AREZA vs.EXPRESS SAVINGS BANK, INC.
Issue:
G.R. No. 176697               September 10, 2014
Facts:
Petitioners Cesar V. Areza and LolitaB. Areza maintained
two bank deposits with respondent Express Savings Bank’s Biñan.
They were engaged in the business of "buy and sell" of brand new
and second-hand motor vehicles. They received an order from a
certain Gerry Mambuay (Mambuay) for the purchase of a second-
hand Mitsubishi Pajero and a brand-new Honda CRV. The buyer,
Mambuay, paid petitioners with nine (9) Philippine Veterans Affairs
Office (PVAO) checks payable to different payees and drawn against
the Philippine Veterans Bank (drawee), each valued at Two Hundred
Thousand Pesos (₱200,000.00) for a total of One Million Eight
Hundred Thousand Pesos (₱1,800,000.00). On 3 May 2000,
petitioners deposited the said checks in their savings account with
the Bank. The Bank, inturn, deposited the checks with its depositary
bank, Equitable-PCI Bank, in Biñan,Laguna. Equitable-PCI Bank
presented the checks to the drawee, the Philippine Veterans Bank,
which honored the checks.
Sometime in July 2000, the subjectchecks were returned by
PVAO to the drawee on the ground that the amount on the face of the
checks was altered from the original amount of ₱4,000.00 to
₱200,000.00. The drawee returned the checks to Equitable-PCI Bank
by way of Special Clearing Receipts. In August 2000, the Bank was
informed by Equitable-PCI Bank that the drawee dishonored the
checks onthe ground of material alterations. Equitable-PCI Bank
initially filed a protest with the Philippine Clearing House. In February
2001, the latter ruled in favor of the drawee Philippine Veterans
Bank. Equitable-PCI Bank, in turn, debited the deposit account of the
Bank in the amount of ₱1,800,000.00.
Issue:
Whether or not Express Savings Bank had the right to debit
₱1,800,000.00 from petitioners’ accounts.
Ruling:
No, because A depositary/collecting bank where a check is
deposited, and which endorses the check upon presentment with the
drawee bank, is an endorser. Under Section 66 of the Negotiable
Instruments Law, an endorser warrants "that the instrument is
genuine and in all respects what it purports to be; that he has good
title to it; that all prior parties had capacity to contract; and that the
instrument is at the time of his endorsement valid and subsisting." It
has been repeatedly held that in check transactions, the
depositary/collecting bank or last endorser generally suffers the loss
because it has the duty to ascertain the genuineness of all prior
endorsements considering that the act of presenting the check for
payment to the drawee is an assertion that the party making the
presentment has done its duty to ascertain the genuineness of the
endorsements. If any of the warranties made by the
depositary/collecting bank turns out to be false, then the drawee bank
may recover from it up to the amount of the check.
Topic: Legal Compensation
Citibank N.A. vs. Sabeniano
Doctrine:
Facts:
Respondent was a client of petitioner to whom she had several
deposits and market placements with petitioners, among which were
her savings account with the local branch of petitioner Citibank
(Citibank-Manila); money market placements with petitioner FNCB
Finance; and dollar accounts with the Geneva branch of petitioner
Citibank (Citibank-Geneva). At the same time, respondent had
outstanding loans with petitioner Citibank, incurred at Citibank-
Manila, all of which had become due and demandable, however,
respondent failed to pay them and thus, prompted petitioner Citibank
to use respondent’s deposits and money market placements to off-
set and liquidate her outstanding obligations. Respondent denied any
outstanding balance and filed a complaint against petitioners and the
RTC ruled that the offset was illegal. Both parties appealed to the CA
and they still ruled principally in favor of respondent so petitioners
filed this case.
Whether or not petitioner can off-setting or compensate respondent’s
outstanding loan balance with her dollar deposits in Citibank-Geneva.
Ruling:
No, without the Declaration of Pledge, petitioner Citibank had no
authority to demand the remittance of respondent’s dollar accounts
with Citibank-Geneva and to apply them to her outstanding loans. It
cannot effect legal compensation under Article 1278 of the Civil Code
since, petitioner Citibank itself admitted that Citibank-Geneva is a
distinct and separate entity. As for the dollar accounts, respondent
was the creditor and Citibank-Geneva is the debtor; and as for the
outstanding loans, petitioner Citibank was the creditor and
respondent was the debtor. The parties in these transactions were
evidently not the principal creditor of each other.
Since legal compensation was not possible, petitioner Citibank could
only use respondent’s dollar accounts with Citibank-Geneva to
liquidate her loans if she had expressly authorized it to do so by
contract.
Respondent cannot be deemed to have authorized the use of her
dollar deposits with Citibank-Geneva to liquidate her loans with
petitioner Citibank when she signed the PNs16 for her loans
Topic: Nature of Bank Deposit
Doctrine: All kinds of bank deposits, whether fixed, savings, or
current are to be treated as loans and are to be covered by the law
on loans.
Guingona vs City Fiscal of Manila
April 4, 1984
Facts:
Clemente David and her sister invested in National Saving and Loan
Association (NSLA) with the total amount of P1,145,546.20 on nine
deposits. When David found out that NSLA was put under
receivership, he filed a claim for his investment. Guingona and Martin
decided to assumed the liability of the bank and on June 17, 1981 a
joint promissory note in favor of private respondent acknowledging an
indebtedness of P l,336,614.02 and US$75,000.00 was made.
