G.R. No.

213582, June 28, 2016

NYMPHA ODIAMAR,1 Petitioner
vs.
LINDA ODIAMAR VALENCIA, Respondent

Facts:

Respondent: On August 20, 2003, respondent filed a complaint 6 for sum of money and
damages against petitioner, alleging that the latter owed her P2,100,000.00. Petitioner
purportedly issued China Bank Check (the check) for the said amount to guarantee the
payment of the debt, but upon presentment, the same was dishonored.8 Respondent lamented
that petitioner refused to pay despite repeated demands, and that had she invested the money
loaned to petitioner or deposited the same in a bank, it would have earned interest at the rate
of 36% per annum or three percent (3%) per month.9

Petitioner: For her part, petitioner sought the dismissal10 of the complaint on the ground that it
was her deceased parents who owed respondent money. Accordingly, respondent's claim
should be filed in the proceedings for the settlement of their estates. Petitioner averred that
respondent had, in fact, participated in the settlement proceedings and had issued a
certification 11 stating that it was petitioner's deceased parents who were indebted to
respondent for P2,000,000.00. She further maintained that as administratix of her parents'
estates, she agreed to pay such indebtedness on installment but respondent refused to accept
her payments.12

Respondent countered13 that petitioner personally borrowed almost half of the P2, 100,000.00
from her, as evidenced by the check which she issued after agreeing to settle the same in
installments.14 While respondent conceded that petitioner made several installment payments
from December 29, 2000 until May 31, 2003, she pointed out that the latter failed to make any
succeeding payments.15 Moreover, respondent denied participating in the proceedings for the
settlement of the estates of petitioner's parents, clarifying that petitioner was the one who
prepared the certification alluded to and that she (respondent) signed it on the belief that
petitioner would make good her promise to pay her (respondent).

RTC denied petitioner's motion to dismiss, thus prompting her to file an answer. 

Petitioner asserted that respondent merely persuaded her to issue the check to guarantee her
deceased parents' loan. She further claimed that the check was blank when she issued it and
that despite having no authority to fill up the same, respondent wrote the amount and date
thereon. She also maintained that from December 29, 2000 to May 31, 2003, she made, in
almost daily installments, payments to respondent ranging from P500.00 to Pl0,000.00, and
that while she tried to make succeeding payments, respondent refused to accept the same,
demanding, instead, the payment of the entire balance. As counterclaim, petitioner prayed that
moral damages, attorney's fees, litigation expenses, and exemplary and punitive damages be
awarded to her.

The RTC and CA held the petitioner liable for the entire debt. They also held that novation took
place insofar as petitioner was substituted in place of petitioner’s late parents, considering that
petitioner undertook to pay her deceased parents’ debt. However, the CA opined that there
was no novation with respect to the object of the contract, following the rule that an instrument
which expressly recognizes the old obligation and charges only the terms of paying the same,
as in this case where the parties merely modified the terms of payment.

Issue:

Whether petitioner should be held liable to respondent for the entire debt in the amount of
P2,100,000.00. NO.

1
Ruling:

The Court finds it apt to correct the mistaken notions that: (a)  novation by substitution of the
debtor took place so as to release the estates of the petitioner's deceased parents from their
obligation, which, thus, rendered petitioner solely liable for the entire ₱2,100,000.00 debt;
and (b) the ₱100,000.00 of the ₱2,100,000.00 debt was in the nature of accrued monetary
interests.

On the first matter, while it is observed that petitioner had indeed admitted that she agreed to
settle her late parents' debt, which was supposedly evinced by (a)  the ₱2,100,000.00 check
she issued therefor, and (b)  several installment payments she made to respondent from
December 29, 2000 to May 31, 2003, there was no allegation, much less any proof to
show, that the estates of her deceased parents were released from liability thereby. In
S.C. Megaworld Construction and Development Corporation v. Parada, 43  the Court held that to
constitute novation by substitution of debtor, the former debtor must be expressly
released from the obligation and the third person or new debtor must assume the former's
place in the contractual relations.44 Moreover, the Court ruled that the "fact that the creditor
accepts payments from a third person, who has assumed the obligation, will result merely in
the addition of debtors and not novation."45 At its core, novation is never presumed, and
the animus novandi, whether totally or partially, must appear by express agreement of the
parties, or by their acts that are too clear and unequivocal to be mistaken. 46 Here, the intent to
novate was not satisfactorily proven by respondent. At best, petitioner only manifested her
desire to shoulder the debt of her parents, which, as above-discussed, does not amount to
novation. Thus, the courts a quo erred in holding petitioner liable for the debts obtained by her
deceased parents on account of novation by substitution of the debtor.

Similarly, both courts faultily concluded that the principal sum loaned by petitioner and her
deceased parents amounted to ₱2,000,000.00 and the ₱100,000.00 was added as interest
because petitioner undertook to pay the loan in installments.

It is fundamental that for monetary interest to be due, there must be an express written
agreement therefor.47 Article 1956 of the Civil Code provides that "[n]o interest shall be due
unless it bas been expressly stipulated in writing." In this relation, case law states that the
lack of a written stipulation to pay interest on the loaned amount bars a creditor from charging
monetary interest48 and the collection of interest without any stipulation therefor in writing is
prohibited by law.49

Here, respondent herself admitted that there was no written agreement that interest would be
due on the sum loaned, only that there was an implicit understanding that the same would be
subject to interest since she also borrowed the same from banks which, as a matter of course,
charged interest. Respondent also testified on cross examination that the ₱2,100,000.00
corresponds only to the principal and does not include interest.

All told, having established that no novation took place and that no interest was actually due,
and factoring in the payments already made for her account, petitioner is, thus, ordered to pay
respondent the amount of ₱l,010,049.00, which is the remaining balance of her principal debt
to the latter in the original amount of ₱l,400,000.00.

2
SPECIAL FIRST DIVISION

G.R. No. 213582, September 12, 2018

NYMPHA S. ODIAMAR*, Petitioner
vs.
LINDA ODIAMAR VALENCIA, Respondent

Facts:

Before the Court is a Motion for Reconsideration 1 filed by respondent Linda Odiamar Valencia
(respondent) assailing the Decision2 dated June 28, 2016 of the Court which affirmed the
Decision3 dated March 16, 2012 and the Resolution4 dated July 14, 2014 of the Court of
Appeals (CA) in C.A. G.R. CV No. 93624, with modification ordering petitioner Nympha S.
Odiamar (petitioner) to pay respondent the amount of ₱1,010,049.00 representing the
remaining balance of petitioner's debt to the latter in the original amount of ₱1,400,000.00.

In said motion, respondent prays for the imposition of legal interest on the monetary award due
her. 5 She likewise insists that petitioner's loan obligation to her is not just ₱1,400,000.00 but
₱2,100,000.00 and, as such, she should be made to pay the latter amount.6

Issues:

(1) Whether the respondent is entitled for the legal interest on the monetary award due her.
YES.

(2) Whether the respondent is entitled to ₱2.1M and not just ₱ 1.4M. NO.

Ruling:

Respondent's contentions are partly meritorious.

The Court notes that there are two (2) types of interest - monetary interest and
compensatory interest. Monetary interest is the compensation fixed by the parties for the use
or forbearance of money. On the other hand, compensatory interest is that imposed by law
or by the courts as penalty or indemnity for damages. In other words, the right to recover
interest arises only either by virtue of a contract (monetary interest) or as damages for the
delay or failure to pay the principal loan on which the interest is demanded (compensatory
interest). 7

Anent monetary interest, it is an elementary rule that no interest shall be due unless it has
been expressly stipulated in writing. 

In this case, no monetary interest may be imposed on the loan obligation, considering that
there was no written agreement expressly providing for such.

This notwithstanding, such loan obligation may still be subjected to compensatory interest,
following the guidelines laid down in Nacar v. Gallery Frames:

In the absence of an express stipulation as to the rate of interest that would

govern the parties, the rate of legal interest for loans or forbearance of any
money, goods or credits and the rate allowed in judgments shall no longer be
twelve percent (12%) per annum but will now be six percent (6%) per
annum effective July 1, 2013. It should be noted, nonetheless, that the new
rate could only be applied prospectively and not retroactively. Consequently,

3
 the twelve percent (12%) per annum legal interest shall apply only until
June 30, 2013. Come July l, 2013 the new rate of six percent (6%)  per
annum shall be the prevailing rate of interest when applicable.

