay Amelia Casanova,Teresita Eusebio, and Manolito Eusebio as civil liability with legal interest of twelve
percent (12%) per annum until its satisfaction.

Medel vs Court of Appeals, 299 SCRA 481; GR No. 131622, November 27, 1998, digested

Facts: Defendants obtained a loan from Plaintiff in the amount P50, 000.00, payable in 2 months and
executed a promissory note. Plaintiff gave only the amount of P47, 000.00 to the borrowers and
retained P3, 000.00 as advance interest for 1 month at 6% per month.
Defendants obtained another loan from Defendant in the amount of P90, 000.00, payable in 2 months,
at 6% interest per month. They executed a promissory note to evidence the loan and received only P84,
000.00 out of the proceeds of the loan.

For the third time, Defendants secured from Plaintiff another loan in the amount of P300, 000.00,
maturing in 1 month, and secured by a real estate mortgage. They executed a promissory note in favor
of the Plaintiff. However, only the sum of P275, 000.00, was given to them out of the proceeds of the
loan.

Upon maturity of the three promissory notes, Defendants failed to pay the indebtedness.

Defendants consolidated all their previous unpaid loans totalling P440, 000.00, and sought from Plaintiff
another loan in the amount of P60, 000.00, bringing their indebtedness to a total of P50,000.00. They
executed another promissory note in favor of Plaintiff to pay the sum of P500, 000.00 with a 5.5%
interest per month plus 2% service charge per annum, with an additional amount of 1% per month as
penalty charges.

On maturity of the loan, the Defendants failed to pay the indebtedness which prompt the Plaintiffs to
file with the RTC a complaint for collection of the full amount of the loan including interests and other
charges.

Declaring that the due execution and genuineness of the four promissory notes has been duly proved,
the RTC ruled that although the Usury Law had been repealed, the interest charged on the loans was
unconscionable and “revolting to the conscience” and ordered the payment of the amount of the first 3
loans with a 12% interest per annum and 1% per month as penalty.

On appeal, Plaintiff-appellants argued that the promissory note, which consolidated all the unpaid loans
of the defendants, is the law that governs the parties.

The Court of Appeals ruled in favor of the Plaintiff-appellants on the ground that the Usury Law has
become legally inexistent with the promulgation by the Central Bank in 1982 of Circular No. 905, the
lender and the borrower could agree on any interest that may be charged on the loan, and ordered the
Defendants to pay the Plaintiffs the sum of P500,000, plus 5.5% per month interest and 2& service
charge per annum , and 1% per month as penalty charges.

Defendants filed the present case via petition for review on certiorari.

Issue: WON the stipulated 5.5% interest rate per month on the loan in the sum of P500, 000.00 is
usurious.

Held: No.

A stipulated rate of interest at 5.5% per month on the P500, 000.00 loan is excessive, iniquitous,
unconscionable and exorbitant, but it cannot be considered “usurious” because Central Bank Circular
No. 905 has expressly removed the interest ceilings prescribed by the Usury Law and that the Usury Law
is now “legally inexistent.”

Doctrine: A CB Circular cannot repeal a law. Only a law can repeal another law.

Jurisprudence provides that CB Circular did not repeal nor in a way amend the Usury Law but simply
suspended the latter’s effectivity (Security Bank and Trust Co vs RTC). Usury has been legally non-
existent in our jurisdiction. Interest can now be charged as lender and borrower may agree upon.

Law: Article 2227, Civil Code

The courts shall reduce equitably liquidated damages, whether intended as an indemnity or a penalty if
they are iniquitous or unconscionable.

Note: While the Usury Law ceiling on interest rates was lifted by the CB Circular 905, nothing in the said
circular could possibly be read as granting carte blanche authority to lenders to raise interest rates to
levels which would either enslave their borrowers or lead to a haemorrhaging of their assets (Almeda vs.
CA, 256 SCRA 292 [1996]).

SPOUSES SILVESTRE and CELIA PASCUAL, petitioners, vs. RODRIGO V.

RAMOS, respondent.