Issue:
WON the amount of money owed by the bank from David
accumulating to P 1,336, 614. 02 and US$75,000.00 from
P1,145,546.20 was correct considering the money was originally
invested in saving account deposit and time deposit.
Ruling:
Yes. Bank deposits are in the nature of irregular deposits. They are
really 'loans because they earn interest. All kinds of bank deposits,
whether fixed, savings, or current are to be treated as loans and are
to be covered by the law on loans (Art. 1980 Civil Code Gullas vs.
Phil. National Bank, 62 Phil. 519). 
The indebtedness assumed, appears to be bigger than the original
claim because of the added interest and the inclusion of other
deposits of private respondent's sister in the amount of P116,613.20.
Hence, the relationship between the private respondent and the
Nation Savings and Loan Association is that of creditor and debtor;
consequently, the ownership of the amount deposited was
transmitted to the Bank upon the perfection of the contract and it can
make use of the amount deposited for its banking operations, such
as to pay interests on deposits and to pay withdrawals. While the
Bank has the obligation to return the amount deposited, it has,
however, no obligation to return or deliver the same money that was
deposited.
CENTRAL BANK OF THE PHILs. v. CITYTRUST BANKING
CORPORATION
DOCTRINE:
If the plaintiff’s negligence was only contributory, the immediate and
proximate cause of the injury being the defendant’s lack of due care,
the plaintiff may recover damages, but the courts shall mitigate the
damages to be awarded
.
FACTS:
The Citytrust Banking Corporation (Citytrust) gave Central Bank of
the Philippines a list of signatures of five of its officers authorized to
sign checks and serve as drawers and indorsers for its account, and
the list of the roving tellers authorized to perform other transactions
on its behalf, one of whom was Rounceval Flores (Flores). Flores
presented two checks to the Central Bank’s Senior Teller Iluminada
dela Cruz (Dela Cruz) and was subsequently approved. Dela Cruz
prepared the cash transfer slip where Flores should sign but instead
he sign as one Rosauro C. Cayabyab and this fact was missed by
Dela Cruz. It was given to Cash Department and the signatures were
examined and paid Flores for the checks. After one year and nine
months, the Citytrust demanded that the checks be cancelled and the
funds taken out be returned because the check was stolen before.
Central Bank did not heed such call. soCitytrust filed a complaint to
collect the sum of money with damages against Central Bank to the
Regional Trial Court (RTC). RTC found both parties negligent and
held them equally liable for the loss. Court of Appeals affirmed the
decision.
ISSUE:
Whether or notCitytrust can collect sum of money as damages from
the Central Bank.
HELD:
The law imposes on banks high standards in view of the fiduciary
nature of banking. This fiduciary relationship means that the bank’s
obligation to observe “high standards of integrity and performance” is
deemed written into every deposit agreement between a bank and its
depositor. The fiduciary nature of banking requires banks to assume
a degree of diligence higher than that of a good father of a family.
Article 1172 of the Civil Code states that the degree of diligence
required of an obligor is that prescribed by law or contract, and
absent such stipulation then the diligence of a good father of a family.
Section 2 of R.A. 8791 prescribes the statutory diligence required
from banks – that banks must observe “high standards of integrity
and performance” in servicing their depositors. Citytrust’sfailure to
timely examine its account, cancel the checks and notify petitioner of
their alleged loss/theft should mitigate petitioner’s liability, in
accordance with Article 2179 of the Civil Code which provides that if
the plaintiff’s negligence was only contributory, the immediate and
proximate cause of the injury being the defendant’s lack of due care,
the plaintiff may recover damages, but the courts shall mitigate the
damages to be awarded.
Allied Banking Corporation vs. Lim Sio Wan, Metropolitan Bank
and Trust Co., and Producers Bank
G.R. No. 133179; March 27, 2008
Facts:
Respondent Lim deposited with petitioner Allied a money market
placement for a 31 days to mature. However, a person claiming to be
the respondent called up an officer of the petitioner instructing him to
pre-terminate the money market placement and to issue a manager’s
check representing the proceeds of the placement and give it to
Deborah Santos to which the bank complied. The manager’s check
was then deposited and indorsed to various bank with the forged
signature of Lim as indorser. Upon the maturity date of the first
money placement, respondent went to the petitioner to withdraw it
but she was informed of the pre-termination of such upon her
instruction, to which she denied therefor compelling her to set a
demand letter to the petitioner. For the petitioner’s refusal, Lim filed
with the RTC a complaint against petitioner to recover the proceeds
of money market placement.
Issue:
Whether or not petitioner the transaction between the parties is in the
nature of loan
Ruling:
Yes, the Supreme Court have ruled in a line of cases that a bank
deposit is in the nature of a simple loan or mutuum. Further, money
market is defined as a market dealing in standardized short-term
credit instruments where lenders and borrowers do not deal directly
with each other but through a middle man or dealer in open market.
In a money market transaction, the investor is a lender who loans his
money to a borrower through a middleman or dealer.
In the case at bar, the money market transaction between the
petitioner and the private respondent is in the nature of a loan.