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,

quasicontracts, 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
6% 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 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. 

Applying the foregoing parameters to this case, petitioner's loan obligation to respondent
shall be subjected to compensatory interest at the legal rate of twelve percent (12%) per
annum from the date of judicial demand, i.e., August 20, 2003, 13 until June 30, 2013, and
thereafter at the legal rate of six percent (6%) per annum from July 1, 2013 until finality
of this ruling. Moreover, all monetary awards 14 due to respondent shall earn legal
interest of six percent (6%) per annum from finality of this ruling until fully paid.

However, as to respondent's other contentions, suffice it to say that the same are mere
reiterations of the grounds already evaluated and passed upon in the Assailed Decision.
Therefore, there is no cogent reason to warrant a modification or reversal of the same.

4
The motion for reconsideration is PARTLY GRANTED. The Decision dated June 28, 2016 of
the Court is hereby AFFIRMED with MODIFICATION: imposing on petitioner Nympha S.
Odiamar's liability to respondent Linda Odiamar Valencia in the amount of P1,010,049.00 legal
interest at the rate of twelve percent (12°/o) per annum from the date of judicial demand, i.e.,
August 20, 2003, until June 30, 2013, and thereafter at the legal rate of six percent (6%) per
annum from July 1, 2013 until finality of this ruling. Moreover, all monetary awards due to
respondent shall earn legal interest at the rate of six percent (6%) per annum from finality of
this ruling until fully paid.

5
G.R. No. 128721 March 9, 1999

CRISMINA GARMENTS, INC., petitioner,

vs.
COURT OF APPEALS and NORMA SIAPNO, respondent.

Interest shall be computed in accordance with the stipulation of the parties. In the absence of
such agreement, the rate shall be twelve percent (12%) per annum when the obligation arises
out of a loan or a forbearance of money, goods or credits. In other cases, it shall be six percent
(6%).

The Case

Crismina Garments, Inc. filed a Petition for Review on Certiorari  1 assailing the December 28,
1995 Decision 2 and March 17, 1997 Resolution 3 of the Court of Appeals in CA-GR CV No.
28973.

SC: On September 24, 1997, this Court issued a minute Resolution 4 denying the petition "for
its failure to show any reversible error on the part of the Court of Appeals."

Petitioner then filed a Motion for Reconsideration, 5 arguing that the interest rate should be
computed at 6 percent per annum as provided under Article 2209 of the Civil Code, not 12
percent per annum as prescribed under Circular No. 416 of the Central Bank of the Philippines.
Acting on the Motion, the Court reinstated6 the Petition, but only with respect to the issue of
which interest rate should be applied.

Facts:

from February 1979 to April 1979, the [herein petitioner], which was engaged in the export of
girls' denim pants, contracted the services of the [respondent], the sole proprietress of the
D'Wilmar Garments, for the sewing of 20,762 pieces of assorted girls denims supplied by the
[petitioner] under Purchase Orders Nos. 1404, dated February 15, 1979, 0430 dated February
1, 1979, 1453 dated April 30, 1979. The [petitioner] was obliged to pay the [respondent], for her
services, in the total amount of P76,410.00. The [respondent] sew[ed] the materials and
delivered the same to the [petitioner] which acknowledged the same per Delivery Receipt Nos,
in good order condition.

At first, the [respondent] was told that the sewing of some of the pants w[as] defective. She
offered to take delivery of the defective pants. However, she was later told by [petitioner]'s
representative that the goods were already good. She was told to just return for her check of
P76,410.00.

However, the [petitioner] failed to pay her the aforesaid amount. This prompted her to hire the
services of counsel who, wrote a letter to the [petitioner] demanding payment of the aforesaid
amount within ten (10) days from receipt thereof.

On February 7, 1990, the [petitioner]'s [v]ice-[p]resident-[c]omptroller, wrote a letter to

[respondent]'s counsel, averring, inter alia, that the pairs of jeans sewn by her, numbering
6,164 pairs, were defective and that she was liable to the [petitioner] for the amount of

6
P49,925.51 which was the value of the damaged pairs of denim pants and demanded refund
of the aforesaid amount.

On January 8, 1981, the [respondent] filed her complaint against the [petitioner] with the [trial
court] for the collection of the principal amount of P76,410.00.

The [trial court] rendered judgment, on February 28, 1989, in favor of the [respondent] against
the [petitioner],

Issue:

Whether or not it is proper to impose interest at the rate of twelve percent (12%) per annum for
an obligation that does not involve a loan or forbearance of money in the absence of stipulation
of the parties. NOT PROPER.

Ruling:

SC: The interest rate should be computed at six percent (6%) per annum.

In Reformina v. Tomol Jr., 15 this Court stressed that the interest rate under CB Circular No.
416 applies to (1) loans; (2) forbearance of money, goods or credits; or (3) a judgment
involving a loan or forbearance of money, goods or credits. Cases beyond the scope of the
said circular are governed by Article 2209 of the Civil Code, 16 which considers interest a form
of indemnity for the delay in the performance of an obligation.

In Eastern Shipping Lines, Inc. v.  Court of Appeals,18 the Court gave the following guidelines
for the application of the proper interest rates:

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 . . . the amount finally adjudged.

7
 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 forbearance of credit.19

In Keng Hua Paper Products Co.,  Inc.  v. CA, 20 we also ruled that the monetary award shall
earn interest at twelve percent (12%) per annum from the date of finality of the judgment until
its satisfaction, regardless of whether or not the case involves a loan of forbearance of money.
The interim period is deemed to be equivalent to a forbearance of a credit. 

Because the amount due in this case arose from a contract for a piece of work, not from a
loan or forbearance of money, the legal interest of six percent (6%) per annum should be
applied. Furthermore, since the amount of the demand could be established with certainty
when the Complaint was filed, the six percent (6%) interest should be computed from the filing
of the said Complaint. But after the judgment becomes final and exuecutory until the obligation
is satisfied, the interest should be reckoned at twelve percent (%12) per year.

Private respondent maintains that the twelve percent (12%) interest should be imposed,
because the obligation arose from a forbearance of money. 22 This is erroneous. In Eastern
Shipping, 23 the Court observed that a "forbearance" in the context of the usury law is a
"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." Using this
standard, the obligation in this case was obviously not a forbearance of money, goods or
credit.

8
G.R. No. 131622 November 27, 1998

LETICIA Y. MEDEL, DR. RAFAEL MEDEL and SERVANDO FRANCO, petitioners,

vs.
COURT OF APPEALS, SPOUSES VERONICA R. GONZALES and DANILO G. GONZALES,
JR. doing lending business under the trade name and style "GONZALES CREDIT
ENTERPRISES", respondents.

On November 7, 1985, Servando Franco and Leticia Medel (hereafter Servando and Leticia)
obtained a loan from Veronica R. Gonzales (hereafter Veronica), who was engaged in the
money lending business under the name "Gonzales Credit Enterprises", in the amount of
P50,000.00, payable in two months. Veronica gave only the amount of P47,000.00, to the
borrowers, as she retained P3,000.00, as advance interest for one month at 6% per month.
Servando and Leticia executed a promissory note for P50,000.00, to evidence the loan,
payable on January 7, 1986.

On November 19, 1985, Servando and Liticia obtained from Veronica another loan in the
amount of P90,000.00, payable in two months, at 6% interest per month. They executed a
promissory note to evidence the loan, maturing on Janaury 19, 1986. They received only
P84,000.00, out of the proceeds of the loan.

On maturity of the two promissory notes, the borrowers failed to pay the indebtedness.

On June 11, 1986, Servando and Leticia secured from Veronica still another loan in the amout
of P300,000.00, maturing in one month, secured by a real estate mortgage over a property
belonging to Leticia Makalintal Yaptinchay, who issued a special power of attorney in favor of
Leticia Medel, authorizing her to execute the mortgage. Servando and Leticia executed a
promissory note in favor of Veronica to pay the sum of P300,000.00, after a month, or on July
11, 1986. However, only the sum of P275.000.00, was given to them out of the proceeds of the
loan.

