G.R. No.

103576 August 22, 1996

ACME SHOE, RUBBER & PLASTIC CORPORATION and CHUA PAC, petitioners,
vs.
HON. COURT OF APPEALS, BANK OF THE PHILIPPINES and REGIONAL SHERIFF
OF CALOOCAN CITY, respondents.

FACTS:

Chua Pac, represent Acme Shoe, Rubber & Plastic Corporation, executed a
chattel mortgage in favor of private respondents. The mortgage stood by way of security
for petitioner's corporate loan of three million pesos (P3,000,000.00). In their agreement,
Producers Bank made a provision which states all the conditions about their contract.
Within the due time, the loan of P3,000,000.00 was paid by petitioner corporation.
Subsequently, in 1981, it obtained from respondent bank additional financial
accommodations totalling P2, 700,000.00. These borrowings were on due date also fully
paid.

On January 10 and 11, 1984, the bank yet again extended to petitioner
corporation a loan of one million pesos (P1,000,000.00) covered by four promissory
notes for P250,000.00 each. But, due to financial crisis, the loan was not settled until its
maturity. So, the Bank applied for the foreclosure of the chattel mortgage with the sheriff
of Caloocan City, prompting Acme Corp., to immediately file an action for injunction, with
damages and a prayer for a writ of preliminary injunction. But he Court denied
petitioner's first motion for reconsideration they filed but granted a second motion for
reconsideration, thereby reinstating the petition and requiring private respondent to
comment thereon.

ISSUE:
Would it be valid to have a clause in a chattel mortgage to extend its coverage to
obligations yet to be contracted or incurred?

RULING:
No. Chattel Mortgage does apply only once.

Chattel mortgage can cover only obligations existing at the time mortgage is
constituted provided under Act 1508 Chattel Mortgage Law. Refusal on the part of the
borrower to execute the agreement so as to cover the after-incurred obligation can
constitute an act of default on the part of the borrower of the financing agreement
whereon the promise is written but, of course, the remedy of foreclosure can only cover
the debts extant at the time of constitution and during the life of the chattel mortgage
sought to be foreclosed.

In the chattel mortgage here involved, the only obligation specified in the chattel
mortgage contract was the P3,000,000.00 loan which petitioner corporation later fully
paid.

Thus, by virtue of Section 3 of the Chattel Mortgage Law, the payment of the
obligation automatically rendered the chattel mortgage void or terminated.
G.R. No. 59255 December 29, 1995

OLIVIA M. NAVOA and ERNESTO NAVOA, petitioners,

vs.
COURT OF APPEALS, TERESITA DOMDOMA and EDUARDO
DOMDOMA, respondents.

FACTS:

Respondents Domdoma filed with the Regional Trial Court of Manila an action
against petitioners for collection of various sums of money based on loans obtained by
Sps. Navoa.

The instant petition alleges that respondent court erred: (a) in not dismissing the
appeal for lack of appellate jurisdiction over the case which involves merely a question of
law; (b) in not affirming the order of dismissal for lack of cause of action; and, (c) in
holding that private respondents have a cause of action under the second to the sixth
causes of action of the complaint.

The first instance is when Teresita gave Olivia a diamond ring valued at
15,000.00 which was secured by a PCIB check under the condition that if the ring was
not returned within 15 days from August 15, 1977 the ring is considered sold. Teresita
attempted to deposit the check on November 1977 but the check was not honoured for
lack of funds. After this instance, there were other loans of various amounts that were
extended by Teresita to Olivia.

ISSUE:
Was the decision of the RTC to dismiss the case due to having no cause of
action valid?

RULING:
No. The decision is not valid.

In determining the existence of a cause of action, only the statements in the

complaint may properly be considered. Lack of cause of action must appear on the face
of the complaint and its existence may be determined only by the allegations of the
complaint, consideration of other facts being proscribed and any attempt to prove
extraneous circumstances not being allowed. A cause of action is the fact or
combination of facts which affords a party a right to judicial interference in his behalf.

Olivia and Ernesto Navoa failed to make good the checks that were issued as
payment for their obligations. The continuing refusal of Olivia and Ernesto Navoa to
comply with the demand of payment shows the existence of a cause of action.

Hence, if the allegations in a complaint furnish sufficient basis by which the

complaint can be maintained, the same should not be dismissed regardless of the
defense that may be assessed by the defendants.
G.R. No. 133632               February 15, 2002
BPI INVESTMENT CORPORATION, petitioner,
vs.
HON. COURT OF APPEALS and ALS MANAGEMENT & DEVELOPMENT
CORPORATION, respondents.