Far East Bank vs Querimit (Certificates of Deposit)
Doctrine: The principle that payment, in order to discharge a debt,
must be made to someone authorized to receive it is applicable to the
payment of certificates of deposit.
Facts: respondent opened a dollar svings account in Petitioner’s
Harrison Plaza branch which she was issued four certificates of
deposit; that when the respondent to petitioner FEBTC to withdraw
her deposit but, to her dismay, she was told that her husband had
withdrawn the money in deposit
Issue: whether or not the petitioner bank is correct in paying
respondents husband without requiring the surrender of the
certificates of deposit
Ruling: No. The finding of respondent court which shows that the
subject certificates of deposit are still in the possession of Estrella
Querimit and have not been indorsed or delivered to petitioner
FEBTC
A certificate of deposit is defined as a written acknowledgment by a
bank or banker of the receipt of a sum of money on deposit which the
bank or banker promises to pay to the depositor, to the order of the
depositor, or to some other person or his order, whereby the relation
of debtor and creditor between the bank and the depositor is created.
In this case, the certificates of deposit were clearly marked payable to
bearer, which means, to [t]he person in possession of an instrument,
document of title or security payable to bearer or indorsed in blank.30
Petitioner should not have paid respondents husband or any third
party without requiring the surrender of the certificates of deposit.
BPI vs Fernandez
Tarcila together with her husband, Manuel opened the
following AND/OR deposit accounts with the petitioner BPI
The deposits were subject to the following conditions:
“Endorsement and presentation of the Certificate of Deposit is
necessary for the renewal or termination of the deposit"
Tarcila went to the BPI to pre-terminate these joint AND/OR
accounts. She brought with her the certificates of time deposit and
the passbook, and presented them to the bank. BPI, however,
refused the requested pre-termination despite Tarcila's presentation
of the covering certificates.
Instead, BPI, through its branch manager, Mrs. Capistrano, insisted
on contacting Manuel, alleging in this regard that this is an
integral part of its standard operating procedure.
Shortly after Tarcila left the branch, Manuel arrived and likewise
requested the pre-termination of the joint AND/OR accounts. Manuel
claimed that he had lost the same certificates of deposit that Tarcila
had earlier brought with her. BPI, through Capistrano, this time
acceded to the pre-termination requests, blindly believed Manuel's
claim, and requested him to accomplish BPI's pro-forma affidavit of
loss.
In place of the actual certificates of deposit, Manuel submitted BPI's
pro-forma affidavit of loss that he previously accomplished and an
Indemnity Agreement that he and Sian executed on the same day.
The Indemnity Agreement discharged BPI from any liability in
connection with the pre-termination. Notably, none of the co-
depositors were contacted in carrying out these transactions.
A few days after these transactions, Tarcila filed a petition for
"Declaration of Nullity of Marriage, etc." 
Tarcila never received her proportionate share of the pre-terminated
deposits, prompting her to demand from BPI the amounts due her as
a co-depositor in the joint AND/OR accounts. When her demands
remained unheeded, Tarcila initiated a complaint for damages with
the RTC.
arcila alleged that BPI's payments to Manuel of the pre-terminated
deposits were invalid with respect to her share.She argued that BPI
was in bad faith for allowing the pre-termination of the time deposits
based on Manuel's affidavit of loss when the bank had actual
knowledge that the certificates of deposit were in her possession.
The RTC ruled in favour of Tarcila. When the case was elevated, The
CA sustained the decision of the RTC.
Issue: Whether or not the BPI breached its obligation under the
certificate of deposit.
Ruling: Yes. A certificate of deposit is defined as a written
acknowledgment by a bank or banker of the receipt of a sum of
money on deposit which the bank or banker promises to pay to the
depositor, to the order of the depositor, or to some other person or
his order, whereby the relation of debtor and creditor between
the bank and the depositor is created. In particular,
the certificates of deposit contain provisions on the amount of
interest, period of maturity, and manner of termination. Specifically,
they stressed that endorsement and presentation of the certificate of
deposit is indispensable to their termination. In other words, the
accounts may only be terminated upon endorsement and
presentation of the certificates of deposit.
By requiring the presentation of the certificates prior to
termination, the other depositors may rely on the fact that their
investments in the interest-yielding accounts may not be
indiscriminately withdrawn by any of their co-depositors. This
protective mechanism likewise benefits the bank, which shields
it from liability upon showing that it released the funds in good
faith to an account holder who possesses the certificates.
GOYANKO VS. UCPB
DOCTRINE:
Express or direct trusts are created by the direct and
positive acts of the trustor or of the parties. The creation of an
express trust must be firmly shown; it cannot be assumed from loose
and vague declarations or circumstances capable of other
interpretations.
FACTS:
In 1995, the late Joseph Goyanko, Sr. invested
P2,000,000.00 with Philippine Asia Lending Investors, Inc. family,
represented by the petitioner, and his illegitimate family presented
conflicting claims to PALII for the release of the investment. Pending
the investigation of the conflicting claims, PALII deposited the
proceeds of the investment with under the name "Phil Asia: ITF (In
Trust For) The Heirs of Joseph Goyanko, Sr." (ACCOUNT).