Like the previous loans, Servando and Medel failed to pay the third loan on maturity.

On July 23, 1986, Servando and Leticia with the latter's husband, Dr. Rafael Medel,
consolidated all their previous unpaid loans totaling P440,000.00, and sought from Veronica
another loan in the amount of P60,000.00, bringing their indebtedness to a total of
P500,000.00, payable on August 23, 1986. They executed a promissory note.

On February 20, 1990, Veronica R. Gonzales, joined by her husband Danilo G. Gonzales, filed
with the Regional Trial Court of Bulacan, Branch 16, at Malolos, Bulacan, a complaint for
collection of the full amount of the loan including interests and other charges.

In his answer to the complaint filed with the trial court on April 5, 1990, defendant Servando
alleged that he did not obtain any loan from the plaintiffs; that it was defendants Leticia and Dr.
Rafael Medel who borrowed from the plaintiffs the sum of P500,000.00, and actually received
the amount and benefited therefrom; that the loan was secured by a real estate mortgage

9
executed in favor of the plaintiffs, and that he (Servando Franco) signed the promissory note
only as a witness.

In their separate answer filed on April 10, 1990, defendants Leticia and Rafael Medel alleged
that the loan was the transaction of Leticia Yaptinchay, who executed a mortgage in favor of
the plaintiffs over a parcel of real estate situated in San Juan, Batangas; that the interest rate
is excessive at 5.5% per month with additional service charge of 2% per annum, and penalty
charge of 1% per month; that the stipulation for attorney's fees of 25% of the amount due is
unconscionable, illegal and excessive, and that substantial payments made were applied to
interest, penalties and other charges.

The lower court declared that the due execution and genuineness of the four promissory notes
had been duly proved, and ruled that although the Usury Law had been repealed, the interest
charged by the plaintiffs on the loans was unconscionable and "revolting to the conscience".
Hence, the trial court applied "the provision of the New [Civil] Code" that the "legal rate of
interest for loan or forbearance of money, goods or credit is 12% per annum.

In due time, both plaintiffs and defendants appealed to the Court of Appeals.

In their appeal, plaintiffs-appellants argued that the promissory note, which consolidated all the
unpaid loans of the defendants, is the law that governs the parties. They further argued that
Circular No. 416 of the Central Bank prescribing the rate of interest for loans or forbearance of
money, goods or credit at 12% per annum, applies only in the absence of a stipulation on
interest rate, but not when the parties agreed thereon.

The Court of Appeals sustained the plaintiffs-appellants' contention. It ruled that "the Usury
Law having become 'legally inexistent' with the promulgation by the Central Bank in 1982 of
Circular No. 905, the lender and borrower could agree on any interest that may be charged on
the loan".9 The Court of Appeals further held that "the imposition of 'an additional amount
equivalent to 1% per month of the amount due and demandable as penalty charges in the form
of liquidated damages until fully paid' was allowed by law.’’

On April 15, 1997, defendants-appellants filed a motion for reconsideration of the said
decision. By resolution dated November 25, 1997, the Court of Appeals denied the motion. 12

Hence, defendants interposed the present recourse via  petition for review on  certiorari. 13

Issue:

Whether or not the stipulated rate of interest at 5.5% per month on the loan in the sum of
P500,000.00, that plaintiffs extended to the defendants is usurious. YES.

In other words, is the Usury Law still effective, or has it been repealed by Central Bank Circular
No. 905, adopted on December 22, 1982, pursuant to its powers under P.D. No. 116, as
amended by P.D. No. 1684?

Ruling:

We find the petition meritorious.

Basically, the issue revolves on the validity of the interest rate stipulated upon. Thus, the
question presented is whether or not the stipulated rate of interest at 5.5% per month on the
loan in the sum of P500,000.00, that plaintiffs extended to the defendants is usurious. In other
words, is the Usury Law still effective, or has it been repealed by Central Bank Circular No.
905, adopted on December 22, 1982, pursuant to its powers under P.D. No. 116, as amended
by P.D. No. 1684?

10
We agree with petitioners that the stipulated rate of interest at 5.5% per month on the
P500,000.00 loan is excessive, iniquitous, unconscionable and exorbitant. 13 However, we can
not consider the rate "usurious" because this Court has consistently held that Circular No. 905
of the Central Bank, adopted on December 22, 1982, has expressly removed the interest
ceilings prescribed by the Usury Law 14 and that the Usury Law is now "legally inexistent". 15

In Security Bank and Trust Company vs. Regional Trial Court of Makati, Branch 61 16 the Court
held that CB Circular No. 905 "did not repeal nor in anyway amend the Usury Law but simply
suspended the latter's effectivity." Indeed, we have held that "a Central Bank Circular can not
repeal a law. Only a law can repeal another law." 17 In the recent case of  Florendo vs. Court of
Appeals 18, the Court reiterated the ruling that "by virtue of CB Circular 905, the Usury Law has
been rendered ineffective". "Usury has been legally non-existent in our jurisdiction. Interest can
now be charged as lender and borrower may agree upon." 19

Nevertheless, we find the interest at 5.5% per month, or 66% per annum, stipulated upon by
the parties in the promissory note iniquitous or unconscionable, and, hence, contrary to morals
("contra bonos mores"), if not against the law. 20 The stipulation is void. 21 The courts shall
reduce equitably liquidated damages, whether intended as an indemnity or a penalty if they are
iniquitous or unconscionable. 22

Consequently, the Court of Appeals erred in upholding the stipulation of the parties. Rather, we
agree with the trial court that, under the circumstances, interest at 12% per annum, and an
additional 1% a month penalty charge as liquidated damages may be more reasonable.

11
G.R. No. 172139               December 8, 2010

JOCELYN M. TOLEDO, Petitioner,
vs.
MARILOU M. HYDEN, Respondent.

It is true that the imposition of an unconscionable rate of interest on a money debt is immoral
and unjust and the court may come to the aid of the aggrieved party to that contract. However,
before doing so, courts have to consider the settled principle that the law will not relieve a party
from the effects of an unwise, foolish or disastrous contract if such party had full awareness of
what she was doing.

Facts:

Petitioner Jocelyn M. Toledo (Jocelyn), who was then the Vice-President of the College
Assurance Plan (CAP) Phils., Inc., obtained several loans from respondent Marilou M. Hyden
(Marilou). From August 15, 1993 up to December 31, 1997, Jocelyn had been religiously
paying Marilou the stipulated monthly interest by issuing checks and depositing sums of
money in the bank account of the latter. However, the total principal amount of P290,000.00
remained unpaid.

Thus, in April 1998, Marilou visited Jocelyn in her office at CAP in Cebu City and asked
Jocelyn and the other employees who were likewise indebted to her to acknowledge their
debts. A document entitled "Acknowledgment of Debt for the amount of P290,000.00 was
signed by Jocelyn with two of her subordinates as witnesses.

Also on said occasion, Jocelyn issued five checks to Marilou representing renewal payment of
her five previous loans. After honoring Check Nos. 0010494, 0010495 and 0010496, Jocelyn
ordered the stop payment on the remaining checks and filed with the RTC of Cebu City a
complaint against Marilou for Declaration of Nullity and Payment, Annulment, Sum of Money,
Injunction and Damages.

Jocelyn averred that Marilou forced, threatened and intimidated her into signing the
"Acknowledgment of Debt" and at the same time forced her to issue the seven postdated
checks.

Marilou filed an Answer with Special Affirmative Defenses and Counterclaim alleging that
Jocelyn voluntarily obtained the said loans knowing fully well that the interest rate was at 6% to
7% per month. In fact, a 6% to 7% advance interest was already deducted from the loan
amount given to Jocelyn.

The RTC ruled in favor of Marilou, finding no showing that Jocelyn was forced, threatened, or
intimidated in signing the document.

12
On appeal, Jocelyn asserts that she had made payments in the total amount of P778,000.00
for a principal amount of loan of only P290,000.00. What is appalling, according to Jocelyn,
was that such payments covered only the interest because of the excessive, iniquitous,
unconscionable and exorbitant imposition of the 6% to 7% monthly interest.

The CA affirmed the decision.