FACTS:

In March 1981, ALS and Litonjua executed a mortgage deed containing

stipulations with the provision that payment of the monthly amortization for the payment
of the land sold to them shall commence on May 1, 1981. ALS and Litonjua updated
Roa’s arrearages by paying BPIIC the sum of ₱190,601.35. This reduced Roa’s principal
balance to ₱457,204.90 which, in turn, was liquidated when BPIIC applied thereto the
proceeds of private respondents’ loan of ₱500,000.

But, In June 1984, BPIIC instituted foreclosure proceedings against private

respondents on the ground that they failed to pay the mortgage indebtedness. Petitioner
claims that a contract of loan is a consensual contract, and a loan contract is perfected
at the time the contract of mortgage is executed.

But ALS and Litonjua filed Civil Case No. 52093 against BPIIC. They alleged,
among others, that they were not in arrears in their payment, but in fact made an
overpayment as of June 30, 1984. Therefore, there was no basis for BPIIC to extra
judicially foreclose the mortgage and cause the publication in newspapers concerning
private respondents’ delinquency in the payment of their loan.

ISSUE:
Is the contract of loan is a consensual contract?

RULING:
No. The contract is not a Consensual Contract.

A loan contract is not a consensual contract but a real contract. It is perfected

only upon the delivery of the object of the contract. Based on Article 1934 of the Civil
Code, a simple loan is perfected upon the delivery of the object of the contract, hence a
real contract.

In this case, even though the loan contract was signed on March 31, 1981, it was
perfected only on September 13, 1982, when the full loan was released to private
respondents. A contract of loan involves a reciprocal obligation, wherein the obligation or
promise of each party is the consideration for that of the other. As averred by private
respondents, the promise of BPIIC to extend and deliver the loan is upon the
consideration that ALS and Litonjua shall pay the monthly amortization commencing on
May 1, 1981, one month after the supposed release of the loan. It is a basic principle in
reciprocal obligations that neither party incurs in delay, if the other does not comply or is
not ready to comply in a proper manner with what is incumbent upon him.

Thus, the contract is real contract for it was perfected upon the delivery of the
object.
G.R. No. 189871 August 13,2013

DARIO NACAR, PETITIONER,
vs.
GALLERY FRAMES AND/OR FELIPE BORDEY, JR., RESPONDENTS.

FACTS:

Dario Nacar filed a complaint for constructive dismissal before the Arbitration
Branch of the National Labor Relations Commission (NLRC) against respondents
Gallery Frames (GF) and/or Felipe Bordey, Jr. And the Labor Arbiter rendered a
Decision3 in favor of petitioner and found that he was dismissed from employment
without a valid or just cause. 

Petitioner filed a Motion for Correct Computation, praying that his backwages be
computed from the date of his dismissal up to the finality of the Resolution of the
Supreme Court on May 27, 2002. Petitioner then moved that a writ of execution be
issued ordering respondents to pay him the original amount as determined by the Labor
Arbiter. Then after, petitioner filed a Manifestation and Motion praying for the re-
computation of the monetary award to include the appropriate interests.

Thus, respondents insist that since the decision clearly stated that the separation
pay and backwages are "computed only up to [the] promulgation of this decision," and
considering that petitioner no longer appealed the decision, petitioner is only entitled to
the award as computed by the Labor Arbiter in the total amount of ₱158,919.92. 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:
Is the petitioner entitled payment of legal interest?

RULING:
Yes. Petitioner is entitled for legal interest.

In the landmark case of Eastern Shipping Lines, Inc. v. Court of Appeals

provides that 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.

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.
 Therefore, the interest shall pay the just interest therein.

G.R. No. 194201               November 27, 2013

SPOUSES BAYANI H. ANDAL AND GRACIA G. ANDAL, Petitioners,

vs.
PHILIPPINE NATIONAL BANK REGISTER OF DEEDS OF BATANGAS CITY JOSE
C. CORALES, Respondents.

FACTS:
Petitioners obtained a loan from PNB in the amount of ₱21,805,000.00, for 12
months with promissory notes to pay PNB the principal loan with varying interest rates
per interest period agreeing that its rate is changing depending on the rates prescribed
by law or the Monetary Board or of the bank. Petitioner executed in favour of PNB a real
estate mortgage using as collateral five (5) parcels of land including all improvements
therein, all situated in Batangas City.

PNB advised petitioners to pay their loan, otherwise they will declare it due and
demandable. They paid 14.8M to avoid foreclosure. PNB executed a release of real
estate mortgage over two of the parcels of land. Despite payment, PNB foreclosed the
remaining real estate mortgage over the three parcels of land and a public auction sale
resulted in favor if the respondent bank as the winner bidder.

Petitioners filed a complaint for annulment of mortgage, sheriff’s certificate of

sale, declaration of nullity of the increased interest rated and penalty charges plus
damages. Further, spouses Andal alleged that the unilateral increase of interest rates
and exorbitant penalty charges are akin to unjust enrichment at their expense, giving
PNB no right to foreclose their mortgaged properties.