UCPB allowed PALII to withdraw P1,500,000.00 from the
Account, leaving a balance of only P9,318.76. When UCPB refused
the demand to restore the amount withdrawn plus legal interest from
December 11, 1997, the petitioner filed a complaint before the RTC.
They alleged that by opening the ACCOUNT, PALII established a
trust by which it was the "trustee" and the HEIRS are the "trustors-
beneficiaries;" thus, UCPB should be liable for allowing the
withdrawal.
ISSUE:
Whether or not an express trust was established
HELD:
No. Before an express trust will be recognized there must
be a competent trustor and trustee, an ascertainable trust res, and
sufficiently certain beneficiaries. UCPB, as trustee of the ACCOUNT,
was never under any equitable duty to deal with or given any power
of administration over it and PALII, as the trustor, did not have the
right to the beneficial enjoyment of the ACCOUNT. Thus, the terms
by which UCPB is to administer the ACCOUNT was not shown with
reasonable certainty. Hence, while a trust’s beneficiaries need not be
particularly identified for a trust to exist, the intention to create an
express trust must first be firmly established, along with the other
elements laid above; absent these, no express trust exists.
Furthermore, while the words "ITF HEIRS" may have created the
impression that a trust account was created, a closer scrutiny reveals
that it is an ordinary savings account and the word "ITF" was merely
used to distinguish the ACCOUNT from PALII’s other accounts with
UCPB.
DOMINADOR M. APIQUE vs. EVANGELINE APIQUE
FAHNENSTICH
Topic: Joint Account
Doctrine: A joint account is one that is held jointly by two or more
natural persons, or by two or more juridical persons or entities. Under
such setup, the depositors are joint owners or co-owners of the said
account, and their share in the deposits shall be presumed equal,
unless the contrary is proved.
FACTS:
Evangeline left for Germany to work sometime in 1979. As a result,
Evangeline executed General and Special Powers of Attorney
constituting Dominador as her attorney-in-fact to purchase real
property for her, and to manage or supervise her business affairs in
the Philippines. The former opened a joint savings account with
Dominador. The latter withdrew the amount of P980,000.00 from the
subject account and, thereafter, deposited the money to his own
savings account with the same bank
Evangeline learned of such withdrawal. Evangeline claimed to be the
sole owner of the money deposited in the subject account, and that
Dominador has no authority to withdraw the same. Dominador
asserted that he was authorized to withdraw funds from the subject
account to answer for the expenses of Evangeline's projects.
ISSUE:
Whether or not Dominador has the authority to withdraw
from the joint account.
RULING:
Yes. Dominador has the authority to withdraw from the joint
account.
A joint account is one that is held jointly by two or more
natural persons, or by two or more juridical persons or entities. Under
such setup, the depositors are joint owners or co-owners of the said
account, and their share in the deposits shall be presumed equal,
unless the contrary is proved.
In this case, it is admitted that: (a) the account was opened
for a specific purpose and (b) Dominador may withdraw funds
therefrom "if" there is a need to meet Evangeline's financial
obligations arising from said projects. Hence, while Dominador is a
co-owner of the subject account as far as the bank is concerned, and
may, thus, validly deposit and/or withdraw funds without the consent
of his co-depositor, Evangeline.
IN THE MATTER OF THE INTESTATE ESTATE OF REYNALDO
GUZMAN RODRIGUEZ; ANITA ONG TAN,v.ROLANDO C.
RODRIGUEZ,
Facts:
Anita is a co-depositor in a Joint Account under the name Anita Ong
Tan and Reynaldo with account number 003149-0718-56 in the Bank
of the Philippine Islands (BPI). When Reynaldo passed away, said
joint account continued to be in active status. On August 31, 2009,
BPI sent a letter to Anita and informed her that her joint account with
Reynaldo would become dormant if no transaction will be made. As
such, Anita decided to withdraw her funds. BPI, however, required
her to submit additional requirements, one of which is the
extrajudicial settlement of the heirs of Reynaldo. Anita approached
but refused to sign the waiver as they believed that the funds in the
said joint account belonged to their father.
BPI withheld the release of the funds because of the conflicting
claims between Anita and respondents. Anita provided evidences
that the amount in the joint account is hers exclusively that such fund
came from her account in eastwest she withdrew and such exact
amount was deposited in BPI
Issue:
Whether or not the funds in the joint account are equally co-owned by
Anita and Reynaldo
Ruling:
No, although the presumption of law is that the portions
belonging to the co-owners in the co-ownership shall be presumed
equal, unless the contrary is proved.
In this case anita was able to provide evidence to prove that that
funds belongs to her exclusively. The exact amount which was first
withdrawn from the East West account, i.e., One (P1,021,868.30),
was the exact amount used to open the BPI joint account. Notable is
the fact that these transactions occurred within the same day on
November 14, 2007.21 It is also significant to consider that no further
transaction in said joint account was made after the same was
opened until the death of Reynaldo.
With all these, it is apparent that Anita owned the funds exclusively
as she sufficiently overturned the presumption under the law. It bears
stressing that despite the evidence shown by Anita, respondents
failed to refute her evidence, other than their bare allegations that
Anita and Reynaldo had an amorous relationship and that Anita had
no source of income to sustain the funds in a bank
Topic: Survivorship Agreement
Vitug vs. Court of Appeals
Doctrine:
Although the survivorship agreement is per se not contrary to law, its
operation or effect may be violative of the law. For instance, if it be
shown in a given case that such agreement is a mere cloak to hide
an inofficious donation, to transfer property in fraud of creditors, or to
defeat the legitime of a forced heir, it may be assailed and annulled
upon such grounds.