Jocelyn filed a motion for reconsideration but the same was denied. Hence, the present petition.
Issues:

(1) Did the CA gravely err when it held that the imposition of interest at the rate of six percent
(6%) to seven percent (7%) is not contrary to law, morals, good customs, public order or public
policy? NO.

(2) Whether the CA gravely erred when it failed to declare that the "Acknowledgment of Debt"
is an inexistent contract that is void from the very beginning pursuant to Article 1409 of the
New Civil Code. NO.

Ruling:

(1) The 6% to 7% interest per month paid by Jocelyn is not excessive under the circumstances
of this case.

In view of Central Bank Circular No. 905 s. 1982, which suspended the Usury Law ceiling on
interest effective January 1, 1983, parties to a loan agreement have wide latitude to stipulate
interest rates. Nevertheless, such stipulated interest rates may be declared as illegal if the
same is unconscionable.14 There is certainly nothing in said circular which grants lenders carte
blanche authority to raise interest rates to levels which will either enslave their borrowers or
lead to a hemorrhaging of their assets.15 In fact, in Medel v. Court of Appeals,16 we annulled a
stipulated 5.5% per month or 66% per annum interest with additional service charge of 2% per
annum and penalty charge of 1% per month on a ₱500,000.00 loan for being excessive,
iniquitous, unconscionable and exorbitant.

In this case, however, we cannot consider the disputed 6% to 7% monthly interest rate to be
iniquitous or unconscionable vis-à-vis the principle laid down in Medel. Noteworthy is the fact
that in Medel, the defendant-spouses were never able to pay their indebtedness from the very
beginning and when their obligations ballooned into a staggering sum, the creditors filed a
collection case against them. In this case, there was no urgency of the need for money on the
part of Jocelyn, the debtor, which compelled her to enter into said loan transactions. She used
the money from the loans to make advance payments for prospective clients of educational
plans offered by her employer. In this way, her sales production would increase, thereby
entitling her to 50% rebate on her sales. This is the reason why she did not mind the 6% to 7%
monthly interest. Notably too, a business transaction of this nature between Jocelyn and
Marilou continued for more than five years. Jocelyn religiously paid the agreed amount of
interest until she ordered for stop payment on some of the checks issued to Marilou. The
checks were in fact sufficiently funded when she ordered the stop payment and then filed a
case questioning the imposition of a 6% to 7% interest rate for being allegedly iniquitous or
unconscionable and, hence, contrary to morals.

It was clearly shown that before Jocelyn availed of said loans, she knew fully well that the
same carried with it an interest rate of 6% to 7% per month, yet she did not complain. In fact,
when she availed of said loans, an advance interest of 6% to 7% was already deducted from
the loan amount, yet she never uttered a word of protest.

After years of benefiting from the proceeds of the loans bearing an interest rate of 6% to 7%
per month and paying for the same, Jocelyn cannot now go to court to have the said interest
rate annulled on the ground that it is excessive, iniquitous, unconscionable, exorbitant, and

13
absolutely revolting to the conscience of man. "This is so because among the maxims of equity
are (1) he who seeks equity must do equity, and (2) he who comes into equity must come with
clean hands. The latter is a frequently stated maxim which is also expressed in the principle
that he who has done inequity shall not have equity. It signifies that a litigant may be denied
relief by a court of equity on the ground that his conduct has been inequitable, unfair and
dishonest, or fraudulent, or deceitful as to the controversy in issue." 17

We are convinced that Jocelyn did not come to court for equitable relief with equity or with
clean hands. It is patently clear from the above summary of the facts that the conduct of
Jocelyn can by no means be characterized as nobly fair, just, and reasonable. This Court
likewise notes certain acts of Jocelyn before filing the case with the RTC. In September 1998,
she requested Marilou not to deposit her checks as she can cover the checks only the
following month. On the next month, Jocelyn again requested for another extension of one
month. It turned out that she was only sweet-talking Marilou into believing that she had no
money at that time. But as testified by Serapio Romarate,18 an employee of the Bank of
Commerce where Jocelyn is one of their clients, there was an available balance of
₱276,203.03 in the latter’s account and yet she ordered for the stop payments of the seven
checks which can actually be covered by the available funds in said account. She then caught
Marilou by surprise when she surreptitiously filed a case for declaration of nullity of the
document and for damages.

(2) The document "Acknowledgment of Debt" is valid and binding.

Jocelyn seeks for the nullification of the document entitled "Acknowledgment of Debt" and
wants this Court to declare that she is no longer indebted to Marilou in the amount of
₱290,000.00 as she had already paid a total amount of ₱778,000.00. She claims that said
document is an inexistent contract that is void from the very beginning as clearly provided for
by Article 140919 of the New Civil Code.

Jocelyn further claims that she signed the said document and issued the seven postdated
checks because Marilou threatened to sue her for violation of BP Blg. 22.

Jocelyn is misguided. Even if there was indeed such threat made by Marilou, the same is not
considered as threat that would vitiate consent. Article 1335 of the New Civil Code is very
specific on this matter. It provides:

Art. 1335. There is violence when in order to wrest consent, serious or irresistible force is
employed.

xxxx

A threat to enforce one’s claim through competent authority, if the claim is just or
legal, does not vitiate consent. 

Clearly, we cannot grant Jocelyn the relief she seeks.

As can be seen from the records of the case, Jocelyn has failed to prove her claim that she
was made to sign the document "Acknowledgment of Debt" and draw the seven Bank of
Commerce checks through force, threat and intimidation. As earlier stressed, said document
was signed in the office of Jocelyn, a high ranking executive of CAP, and it was Jocelyn herself
who went to the table of her two subordinates to procure their signatures as witnesses to the
execution of said document. If indeed, she was forced to sign said document, then Jocelyn
should have immediately taken the proper legal remedy. But she did not. Furthermore, it must
be noted that after the execution of said document, Jocelyn honored the first three checks
before filing the complaint with the RTC. If indeed she was forced she would never have made
good on the first three checks.

14
Here, it is uncontested that Jocelyn had in fact signed the "Acknowledgment of Debt" in April
1998 and two of her subordinates served as witnesses to its execution, knowing fully well the
nature of the contract she was entering into. Next, Jocelyn issued five checks in favor of
Marilou representing renewal payment of her loans amounting to ₱290,000.00. In June 1998,
she asked to recall Check No. 0010761 in the amount of ₱30,000.00 and replaced the same
with six checks, in staggered amounts. All these are indicia that Jocelyn treated the
"Acknowledgment of Debt" as a valid and binding contract.

More significantly, Jocelyn already availed herself of the benefits of the "Acknowledgment of
Debt," the validity of which she now impugns. As aptly found by the RTC and the CA, Jocelyn
was making a business out of the loaned amounts. She was actually using the money to make
advance payments for her prospective clients so that her sales production would increase.
Accordingly, she did not mind the 6% to 7% interest per month as she was getting a 50%
rebate on her sales.

Clearly, by her own acts, Jocelyn is estopped from impugning the validity of the
"Acknowledgment of Debt." "[A] party to a contract cannot deny the validity thereof after
enjoying its benefits without outrage to one’s sense of justice and fairness." 21 "It is a long
established doctrine that the law does not relieve a party from the effects of an unwise, foolish
or disastrous contract, entered into with all the required formalities and with full awareness of
what she was doing. Courts have no power to relieve parties from obligations voluntarily
assumed, simply because their contracts turned out to be disastrous or unwise investments.’’

G.R. No. 183360               September 8, 2014

ROLANDO C. DE LA PAZ,* Petitioner,
vs.
L & J DEVELOPMENT COMPANY, Respondent.

"No interest shall be due unless it has been expressly stipulated in writing."

Facts:

On December 27, 2000, Rolando lent ₱350,000.00 without any security to L&J, a property
developer with Atty. Esteban Salonga (Atty. Salonga) as its President and General Manager.
The loan, with no specified maturity date, carried a 6% monthly interest, i.e., ₱21,000.00. From
December 2000 to August 2003, L&J paid Rolando a total of ₱576,000.00 7 representing
interest charges.