FACTS:

This case is a petition[3] for consolidation of title or ownership filed on 5 July 1993 with the trial court by
herein respondent Rodrigo V. Ramos (hereafter RAMOS) against herein petitioners, Spouses Silvestre
and Celia Pascual (hereafter the PASCUALs).

On June 3, 1987, Sps. Pascual entered into a loan agreement with Ramos in the amount of Php
150,000.00 with interest of 7% per month. As collateral the spouses Pascual executed a Deed of Absoute
Sale with Right of Repurchase within one year covering the Spouses’ property in Bo. Taliptip, Bambang,
Bulacan, Bulacan.

The Spouses defaulted in payment and failed to exercise the right of repurchase within one. Hence the
present case.

RTC Ruling

(1) First Case – RTC Ruling

The trial court found that the transaction between the parties was actually a loan in the amount of
P150,000, the payment of which was secured by a mortgage of the property covered by TCT No. 305626.
It also found that the PASCUALs had made payments in the total sum of P344,000, and that with interest
at 7% per annum, the PASCUALs had overpaid the loan by P141,500.

(2) MR by Ramos – RTC Ruling

• the trial court issued on 5 June 1995 an Order[9] modifying its decision by deleting the award of
P141,500 to the PASCUALs as overpayment of the loan and interest and ordering them to pay RAMOS
P511,000 representing the principal loan plus interest.

• It noted that during trial, the PASCUALs never disputed the stipulated interest rate. However,
the court declared that the 7% per month interest is too burdensome and onerous. Invoking the
protective mantle of Article 24 of the Civil Code, which mandates the courts to be vigilant for the
protection of a party at a disadvantage due to his moral dependence, ignorance, indigence, mental
weakness, tender age or other handicap, the trial court unilaterally reduced the interest rate from 7%
per month to 5% per month. Thus, the interest due from 3 June 1987 to 3 April 1995 was P705,000.
Deducting therefrom the payments made by the PASCUALs in the amount of P344,000, the net interest
due was P361,000. Adding thereto the loan principal of P150,000, the total amount due from the
PASCUALs was P511,000.

CA Ruling

In its Decision[11] of 5 November 1999, the Court of Appeals affirmed in toto the trial court’s Orders

Contention of Sps. Pascual

• the interest of either 5% or 7% a month is exorbitant, unconscionable, unreasonable, usurious

and inequitable.

• Invoking this Court’s ruling in Medel v. Court of Appeals,[12] they argue that the 5% per month
interest is excessive, iniquitous, unconscionable and exorbitant. Moreover, respondent should not be
allowed to collect interest of more than 1% per month because he tried to hide the real transaction
between the parties by imposing upon them to sign a Deed of Absolute Sale with Right to Repurchase.

Contention of Ramos

there was nothing illegal on the rate of interest agreed upon by the parties, since the ceilings on interest
rates prescribed under the Usury Law had expressly been removed, and hence parties are left freely at
their discretion to agree on any rate of interest. Moreover, there was no scheme to hide a usurious
transaction.
ISSUE: Whether or not the 7% interest charge is illegal or not.

HELD:

Interest charge

It is a basic principle in civil law that parties are bound by the stipulations in the contracts voluntarily
entered into by them. Parties are free to stipulate terms and conditions which they deem convenient
provided they are not contrary to law, morals, good customs, public order, or public policy.[15]

The interest rate of 7% per month was voluntarily agreed upon by RAMOS and the PASCUALs. There is
nothing from the records and, in fact, there is no allegation showing that petitioners were victims of
fraud when they entered into the agreement with RAMOS. Neither is there a showing that in their
contractual relations with RAMOS, the PASCUALs were at a disadvantage on account of their moral
dependence, ignorance, mental weakness, tender age or other handicap, which would entitle them to
the vigilant protection of the courts as mandated by Article 24 of the Civil Code. Apropos in our ruling in
Vales vs. Villa:

All men are presumed to be sane and normal and subject to be moved by substantially the same
motives. When of age and sane, they must take care of themselves. In their relations with others in the
business of life, wits, sense, intelligence, training, ability and judgment meet and clash and contest,
sometimes with gain and advantage to all, sometimes to a few only, with loss and injury to others. In
these contests men must depend upon themselves – upon their own abilities, talents, training, sense,
acumen, judgment. The fact that one may be worsted by another, of itself, furnishes no cause of
complaint. One man cannot complain because another is more able, or better trained, or has better
sense or judgment than he has; and when the two meet on a fair field the inferior cannot murmur if the
battle goes against him. The law furnishes no protection to the inferior simply because he is inferior,
any more than it protects the strong because he is strong. The law furnishes protection to both alike –
to one no more or less than to the other. It makes no distinction between the wise and the foolish, the
great and the small, the strong and the weak. The foolish may lose all they have to the wise; but that
does not mean that the law will give it back to them again. Courts cannot follow one every step of his
life and extricate him from bad bargains, protect him from unwise investments, relieve him from one-
sided contracts, or annul the effects of foolish acts. Courts cannot constitute themselves guardians of
persons who are not legally incompetent. Courts operate not because one person has been defeated or
overcome by another, but because he has been defeated or overcome illegally. Men may do foolish
things, make ridiculous contracts, use miserable judgment, and lose money by then – indeed, all they
have in the world; but not for that alone can the law intervene and restore. There must be, in addition,
a violation of law, the commission of what the law knows as anactionable wrong, before the courts are
authorized to lay hold of the situation and remedy it.[16]

With the suspension of the Usury Law and the removal of interest ceiling, the parties are free to
stipulate the interest to be imposed on loans. Absent any evidence of fraud, undue influence, or any vice
of consent exercised by RAMOS on the PASCUALs, the interest agreed upon is binding upon them. This
Court is not in a position to impose upon parties contractual stipulations different from what they have
agreed upon. As declared in the decision of Cuizon v. Court of Appeals,[17]

APPLICABILITY OF THE DOCTRINE ENUNCIATED IN MEDEL V. CA

Our ruling in Medel v. Court of Appeals[14] is not applicable to the present case. In that case, the
excessiveness of the stipulated interest at the rate of 5.5 % per month was put in issue by the
defendants in the Answer. Moreover, in addition to the interest, the debtors were also required, as per
stipulation in the promissory note, to pay service charge of 2% per annum and a penalty charge of 1%
per month plus attorney’s fee of equivalent to 25% of the amount due. In the case at bar, there is no
other stipulation for the payment of an extra amount except interest on the principal loan. Thus, taken
in conjunction with the stipulated service charge and penalty, the interest rate of 5.5% in the Medel case
was found to be excessive, iniquitous, unconscionable, exorbitant and hence, contrary to morals,
thereby making such stipulation null and void.

02 FIRST FIL-SIN LENDING CORPORATION, petitioner, vs. GLORIA D. PADILLO, respondent.

G.R. No. 160533 January 12, 2005

Topic: Interpretation of a contract or agreement

Ponente: YNARES-SANTIAGO, J.

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 Fil-Sin 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 respondent’s 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 monthly.

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 d

Macalinao vs. BPI

Ileana Macalinao was an APPROVED cardholder of BPI Mastercard

She made some purchases through the use of the said credit card and defaulted in paying for said
purchases. She subsequently received a demand letter from BPI asking for the payment of PhP
141,518.34.

Terms and Conditions:

The charges or balance thereof remaining unpaid after the payment due date indicated on the monthly
Statement of Accounts shall bear interest at the rate of 3% per month for BPI Express Credit, BPI Gold
Mastercard and an additional penalty fee equivalent to another 3% of the amount due for every month
or a fraction of a months delay.

PROVIDED that if there occurs any change on the prevailing market rates, BCC shall have the option to
adjust the rate of interest and/or penalty fee due on the outstanding obligation with prior notice to the
cardholder. The Cardholder hereby authorizes BCC to correspondingly increase the rate of such interest
[in] the event of changes in the prevailing market rates, and to charge additional service fees as may be
deemed necessary in order to maintain its service to the Cardholder.