Facts:
Romarico G. Vitug filed a motion asking for authority from the probate
court to sell certain shares of stock and real properties belonging to
the estate to cover allegedly his advances to the estate, plus
interests, which he claimed were personal funds. According to Mr.
Vitug, he withdrew the sums from savings account he had from the
Bank of America, Makati, Metro Manila. Rowena Corona opposed the
motion to sell on the ground that the same funds withdrawn were
conjugal partnership properties and part of the estate, and hence,
there was allegedly no ground for reimbursement. She also sought
his ouster for failure to include the sums in question for inventory and
for "concealment of funds belonging to the estate." Vitug insists that
the said funds are his exclusive property having acquired the same
through a survivorship agreement executed with his late wife and the
bank.
Issue:
Whether or not the survivorship agreement is valid.
Ruling:
Yes, in the case at bar, when the spouses Vitug opened a savings
account, they merely put what rightfully belonged to them in a
money-making venture. They did not dispose of it in favor of the
other, which would have arguably been sanctionable as a prohibited
donation. And since the funds were conjugal, it can not be said that
one spouse could have pressured the other in placing his or her
deposits in the money pool. The validity of the contract seems
debatable by reason of its "survivor-take-all" feature, but in reality,
that contract imposed a mere obligation with a term, the term being
death. Such agreements are permitted by the Civil Code. There
having been no demonstration that the survivorship agreement had
been executed for unlawful purposes, or, as held by the respondent
court, in order to frustrate our laws on wills, donations, and conjugal
partnership, the conclusion is accordingly unavoidable that Mrs. Vitug
having predeceased her husband, the latter has acquired upon her
death a vested right over the amounts under savings account.
Topic: Unauthorized Payment of Checks
Doctrine: In cases of unauthorized payment of checks to a person
other than the payee named therein, the drawee bank may be held
liable to the drawer. The drawee bank, in turn, may seek
reimbursement from the collecting bank for the amount of the check.
BDO vs Lao
June 19, 2017
Facts:
Lao issued two (2) Equitable crossed checks payable to
Everlink: Check No. 0127-242249 and Check No. 0127-242250, in
the amounts of ₱273,300.00 and ₱336,500.00, respectively. Later,
Lao learned that the checks were deposited in two different bank
accounts at respondent Union Bank of the Philippines.
Consequently, Lao was prompted to file a complaint against Everlink
and Wu for their failure to comply with their obligation and against
BDO for allowing the encashment of the two (2) checks. He later
withdrew his complaint against Everlink as the corporation had
ceased existing.
Issue:
1. WON BDO should be liable for allowing the encashment of
two (2) checks not the payee stated in the checks.
Ruling:
Yes, The Court agrees with the appellate court that in cases
of unauthorized payment of checks to a person other than the payee
named therein, the drawee bank may be held liable to the drawer.
The drawee bank, in turn, may seek reimbursement from the
collecting bank for the amount of the check. This rule on the
sequence of recovery in case of unauthorized check transactions had
already been deeply embedded in jurisprudence.
The liability of the drawee bank is based on its contract with
the drawer and its duty to charge to the latter's accounts only those
payables authorized by him. A drawee bank is under strict liability to
pay the check only to the payee or to the payee's order. When the
drawee bank pays a person other than the payee named in the
check, it does not comply with the terms of the check and violates its
duty to charge the drawer's account only for properly payable items.
Legal Rate of Interest
BANCO FILIPINO SAVINGS AND MORTGAGE BANK, vs.
YBAÑEZ
FACTS:
Respondents obtained a loan to be used for the construction of a
commercial building in Cebu City, and secured it by a Deed of Real
Estate Mortgage over (TCT) No. 69836 from petitioner bank. The
respondents later on obtained two more additional loans from the
petitioner thus increasing their obligation P1,225,000 payable in
fifteen years, with a stipulated interest of 21% per annum. The
payments were due every 24 of each month.
Respondents’ total payment from 1983 to 1988 amounted to
P1,455,385.07. From 1989 onwards, respondents did not pay a
single centavo. Petitioner contends that the 21% annual interest was
freely and voluntarily agreed upon by the parties, and that it was
neither excessive nor violative of the Usury Law.
On the other hand, respondents state that the rate of 21% was
usurious because the loan was incurred on December 24, 1982,
before the de facto repeal of the Usury Law on January 1, 1983.
ISSUE:
Is the rate of interest set at 21% per annum legal?
HELD:
Yes. We note that at the time the parties entered into the said loan
agreement, the pertinent law, Act No. 2655, already provided that the
rate of interest for the forbearance of money when secured by a
mortgage upon real estate should not be more than 12% per annum
or the maximum rate prescribed by the Monetary Board and in force
at the time the loan was granted. On December 1, 1979, the
Monetary Board of the Central Bank of the Philippines had issued
CBP Circular No. 705-79. On loan transactions with maturities of
more than 730 days, it fixed the effective rate of interest at 21% per
annum for both secured and unsecured loans. Since the loan in
question has fixed 15 years for its maturity, it fell within the coverage
of said CBP Circular.