As L&J failed to pay despite repeated demands, Rolando filed a Complaint8 for Collection of
Sum of Money with Damages against L&J and Atty. Salonga in his personal capacity before
the MeTC. Rolando alleged, among others, that L&J’s debtas of January 2005, inclusive of the
monthly interest, stood at ₱772,000.00; that the 6% monthly interest was upon Atty. Salonga’s
suggestion; and, that the latter tricked him into parting with his money without the loan
transaction being reduced into writing.

In their Answer,9 L&J and Atty. Salonga denied Rolando’s allegations. While they
acknowledged the loan as a corporate debt, they claimed that the failure to pay the same was
due to a fortuitous event, that is, the financial difficulties brought about by the economic crisis.
They further argued that Rolando cannot enforce the 6% monthly interest for being
unconscionable and shocking to the morals. Hence, the payments already made should be
applied to the ₱350,000.00 principal loan.

15
During trial, Rolando testified that he had no communication with Atty. Salonga prior to the
loan transaction but knew him as a lawyer, a son of a former Senator, and the owner of L&J
which developed Brentwood Subdivision in Antipolo where his associate Nilo Velasco (Nilo)
lives. When Nilo told him that Atty. Salonga and L&J needed money to finish their projects, he
agreed to lend them money. He personally met with Atty. Salonga and their meeting was
cordial.

He narrated that when L&J was in the process of borrowing the ₱350,000.00 from him, it was
Arlene San Juan (Arlene), the secretary/treasurer of L&J, who negotiated the terms and
conditions thereof.She said that the money was to finance L&J’s housing project. Rolando
claimed that it was not he who demanded for the 6% monthly interest. It was L&J and Atty.
Salonga, through Arlene, who insisted on paying the said interest as they asserted that the
loan was only a short-term one.

The MTC rendered judgment in favor of Rolando and upheld the 6% interest rate as valid since
L&J complied to it as evidenced by the payment they made from December 2000 to August
2003. L&J is now estopped to impugn said interest rate.

The MTC also reduced the legal interest rate to 12% per annum on the remaining loan for
reasons of equity. They did not grant the prayer of moral damages to Rolando since there was
no bad faith on the part of L&J.

L&J appealed the decision to the RTC – contending once again that the 6% interest rate is
unconscionable, and that their previous payment which totaled Php 576,000 should be used to
set off the principal loan of Php 350,000. RTC however affirmed the decision of the MTC. L&J
appealed to the CA.

CA ruled in favor of L&J, noting that the agreed 6% interest rate was not reduced in a written
agreement and hence, it should not be considered due. CA ruled that the loan was already
paid, and that Rolando should return the excess Php 226,000 with interest of 12% per annum.

The case has now reached the Supreme Court.

Issue:

The Court’s determination of whether to uphold the judgment of the CA that the principal loan
is deemed paid is dependent on the validity of the monthly interest rate imposed. And in
determining such validity, the Court must necessarily delve into matters regarding

a) the form of the agreement of interest under the law and

b) the alleged unconscionability of the interest rate.

Ruling:

The Petition is devoid of merit.

The lack of a written stipulation to pay interest on the loaned amount disallows a creditor from
charging monetary interest.

Under Article 1956 of the Civil Code, no interest shall bedue unless it has been expressly
stipulated in writing. Jurisprudence on the matter also holds that for interest to be due and
payable, two conditions must concur:

a) express stipulation for the payment of interest; and b) the agreement to pay interest is
reduced in writing.

16
Here, it is undisputed that the parties did not put down in writing their agreement. Thus, no
interest is due. The collection of interest without any stipulation in writing is prohibited by law.22

But Rolando asserts that his situation deserves an exception to the application of Article 1956.
He blames Atty. Salonga for the lack of a written document, claiming that said lawyer used his
legal knowledge to dupe him. Rolando thus imputes bad faith on the part of L&J and Atty.
Salonga.

The Court, however, finds no deception on the partof L&J and Atty. Salonga. For one, despite
the lack of a document stipulating the payment of interest, L&J nevertheless devotedly paid
interests on the loan. It only stopped when it suffered from financial difficulties that prevented it
from continuously paying the 6% monthly rate. For another,regardless of Atty. Salonga’s
profession, Rolando who is an architect and an educated man himself could have been a more
reasonably prudent person under the circumstances. To top it all, he admitted that he had no
prior communication with Atty. Salonga. Despite Atty. Salonga being a complete stranger, he
immediately trusted him and lent his company ₱350,000.00, a significant amount. Moreover,
as the creditor,he could have requested or required that all the terms and conditions of the
loan agreement, which include the payment of interest, be put down in writing to ensure that he
and L&J are on the same page. Rolando had a choice of not acceding and to insist that their
contract be put in written form as this will favor and safeguard him as a lender. Unfortunately,
he did not. It must be stressed that "[c]ourts 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."23

It may be raised that L&J is estopped from questioning the interest rate considering that it has
been paying Rolando interest at such ratefor more than two and a half years. In fact, in its
pleadings before the MeTC and the RTC, L&J merely prayed for the reduction of interest from
6% monthly to 1% monthly or 12% per annum.

However, in Ching v. Nicdao,24 the daily payments of the debtor to the lender were considered
as payment of the principal amount of the loan because Article 1956 was not complied with.
This was notwithstanding the debtor’s admission that the payments made were for the
interests due. The Court categorically stated therein that "[e]stoppel cannot give validity to an
act that is prohibited by law or one thatis against public policy."

Even if the payment of interest has been reduced in writing, a 6% monthly interest rate on a
loan is unconscionable, regardless of who between the parties proposed the rate.

Indeed at present, usury has been legally non-existent in view of the suspension of the Usury
Law25 by Central Bank Circular No. 905 s. 1982.26 Even so, not all interest rates levied upon
loans are permitted by the courts as they have the power to equitably reduce unreasonable
interest rates.

In Trade & Investment Development Corporation of the Philippines v. Roblett Industrial

Construction Corporation,27 we said:

While the Court recognizes the right of the parties to enter into contracts and who are
expectedto comply with their terms and obligations, this rule is not absolute. Stipulated
interest rates are illegal if they are unconscionable and the Court is allowed to temper
interest rates when necessary. In exercising this vested power to determine what is
iniquitous and unconscionable, the Court must consider the circumstances of each case.
What may be iniquitous and unconscionable in onecase, may be just in another. x x
x28

Time and again, it has been ruled 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. 29 The Court, however, stresses that

17
these rates shall be invalidated and shall be reduced only in cases where the terms of the
loans are open-ended, and where the interest rates are applied for an indefinite period. Hence,
the imposition of a specific sum of ₱40,000.00 a month for six months on a
₱1,000,000.00 loan is not considered unconscionable.30

In the case at bench, there is no specified period as to the payment of the loan. Hence, levying
6% monthly or 72% interest per annumis "definitely outrageous and inordinate." 31 The situation
that it was the debtor who insisted on the interest rate will not exempt Rolando from a ruling
that the rate is void. As this Court cited in Asian Cathay Finance and Leasing Corporation v.
Gravador,32 "[t]he imposition of an unconscionable rate of interest on a money debt, even if
knowingly and voluntarily assumed, is immoral and unjust. It is tantamount to a repugnant
spoliation and an iniquitous deprivation of property, repulsive to the common sense of
man."33 Indeed, "voluntariness does notmake the stipulation on [an unconscionable] interest
valid."34

As exhaustibly discussed,no monetary interest isdue Rolando pursuant to Article 1956.The CA

thus correctly adjudged that the excess interest payments made by L&J should be applied to
its principal loan. As computed by the CA, Rolando is bound to return the excess payment of
₱226,000.00 to L&J following the principle of solutio indebiti.35

However, pursuant to Central Bank Circular No. 799 s. 2013 which took effect on July 1,
2013,36 the interest imposed by the CA must be accordingly modified. The ₱226,000.00 which
Rolando is ordered to pay L&J shall earn an interest of 6% per annumfrom the finality of this
Decision.

CATALINA F. ISLA, ELIZABETH ISLA, AND GILBERT F. ISLA, Petitioners, vs.

GENEVIRA P. ESTORGA, Respondent. G.R. No. 233974, July 02, 2018.

PERLAS-BERNABE, J.