Macalinao failed to settle her obligations, and thus BPI filed a complaint for collection of sum of money.

CA Ruling:

The amount of PhP 141,518.34 already incorporated the interest rates in the said amount. Thus, the said
amount should not be made as basis in computing the total obligation of petitioner Macalinao. The CA
also held, however, that the MeTC erred in modifying the amount of interest rate from 3% monthly to
only 2% considering that petitioner Macalinao freely availed herself of the credit card facility offered by
respondent BPI to the general public.

Statement of the Issue:

Macalinao claims that the interest rate and penalty charge of 3% per month imposed by the CA is
iniquitous as the same translates to 36% per annum or thrice the legal rate of interest. On the other
hand, respondent BPI asserts that said interest rate and penalty charge are reasonable as the same are
based on the Terms and Conditions Governing the Issuance and Use of the BPI Credit Card.

SC Ruling

We are of the opinion that the interest rate and penalty charge of 3% per month should be equitably
reduced to 2% per month or 24% per annum. Indeed, in the Terms and Conditions Governing the
Issuance and Use of the BPI Credit Card, there was a stipulation on the 3% interest rate. But, we held in
Chua vs. Timan:

We need not unsettle the principle we had affirmed in a plethora of cases that stipulated interest rates
of 3% per month and higher are excessive, iniquitous, unconscionable and exorbitant. Such stipulations
are void for being contrary to morals, if not against the law. While C.B. Circular No. 905-82, which took
effect on January 1, 1983, effectively removed the ceiling on interest rates for both secured and
unsecured loans, regardless of maturity, nothing in the said circular could possibly be read as granting
carte blanche authority to lenders to raise interest rates to levels which would either enslave their
borrowers or lead to a hemorrhaging of their assets.

Since the stipulation on the interest rate is void, it is as if there was no express contract thereon. Hence,
courts may reduce the interest rate as reason and equity demand.[18]

The same is true with respect to the penalty charge. Pertinently, Article 1229 of the Civil Code states:

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.
Thus, under the circumstances, the Court finds it equitable to reduce the interest rate pegged by the CA
at 1.5% monthly to 1% monthly and penalty charge fixed by the CA at 1.5% monthly to 1% monthly or a
total of 2% per month or 24% per annum in line with the prevailing jurisprudence and in accordance
with Art. 1229

PHILIPPINE NATIONAL BANK petitioner, vs, THE HON. COURT OF "PEALS and AMBROSIO PADILLA,
respondents.

GR# 88880. April 30, 1991. GRIRO-AQUINO, J.:

FACTS: Private respondent (PR) Ambrosio Padilla, applied for and was granted a credit line of 321.8
million, by petitioner PNB. This was for a term of 2 years at 18% interest per annum and was secured by
real estate mortgage and 2 promissory notes executed in favor of Petitioner by PR. The credit
agreement and the promissory notes, in effect, provide that PR agrees to be bound by “increases to the
interest rate stipulated, provided it is within the limits provided for by law”.

Conflict in this case arose when Petitioner unilaterally increased the interest rate from 18% to: (1) 32%
[July 1984]; (2) 41% [October 1984]; and (3) 48% [November 1984], or 3 times within the span of a single
year. This was done despite the numerous letters of request made by PR that the interest rate be
increased only to 21% or 24%.

PR filed a complaint against Petitioner with the RTC. The latter dismissed the case for lack of merit.
Appeal by PR to CA resulted in his favor. Hence the petition for certiorari under Rule 45 of ROC filed by
PNB with SC.

ISSUE: Despite the removal of the Usury Law ceiling on interest, may the bank validly increase the
stipulated interest rate on loans contracted with third persons as often as necessary and against the
protest of such persons.

HELD: NO

RATIO: Although under Sec. 2 of PD 116, the Monetary Board is authorized to prescribe the maximum
rate of interest for loans and to change such rates whenever warranted by prevailing economic and
social conditions, by express provision, it may not do so “oftener than once every 12 months”. If the
Monetary Board cannot, much less can PNB, effect increases on the interest rates more than once a
year.