Thus, we agree that the 21% interest is not violative of the Usury Law
as it stood at the time of the loan transaction.
Spouses Florante and Laarni Bautista vs. Pilar Development
Corporation
G.R. No. 135046; August 17, 1999
Facts:
In 1978, to partially finance the petitioner’s purchased house and lot,
they obtained from Apex Mortgage and Loan Corp. a loan. They
executed a promissory note obligating themselves, jointly and
severally to pay the principal sum with 12% interest rate for 240
months and to “increase the rate of interest and/ or service charge.”
However, petitioner failed to pay several installment, hence, they
executed another promissory note but this time, with an increased
interest rate of 21% per annum with penalty of 11/2 for late payment
payable for 196 months. In 1983, petitioners again failed to pay
installment to Apex who assigned the second promissory note to the
respondent Pilar Development. The latter then instituted against
petitioner spouses before the RTC collection for the unpaid balance
as of 1983 including the internal rate of 21%.
Issue:
Whether or not the 21% interest rate should prevail
Ruling:
Yes. In 1979, the Monetary Board of the Central Bank of the
Philippines issued Circular which fixed the effective rate of interest on
loan transactions with maturities of more than 730 days to 21% per
annum for both secured and unsecured loans. On 1980, the
Monetary Board issued Circular No 712 reiterating the effective rate
of 21% on said transactions. On January 1, 1983, CB Circular No
905 series of 1982, took effect. The circular declared that the rate of
interest on any loan or forbearance of any money, goods or credit,
regardless of maturity and whether secured or unsecured, "shall not
be subject to any ceiling prescribed under or pursuant to the Usury
Law, as amended." In short, Circular No 905 removed the ceiling on
interest rate for secured and unsecured loans, regardless of majority.
When the second promissory note was executed Central Bank
Circulars Nos 705 and 712 , which fixed the effective interest rate for
secured loans transactions with maturities of more than 730 days
were already in effect .
The interest rate of 21% provided in the second promissory note was
therefore authorized under these Circulars.
Nacar vs Gallery Frames (Legal Rate of Interest)
Doctrine: 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 6% per
annum from such finality until its satisfaction, this interim period being
deemed to be by then an equivalent to a forbearance of credit.
And, in addition to the above, judgments that have become final and
executory prior to July 1, 2013, shall not be disturbed and shall
continue to be implemented applying the rate of interest fixed therein.
Facts: Petitioner argues that notwithstanding the fact that there was a
computation of backwages in the Labor Arbiter’s decision, the same
is not final until reinstatement is made or until finality of the decision,
in case of an award of separation pay. Petitioner maintains that
considering that the October 15, 1998 decision of the Labor Arbiter
did not become final and executory until the April 17, 2002 Resolution
of the Supreme Court in G.R. No. 151332 was entered in the Book of
Entries on May 27, 2002, the reckoning point for the computation of
the backwages and separation pay should be on May 27, 2002 and
not when the decision of the Labor Arbiter was rendered on October
15, 1998. Further, petitioner posits that he is also entitled to the
payment of interest from the finality of the decision until full payment
by the respondents.
Issue: whether or not the petitioner is entitled to the payment of
interest
Ruling: Yes.To recapitulate and for future guidance, the guidelines
laid down in the case of Eastern Shipping Lines are accordingly
modified to embody BSP-MB Circular No. 799, as follows:
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:Ruling: Yes.
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 6% per annum
from such finality until its satisfaction, this interim period being
deemed to be by then an equivalent to a forbearance of credit.
And, in addition to the above, judgments that have become final and
executory prior to July 1, 2013, shall not be disturbed and shall
continue to be implemented applying the rate of interest fixed therein.
Macalinao vs BPI
Doctrine: In a plethora of cases that stipulated interest rates of 3%
per month and higher are excessive.
Doctrine: the suspension of Usury law does is not carte blanche
authority to lenders to raise interest rates to levels which would either
enslave their borrowers
Doctrine: 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.
Facts: Petitioner Ileana Macalinao was an approved cardholder of
BPI Mastercard
Petitioner Macalinao made some purchases through the use of the
said credit card and defaulted in paying for said purchases. She
subsequently received a letter from respondent BPI, demanding
payment of the amount PhP 141,518.34
Under the Terms and Conditions Governing the Issuance and Use of
the BPI Credit and BPI Mastercard, 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 and an additional penalty fee equivalent to another 3% per
month.
For failure of petitioner Macalinao to settle her obligations,
respondent BPI filed with (MeTC) of Makati City a complaint for a
sum of money against her and her husband, Danilo SJ. Macalinao.
Issue: Whether or not the interest rate stipulated is unconscionable,
and thus illegal.
Ruling: Yes. 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.
The same is true with respect to the penalty charge. Notably, under
the Terms and Conditions Governing the Issuance and Use of the
BPI Credit Card, it was also stated therein that respondent BPI shall
impose an additional penalty charge of 3% per month. 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.
PNB VS. MANALO
DOCTRINE:
Although banks are free to determine the rate of interest
they could impose on their borrowers, they can do so only
reasonably. Hence, any stipulation on interest unilaterally imposed
and increased by them shall be struck down as violative of the
principle of mutuality of contracts.