Anent monetary interest, the parties are free to stipulate their preferred rate. However, courts
are allowed to equitably temper interest rates that are found to be excessive, iniquitous,
unconscionable, and/or exorbitant. In such, the legal rate of interest prevailing at the time the
agreement was entered into is applied by the Court. In this case, the stipulated interest of 10%
per month was found to be unconscionable, and thus, the courts a quo struck down the same
and pegged a new monetary interest of 12% per annum, which was the prevailing legal rate of
interest for loans and forbearances of money at the time the loan was contracted on December
6, 2004.

Facts:

On December 6, 2004, petitioners obtained a loan in the amount of P100,000.00 from

respondent, payable anytime from six months to one year and subject to interest at the rate of
10% per month, payable on or before the end of each month. As security, a real estate
mortgage was constituted over a land located in Pasay City registered under the name of
Edilberto Isla, who is married to Catalina.

When petitioners failed to pay the said loan, respondent sought assistance from the barangay,
and consequently, a Kasulatan ng Pautang dated December 8, 2005 was executed.
Petitioners, however, failed to comply with its terms, prompting respondent to send a demand
letter dated November 16, 2006. Once more, petitioners failed to comply with the demand,
causing respondent to file a Petition for Judicial Foreclosure against them before the RTC.
Petitioners maintained that the subject mortgage was not a real estate mortgage but a mere

18
loan, and that the stipulated interest of 10 per month was exorbitant and grossly
unconscionable.

They also insisted that since petitioners were not the absolute owners of the subject property -
as the same was allegedly owned by Edilberto – they could not have validly constituted the
subject mortgage thereon.

The RTC granted the Petition for Judicial Foreclosure and directed petitioners to pay
respondent the amounts of P100,000.00 with twelve percent 12% interest per annum from
December 2007 until fully paid and P20,000.00 as attorney's fees. In the event that petitioners
fail to pay the said amounts within a period of 6 months from receipt of a copy of the RTC
Decision, it held that the subject property will be foreclosed and sold at public auction to satisfy
the mortgage debt, and the surplus, if any, will be delivered to petitioners with reasonable
interest under the law.

Aggrieved, respondent appealed to the CA. The CA affirmed with modification the RTC
Decision, and accordingly, ordered petitioners to pay respondent P100,000.00 representing
the principal of the loan obligation; an amount equivalent to 12% of P100,000.00 computed per
year from November 16, 2006 (as distinguished from the RTC decision which fixed the start
date at December 2007) until full payment, representing interest on the loan; an amount
equivalent to 6% of the sums due computed from the finality of the CA Decision until full
payment, representing legal interest; and P20,000.00 as attorney's fees.

It likewise held that the stipulated interest of ten percent 10% per month on the real estate
mortgage is exorbitant. In their petition, petitioners contest the interest imposed on the
principal amount of the loan at the rate of twelve percent 12% per annum from the date of
extrajudicial demand until full payment. In this regard, they argue that pursuant to ECE Realty
and Development, Inc. v. Hernandez the applicable interest rate should only be six percent
6%.

Issue:
Whether or not the CA erred in awarding 12% interest on the principal obligation until full
payment. NO.

Ruling:

There are two types of interest, namely, monetary interest and compensatory interest.

Monetary interest is the compensation fixed by the parties for the use or forbearance of
money. On the other hand, compensatory interest is that imposed by law or by the courts as
penalty or indemnity for damages.

Accordingly, the right to recover interest arises only either by virtue of a contract (monetary
interest) or as damages for delay or failure to pay the principal loan on which the interest is
demanded (compensatory interest). Anent monetary interest, the parties are free to stipulate
their preferred rate.

However, courts are allowed to equitably temper interest rates that are found to be excessive,
iniquitous, unconscionable, and/or exorbitant, such as stipulated interest rates of three percent
(3%) per month or higher. In such instances, it is well to clarify that only the unconscionable
interest rate is nullified and deemed not written in the contract; whereas the parties' agreement
on the payment of interest on the principal loan obligation subsists. It is as if the parties failed
to specify the interest rate to be imposed on the principal amount, in which case the legal rate
of interest prevailing at the time the agreement was entered into is applied by the Court.

This is because, according to jurisprudence, the legal rate of interest is the presumptive
reasonable compensation for borrowed money. In this case, petitioners and respondent
entered into a loan obligation and clearly stipulated for the payment of monetary interest.
However, the stipulated interest of 10% per month was found to be unconscionable, and thus,
the courts a quo struck down the same and pegged a new monetary interest of 12% per

19
annum, which was the prevailing legal rate of interest for loans and forbearances of money at
the time the loan was contracted on December 6, 2004. Applying this, the loan obtained by
respondents from petitioners is deemed subjected to conventional interest at the rate of 12%
per annum, the legal rate of interest at the time the parties executed their agreement.

Moreover, should conventional interest still be due as of July 1, 2013, the rate of 12% per
annum shall persist as the rate of conventional interest. Stated otherwise, the legal rate of
interest, when applied as conventional interest, shall always be the legal rate at the time the
agreement was executed and shall not be susceptible to shifts in rate.

The Court rules that the CA correctly imposed a monetary interest rate of 12% per annum on
the principal loan obligation of petitioners to respondent, reckoned from the date of
extrajudicial demand until finality of this ruling. Petitioner’s reliance on ECE Realty is misplaced
because unlike in this case, the amount due therein does not partake of a loan obligation or
forbearance of money.

G.R. No. 220826, March 27, 2019

HUN HYUNG PARK, PETITIONER, v. EUNG WON* CHOI, RESPONDENT.

The present petition arose from a complaint8 for estafa and violation of Batas Pambansa Blg.
(B.P.) 22 filed by Park against Choi.

Facts:

On June 28, 1999, Park, who was engaged in the business of lending money, extended a loan
to Choi in the amount of P1,875,000.00.9 

As payment for the loan, Choi issued PNB Check No. 0077133 10 in the same amount dated
August 28, 1999 in favor of Park.11 

On October 5, 1999, Park attempted to deposit the check to his bank account but the same
was returned to him dishonored for having been drawn against a closed account. 12 Thereafter,
Park, through counsel, sent a letter to Choi on May 11, 2000 informing the latter of the
dishonored check.13 

Based on the registry return receipt attached to Park's Complaint-Affidavit,14 and as stipulated

by Choi during the pre-trial conference,15 Choi received the demand letter through a certain Ina
Soliven.16 Nevertheless, Choi failed to resolve the dishonored check.

20
With the loan remaining unpaid, Park instituted a complaint against Choi for estafa and
violation of B.P. 22.

On arraignment,20 Choi pleaded not guilty.21 After the pre-trial conference and the prosecution's
presentation of evidence, Choi filed a Motion for Leave of Court to File Demurrer to
Evidence along with his Demurrer. In his Demurrer, Choi asserted that the prosecution failed to
prove that he received the notice of dishonor.22 Thus, Choi argued that since receipt of the
notice of dishonor was not proven, then the presumption of knowledge of insufficiency of funds
— an element for conviction of violation of B.P. 22 — did not arise.

The Metropolitan Trial Court of Makati City - Branch 65 (MeTC), held Choi civilly liable to pay
Park the amount of One Million Eight Hundred Seventy-Five Thousand Pesos (P1,875,000.00)
plus interest of 12% percent per annum from August 31, 2000 until the whole amount is paid,
P200,000.00 as attorney's fees, and P9,322.25 as reimbursement for filing fees.7

The Regional Trial Court of Makati City - Branch 142 affirmed the decision of MeTC (Br 65).

Aggrieved, Choi filed a petition for review60 under Rule 42 of the Rules of Court with the CA.

The CA reversed the RTC -Branch 142 Decision.

Issue:

Whether the CA committed any reversible error in the issuance of the assailed Decision dated
March 30, 2015 and Resolution dated September 30, 2015.

(In a Resolution dated September 30, 2015, the CA denied Park's Motion for
Reconsideration69 for lack of merit.)

(In its Decision dated March 30, 2015, the CA reversed the RTC -Branch 142 Decision.)

Ruling:

The petition is meritorious.

The Court finds that the CA erred in reversing the RTC - Branch 142) Decision dated
December 23, 2011 and Order dated March 28, 2012.