ISSUE:
Whether or not the interest would be imposed to the loan.

RULING:
Yes. Interest is imposed to the loan.

It is clear from the contract of loan between petitioners-spouses and respondent

bank that petitioners-spouses, as borrowers, agreed to the payment of interest on their
loan obligation. Interest should be computed only from the finality of the judgment
declaring the foreclosure sale null and void, on account of the exorbitant rate of interest
imposed on their loan. The stipulation requiring petitioners-spouses to pay interest on
their loan remains valid and binding.

Since the interest rates are null and void, bank has no right to foreclose
Petitioner’s properties and any foreclosure thereof is illegal. Accordingly, the rate of
interest of 12% per annum on petitioners-spouses’ obligation shall apply from 20 May
2011 – the date of default – until 30 June 2013 only. From 1 July 2013 until fully paid,
the legal rate of 6% per annum shall be applied to petitioners-spouses’ unpaid
obligation.
 They are, therefore, liable to pay interest from the time they defaulted in payment
until their loan is fully paid.

G.R. No. 187678               April 10, 2013

SPOUSES IGNACIO F. JUICO and ALICE P. JUICO, Petitioners,

vs.
CHINA BANKING CORPORATION, Respondent.

FACTS:
Ignacio F. Juico and Alice P. Juico obtained a loan from China Banking
Corporation (respondent) as evidenced by two Promissory Notes both dated October 6,
1998 for the sums of 6,216,000 and ₱4, 139,000, respectively. The loan was secured by
a Real Estate Mortgage (REM) over petitioners’ property located at 49 Greensville St.,
White Plains, Quezon City. When petitioners failed to pay the monthly amortizations due,
respondent demanded the full payment of the outstanding balance with accrued monthly
interests and received a demand letter for the payment of balances.

Ms. Annabelle Cokai Yu, its Senior Loans Assistant stated that as of now the
outstanding balance of petitioners wasP15,190,961.48. Yu reiterated that the interest
rate changes every month based on the prevailing market rate. She notified petitioners
of the prevailing rate by calling them monthly.

ISSUE:
Whether the interest rates imposed by CBC are valid.

RULING:
No. Interest rates imposed are invalid.

The principle of mutuality of contracts is expressed in Article 1308 of the Civil

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

Thought the agreement on the changes of rates is valid, the actual rates applied
are invalid for it is needed to inform the parties through written notification and the same
with the parties, they agree with the changes. This Court has long recognized that there
is nothing inherently wrong with escalation clauses which are valid stipulations in
commercial contracts to maintain fiscal stability and to retain the value of money in long
term contracts. It is now settled that an escalation clause is void where the creditor
unilaterally determines and imposes an increase in the stipulated rate of interest without
the express conformity of the debtor. Such unbridled right given to creditors to adjust the
interest independently and upwardly would completely take away from the debtors the
right to assent to an important modification in their agreement and would also negate the
element of mutuality in their contracts.
 Thus, modifications in the rate of interest for loans pursuant to an escalation
clause must be the result of an agreement between the parties. Unless such important
change in the contract terms is mutually agreed upon, it has no binding effect.

G.R. No. 201264

FLORANTE VITUG, Petitioner,
vs.
EVANGELINE A. ABUDA, Respondent.

FACTS:
Abuda loaned P250,000.00 to Vitug and his wife, Narcisa Vitug with a 10%
interest. As security for the loan, Vitug mortgaged to Abuda his property. The property was
then subject of a conditional Contract to Sell between the National Housing Authority and
Vitug.

Later on, 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.

Spouses Vitug failed to pay their loans despite Abuda's demands. So Abuda filed a
complained for the Foreclosure of the Property in the RTC of Manila with a decision in favour
to him, but then Sps. Vitug appealed to the CA contending that the contract was void so the
CA partially granted the petition but Vitug then again failed to pay the said obligation within
that 6months and lowered the interest rate into 1% monthly or 12% per annum.

ISSUE:
Is the interest imposed on petitioner’s loan is valid?

RULING:
No. It is invalid.

Article 1306 of the Civil Code limits the freedom to contract to promote public morals,
safety, and welfare. 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 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.

Petitioner obtained the loan out of extreme necessity. As pointed out by

respondent, the property would have been earlier foreclosed by the National Housing
Authority if not for the loan. Moreover, it would be unjust to impose a heavier burden
upon petitioner, who would already be losing his and his family's home. An interest rate is
not inherently conscionable or unconscionable. Interest rates become unconscionable in
light of the context in which they were imposed or applied.

Thus, interest should be reduced to become valid and not unconscionable.