FACTS:
Spouses Manalo applied for an All-Purpose Credit Facility
with PNB to finance the construction of their house and executed a
Real Estate Mortgage over their property as a security for their loan.
The credit facility was renewed and increased several times over the
years and it was agreed that the Spouses would make monthly
payments on the interest. However, they failed to settle their account
despite several demands from the bank which resulted to foreclosure
of their mortgaged property.
Consequently, Spouses Manalo instituted an action for the
nullification of the foreclosure proceedings and damages. Thus, they
alleged that no interest was due from them because their credit
agreements with PNB did not specify the interest rate, and PNB could
not unilaterally increase the interest rate without first informing them.
ISSUE:
Whether or not the imposition of interest rates on the
respondent spouses’ loan was not valid because there was no
mutuality of consent
HELD:
Yes. The credit agreement executed succinctly stipulated
that the loan would be subjected to interest at a rate "determined by
the Bank to be its prime rate plus applicable spread, prevailing at the
current month." PNB thereby arrogated unto itself the sole
prerogative to determine and increase the interest rates imposed on
the Spouses Manalo. Such unilateral determination and imposition of
the increased rates is violative of the principle of mutuality of
contracts under Article 1308 of the Civil Code, which provides that
‘the contract must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them.’
Lastly, the credit agreements had explicitly provided that prior notice
would be necessary before PNB could increase the interest rates in
which PNB failed to do so and violated the stipulations of the very
contract that it had prepared. Henceforth, the varying interest rates
imposed by PNB have to be vacated and declared null and void, and
in their place an interest rate of 12% per annum computed from their
default is fixed pursuant to the ruling in Eastern Shipping Lines, Inc.
v. Court of Appeals.
LOTTO RESTAURANT CORPORATION vs. BPI FAMILY SAVINGS
BANK, INC.
Topic: Interest Rate Stipulation
Doctrine: The Court has previously upheld as valid the proviso in
loans that the interest rate would be made to depend on the
prevailing market rate. Such provision does not signify an automatic
increase in the interest.
FACTS:
Lotto Restaurant Corporation entered into a contract of loan
with the DBS Bank at an interest rate of 11.5% per annum. The
promissory note it executed provides that Lotto would pay DBS a
monthly amortization. To secure payment of the loan, General
Manager, mortgaged to DBS a condominium unit. DBS increased the
interest to 19% per annum, Lotto contested the increase and stopped
paying the loan. After respondent BPI acquired DBS, Lotto tried to
negotiate with BPI for reduction of interest but the latter agreed to
reduce it to only 14.7% per annum, which was still unacceptable to
Lotto. BPI foreclosed the mortgage on Lotto’s condominium unit to
satisfy its unpaid claim.
ISSUE:
Whether or not DBS, now BPI, validly adjusted the rate of
interest on Lotto’s loan from 11.5% to 19% per annum beginning on
December 24, 2000?
RULING:
Yes. DBS, now BPI, validly adjusted the rate of interest on
Lotto’s loan from 11.5% to 19% per annum beginning on December
24, 2000.
The Court has previously upheld as valid the proviso in
loans that the interest rate would be made to depend on the
prevailing market rate. Such provision does not signify an automatic
increase in the interest.
Hence, it simply means that the bank may adjust the interest
according to the prevailing market rate. This may result to either an
increase or a decrease in the interest.
VITUG v. ABUDA
G.R. No. 201264, January 11, 2016
Facts:
On March 17, 1997, Abuda loaned P250,000.00 to Vitug and his wife,
Narcisa Vitug. As security for the loan, Vitug mortgaged to Abuda his
property in Tondo Foreshore along R-10, Block A-50-3, Del Pan to
Kagitingan Streets, Tondo, Manila. The property was then subject of
a conditional Contract to Sell between the National Housing Authority
and Vitug. n November 17, 1997, the parties executed a
"restructured" mortgage contract on the property to secure the
amount of P600,000.00 representing the original P250,000.00 loan,
additional loans, and subsequent credit accommodations given by
Abuda to Vitug with an interest of five (5) percent per month. By then,
the property was covered by Transfer Certificate of Title No. 234246
under Vitug'sname.
Spouses Vitug failed to pay their loans despite Abuda's
demands.
Issue:
Whether or not the CA correctly found that the interest rates
of 5% or 10% per month imposed on petitioner's loan were
unconscionable.
Ruling:
Yes, Article 1306 of the Civil Code limits the freedom to
contract to promote public morals, safety, and welfare Art. 1306. 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.
In stipulating interest rates, parties must ensure that the rates are
neither iniquitous nor unconscionable. Iniquitous or unconscionable
interest rates are illegal and, therefore, void for being against public
morals. The lifting of the ceiling on interest rates may not be read as
"grant[ing] lenders carte blanche [authority] to raise interest rates to
levels which will either enslave their borrowers or lead to a
hemorrhaging of their assets."
Thus, even if the parties voluntarily agree to an interest
rate, courts are given the discretionary power to equitably reduce it if
it is later found to be iniquitous or unconscionable. Courts
approximate what the prevailing market rate would have been under
the circumstances had the parties had equal bargaining power.
Topic: Interest rates
Doctrine: There is no mutuality of contract when the interest rate in a
loan agreement is set at the sole discretion of one party.