Based on the records, it is clear that Choi is liable to Park for the loan extended by
the latter to him. This is so because, Choi in his Counter-Affidavit, already admitted that
he borrowed money from Park, arguing only regarding the extent of his liability — i.e.,
that what he owed was P1,500,000.00 and not P1,875,000.00.

Thus, Choi himself having admitted liability, the only question that remains for the Court to
resolve is the extent of such liability.

In this regard, the Court finds that Choi is liable to pay Park the face value of the check in the
amount of P1,875,000.00 as principal. The Court notes that the only bases relied upon by Choi
in support of his contention that P1,500,000.00 is the principal and P375,000.00 to be the
interest are his own allegations in his Counter-Affidavit. Without more, Choi's bare allegations
on the terms of the loan fail to persuade. This is so because in accordance with Article 1956 of
the Civil Code, no interest shall be due unless it has been expressly stipulated in
writing.92 Here, without further proof of any express agreement that P375,000.00 of the
P1,875,000.00 pertains to interest, the Court is predisposed, based on the facts of the case, to
rule that the entire principal amount owed by Choi to Park is the face value of the check, or
P1,875,000.00.

21
In an attempt to further minimize liability, Choi raises the defense of payment and insists that
he already paid the sum of P1,590,000.00 (P1,500,000.00 as principal and P90,000.00 as
interest), and that the remaining amount that he owes Park is P285,000.00.

Yet, other than mere allegation of payment of P1,590,000.00, Choi has adduced no evidence
to prove the fact of payment. A party claiming that an obligation has been discharged by
payment has the burden of proving the same.

As against Choi's allegation of payment, Park's categorical testimony that Choi owed him
P1,875,000.00, coupled with the presentation of the subject check constituting evidence of
indebtedness and absent evidence on the part of Choi to the contrary, leads to the conclusion
that Choi in fact owes Park the full amount of P1,875,000.00.98

More importantly, Park, in his Reply-Affidavit, categorically testified that although Choi gave
him a check for P1,590,000.00, that amount was not in payment of PNB Check No. 0077133
(the P1,875,000.00 check dated June 28,1999), but was for the payment of PNB Check No.
0077134 in the amount of P750,000.00 dated August 28, 1999 and PNB Check No. 0008013
in the amount of P700,000.00 dated September 7, 1999.99

Given these facts, as correctly observed by the RTC - Branch 142, if Choi really did make a
partial payment on the loan, then he would have taken the check back as debtors would in the
ordinary course of business.100 Quite the contrary, the check for P1,875,000.00 remained in
Park's possession who continued to make demands on the basis of the check.

Finally, even if the Court were to indulge Choi's claim that he handed Park a check for
P1,590,000.00, it has not been shown, much less proven, to the satisfaction of the Court
whether those payments were made specifically by Choi for the purpose of discharging his
loan obligations to Park.

Given the foregoing, the Court therefore finds that: first, Choi was not deprived of due process,
and was in fact, given more than ample opportunity to present his case; and second, that, as
correctly observed by the MeTC and subsequently affirmed by the RTC - Branch 142, Choi is
liable to pay Park the amount P1,875,000.00 along with its corresponding legal interest.

A final note on interest. There are two types of interest - monetary interest and
compensatory interest.102 Interest as a compensation fixed by the parties for the use or
forbearance of money is referred to as monetary interest,103 while interest that may be imposed
by law or by courts as penalty for damages is referred to as compensatory interest. 104 Right to
interest therefore arises only by virtue of a contract or by virtue of damages for delay or
failure to pay the principal loan on which interest is demanded. 105

Inasmuch as the parties did not execute a written loan agreement, and consequently, did not
stipulate on the imposition of interest, Article 1956 of the Civil Code, which states that "[n]o
interest shall be due unless it has been expressly stipulated in writing," operates to
preclude the imposition and running of monetary interest on the principal. In other words, no
monetary interest having been agreed upon between the parties, none accrues in favor of
Park.

Nevertheless, the moment a debtor incurs in delay in the payment of a sum of money, the
creditor is entitled to the payment of interest as indemnity for damages arising out of that
delay. Article 2209 of the Civil Code provides that: "[i]f the obligation consists in the
payment of sum of money, and the debtor incurs in delay, the indemnity for damages,
there being no stipulation to the contrary, shall be the payment of the interest agreed
upon, and in the absence of stipulation, the legal interest, which is six percent (6%) per
annum."

22
Consequently, by operation of Article 2209 of the Civil Code, Choi becomes liable to pay
Park compensatory interest to indemnify Park for the damages the latter suffered as a result
of Choi's delay in the payment of the loan. Delay in this case, pursuant to Article 1169 of the
Civil Code,106 begins to run from the time Park extrajudicially demanded from Choi the
fulfillment of his loan obligation that is, on May 19, 2000. There being no stipulation as to the
rate of compensatory interest, the rate is six percent (6%) per annum pursuant to Article 2209
of the Civil Code.

To be clear, however, Article 2212 of the Civil Code, which provides that "[i]nterest due shall
earn legal interest from the time it is judicially demanded, although the obligation may
be silent upon this point," does not apply because "interest due" in Article 2212 refers only
to accrued interest. A look at the counterpart provision of Article 2212 of the new Civil Code,
Article 1109 of the old Civil Code, supports this. It provides:

Art. 1109. Accrued interest shall draw interest at the legal rate from the time
the suit is filed for its recovery, even if the obligation should have been silent
on this point.

In commercial transactions the provisions of the Code of Commerce shall

govern.

Pawnshops and savings banks shall be governed by their special regulations.

(Emphasis and underscoring supplied)

In interpreting the above provision of the old Civil Code, the Court in Zobel v. City of
Manila,107 ruled that Article 1109 applies only to conventional obligations containing a
stipulation on interest. Similarly, Article 2212 of the new Civil Code contemplates, and
therefore applies, only when there exists stipulated or conventional interest.108

Finally, in accordance Eastern Shipping Lines, Inc. v. Court of Appeals109 as further clarified by

the Court in Nacar v. Gallery Frames,110 in the absence of an express stipulation as to the rate
of interest that would govern the parties, the rate of legal interest for loans or forbearance of
any money, goods or credits and the rate allowed in judgments is twelve percent (12%) per
annum computed from default (i.e., the date of judicial or extrajudicial demand). With the
issuance of Bangko Sentral ng Pilipinas (BSP-MB) Circular No. 799 (s. 2013), said rate of
12% per annum applies until June 30, 2013, and, from July 1, 2013, the new rate of six percent
(6%) per annum applies. Finally, when the judgment of the court awarding a sum of money
becomes final and executory, the rate of legal interest shall be 6%  per annum from such
finality until its satisfaction, the interim period being deemed to be by then an equivalent to a
forbearance of credit.111

23
G.R. No. 173227  January 20, 2009
SEBASTIAN SIGA-AN, Petitioner, 
ALICIA VILLANUEVA, Respondent.

Summary: Respondent filed a complaint for sum of money against petitioner. Respondent
claimed that petitioner approached her inside the PNO and offered to loan her the amount of
P540,000.00 of which the loan agreement was not reduced in writing and there was no
stipulation as to the payment of interest for the loan. Respondent issued a check worth
P500,000.00 to petitioner as partial payment of the loan.  She then issued another check in the
amount of P200,000.00 to petitioner as payment of the remaining balance of the loan of which
the excess amount of P160,000.00 would be applied as interest for the loan.  Not satisfied with
the amount applied as interest, petitioner pestered her to pay additional interest and
threatened to block or disapprove her transactions with the PNO if she would not comply with
his demand. Thus, she paid additional amounts in cash and checks as interests for the loan. 
She asked petitioner for receipt for the payments but was told that it was not necessary as
there was mutual trust and confidence between them. According to her computation, the total
amount she paid to petitioner for the loan and interest accumulated to P1,200,000.00.

The RTC rendered a Decision holding that respondent made an overpayment of her
loan obligation to petitioner and that the latter should refund the excess amount to the former. 
It ratiocinated that respondent’s obligation was only to pay the loaned amount of P540,000.00,
and that the alleged interests due should not be included in the computation of respondent’s
total monetary debt because there was no agreement between them regarding payment of
interest.  It concluded that since respondent made an excess payment to petitioner in the
amount of P660,000.00 through mistake, petitioner should return the said amount to
respondent pursuant to the principle of solutio indebiti. Also, petitioner should pay moral
damages for the sleepless nights and wounded feelings experienced by respondent.  Further,
petitioner should pay exemplary damages by way of example or correction for the public good,
plus attorney’s fees and costs of suit.