Based on the credit agreement and promissory notes executed between the parties, although PR did
agree to increase on the interest rates allowed by law, no law was passed warranting Petitioner to effect
increase on the interest rates on the existing loan of PR for the months of July to November of 1984.
Neither there being any document executed and delivered by PR to effect such increase.
For escalation clauses to be valid and warrant the increase of the interest rates on loans, there must be:
(1) increase was made by law or by the Monetary Board; (2) stipulation must include a clause for the
reduction of the stipulated interest rate in the event that the maximum interest is lowered by law or by
the Monetary board. In this case, PNB merely relied on its own Board Resolutions, which are not laws
nor resolutions of the Monetary Board.

Despite the suspension of the Usury Law, imposing a ceiling on interest rates, this does not authorize
banks to unilaterally and successively increase interest rates in violation of Sec. 2 PD 116.

Increases unilaterally effected by PNB was in violation of the Mutuality of Contracts under Art. 1308.
This provides that the validity and compliance of the parties to the contract cannot be left to the will of
one of the contracting parties. Increases made are therefore void.

Increase on the stipulated interest rates made by PNB also contravenes Art. 1956. It provides that, “no
interest shall be due unless it has been expressly stipulated in writing”. PR never agreed in writing to pay
interest imposed by PNB in excess of 24% per annum. Interest rate imposed by PNB, as correctly found
by CA, is indubitably excessive.

Florendo vs CA and Landbank of the Philippines GR NO. 101771 December 17, 1996 Third Division J.
Panganiban Facts: Florendo was an employee of Landbank of the Philippines (LBP) from May 17, 1976
until August 16, 1984 when she voluntarily resigned. Before her resignation, she applied for a housing
loan payable in 25 years from LBP’s Provident Fund. Both parties executed a Housing Loan Agreement
and constituted a Real Estate Mortgage and Promissory Note. After almost a year from her resignation,
LBP increased the interest rate on the loan from 95 per annum to 17%. LBP informed Florendo and the
latter protested the increase. LBP kept on demanding Florendo to pay the increased interest or the new
monthly installments based on the increased interest rate. Florendo maintained that such increase is
unjustified and unlawful. Nevertheless, Florendo just disregarded the increased rate and continued to
pay the obligation under the original contract. Issue: WON the LBP have a valid and legal basis to impose
an increased interest rate on the housing loan. Ruling: The increased rate imposed or charged is not
valid. In Banco Filipino, this Court, x x x, disallowed the bank from increasing the interest rate on the
subject loan from 12% to 17% despite an escalation clause in the loan agreement authorizing the bank
to “correspondingly increase the interest rate stipulated in this contract without advance notice to
me/us in the event the law should be enacted increasing the lawful rates of interest that may be
charged on this particular kind of loan.” BENITEZ – MONTILLA – SAN ANDRES – SIA - UYSON In the case
at bar, the loan was perfected on July 20, 1983. PD No. 116 became effective on January 29, 1973. x x x x
x x x x x In the light of the CB issuances in force at that time, respondent bank was fully aware that it
could have imposed an interest higher than 9% per annum rate for the housing loans of its employees,
but it did not. In the subject loan, the respondent bank knowingly agreed that the interest rate on the
petitioner’s loans shall remain at 9% unless a CB issuance is passed authorizing an increase (or decrease)
in the rate on such employee loans and the Provident Fund Board of Trustees acts accordingly. Thus, as
far as the parties were concerned, all other onerous factors, such as employee resignations, which could
have been used to trigger the application of the escalation clause were considered barred or waived. x x
x (I)t will not be amiss to point out that the unilateral determination and imposition of increased interest
rates by the herein respondent bank is obviously violative of the principle of mutuality of contracts
ordained in Article 1308 of the Civil Code. x x x x x x x x x Let it be clear that this Court understands
respondent’s bank’s position that the concessional interest rate was really intended as a means to
remunerate its employees and thus an escalation clause due to resignation would have been a valid
stipulation. But no such stipulation was in fact made, and thus escalation provision could not be legally
applied and enforced against herein petitioners.