Alan vs PNB
January 19, 2017
Facts:
In 1993, Spouses Robert Alan L. Limso and Nancy Lee Limso (and
Davao Sunrise Investment and Development Corporation (Davao
Sunrise) took out a loan secured by real estate mortgages from
Philippine National Bank. The loan was in the total amount of P700
million, divided into two (2) kinds of loan accommodations: a
revolving credit line of P300 million, and a seven-year long-term loan
of P400 million.
 Under the agreement the parties have to pay the interest Facts:
rate to be set by PNB and that it may be reset every month
Bank of the Philippine Islands (BPI), issued a credit card in William's
Issue: name, with Irene as the extension card holder. Pursuant to the terms
and conditions of the cards' issuance, 3.5% finance charge and 6%
WON the interest rate under the loan agreement is valid late payment charge shall be imposed monthly upon unpaid credit
availments.
Ruling:
The Spouses Louh made purchases from the use of the credit cards
and paid regularly based on the amounts indicated in the Statement
No, it is not valid. There is no mutuality of contracts when
of Accounts (SOAs). However, they were remiss in their obligations
the determination or imposition of interest rates is at the sole
starting October 14, 2009. As of August 15, 2010, their account was
discretion of a party to the contract. Further, escalation clauses in
unsettled prompting BPI to send written demand letters dated August
contracts are void when they allow the creditor to unilaterally adjust
7, 2010, January 25, 2011 and May 19, 2011. By September 14,
the interest rates without the consent of the debtor.
2010, they owed BPI the total amount of P533,836.27. Despite
repeated verbal and written demands, the Spouses Louh failed to
The agreement shows that there was no room for pay BPI.
negotiation among Philippine National Bank, Spouses Limso, and
Davao Sunrise when it came to the applicable interest rate. Since
They point out that since their credit limit was only P326,000.00, it is
there was no room for negotiations between the parties with regard to
evident that the amount of P533,836.27 demanded by BPI included
the increases of the rates of interest, the principle of mutuality of
unconscionable charges.
contracts was violated. There was no meeting of the minds between
Spouses Limso, Davao Sunrise, and Philippine National Bank
because the increases in the interest rates were imposed on them Issue:
unilaterally.
WON the 3.5% interest imposed by BPI is valid
Topic: Interest Rate Stipulation
Held:
Cabanting vs. BPI Family Savings Bank
No.
Doctrine:
The Court had affirmed in a plethora of cases that stipulated interest
Rates found to be iniquitous or unconscionable are void, as if it there rates of 3% per month and higher are excessive, iniquitous,
were no express contract thereon. Above all, it is undoubtedly unconscionable and exorbitant. Such stipulations are void for being
against public policy to charge excessively for the use of money." 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,
Facts:
regardless of maturity, nothing in the said circular could possibly be
read as granting carte blanche authority to lenders to raise interest
On January 14, 2003, petitioners bought on instalment basis from rates to levels which would either enslave their borrowers or lead to a
Diamond Motors Corporation a 2002 Mitsubishi Adventure SS MT hemorrhaging of their assets.
payable in monthly instalments. On the day of the execution of the
document, Diamond Motors, with notice to petitioners, executed a
Deed of Assignment, thereby assigning to BPI Family Savings Bank,
Inc. (BPI Family) all its rights, title and interest. Come October 16,
2003, however, a Complaint was filed by BPI Family against
petitioners for Replevin and damages praying that petitioners be
ordered to pay the unpaid portion of the vehicle's purchase price,
accrued interest thereon at the rate of 36% per annum as of August
26, 2003, 25% attorney's fees and 25% liquidated damages, as
stipulated on the Promissory Note with Chattel Mortgage.

The RTC ruled in favour of BPI but reduced the interest rate to 24%
per annum from the filing of the Complaint until its full satisfaction.
The CA Affirmed the decision of the RTC but with modification that
they pay respondents with a legal interest of 12% per annum from
the filing of the Complaint until its full satisfaction.

Issue:

Whether or not the CA was correct in lowering the interest rate.

Ruling:

Yes, the CA is correct that the interest rate being charged by

respondent quite unreasonable. In New Sampaguita Builders
Construction, Inc. (NSBCI) v. Philippine National Bank, the Court
ruled that "the interest ranging from 26 percent to 35 percent in the
statements of account - 'must be equitably reduced for being
iniquitous, unconscionable and exorbitant.' Rates found to be
iniquitous or unconscionable are void, as if it there were no express
contract thereon. Above all, it is undoubtedly against public policy to
charge excessively for the use of money." However, pursuant to
prevailing jurisprudence and banking regulations, the Court must
modify the lower court's award of legal interest. The decision is
affirmed with modification by ordering payment of legal interest at the
rate of twelve percent (12%) per annumfrom the time of filing of the
complaint up to June 30, 2013, and thereafter, at the lower rate of six
percent (6%) per annum from July 1, 2013 until full satisfaction,
pursuant to BangkoSentral ng Pilipinas - Monetary Board Circular
No. 799, Series of 2013 and applicable jurisprudence.

Interest Rate Stipulation

WILLIAM C. LOUH, JR. AND IRENE L. LOUH, v. BANK OF THE

PHILIPPINE ISLANDS