CHICO-NAZARIO, J.

Facts:

On 30 March 1998, respondent Alicia Villanueva filed a complaint 5 for sum of money against
petitioner Sebastian Siga-an before the Las Pinas City Regional Trial Court. Respondent
alleged that she was a businesswoman engaged in supplying office materials and equipments
to the Philippine Navy Office (PNO), while petitioner was a military officer and comptroller of
the PNO from 1991 to 1996.

Villanueva claimed that sometime in 1992, petitioner Siga-an approached her inside the PNO
and offered to loan her the amount of ₱540,000.00. Since she needed capital for her business
transactions with the PNO, she accepted petitioner’s proposal. The loan agreement was not
reduced in writing. Also, there was no stipulation as to the payment of interest for the loan.

24
On 31 August 1993, respondent issued a check worth ₱500,000.00 to petitioner as partial
payment of the loan. On 31 October 1993, she issued another check in the amount
of ₱200,000.00 to petitioner as payment of the remaining balance of the loan. Petitioner told
her that since she paid a total amount of ₱700,000.00 for the ₱540,000.00 worth of loan, the
excess amount of ₱160,000.00 would be applied as interest for the loan.

Not satisfied with the amount applied as interest, petitioner pestered her to pay additional
interest. Petitioner threatened to block or disapprove her transactions with the PNO if she
would not comply with his demand. As all her transactions with the PNO were subject to the
approval of petitioner as comptroller of the PNO, and fearing that petitioner might block or
unduly influence the payment of her vouchers in the PNO, she conceded. Thus, she paid
additional amounts in cash and checks as interests for the loan. She asked petitioner for
receipt for the payments but petitioner told her that it was not necessary as there was mutual
trust and confidence between them. According to her computation, the total amount she paid
to petitioner for the loan and interest accumulated to ₱1,200,000.00.7

Thereafter, respondent consulted a lawyer regarding the propriety of paying interest on the
loan despite absence of agreement to that effect. Her lawyer told her that petitioner could not
validly collect interest on the loan because there was no agreement between her and petitioner
regarding payment of interest. Since she paid petitioner a total amount of ₱1,200,000.00 for
the ₱540,000.00 worth of loan, and upon being advised by her lawyer that she made
overpayment to petitioner, she sent a demand letter to petitioner asking for the return of the
excess amount of ₱660,000.00. Petitioner, despite receipt of the demand letter, ignored her
claim for reimbursement.

Respondent prayed that the RTC render judgment ordering petitioner to pay respondent
(1) ₱660,000.00 plus legal interest from the time of demand; (2) ₱300,000.00 as moral
damages; (3) ₱50,000.00 as exemplary damages; and (4) an amount equivalent to 25%
of ₱660,000.00 as attorney’s fees.

Petitioner insisted that there was no overpayment because respondent admitted in the latter’s
promissory note that her monetary obligation as of 12 September 1994 amounted
to ₱1,240,000.00 inclusive of interests. He argued that respondent was already estopped from
complaining that she should not have paid any interest, because she was given several times
to settle her obligation but failed to do so. He maintained that to rule in favor of respondent is
tantamount to concluding that the loan was given interest-free. Based on the foregoing
averments, he asked the RTC to dismiss respondent’s complaint.

Issue:

1. Whether or not interest was due to petitioner;  NO.

2. Whether the principle of solutio indebiti applies to the case at bar. YES.

Held:

(1) No. Compensatory interest is not chargeable in the instant case because it was not duly
proven that respondent defaulted in paying the loan and no interest was due on the loan
because there was no written agreement as regards payment of interest. Article 1956 of the
Civil Code, which refers to monetary interest, specifically mandates that no interest shall be
due unless it has been expressly stipulated in writing.

As can be gleaned from the foregoing provision, payment of monetary interest is allowed only
if: (1) there was an express stipulation for the payment of interest; and (2) the agreement for
the payment of interest was reduced in writing.  The concurrence of the two conditions is
required for the payment of monetary interest. Thus, we have held that collection of interest
without any stipulation therefor in writing is prohibited by law.  

It appears that petitioner and respondent did not agree on the payment of interest for the loan.
Neither was there convincing proof of written agreement between the two regarding the

25
payment of interest. As earlier discussed, monetary interest is due only if there was
an express stipulation in writing for the payment of interest.

There are instances in which an interest may be imposed even in the absence of express
stipulation, verbal or written, regarding payment of interest. Article 2209 of the Civil Code
states that if the obligation consists in the payment of a sum of money, and the debtor incurs
delay, a legal interest of 12% per annum may be imposed as indemnity for damages if no
stipulation on the payment of interest was agreed upon. Likewise, Article 2212 of the Civil
Code provides that interest due shall earn legal interest from the time it is judicially demanded,
although the obligation may be silent on this point.

All the same, the interest under these two instances may be imposed only as a penalty or
damages for breach of contractual obligations. It cannot be charged as a compensation for the
use or forbearance of money. In other words, the two instances apply only to compensatory
interest and not to monetary interest.29 The case at bar involves petitioner’s claim for monetary
interest.

Further, said compensatory interest is not chargeable in the instant case because it was not
duly proven that respondent defaulted in paying the loan. Also, as earlier found, no interest
was due on the loan because there was no written agreement as regards payment of interest.

(2) Petitioner cannot be compelled to return the alleged excess amount paid by respondent as
interest.

Under Article 1960 of the Civil Code, if the borrower of loan pays interest when there has been
no stipulation therefor, the provisions of the Civil Code concerning solutio indebiti shall be
applied.

Article 2154 of the Civil Code explains the principle of solutio indebiti. Said provision provides
that if something is received when there is no right to demand it, and it was unduly delivered
through mistake, the obligation to return it arises. 

In such a case, a creditor-debtor relationship is created under a quasi-contract whereby the

payor becomes the creditor who then has the right to demand the return of payment made by
mistake, and the person who has no right to receive such payment becomes obligated to
return the same. 

The quasi-contract of solutio indebiti harks back to the ancient principle that no one shall
enrich himself unjustly at the expense of another. 

The principle of solutio indebiti applies where (1) a payment is made when there exists no
binding relation between the payor, who has no duty to pay, and the person who received the
payment; and (2) the payment is made through mistake, and not through liberality or some
other cause. 

We have held that the principle of solutio indebiti applies in case of erroneous payment of
undue interest. 

Moreover, Article 2232 of the Civil Code states that in a quasi-contract, such as solutio indebiti,
exemplary damages may be imposed if the defendant acted in an oppressive
manner. Petitioner acted oppressively when he pestered respondent to pay interest and
threatened to block her transactions with the PNO if she would not pay interest. This forced
respondent to pay interest despite lack of agreement thereto. 

It was duly established that respondent paid interest to petitioner. Respondent was under no
duty to make such payment because there was no express stipulation in writing to that effect.
There was no binding relation between petitioner and respondent as regards the payment of
interest. The payment was clearly a mistake. Since petitioner received something when there
was no right to demand it, he has an obligation to return it.

26
Finally, the RTC and the Court of Appeals imposed a 12% rate of legal interest on the amount
refundable to respondent computed from 3 March 1998 until its full payment. This is
erroneous.

We held in Eastern Shipping Lines, Inc. v. Court of Appeals, 45 that 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 rate of 6% per annum. We further declared that
when the judgment of the court awarding a sum of money becomes final and executory, the
rate of legal interest, whether it is a loan/forbearance of money or not, shall be 12% per annum
from such finality until its satisfaction, this interim period being deemed equivalent to a
forbearance of credit.

In the present case, petitioner’s obligation arose from a quasi-contract of solutio indebiti and
not from a loan or forbearance of money. Thus, an interest of 6% per annum should be
imposed on the amount to be refunded as well as on the damages awarded and on the
attorney’s fees, to be computed from the time of the extra-judicial demand on 3 March
1998,46 up to the finality of this Decision. In addition, the interest shall become 12% per annum
from the finality of this Decision up to its satisfaction.

27